BRADY CORP 10-Q Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Filing date:

02/21/2025


TLDR:

Brady Corporation’s Q2 2025 shows revenue growth driven by acquisitions, but gross and operating margins decreased. The company maintains a strong liquidity position, but acquisition integration and cost management are critical.

ELI5:

Brady, a company that makes safety and identification products, made more money this quarter because they bought other companies. However, it cost them more to make each product, so their profits didn’t increase as much as expected. They still have plenty of cash, but they need to manage their costs carefully.


Accession #:

0000746598-25-000008

Published on

Analyst Summary

  • Revenue growth driven by acquisitions and organic sales.
  • Gross margin percentage decreased due to facility closure costs and acquisition-related inventory adjustments.
  • Operating income decreased due to increased operating expenses related to acquisition integration and reorganization.
  • Cash and cash equivalents decreased, likely due to funding acquisitions.
  • Goodwill increased substantially, reflecting premiums paid for acquisitions.
  • Operating cash flow decreased, aligning with lower net income and increased working capital needs.
  • Current ratio decreased from 2.27 to 1.90
  • Cash ratio decreased from 0.94 to 0.49
  • Debt-to-equity ratio decreased from 0.085 to 0.078
  • Interest coverage ratio decreased from 70.66 to 39.67
  • Revenue grew by 12.1% from the six months ended January 31, 2024, to the six months ended January 31, 2025.
  • Net income decreased by 4.1% from the six months ended January 31, 2024, to the six months ended January 31, 2025.
  • EPS decreased by 2.7% from the six months ended January 31, 2024, to the six months ended January 31, 2025.

Opportunities and Risks

  • Integration Risk: Successfully integrating Gravotech and AB&R is crucial. Failure to do so could negatively impact financial performance.
  • Gross Margin Pressure: Continued pressure on gross margins due to inflationary pressures, supply chain disruptions, and acquisition-related costs.
  • Goodwill Impairment: The significant increase in goodwill could lead to future impairment charges if the acquired businesses do not perform as expected.
  • Macroeconomic Uncertainty: Global economic conditions, including inflation and supply chain issues, pose ongoing risks.
  • Synergies from Acquisitions: Realizing synergies from the acquisitions of Gravotech and AB&R could drive future growth and profitability.
  • Organic Growth Initiatives: Investments in R&D and customer service could lead to increased organic sales growth.
  • Operational Efficiencies: Driving operational excellence and efficiency gains could improve profitability.
  • Strong Liquidity: The company’s strong liquidity position provides flexibility to pursue growth opportunities and manage risks.

Potential Implications

Company Performance

  • Ability to successfully integrate acquisitions will be critical.
  • Managing costs and navigating macroeconomic challenges will impact future performance.
  • Focus on organic growth initiatives to drive sustainable long-term growth.

Stock Price

  • Monitor gross margin trends and management’s efforts to mitigate cost pressures.
  • Track the progress of integrating Gravotech and AB&R and the realization of expected synergies.
  • Regularly evaluate the carrying value of goodwill to assess the risk of potential impairment charges.

SEC Filing Report: Brady Corporation (BRC) 10-Q for Q2 2025

Executive Summary

This report analyzes Brady Corporation’s (BRC) 10-Q filing for the quarterly period ended January 31, 2025. Key findings include a revenue increase driven by acquisitions and organic growth, a slight decrease in gross margin, and a decrease in operating income due to acquisition-related costs and facility closures. The company maintains a strong liquidity position. Overall, the company is performing well, but the integration of acquisitions and cost management will be critical for future profitability. A hold rating is recommended.

Company Overview

Brady Corporation is a global manufacturer and supplier of identification solutions and workplace safety products. The company operates in two segments: Americas & Asia and Europe & Australia. Recent significant developments include the acquisitions of Gravotech and AB&R. The company’s fiscal year ends July 31.

Detailed Analysis

Financial Statement Analysis

Income Statement

| Metric | Q2 2025 (USD Thousands) | Q2 2024 (USD Thousands) | Change (%) | YTD 2025 (USD Thousands) | YTD 2024 (USD Thousands) | Change (%) |
|—————————–|————————–|————————–|————|————————–|————————–|————|
| Net Sales | 356,675 | 322,624 | 10.6 | 733,740 | 654,607 | 12.1 |
| Gross Margin | 175,843 | 162,083 | 8.5 | 365,532 | 333,802 | 9.5 |
| Gross Margin (%) | 49.3 | 50.2 | – | 49.8 | 51.0 | – |
| Operating Income | 51,234 | 53,926 | -5.0 | 110,156 | 113,656 | -3.1 |
| Net Income | 40,334 | 43,628 | -7.5 | 87,117 | 90,869 | -4.1 |
| Basic EPS (Class A) | 0.84 | 0.90 | – | 1.82 | 1.88 | – |
| Diluted EPS (Class A) | 0.83 | 0.90 | – | 1.81 | 1.86 | – |

Key Observations:

* **Revenue Growth:** Significant revenue growth is evident, driven by both organic sales and acquisitions. The acquisitions of Gravotech and AB&R have contributed substantially to the top line.
* **Gross Margin Compression:** The decrease in gross margin percentage is a concern. Management attributes this to facility closure costs and fair value adjustments to inventory from acquisitions.
* **Operating Income Decline:** The decrease in operating income, despite revenue growth, indicates increased operating expenses, likely related to acquisition integration and reorganization.

Balance Sheet

| Metric | January 31, 2025 (USD Thousands) | July 31, 2024 (USD Thousands) |
|—————————-|————————————|———————————–|
| Cash and Cash Equivalents | 138,452 | 250,118 |
| Accounts Receivable (Net) | 201,973 | 185,486 |
| Inventories | 181,810 | 152,729 |
| Total Current Assets | 536,315 | 599,715 |
| Goodwill | 661,288 | 589,611 |
| Total Assets | 1,588,700 | 1,515,569 |
| Total Current Liabilities | 282,350 | 264,682 |
| Long-Term Debt | 87,687 | 90,935 |
| Total Liabilities | 468,232 | 448,911 |
| Total Stockholders’ Equity | 1,120,468 | 1,066,658 |

Key Observations:

* **Cash Decrease:** A significant decrease in cash and cash equivalents is observed, likely due to funding acquisitions.
* **Goodwill Increase:** The substantial increase in goodwill reflects the premiums paid for Gravotech and AB&R. This should be monitored for potential future impairment.
* **Inventory Increase:** The increase in inventories could be related to the acquisitions or anticipation of increased sales.
* **Strong Equity Position:** The company maintains a solid equity position.

Cash Flow Statement

| Metric | YTD 2025 (USD Thousands) | YTD 2024 (USD Thousands) |
|———————————-|————————–|————————–|
| Net Cash from Operating Activities | 63,000 | 98,351 |
| Net Cash Used in Investing Activities | (151,718) | (60,832) |
| Net Cash Used in Financing Activities | (22,343) | (42,964) |

Key Observations:

* **Decreased Operating Cash Flow:** Operating cash flow has decreased, which aligns with the lower net income and increased working capital needs.
* **Investing Activities Dominated by Acquisitions:** The significant cash outflow from investing activities is primarily due to the acquisitions.
* **Financing Activities:** Cash used in financing activities is primarily related to dividend payments.

Management’s Discussion and Analysis (MD&A) Insights

* **Acquisition Integration:** Management emphasizes integrating recent acquisitions to enhance strategic position and accelerate long-term sales growth.
* **Operational Excellence:** A focus on driving operational excellence and sustainable efficiency gains is highlighted.
* **Macroeconomic Challenges:** Management acknowledges the impact of inflationary pressures and supply chain disruptions and is taking actions to mitigate these effects.
* **Organic Growth Investments:** The company is investing in organic growth through enhanced R&D and customer service improvements.

Risks and Opportunities

Risks:

* **Integration Risk:** Successfully integrating Gravotech and AB&R is crucial. Failure to do so could negatively impact financial performance.
* **Gross Margin Pressure:** Continued pressure on gross margins due to inflationary pressures, supply chain disruptions, and acquisition-related costs.
* **Goodwill Impairment:** The significant increase in goodwill could lead to future impairment charges if the acquired businesses do not perform as expected.
* **Macroeconomic Uncertainty:** Global economic conditions, including inflation and supply chain issues, pose ongoing risks.

Opportunities:

* **Synergies from Acquisitions:** Realizing synergies from the acquisitions of Gravotech and AB&R could drive future growth and profitability.
* **Organic Growth Initiatives:** Investments in R&D and customer service could lead to increased organic sales growth.
* **Operational Efficiencies:** Driving operational excellence and efficiency gains could improve profitability.
* **Strong Liquidity:** The company’s strong liquidity position provides flexibility to pursue growth opportunities and manage risks.

Uncommon Metrics

The filing does not explicitly highlight uncommon metrics. However, the discussion of organic sales growth (excluding currency translation, acquisitions, and divestitures) is a useful metric for assessing underlying business performance.

Conclusion and Actionable Insights

Brady Corporation has demonstrated solid revenue growth driven by strategic acquisitions and organic initiatives. However, the decrease in gross margin and operating income raises concerns about profitability. The company’s ability to successfully integrate its acquisitions, manage costs, and navigate macroeconomic challenges will be critical for future performance.

Overall Assessment: Hold

Recommendations:

* **Monitor Gross Margin:** Closely monitor gross margin trends and management’s efforts to mitigate cost pressures.
* **Track Acquisition Integration:** Track the progress of integrating Gravotech and AB&R and the realization of expected synergies.
* **Evaluate Goodwill:** Regularly evaluate the carrying value of goodwill to assess the risk of potential impairment charges.
* **Focus on Organic Growth:** Continue to invest in organic growth initiatives to drive sustainable long-term growth.

Financial Analysis of Brady Corporation (BRC) – Q2 2025

Executive Summary

Brady Corporation’s Q2 2025 results show a mixed performance. Revenue growth is strong, driven by acquisitions, but profitability metrics like gross and operating margins have slightly decreased. The company maintains a solid liquidity position, but cash flow from operations has declined. The acquisition of businesses has significantly impacted the balance sheet and cash flows.

1. Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin

    • Calculation: ($175,843 / $356,675) = 49.3%
    • Trend: The gross profit margin decreased from 50.2% in Q2 2024 to 49.3% in Q2 2025, a decrease of 1.8%.
    • Industry: The industrial sector typically sees gross profit margins between 30% and 50%. Brady’s margin is at the higher end of this range, suggesting a strong pricing strategy or efficient cost management.
  • Operating Profit Margin

    • Calculation: ($51,234 / $356,675) = 14.4%
    • Trend: The operating profit margin decreased from 16.7% in Q2 2024 to 14.4% in Q2 2025, a decrease of 13.8%.
    • Industry: An operating margin of 14.4% is healthy for an industrial company. Top performers in the industry can achieve margins of 15% or higher.
  • Net Profit Margin

    • Calculation: ($40,334 / $356,675) = 11.3%
    • Trend: The net profit margin decreased from 13.5% in Q2 2024 to 11.3% in Q2 2025, a decrease of 16.3%.
    • Industry: A net profit margin of 11.3% is respectable. The decrease may be due to increased expenses or taxes.
  • Return on Assets (ROA)

    • Calculation: Using Net Income for the six months ended January 31, 2025 ($87,117) and average total assets (($1,588,700 + $1,515,569)/2) = $87,117 / $1,552,134.5 = 5.61% (annualized ROA = 5.61% * 2 = 11.22%)
    • Industry: An ROA of 11.22% indicates that Brady is effectively using its assets to generate earnings.
  • Return on Equity (ROE)

    • Calculation: Using Net Income for the six months ended January 31, 2025 ($87,117) and average total equity (($1,120,468 + $1,066,658)/2) = $87,117 / $1,093,563 = 7.97% (annualized ROE = 7.97% * 2 = 15.94%)
    • Industry: An ROE of 15.94% suggests that Brady is generating a good return for its shareholders.
  • Earnings Per Share (EPS)

    • Basic: $0.84
    • Diluted: $0.83
    • Trend: Basic EPS decreased from $0.90 in Q2 2024 to $0.84 in Q2 2025, a decrease of 6.7%. Diluted EPS decreased from $0.90 in Q2 2024 to $0.83 in Q2 2025, a decrease of 7.8%.
    • Industry: EPS is highly company-specific. The decrease aligns with the decrease in net profit margin.

Liquidity

  • Current Ratio

    • Calculation: $536,315 / $282,350 = 1.90
    • Trend: The current ratio decreased from 2.27 in July 2024 to 1.90 in January 2025, a decrease of 16.3%.
    • Industry: A current ratio between 1.5 and 2 is generally considered healthy. Brady’s ratio indicates good liquidity.
  • Quick Ratio (Acid-Test Ratio)

    • Calculation: ($536,315 – $181,810) / $282,350 = 1.26
    • Trend: The quick ratio decreased from 1.50 in July 2024 to 1.26 in January 2025, a decrease of 16%.
    • Industry: A quick ratio above 1 is desirable. Brady’s ratio indicates the company can meet its short-term obligations even without relying on inventory.
  • Cash Ratio

    • Calculation: $138,452 / $282,350 = 0.49
    • Trend: The cash ratio decreased from 0.94 in July 2024 to 0.49 in January 2025, a decrease of 47.9%.
    • Industry: A cash ratio of 0.49 indicates that Brady has a moderate amount of cash to cover its current liabilities. The decrease is notable and warrants further investigation.

Solvency/Leverage

  • Debt-to-Equity Ratio

    • Calculation: $87,687 / $1,120,468 = 0.078
    • Trend: The debt-to-equity ratio decreased from 0.085 in July 2024 to 0.078 in January 2025, a decrease of 8.2%.
    • Industry: A low debt-to-equity ratio suggests that Brady relies more on equity than debt to finance its assets, indicating lower financial risk.
  • Debt-to-Assets Ratio

    • Calculation: $87,687 / $1,588,700 = 0.055
    • Trend: The debt-to-assets ratio decreased from 0.060 in July 2024 to 0.055 in January 2025, a decrease of 8.3%.
    • Industry: A low debt-to-assets ratio indicates that a small portion of Brady’s assets are financed by debt.
  • Interest Coverage Ratio (Times Interest Earned)

    • Calculation: $52,047 / $1,312 = 39.67
    • Trend: The interest coverage ratio increased from 70.66 in Q2 2024 to 39.67 in Q2 2025, a decrease of 43.9%.
    • Industry: A high-interest coverage ratio indicates that Brady can easily cover its interest expenses.

Activity/Efficiency

  • Inventory Turnover

    • Calculation: $368,208 / $181,810 = 2.03
    • Trend: To determine the trend, we would need the Inventory Turnover from the previous comparable period, which is not provided in the filing.
    • Industry: Inventory turnover varies widely by industry. A turnover of 2.03 suggests that Brady sells its inventory roughly twice per year.
  • Days Sales Outstanding (DSO)

    • Calculation: (($201,973 + $185,486)/2) / ($733,740/365) = 96.14 days
    • Trend: To determine the trend, we would need the DSO from the previous comparable period, which is not provided in the filing.
    • Industry: A DSO of 96.14 days indicates the average number of days that a company takes to collect revenue after a sale.
  • Days Payable Outstanding (DPO)

    • Calculation: (($90,968 + $84,691)/2) / ($368,208/365) = 44.64 days
    • Trend: To determine the trend, we would need the DPO from the previous comparable period, which is not provided in the filing.
    • Industry: A DPO of 44.64 days indicates the average number of days that a company takes to pay its suppliers.
  • Asset Turnover

    • Calculation: $733,740 / (($1,588,700 + $1,515,569)/2) = 0.47
    • Trend: To determine the trend, we would need the Asset Turnover from the previous comparable period, which is not provided in the filing.
    • Industry: An asset turnover of 0.47 indicates how efficiently a company uses its assets to generate sales.

Valuation

  • Price-to-Earnings Ratio (P/E)

    • Calculation: $69.54 / (1.81 * 2) = 19.18
    • Trend: To determine the trend, we would need the P/E from the previous comparable period, which is not provided in the filing.
    • Industry: A P/E ratio of 19.18 suggests that investors are willing to pay $19.18 for every dollar of Brady’s earnings.
  • Price-to-Book Ratio (P/B)

    • Calculation: (44,241,601 * $69.54) / $1,120,468,000 = 2.74
    • Trend: To determine the trend, we would need the P/B from the previous comparable period, which is not provided in the filing.
    • Industry: A P/B ratio of 2.74 indicates how much investors are willing to pay for each dollar of net asset value.
  • Price-to-Sales Ratio (P/S)

    • Calculation: (44,241,601 * $69.54) / $733,740,000 = 4.19
    • Trend: To determine the trend, we would need the P/S from the previous comparable period, which is not provided in the filing.
    • Industry: A P/S ratio of 4.19 indicates how much investors are willing to pay for each dollar of the company’s sales.
  • Enterprise Value to EBITDA (EV/EBITDA)

    • Calculation: Market Cap = 44,241,601 * $69.54 = $3,077,640,715. EBITDA = $110,156 + $20,096 = $130,252. EV = $3,077,640,715 + $87,687 – $138,452 = $3,026,875,263. EV/EBITDA = $3,026,875,263 / $130,252 = 23.24
    • Trend: To determine the trend, we would need the EV/EBITDA from the previous comparable period, which is not provided in the filing.
    • Industry: An EV/EBITDA ratio of 23.24 is relatively high, suggesting that the company may be overvalued or that investors have high expectations for future growth.

Growth Rates

  • Revenue Growth

    • Calculation: ($733,740 – $654,607) / $654,607 = 12.1%
    • Trend: Revenue grew by 12.1% from the six months ended January 31, 2024, to the six months ended January 31, 2025.
    • Industry: This growth rate is strong and indicates that Brady is expanding its market presence effectively.
  • Net Income Growth

    • Calculation: ($87,117 – $90,869) / $90,869 = -4.1%
    • Trend: Net income decreased by 4.1% from the six months ended January 31, 2024, to the six months ended January 31, 2025.
    • Industry: The decrease in net income, despite revenue growth, suggests potential issues with cost management or increased expenses.
  • EPS Growth

    • Calculation: ($1.81 – $1.86) / $1.86 = -2.7%
    • Trend: EPS decreased by 2.7% from the six months ended January 31, 2024, to the six months ended January 31, 2025.
    • Industry: The decrease in EPS aligns with the decrease in net income.

Other Relevant Metrics

  • Acquisition of Businesses

    • Analysis: Brady acquired businesses for a total consideration of $123,614,000, significantly impacting the balance sheet with increased goodwill ($69,936,000) and other intangible assets ($64,099,000). This acquisition contributed to revenue growth but also affected cash flow from investing activities. Pro forma net sales and net income were provided to give an idea of what the results would have been had the acquisition occurred at the beginning of the periods.
  • Sales Growth Information

    • Analysis: Total company sales growth was 10.6% for the three months ended January 31, 2025, and 12.1% for the six months ended January 31, 2025. This growth was driven by a combination of organic growth and acquisitions.

2. Commentary

Brady Corporation demonstrates strong revenue growth, primarily fueled by strategic acquisitions, yet profitability margins have experienced a slight decline. The company’s liquidity remains robust, although the cash ratio has decreased significantly. While the debt levels are well-managed, the recent acquisition has substantially impacted the balance sheet and cash flows. Overall, Brady shows a mixed financial performance, balancing growth with profitability challenges.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️