BRC - Earnings call transcript Q2 2019

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Operator

Good day, ladies and gentlemen, and welcome to the Q2 2019 Brady Corporation Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to introduce your host for today's conference call, Ms. Ann Thornton.

You may begin, ma'am.

Ann Thornton

you. Thank welcome call. Corporation and quarter XXXX the conference earnings to morning fiscal Brady second Good for morning's slides www.bradycorp.com/investors. The this website on at our call are located

please forward-looking will believe, comments significantly of without forward-looking about and number is information. uncertainties, morning various Words copyrighted few is on information expected during which the We XXXX which examples this expect, rebroadcast were words factors Corporation note call, noted anticipate forward-looking prepared Brady Brady's by Also with statement. in our will, are risk as could second to note may consent a may, this make a this that impact Please release this filed not results. Form note and to Brady. It's that be XX-Q, Slide SEC was Risk may teleconference we such our begin news forecast quarter of identifying that X. subject and fiscal important in factors remarks the just and morning.

will and on Internet. broadcasting recording call We the it this be

participation Michael your consent to now President will over constitute Executive the such, being recorded. As the I'll Q&A to turn Chief and Brady's Nauman. call in Officer, session your

Michael Nauman

growth increase earnings sales quarter our to increase thank our with consecutive organic quarter second another would consecutive growth Thank the of growth very our is increase pleased compared quarter of financial joining X.X%. quarter marks last this an second of XXXX earnings with approximately you you, results XXth X.X% of be strong pretax an quarter morning report Ann. us. which to Good this and pretax I'm another morning. seventh growth for for an currencies, year-on-year of all constant We X%, released of of of quarter and of year. At the and fiscal

X in years. new sustainable set and our improvement our and research automation quarter innovative We're on bring been than investing development of driving essential manufacturing profit customers. SG&A investing our deliver We're improving we're our we throughout priorities every in to our structure. for And focused facilities. products ability on We're to more to businesses. in has under-performing our consistent efficiency continue Focusing to

to financial direct of focus the results our on consistently ability Our objectives. improve a and Brady result team's consistently to is entire dedication these delivering

a a engage we SG&A positive We sales solve we the decline growth. well and even worked challenging impact that relatively on results that financial positive problems. enhance thinking is is just about organization. type a hard many having areas seen steady our where about is global And innovation new be significantly spend it's taken non-customer products, a in our commitment expenses SG&A results the facing on last ideas. our also long new last culture including how high of innovation which stronger and expense several innovation for is Innovation and a our pitched, innovative impacting in even new approach to product as We've not year, culture Brady's sales bodes We organic positively working And also Brady events of are where to growth. at having financial organic this is beyond Brady's and years. of innovation. worked organization years we've that events build now where future X over Brady's our offerings, this off-site believe impact such large teams innovation history an ideas innovation have much R&D much product to Over many an day is actions our entire some of stronger to our events new anticipated more incubator the on R&D all-time product

culture innovative our strengthening to development committed committed and new remain to remain will products. of We

this a new We by Solutions in sales printer of pipeline, we Organic that healthcare major regions business quarter with in sales new on our fact our were Solutions news The Identification note. except declined growth the all in our of which saw product announced positive Identification X product lines low the within driven business single product have quarter introductions line, quarters. digits. which a and stream the ended new unit X.X%. a good In and our increased robust innovative steady coming all another for of should launch we result the healthcare is in in

product to set We up organic new healthcare we declined Safety sales in quarter. sales Organic have line, right for adding line, for us product and growth the ahead force to the we're which success. Workplace a long-term believe business our drive our sales consistent work moves this X.X% but are to of building

this sales American sales while our improve where We for up bottom by year. with action structure. quick still fiscal digital will in WPS took our businesses and development, increasing improving We're new actions business. further future. enhance growing We're organic driving back moving to our to of decline Australian performance platform quarter continue America toward consistent platform ahead strong to generating term in of right-size business, we're WPS Americas We're in healthcare in and the structure automation, our cash see half to product throughout that year focusing quarter in track our of product us this by today but North North We're driven cost a and global actions organic work The improve address the remain the the America. the to we business. the We to North taking our end on was also XXXX we volumes European took performance flow and the have in and solid our sales so growth improvement our far, our presence. in halfway IDS manufacturing us digital sales To on and cost through investing the new businesses efficiency success an of by line in set line. we the long

call single Safety to for I'll now return opportunities I'll Then day. second for hard turn specific identify Aaron Aaron? to the results quarter. opportunities continue to Identification these our discuss Solutions and capitalize and commentary over Workplace financial the every provide to We to our working businesses. about efficiencies on

Aaron Pearce

you, of compared of in Michael, currency fourth quarter growth of to year, Thank a The of sales increased last to We which Sales and good consisted million number second second and Runelandhs X.X% Slide everyone. our from from X. review of finalized decreased $XXX.X business quarter; was earnings the X.X%, organic foreign starts of by decrease X.X% the on morning, of year. financial when X.X% last a translation, quarter the fiscal reduction sale in X.X% which pretax the

compared million operating this our $XX.X this passed earnings tax just December was I Without EPS cash been quarter. in this payments. quarter EPS mentioned would to was $XX.X the was up share to to related at of by earnings tax per The million. quarter. of compensation year's was is to took of charge $X million annual legislation have year second charge last have quarter $XX.X Without million $X.XX $X.X timing last second Looking million second incentive of Congress quarter the second a at of year. earnings, after-tax and in we year $X.X earnings this substantially flow this tax free year's prior quarter $XX.X last Much Diluted in in flow activities improvement XXXX. compared million. prior been charge, to $X.XX that reduced $XX.X our $X.XX. would In year's by year's charge, million U.S. net income compared last from last of last approximately our EPS result quarter, million $X.XX we diluted Cash of a which compared year's finished tax second

while along Moving X, we number by sales WPS business. Slide slight our was our of the in North trends. decline IDS you'll organic find performance realized sales quarterly to a growth driven American to due sales our Organic business

on margin X. gross Slide Our is profit summarized number trending

of increased business, profit but it controls, business due selective XX.X% margin our gains. XX.X%. quarter, and second including We've ongoing gross this increased down an partially efficiency quarter our points basis was freight enough with price and margin decline in increases. and This WPS from volume, able businesses, been at we've certain last to costs IDS also costs, WPS in labor focused offset both which offset fully cost in gains cost our been finished hasn't heavily In gross increases, year's and to is to increase efficiency Our on profit input IDS XX

increases profit drive future to feasible, which we efficiency and input of will continue in of majority to gains maintain all and We the a our increased quarters. enable us margin businesses gross expect where offset prices cost strong across

year's combination million foreign SG&A our our expense decrease compared Moving X, $XX.X quarter. second business, Slide along this $XX.X the SG&A efficiency Runelandhs find our of translation, last million ongoing to from quarter number due was activities. you'll and to to SG&A sale a of trending. reduced was The currency in

quarter As a to XX.X% the last SG&A decreased second XX.X% of percentage from quarter. in sales, year of this expense

$XX.X Slide July the you'll than of the finish are to year investment XX in to from development expense X.X% second for of continue up new for year we $XX.X million year in and to X% Turning in growth the the R&D find trending quarter quarter products. each million earnings our the fiscal year-on-year R&D X of to Slide number experienced expenses in we've X years. with is around where quarter. up ending X, investments research development, last of trending and the quarterly pretax number decreased our this Year-to-date full as increase expect we more which

by increased million quarter second year. $XX.X $XX quarter at the This compared last million of finishing we X.X% earnings in to pretax

trending number of earnings find Slide share Moving X, to earnings. the per net you'll and quarterly

in income year's equal enactment of $X.XX the quarter we I from tax the last tax to of mentioned, EPS reform. expense second recognized additional approximately As US

Last due in million from and the from generated the employees. If quarter. our were second quarter cash along between $X these split year, operating $XX.X flow activities diluted quarter We first year, quarterly second this quarter in same item, quarters. this in with cash in exclude quarter and EPS second payments to year's our of was Slide the generation made to this second the compared last year's incentive earnings last all annual increased payments XX improved of generation. $X.XX flow change free to last cash whereas second year. million in in $X.XX compared The our million compensation to payments of details $XX.X our quarter increase million number cash was to $X.X timing of a the were the in you

cash to cash at which looking operating So simply look best up by noise X.X%. timing is flow way activities, our this at our from remove performance the year-to-date to flow was

in the return funds of business the invest dividends to quarter form share of This cash organic and well we shareholders in amount our as used as repurchases. to our to modest a

Turning snapshot finished position quarter. cash trending this net a as to position end cash quarter Slide as by net January position our of increased and debt cash the of of structure million $XXX.X number of chart XX. XX. This well the at our million a the our $XX.X outlines net We in at

of million Our a have €XX placement for May million outstanding we XXXX and borrowings debt no of scheduled credit. private our $XXX line of consists payment on in

we Our patient. capital consistent, is are approach to we're disciplined allocation and

cash capital improvements, which we efficiency in to investments increase we product capital resources, sales share through second, in capital organic and deploy and in to funding have a our on our we the focus fund repurchases. cash then new use patiently we for improve expenditures the factories. strong efficiency returns First, disciplined automation economic shareholder our organic returning cycle, where we opportunistic generating synergistic capability form believe use After expenditures, and in our acquisitions throughout IT enhancing manner And opportunities dividends. opportunities we sales and our to development, funding dividends, includes of shareholders and investments to cash

guidance. XX of balance $X.XX million $X.XX of number We shareholders focused repurchase a authorized full-year sheet We're XX. is new from is of Slide fiscal through January capital. summarizes our have $X.XX to range EPS we're approximately strong, guidance $X.XX range disciplined our value of driving share X.X to and allocation increasing generation our share. long-term Overall, XXXX our for per strong, our per to shares as for on cash the our

is primarily due guidance lower which income XX% originally to foreign expected range currency between full-year of to XX%. XX, headwind based tax rate, US as rates increased the and now is January be guidance is This on to dollar. the Our which a strengthening is the anticipated of than due exchange

guidance previously our in growth full this Included XX, range of XXXX. and X% our million capital R&D $XX provided be an approximately expense sales end for and facilities increase is lower fiscal million. that organic our the of ending expense We X%, expect ranging in also at to of $XX of CapEx million, currently year is X% certain the July $XX amortization $XX are to the guidance approximately to of expenditures related depreciation expenditures from approximately million construction Included in leased. of to

cost, for than Excluding construction drive historical bit our facility meant we're in increase due capabilities, this and manufacturing incremental to higher investments are CapEx our average increased running capabilities. still the and to we're making automation which efficiency gains a

now Michael not we're restructuring charges any to guidance. we're not items back our results. this anticipating the over excluding cover divisional and one-time from Michael? to I'll Lastly, any turn call

Michael Nauman

IDS second at by the with sales organic sales business. results Thank you, our million Solutions quarter X.X%. $XXX.X XX financial Aaron. summarizes Identification growth finishing increased of X.X% Slide number of

decreased Foreign safety and increased in in sales digits our X.X% this low mid-single IDS majority facility sales in the Europe. the lines sales product and the strongest Asia growth in Americas identification. in had by and digits of organic currency growth Organic with quarter. single the in translation the We

identification digits single in this quarter. product low the line Our healthcare decreased

our force the have line ultimately a to to end level and building ahead the strong improvement. long-term that I'm team and us We stronger this We're sales way and to return of an We meaningful work profit product confident we're that new developing we're of moves grow on in healthcare. business pipeline to our sales our expand products making did and growth a in of a to and situation. improving quarter right consistent

Our sales quarter. European the businesses in increased single this organic low digits

China mid-single as in led IDS average economic safety last and quarter in Asian growth increased the Consistent the of growth Asia high product ID, well has profit division was increase our in behind slowed. of in see Organic sales product and to Sales in for with China. it of quarter, the XX.X% compared emerging that year. business this in and appears single-digit growth low million was was facility businesses as U.K. region single-digit by second markets. was general the of an in last growth ID, second China outside the increased Segment with the digits sales ID the our the lines. continue rate and We quarter, our rest growth quarter. growth wire throughout which the to $XX.X Sales

business profit of XX.X% As The compared a to percentage sales, quarter segment the IDS performance. improved to XX.X% year. company's financial this to lead continues improved last

functions. We have pleased new another efficiency R&D IDS investment increasing segment our investing and SG&A business. been while able automation in to and in our consistently profit I'm announce printer throughout in our to grow

iXXXX labels. a that lightweight to It's with launched we mid-volume the needs Industrial WiFi. enabled. labeling, applications facility labels, identification Label everything space. This to for marking, and be wire a and of This and the Printer to save easy and and chemical throughout label use cable WiFi marking, quarter labels. industrial printer including iXXXX it's a used It is can industries and compact panels Flash barcode pipe variety facility, our safety and wires The ideal in and touchscreen is valve from has including and GHS

an complement improve our pipeline launches. had in new of which proud introduction launched I'm cadence our several we new also in to quarter last new out new helped product existing doing of innovation R&D we're our incubator, and the our limited very the that line of to years. first product improve product product work This product the

is to while IDS released provide last with for activities we throughout X% XXXX sites of offset in our full-year and than manufacturing growth our for guidance investment a more R&D We'll that sales in will will for are Our X%. to which invest organic continue that benefits consistent quarter, R&D. expectations in SG&A efficiency

Slide number Safety review. to Workplace Moving you'll our find XX,

which the reduced the performance quarter changing currency which make Sweden two than WPS toward American of revenue, quarter and third of our in We by of the decrease the address changes platforms X.X%, North further together in Runelandhs the X.X% the digital declined up we to the profit action division sales to in of this total organic year. organic Australian cost WPS took of quarter. second improvement. businesses, WPS by We financial took continued quarter growth last business, drive X business and to our of compared of and single high end drive reduced more sales action believe organic digits these set Meanwhile, future by due was sales to This X.X%, European This us solid our results. also and structure. declined sales will our foreign our sales sale to up

quarter Australian strongest mid this segment sales was growth. single-digit organic WPS in performer Our our business with

both positive continue in into We've been Australia. win to a growth realized in momentum. well team have we has additional We extremely executing this and business. expand meaningful new The in and sales customers target markets

WPS in low single grew digits quarter. business Our Europe organic the sales this

continue to up our profitability business improved and improvements. to for this its steadily it while the digital presence has sets We cost gaining structure, by increased long-term strategy execute nearly which fundamentals This channel efficiencies quarter. improve in our online its business our to sales XX%

focused Our on is three WPS strategy priorities.

that they or online, would it's through reached; business. this It's grow improving it's First, the of channels. experience like simple person the we're and combination to these customers buying a our reaching share catalog, essential whether gain be for to our as mobile, so customers possible, in market way

are customers expertise those needs a to our than orders. complete and solutions. with by dealing to us our offering and increasing standpoint compliance and allows better This simply our fulfilling what more better identification value customer we're safety understand serve provide Second, to interactions from

million was the in sales products the in American customers ability approximate extensive customize of our to is sale We're priority by providing top was in our compliance customized last the is Third, our North foreign quickly profit growth and American more currency to division. organic decline The orders. while asset to our $X.X and to compared and improving due North segment $X profit safety business, portfolio million quarter. million volumes profitable an WPS segment to the our of of products products reduced our business strength WPS business, one $X.X proprietary second translation. in Runelandhs turn and sales need introducing that Returning expertise. our write-off, the year's

Given XX% Western the strengthening than full that in has larger much versus of our business. business IDS WPS a euro the of our on is WPS US Europe, business the our a dollar impact

the a continue expect by execute structure. SG&A grow to we're upgrading investing automation, solid in sales, this We're have between development, year. machinery, and WPS in XXXX. to sales business to our investing research and Overall, identify throughout continue We organic we growing we and X% to X% fiscal our efficiency operations start we're and

challenging, right actions our improvement. input ability long Our to identification sales for is essential we're term. to Brady our and profit profit efficiency on consistent consistently execute improve to long taking and IDS North organic healthcare drive we line to and WPS improvement Europe profit for America term. their and automation our today and costs focus WPS profit and to be strong product they Australia lead drive ahead to I improvement. in over sales our continue as the have control and work business manufacturing which the us growth growth bring sales labor processes organic in our continues to and makes to to of the strategies. improvement But growth continues WPS Competition know

about areas healthcare by daily in in believe and in to operational our stop quickly North selling invest line and to the our excellence invest continue driving of what a acting An We'll expectation. that leadership the consistent I have in those right driving achieve while in America resources goals WPS plans to routinely responsibilities, consistent R&D working. focus product isn't At changes that We that in left to place in essential decisions. in is each confused shareholder and can population to clear priorities we're with maintained long-term an its is roles and Brady be organization their priorities, key goals goals value. we've defined and employee prioritization, we've and on its expectation.

functions, for to highly including motivated these We and Operator, sustainable have focused our within underperforming our a engaged Q&A. it. automation to years fundamentals and please businesses. start on have of who Brady a our new are team several talented been improving driving and our the for would developing innovative to products you on show We’ve provide efficiency group now we processes, instructions manufacturing working tolerable like employees throughout SG&A listeners? I'd

Operator

Merrill [Operator America Instructions] Our Staphos with of first question comes Lynch. George from Bank

Molly Baum

a wanted America. Molly detail you into you last guys. more this WPS I on on specifically experiencing Thank Baum that supplier how provide the for the I digital the what Hi Can detail to play you back we're and know moving you're just in is actually more bit to out a of sitting expect expected to new year? George. focused quarter This that this in it go Is half you issue get to? had North is mentioned kind you. bit platform resolved. on of

Michael Nauman

have Glad morning. Good to on the call. you Molly.

the can tell back-end sure but platform and their their move want different our more a digital moving to is view. resources ability our our location, don't region, sure forward. structure have at want to We business capabilities the our and we different leverage to I end will on We the all experience to of point cultural unit; a and regions on You're of toward coordinate that on cooperate back needs our business that but that digital to we details technical front issue to end, the make the correct, that you we customer make geared by level as platforms, allows we cohesive we go are from resolved promised. and into rapidly that

stream. spoke we so, entire And the we're that is general platform direction about, the that platform in WPS with that heading

Molly Baum

looking on WPS Can you items side. on in then experienced can different were Thank mentioned you impacting -- one first margin, another one, to quarter? it. changed you've could WPS you. you at at for the size that. sense? you said being all relative full Got of see for that that margins fiscal year, that had Thank when year, quarters back few kind know those And you're and for the full I the that flat what in margin margins expectations you a then And the the have you

Aaron Pearce

Molly, question. this Aaron. that is I answer can

Specifically impact of three sale would the compare -- we year that specifically of second if last our an year, last of which year of this fourth the quarter Runelandhs to second compare in the quarter out the we basically items; quarter business has called be continued mentioned if -- $XXX,XXX. then unfortunately the be and of foreign headwind as asset effectively was well $X of a approximately call the Michael it about million, which currency a write-off another business, you declined $XXX,XXX. We fixed base will, to -- $XXX,XXX,

at this year bit. profit million clearly -- we down do then as And it's million $X.X look the this last the a see expectation our effectively we that's segment what margin look So, I'm for business, as you bridge QX $X.X is of to trying -- year. as to at

this on We as organic you half the with business, in growth sticking revenue guidance which look X% year-to-date haven't we're X.X%. year. at of we're to specifically, at X% for the the guidance the commented sales our revenue expectations But of back too much

anticipating we're clearly improvement in of an the the So, half back year.

Molly Baum

over. I'll Thanks. And turn Great. it

Operator

& Sidoti with Mondillo Joe from comes question Company. next Our

Michael Nauman

Joe. morning, Good

Joe Mondillo

and first divestiture? currency year-over-year morning. SG&A the guys. the excluding the you Hi, change know was what off me Could let Good

Aaron Pearce

can. I

Foreign and currency $X.X $X.X had the impact about million. SG&A divestiture was a about million on

base that So, effectively a leaves reduction in SG&A. million our $X.X

Joe Mondillo

Okay.

really So, I follow-up at you SG&A. guys job down done taking the guess that is good a have

taking here? do anticipate your see down reduce there do to Going any Is SG&A? opportunity lot you still you or a of strength slowing forward, SG&A at continued

Michael Nauman

I we There's Joe, the that in core that philosophy. good view the continues of said that I been slowing not initiative water, and are be within have mentality it's we we I on of Brady is past, morning almost and opportunities to the One, of with the at is water. and means that rocks, and on, head look are. never the when the what the don't of get we that, just opportunities we determine continuing biggest for we rid biggest as couple to We're issues And we small the a effort looking to issues that level do getting the embraced really continue again. next and effectively water, things how do seeing we reductions. from then but that distracted a challenges, it pass reason a by a of now address critical the to have lowering them lowering we everyone do of Unequivocally, what it. a lower rocks, see core mentality

if business a compared target to reducing we They of groups, business and our they be. they coming headcount think take specific we where out for different in with costs. look as to So at they set that. do a look targets ought worked have We absolutely how at restructuring

many costs ourselves and we result those and drive out make the organization. So, end from that of projects efficient we a is ongoing to organization more have actually effective the

is our revenue. about going R&D down our excited to up ability driving simultaneously are driving our see we can you effort as to be that So, continue

initiative both into on sides where we've have that So, of phase excited I'm moved the or an that opportunity equation. we

Joe Mondillo

you're anticipating benefits year. about so Could far, a R&D? on Okay. to Thanks ramp programs, seen the guided the volatility in Could you've big of talk that in for you pretty from what but the R&D just that. And what's of R&D, half the the you obviously talk of in last R&D has slowed, ramp-up then few suggests back on going a what in up growth year-over-year quarters sort terms there, you just your general? about in

Michael Nauman

I know amazing the stability products volatility. has do with in culture R&D and credit term that created I innovation the within and Brady. oriented the start let's that Well, we have to everybody interesting exciting actually our group want dynamic been let

those in people things products their people that's any of interactions R&D people the voices really care buying excited in been misnomer. their back and to a the contrary. improvement their world. excited future, with the will the solve heard input products the amazing cool It's sit don't their have to the create think Many success into X want the at fact we that sure that. their make want about our and that in are their about quite an problems. about marketplace It's new are technical groups. innovations Our are ideas and seeing create the to and in just that real relevance product really end-users, to that and of and an that office really that They They reasons you've ability products

about talk fundamentals of why going we're the group. let's and growing and headed our groups that So, continue to we're where

to our Our original leg was into quarter. our particularly doing stool. add resources the our throughout a we increasing results in that, legs our resources materials. from totally in technology so approach That that that of we've be areas, more newer base we to mechanical, the the driving driving continue new integrated our To increase software comes but electrical, of while to the added have base into core areas going customers. and to need been the stool in of We're

announced within internal and although growth, building structure the and our groups establish making sustainable that to and as is efforts groups on as and We in see new you R&D see to linear sustainable to we're won't always track are our you. we we've plans on exactly significant you're an method and new grow sure going growth we're exact a

direction. energy a of size it technology not very, dynamically excited don't is of was in of don't ago. a of the the couple about group the we just our see years than group, but very the the group; And the just So, we -- different change

Joe Mondillo

from question And great. then so, IDS, margins me. All XXX% or The at last really incremental strong. right,

break of if that you do not sure that but the that of forward margin you sort think are could I'm just is kind talk well? wondering components you could the sort down sustainable, of sort going as that about expansion XXX% -- driving Just and obviously that of

Michael Nauman

is technology you know, core stronger. Well, about we talk and break actually our of don't but nature as elements down One, philosophically it. will our products the base the getting proprietary well I

through is customization differentiate getting that, to addition stronger. In to ability our

our our become value. so points Joe, getting most response improved have more with able end Fundamentally, rapid And important is creating give their believe element, touch really Our dramatically set we're to customers the to users and the to them been differential well. our margins do and do and that they able value provide to so dependent to us we customers on are that value can customer differential we've that stronger.

I Different will in The mentioned different varying periods, sets mix all product levels mix. of above. strengths margin different different have our though is the different time generate that other markets half at times a based elements on do in that

economies will different So, different the economy cycles our different as dynamic. the are and you in in of different see more mixes segments

Joe Mondillo

next quarter And think the So, to just that. about you Was mix few at looking itself? do the on biggest up the the factor in itself, to follow quarter? relative mix quarters how this

Michael Nauman

X can a mix that strength do would actually differentiating in that Honestly, is have by was holistic. countries, The and predict. problematic on. quality comment something more carry literally that's XX I XX more to a products, I We continents. thousands driven hundreds dynamic say of were we is to this think more actually of high we that world, products quarter locations, work mix

as better mention stronger do us. at easy for actually difference. not something to forward as mix is far but a reality quarter mix have the makes a So that fundamentals I backwards, and future; is to so it as significant times we the absolutely move economies last because in anticipate different are did

Joe Mondillo

you difference but trying clarify could to mix back, of I to quality then to understand similar? sounds very Okay. finally, better. me And that Just differentiating products the just hate to and push because just continue high

Michael Nauman

No.

That's proprietary an high have drive proprietary products. talking of product I'm about overall to what effort sets. We our more technology to

if are have margins. At healthcare adding healthcare have for new we we're proprietary and same may healthcare, going we've then more, time some products. will we instance higher into as talked such our the historically that sets set product overall lower margin a a lower improve to products time lower mix over products that margin for set. If Now have that -- sells

healthcare product those margin working of but at all of lower products, our so sets our significantly straight hard for is the that total So each the slightly; sets that margin same to sell product we capability if out improving. more we're may improve time

Joe Mondillo

great. Okay, Thank you.

Michael Nauman

you. Thank

Operator

SunTrust Humphrey. with Our comes next Robinson Charlie from question Brady

Charlie Brady

Hi. and Thanks good morning.

Michael Nauman

Charlie. morning, Good

Charlie Brady

try a first full-year to as I want Hey, the better I I up guidance kind and you mean guess to organic in what's I get just bit to half the growth of of just rate the Safety, flat the as the the What for year? that to for the -- understand I half. little X% want half -- Workplace to being opposed given about second year, -- growth second down on guess outlook outlook core in really what's to into X% to on big drives gone the to turnaround

Michael Nauman

improving and in in just We -- do but say continued segments. that divide possibly we'll X group results We even continued. regions Australia, expect

We are that based last the we last different and results Americas on platforms recent all are guided in to WPS results we of of I -- the real and place, business. expect our we're the quarter, definitely due we and it for our differentiator of weeks. out is And is improvement Part that latter in year -- digital in to the Europe to good then solid move this had the digital more believe elements strong platform traction better of Europe. sustainable half in in our but seeing the are our platform changes making during

of growth. other -- be overall the which -- year lead confident able half So the will improve the later that and the stronger we allow will half the lift we're will boat which that that, sustain to and part two there like strong second to particularly results parts of we'll of help feel to drive our in much overall that

Charlie Brady

provide going factors that or there margin be it's offset are margin Okay. saying year-over-year guess I going helpful. you'll should Thanks. organically in to the strong margin in margin kind -- particularly to on for fully year-on-year expect from keep if headwind of not the that year increase I a being specific both Safety operating of you the as didn't we an are see down to Workplace the That's side just Are for see perspective? again. segments, And half you're kind be expectations of to back is such as costs the

Aaron Pearce

Yes.

increase the year, standpoint. from from what a you it you to as very remember Workplace at quarter a percent segment saw of if profit look you expect strong this this fourth Safety half a year, profitability margin quarter as the But second quarter in of me of way. So we so had in year. back the our of just the fourth sales I say back absolutely let to last

that headed in So, we're I'm last you what a over from you certainly what as quarter. business second and sales up right not move should the to with this say can percent in going to saw grow commit profit year, and tell and direction this I the is we're going but we just segment absolutely of saw

Charlie Brady

that Okay. a That's from the would basis there helpful And clearly different a nicely a question. fair? Is margin margins for up directionally. It be I I sounds year-over-year on ask profile's like ought guess IDS IDS. perspective, similar that to

Michael Nauman

and that the are We fair. that business new we're innovating is strong. strong feel the absolutely that's Yes, products

You've while, observed us for a Charlie.

reliable technologies is products, dependable particular significant say. the That something people think as could see printers, cadence become very we products. is I and new think I than have that our specific cadence that historically and even the you'll more has not other of

have we number of a our products think large in I portfolio.

month many each being during that Although more released actually interesting throughout we find the calls, we quarter and many, will highlight some each throughout and are each year.

a is steady will general. end in going every with out the that from all we of that are help a definitely and new of result our have and that that products quarter is also that different product believe stream change we So, lines revenue

Charlie Brady

able not ask you'll but X it, answer for more just And right. I'll anyway. All to it me and be maybe

profiles growth profiles look profitability is you very Safety very does exposure the the are the given to different, profit; of company seem that part two or IDS like XX% being different. geographic asset sales, With core operating at quarters of are be of roughly three to different, still Workplace If ought segments, any is plus not? thought a

Michael Nauman

of who and a we are on just review literally -- and in regular a should got who basic Charlie, out we strategy challenge update. ourselves we a basis. Actually strategy we be

see So spyglass I all a businesses, our how the get significantly how to a versa organization, units at there they questions; we help division. was question look a interrelate, lines each times furniture business didn't we product other each good business, our -- together do won't they to that is other? that. we how take have all enough. but they stronger. put specifics into asking an we of do division that. do that We glass absolutely at no as really saw business, how was really we and that, solid absolutely our vice today magnifying how be in example question, worded are fundamentally enough helped on We or shape, We that really valued We and of kind will make see believes that you our re-evaluate any conglomerate. knew are and that great and look our way, will I There work involved in our and we them our I don't I of furniture obviously, some that the leadership a tell call the but it the think you looked the that to significantly business with a way -- as fundamentally you helped ourselves believe we form feel that do

businesses continue fact just our each other to not that will the that sure being all assessment we of but lifting up. So at and our look honest to of we're we're make realistic WPS, in

Charlie Brady

appreciate answer. Thanks. you. Thank I the

Michael Nauman

Charlie. you, Thank

Operator

comes Northcoast with question Research. Keith from Housum next Our

Michael Nauman

morning, Good Keith.

Keith Housum

Can you hear me?

Michael Nauman

you. hear Yes, Keith. morning, Good can we

Keith Housum

you healthcare conversations a is year? on would flattish towards like the business for Michael, Thank still to the was you're thought Great. flattish the that feel second Do year, business. practice on half the recall If from be going in the question healthcare you trajectory business. second year be half that of the earlier the in I you. type of that process

Michael Nauman

Yes.

of the we're peeling can California. continue track. onion. us out you capability the needing outside, the you feel watched very and all to incredible an We fix I heading. that new that just we with build think do moments, very was our they're that dives, I look ago. I you we each are there as the that you the When depth there, team. describe find good the headquartered through blooming as business reviews strongly mapped. is group on it transition go that that and capability within full a definitely I they week the about different leadership within tell in all we direction I place really will feel and businesses, feel organization. deep at do trajectory also change those often I of that indications

Keith Housum

some isolated these I just more issues about European opposed might that as want WPS down years I long can a to Can as since secular got North it's late few can Australia the encounter? to make America business, trouble as we us that to give issues I be been affect the If that, remember business? and over the when geographies and sure turn my in WPS. to attention Americas see that line the geographically of in the are other the I or won't being segment think come and comfort Americas it. here you the Okay, in Because the segment the

Michael Nauman

a differentiation. Well, I is we issues and address of some will North do the there America. can first, believe fundamental yes, in But

we of moves challenging -- been than made moves in business, whereas fundamental a that as take of we you getting America North to overcome. it made have lasting the had at some impacts look believe we is some that of homogeneous you and strongly more very in into Europe, a without Europe very different effort. past, at and in segmented the North we different it much fundamentally know You we look details look mistakes a business in at segmented more made America And have

in So, Europe. much business strategically we in in believe we effective are a the more way

so. decreased. of segmented more much remain it's my have in -- I and grown not will addition, In fact and that has confidence

to. Now you that full is a of we're through isolated unique to that respond at region, the Australia bring weight capabilities of have to they sets Brady's we're Australia, look geared It all able business. to more

business -- it it Australia needs in market different we once of but not is identical segment certainly States. although So Europe, United to identical of very There a areas again are to smaller the that that are fairly are effectively. even that within actually market, different

Keith Housum

Aaron. even can I like for adjusted I X the Maybe of as at quarter FX on appreciate I looks more last levels end X% here last inventory up look basis. quarter I gearing at compared it or due squeeze are Do that. up guys year, of a the you you're say machinery your just account Aaron, for Okay. missing to perhaps or they're of or in almost terms next in growth time I am to something is the it that expect to putting lapse some else? read for and higher there need the that quarter levels you in

Aaron Pearce

into read wouldn't are our Inventories I try absolutely this to much Yes. quarter. up inventory levels. too

of locations at handful our levels increased working look to shipping reduce a in in increase response we inventory is to an inventories element it, in of Frankly, As costs. we our

working. consolidated for if been were shipments of in in to frankly the have costs to month into those a it's week, on we same So instance order and some or we've shipping location save multiple shipments

of So, that's it. a piece

We up from inventories a for look intentionally And couple locations, standpoint no just a of some the built not also in we the of We inventory inventories. also advance in of Brexit growing bit at our which built business think a reason is timing obviously a of in prudent locations, couple of all. We're at approach. we've European inventories. in

increases that were read overall look it So, appropriate than that other into closely it much don't an we But too just said. and at standpoint. believe from quarter basically this the saw we we what I do

Keith Housum

Thank enough. you. Fair

Operator

question Joe Sidoti Our is question & with a next Company. follow-up from Mondillo

Joe Mondillo

for Hi my follow-up. guys. taking Thanks

the you're and pointed you WPS considering X% to you're in the like Just you the an the up. that in sort sales of guidance half anticipating assuming ask have you Considering wanted business of that acceleration sales back at end to X%. it provided, year, costs healthcare the Aaron, going that to improvement of sounds here, in lower the R&D

potentially margin the compared read could least of sort at expansion to for back me ex-healthcare that your year? the see quarter. IDS fair sort a that that half of to second headwinds core So, the tells of some Is

Aaron Pearce

necessarily. Not

So, X% we have X% sales of our growth. organic guidance out to

you at right look year lower mentioned, effectively we healthcare, expect of in the basis. end in sure in slightly When we're year-to-date, actually where If to I actually all end flattish at look is range guidance year-to-date we just where that we're as that QX. grew make just And if square. range, a about you Michael will. are we're flattish on Healthcare this look at you now you to year-to-date slightly still we're it, -- at and up QX, as that's declined want

of our wouldn't I doing is our well. guidance. much strong, So, as IDS Business read they're super too into result a very margins

Joe Mondillo

And couple just what that sure will. guidance a Okay. the line of the I'm but you $X.X of And comment back just housekeeping is line, I then for anything hit that the million quarter, that? half last of non-operating -- year The that there into you you income the on if could on to hit all? at saw baked in items that know not year. something similar

Aaron Pearce

Sure.

X investment our it this in and significant comp So There's line and quarter, that in for QX our was year, in of quarter accounting of it second first our $X.X QX component other deferred in -- a million. you this to X the which the is instance item year plans. flat plays effectively for income if was that, compare effectively

So, you a investment in on expense. to that and net other had the some a but because the our on is comp income, an total is also SG&A first expense take perspective. you X accounting benefit That works and impact investment plans put however, we in way other this in income get quarter deferred statement, expense the in In actually income. our

forward happened. quarter, it's exact opposite fast what Now to the of the second

in and have expense additional We G&A investment and other income benefit a expense.

in down the that So, trusts. to in assets swings it really comes Rabbi are these

nothing flows except beyond So some interest unusual foreign currency and lines that, gains and these through losses. basically income

Joe Mondillo

that switch, for consistent will is accounting the going the of so -- terms the quarters be -- forward, forward? then going that And that in Okay.

Aaron Pearce

because because Unfortunately market mark-to-market upon that what every these investments I the it's does -- every can't contingent quarter. are question answer

So, on pretax other income. you should some net income. between and classification again, and continue and a it's It's to investment see zero our -- just a volatility SG&A

Joe Mondillo

provided, tax that then going guidance of that of seems to forward? implies was fair use And the mid a XX% Okay. original like sort half the year. tax for that range to back you the rate a continue your it Is guidance

Aaron Pearce

for Well, slightly XX%. this our is guidance previous tax to rate We year XX% tax to had guided higher rate quarters. a in

it's to year, had implied for would points half basically couple XX% of was we than of of the a be anticipated. what couple -- rate I our a -- this only which back expect So, originally lower the neighborhood guess we of tax in

Joe Mondillo

of back so or the the first like But year. than the average XX% net little isn't year of a in half XX.X% higher be would more XX% the half the

Aaron Pearce

was think tax quarter XX.X% first was I XX.X%. our second Yes, quarter rate and

with math on with our it the do you third if middle the of -- and very XX% in that that basically -- we range. XX% all close. our quarters, -- do you fall if So to It's fourth right it's

Joe Mondillo

about you to decent then CapEx, lastly Could the anticipating just compared ramp looks investments you $XX of alluded talk in closer making? up CapEx. that to down that potentially you're bringing the And like to a Okay. And it you're million potentially sort Is little lumpy it. to. guiding in that bit pushed timing thing investments the into so this that you're 'XX? timing a originally talk aspect making things you're sort Just of about are that million just $XX or out of the a fiscal

Aaron Pearce

definitely Yes, will. I

year new this million. our $XX facilities facilities of million in guidance lease. to timing guidance for currently are -- that effectively some constructing to our solely remove of our we're $XX So, that that only relates change facilities is leased some that of to The

continue meant our gains increase related We invest at to these a and efficiency to capabilities. pretty equipment that's all to timing to machinery clip It's in drive healthy facilities. and

Joe Mondillo

also new this to with of productivity And is gains that you Okay. about follow-up. follow-up, -- new just could aspects anymore you're there leasing a that facilities are what and last they The brand you're that talk is doing so facility, there? and just not then just these or new

Michael Nauman

long invest term, a in think long we We philosophically that and been change. the somewhat of Sure. term, different has

is that need those, invest believe a private you're I a where different those backbone properly it facilities, few equity is leased a But at five we dynamically for manufacturing; your the more think this model change a technology leased. be maybe benefit you're shorter to small, a core ago still you mentality years are very because fundamentally the does Also as tenure. that should changes; I always of ones facilities, we lease was down looked likely What locational facility. your if in what cost is structure don't well. go core secondary of of you find there's capabilities is businesses, your your

how really major term. is a stability, have cost more realize will the up long run and we more final employees facilities in So down said you as really that But should down. but you Brady the you going believe on you your of continuation leases what come be is buildings, that handle -- will get benefit see be as have I going the about stability, and you more flexibility what the

Joe Mondillo

Okay. Thanks.

Michael Nauman

you. Thank

Operator

And Michael time. call questions showing not to company's any Nauman. this back at the CEO, I'm over further the I turn

You sir. continue, may

Michael Nauman

Thank this two you. solid in few you I'd behind comments fiscal quarters morning. XXXX. to got us leave with a We've concluding like

our sales WPS -- to We've earnings to earnings XXth improve some to of quarter expenditures our structure. in motivated X.X% better. demonstrating our represent the do for execute innovation and this which Brady was SG&A organic and and balance factories continue commitment ourselves can America we in the engaged healthcare drive our done years We've to these focused by pretax year leadership we on focused underperforming X.X the strong know we line capital and and I around. is customers, growth increased new in our our on turn sales and and our pretax to to R&D consistently the investment pushing the X.X%, increased shareholders, so will quarter consecutive that our North businesses and We're team this for over and we throughout results. our organic and growth over I more and We in improving well know year-over-year continue our development growth. We're identify businesses delivering place long-term. have entire do Our past increased I'm cost in to automation employees. improvement of product product deliver

and us. a participating contact disconnect the for today have day. great would you Operator, questions, have you if always, please call. Thanks As please

Operator

Ladies and conclude gentlemen, this does the conference.

all You disconnect. may

Brady (BRC) 23 Feb 192019 Q2 Earnings call transcript