Q2 2020 Earnings Call
Ladies and gentlemen, thank you were standing by welcome to the Q2 2020 Brady Corporation earnings Conference call.
This time all participants are in listen only mode. After the speakers presentation will be a question answer session to asked a question during especially to press star one on the telephone. Please be advised as today's conference is being recorded if you're required to further assistance. Please press Star then zero I would now like to be shelters conference call Im, saying sort you may begin to ramp.
Thank you.
Good morning, welcome to the Brady Corporation, the school 2022nd quarter Earnings Conference call. The slides for this morning's call. It located on our website at Www Dot Brady clip dot com such investors, we will begin our prepared remarks on slide number three.
Please note that during this call we may make comments about forward looking information words, such as expected will me believe forecast and anticipate or just a few examples of words identifying a forward looking statements.
It's important to note that forward looking information is subject to various risk factors and uncertainties, which could significantly impact or it's not the result.
Risk factors were noted in our news release this morning, and embrace fiscal 2022nd quarter form 10-Q, which was filed with the FCC. This morning.
Also please note that this teleconference is copyrighted by Brady Corporation and May not be rebroadcast without the consent of Brady.
We will be recording this call and broadcasting it on the Internet at such your participation in acuity session will constitute youre concerned to being recorded.
I'll now turn the call over to Brady to President and Chief Executive Officer, Michael Donovan.
Thank you and good morning, Thank you all for joining us today.
You really start fiscal 2022nd quarter financial results. This morning.
We reported another quarter of improved profitability.
This quarter, we increased our pretax income by 15.4 production increased net income by 14.8% and increased earnings per share by 12.7%. All all continued to generate strong cash flow and making strategic investments to drive future.
Well.
The general, scoring and economic activity continued to our second quarter global demand for industrial products weekend.
<unk> perspective, even in the U.S., which has been and continues to be our strongest markets.
To manufacture activity in December posted its lowest results in a decade.
This reduction in economic activity led to our 1.2% organic sales decline. This quarter, we were seeing the effect of a challenging industrial economy around the globe, including Europe, the middle East and certainly in China are trying to do it such accounts for only about 4% of our global sales the majority of.
Products, we make in China or for consumption in China and jet in general are not major imports into the other products, we sell elsewhere around the world.
Our global sales declined an idea was 1.3% all organic revenues are WPS business declined 1% this quarter.
We continue to invest to new product development and these investments from providing benefits, we launched several new products and Rds business. This quarter that we'd be looking for to bringing to weren't customers and before there were expanding or so forth inflected in markets, where we see opportunities for growth.
I'd be gets business in North America, which has been a self help story continues to rebuild the digital frames.
Good progress and we believe all the right path for turned this business to profitable growth in the near term.
We are consistently tenaciously controlling what we kinda cross privy to the execution of our key priorities.
Hard to invest in sales generating resources to invest in new product development to serve our customers extremely well to drive sustainable efficiency gains throughout our business.
Our focus on these fundamentals enabled us to improve our gross margin.
Used to arrest cheating expense increased profitability and generate solid cash flow even in this challenging revenue environment.
We also have a very strong balance sheet, which gives us the ability to Twitter destined organic business.
The kids strategic execution and return funds to our shareholders, which put itself in an enviable position compared to many of our competitors. The economy, certainly it's not helping us at the moment and we don't expect it to improve in the near term Oh, we're controlling what we can do our reduced cost structure.
We'll continue to result in cost savings and when you combine this reduced cost structure, which are ongoing organic sales investments and our strong balance sheet, we're positioned extremely well for an even stronger were churns in growth once our key end markets recover.
I'll now turn the call well written Aaron discuss our financial results then I'll return to provide specific commentary about our identification solutions and workplace safety businesses Aaron.
Michael and good morning, everyone. The financial review starts on slide number three.
Sales in the second quarter were 276.7 million, which consisted of an organic sales decline of 1.2% and a decline of 0.8% from foreign currency translation.
Pre tax income increased 15.4%, while net income was up 14.8% to 33.6 million compared to 29.2 million in the second quarter of last year, and deluded EPS increased to 12.7% to 62 cents compared to 55 cents.
Last year second quarter overall, our earnings growth was quite strong, especially given the economic challenges that Michael mentioned.
Turning to slide number four you'll find our quarterly sales trends organic sales in our identification solutions division declined 1.3%, while organic sales in the workplace safety Division declined 1.0%. The decline an idea was due to overall macro challenges in the industrial economy. Despite the weak.
Economic environment, our U.S. business was effectively flat this quarter, while both our European and Asian businesses decline the decline in WPS organic sales was due to our north American business, where organic sales were down in the low single digits as we continue to work through our digital sales recovery.
Organic sales in both our European and Australia, WPS businesses were effectively flat this quarter.
Slide number five is our gross profit margin trending.
Gross profit margin was 50.3% this quarter, which is an increase of 80 basis points from last year's second quarter, we're seeing input cost pressures, but we remain focused on investing in automation and aggressively driving process improvements throughout her manufacturing facility.
This this sufficiency focus has been extremely effective in offsetting these input cost increases and enabling us to expand our gross profit margins. We have a culture that is focused on continually improving and executing our strong pipeline of opportunities each and every day.
Turning to slide number six you'll find our SGN a expense trending SGN a it was 87.4 million this quarter compared to 92.7 million in the second quarter of last year.
Alex mentally one quarter of this 5.3 million decrease announced yesterday was due to foreign currency translation as the U.S. dollar continued to strengthen against most major currencies. The remaining three quarters of this decrease was due to reduced compensation and our ongoing efforts to drive sustainable process improvements throughout her s. units.
Structure.
As a percent of sales SGN, a decrease from 32.8% in last year's second quarter to 31.6% of sales this quarter.
Slide number seven outlines the trending of our investments in research and development.
This quarter, we spent 10.5 million in R&D, we continue to have opportunities for investments in new product development, and we're committed to increasing our investments over time, while at the same time, ensuring that we're very disciplined so that we get the most out of every dollar spent on R&D.
Moving to slide number eight you'll find a quarterly trending of pre tax income we increased pre tax income by 15.4% to 42.4 million. This quarter. This marks our 18th consecutive quarter of year on year increases in pre tax income.
Our ability to improve pre tax earnings in a sluggish industrial economic environment is a direct result of the sustainable efficiency gains we've implemented over the last several years and we'll continue to implement in the future all while making the necessary investments to drive future revenue growth.
Slide number nine illustrates our after tax income and EPS trends.
Feeding into this quarters after tax results wasn't income tax rate of 20.8%, which compares to a tax rate of 20.3% and last year's second quarter.
Over both the long term as well as for the full year ending July 30, Onest 2020, we expect our tax rate to be approximately 20%.
Net income increased 14.8% this quarter and diluted EPS increased from 55 cents last year to 62 cents.
Second quarter of this year, an increase of 12.7%.
Turning to slide number 10, you'll find a summary of our quarterly cash generation, we generated 14.3 million of cash flow from operating activities compared to 25.4 million in last year's second quarter.
Free cash flow was 8.9 million compared to 19.3 million in the same quarter last year.
Operating cash flow was impacted by the timing of annual incentive compensation payments last year. These payments were split between the first and second quarters well this year the vast majority of annual incentive comp.
Payments were made in the second quarter frankly, the best way to look at our cash generation is to remove the noise caused by the timing of incentive compensation payments, but just looking at year to date cash generation on a year to date basis, our cash flow from operating activities was 53.1 million, which is up just over 20% from last.
Two years cash flow from operating activities, a 44.2 million.
On an annual basis, we have consistently generated cash flow in excess of net income and we're always focused on making the right long term cash decisions for the organization.
This quarter, we returned 11.6 million to our shareholders in the form of dividends and we invested 5.4 million in capital expenditures, most of which was four new machinery and equipment, either add new capabilities or to drive further automation in our manufacturing processes.
Slide number 11 outlines the trending of our net cash position along with our debt structure at the end of the quarter.
We finished the quarter with total cash of 289.8 million and where to net cash position of 240.2 million as our borrowings are minimal our approach to capital allocation is consistent we're disciplined and we are patient first we use our cash to fund organic sales and efficiencies.
Opportunities throughout the economic cycle, which includes funding investments in new product development sales generating resources on t. improvements capability enhancing capital expenditures and capital expenditures to further automate our facilities and second we focused on returning cash to our shareholders in the form of dividends.
After funding organic investments and dividends, we then deploy our cash in a disciplined manner for acquisitions, where we believe we have strong synergistic opportunities and we use our cash to improve shareholder returns through opportunistic share repurchases.
Our cash generation a strong our balance sheet is strong and we're focused on driving long term value for our shareholders through this disciplined approach to capital allocation.
Slide number 12 is our guidance for the full fiscal year ending July 31st 20 Twond.
Looking forward to the back half of this fiscal year, we expect industrial markets to remain challenged as a result were decreasing organic sales guidance. We now expect organic sales growth to be approximately flat to slightly positive for full fiscal year 2020.
We will continue to control what we can through our ongoing focus on sustainable efficiency improvements and keeping our costs and check because of this focus we're increasing our earnings per share guidance for full fiscal year 2020, we now expect our earnings per share to finish in the range up to 55 to 65.
For share, which is an increase from our previous guidance range of 250 to 60 per share.
We continue to expect our income tax rate to approximate 20% for the full fiscal year.
We expect depreciation and amortization expense of approximately 25 million.
And we anticipate capital expenditures to approximate 35 million this year.
This guidance is based on foreign currency exchange rates as of January 31st which continued to be a headwind due to the strengthening of the U.S. dollar.
And we're not to excluding any onetime income or expense items from this guidance. This guidance is based on financial results fully in accordance with U.S. cap.
I'll now turn the call back over to Michael to cover our divisional results and to provide some closing comments before turning the call over to culinary Michael. Thank you and slide number 13 out of want outlined to first quarter financial results for our identification solutions business.
Net sales declined 1.8%, finishing at 205.4 million, but then organic sales decline of 1.3% decrease from foreign currency translation <unk>, 0.5%. This quarter, although organic sales were effectively flat in the U.S. organic sales decreased slightly in the entire Americas.
Each in this quarter or ATM facility identification of product is going to predication product line, but effectively flat in the Americas, whereas our health care product line decreased this quarter.
Gannett sales decreased in the low single digits in Europe and declined mid single digits in Asia. This quarter, we started to see overall reduction in organic growth rates in the back half of last year and the softer economic conditions continue into this year, resulting in an organic sales decline in both Europe.
Asia.
Segment profit increased 7.4% $40.7 million this quarter as a percentage of sales segment profit, but a very strong 19.8%, which was an improvement over last year's second quarter segment profit of 18.1 person, we improved for profitability compared to the prior year.
Sure, even though we had a modest organic sales decline and foreign currency headwind.
Its profitability improvement, but the result of ongoing process improvements in efficiency gains that we've been pushing for several years throughout our businesses.
Soft industrial can be makes our process improvement initiatives that much more important as we continue to drive increases in gross profit margins and production and ASCII Gionee expense.
We remain committed to investing in R&D at innovative new products have been and we'll continue to be a competitive differentiator for brain.
This quarter, we launched the 850 500 flag Turner Applicator. This center is designed to apply labels for flags to small diameter wires, which allows our customers to automate and time consuming manual process. The 850 500 applied complex you realized flags to wires and second.
Eliminating the problems caused by menu applications, such as rentals and edge mismatch. This partner includes a touch screen and his wife fine naval making it easy to use while significantly reducing set uptime.
For fiscal year 2020, we expect idea, it's organic sales to be approximately flat to slightly positive we'll continue to invest in R&D and drive efficiencies throughout our facility and the next DNA, we remain committed to our top priority, which are twin fast inorganic growth.
In both sales and R&D and <unk>, new products serve our customers extremely well and continue to drive efficiencies in our manufacturing processes and ask DNA.
Slide number 14 outlines our workplace safety financial performance.
<unk> sales declined 2.6%, finishing at 71 point Threemillion with on organic sales decline of 1% and a decrease from foreign currency translation of 1.6%. This quarter organic sales were effectively flat in both Europe and Australia fall they decreased.
In the low single digit in North America.
We remain.
Focused on three priorities to report Turner WPS North American business.
Just an organic sales growth and improved profitability first we are proving to buying experience for customers. So that it's as simple as possible reach our customers the way they prefer to do reach whether its online mobile catalog in person or through a combination of these channels is essential.
Turning this business to growth, which is exactly why we're focusing focused on having industry leading website.
We've increased our customer interactions beyond fulfilling orders. This allows us to better understand former customers are dealing with from a shape being again for occasion perspective and helps us better serve those needs by offering our compliance expertise and complete solution. We're doing this for an expanded sales force for his expertise in India.
Street specific regulatory and compliance requirements that are competitors do not possess.
They are one of our strengths is our ability to customize products and quickly turn orders, we're improving our portfolio of products by introducing more customized some proprietary products that are customers need.
We're increasing the value to bring to our customers by focusing on these three priorities, which creates customer loyalty and approves our sales and profitability over the long term. We believe that were on the right track par WPS North American business, having solid finish cut fiscal 2020.
Economic conditions in Europe, or challenging right now, but we're able to finished the quarter with approximately flat organic sales digital sales continue be growth driver for us in Europe, but an increase of nearly 11% this quarter Australian business also experienced approximately flat organic sales this quarter.
Economic growth in Australia has slowed and recently we've seen the impact of this macro environment on our tail, we're focused on improving our pipeline of opportunities to keep this business trending in a positive direction.
Segment profit was 5.5 million compared to 4.7 billion in last year's second quarter as a percentage of sales segment profit was 7.7 this quarter.
Compared to 6.4 in the same quarter last year the actions, we've taken to address our cost structure.
Typically in North America are showing in our result, as we're able to increase segment profit. Despite a reduction in organic sales for the full fiscal year 2020, we expect organic sales to be approximately flat in the WPS business, while we expect to improve mix segment profit.
To benefit from our reduced cost structure and continued efficiency opportunities yet or operations.
Hey structure.
In Ghana, Brady's total results I'm proud of our ability to once again increased profitability in this challenging economic environment for foreign currency continues to trend against us and organic sales have slowed as a result of economic weakness industrial sector.
Executing efficiency opportunities and we're controlling costs throughout our manufacturing facilities and our sta structure.
But we must remain focused on our priorities, which are to execute sustainable efficiency opportunities to manufacturing machine, a while investing in selling resources and R&D to drive organic sales growth in both the short and long term.
We intend to come through this period at sluggish economic activity, even stronger than we are today and we're confident that by maintaining our focus at eliminating struck distractions, we're setting ourselves up to do just that.
We're dealing with tight labor market increased raw material cost foreign currency headwind and economic channel challenges yet are no excuses culture has enabled us to increase our gross profit margins in a sustainable manner.
Due to our SGT expenses, and ultimately grow our pretax earnings by more than 15% corridor.
Overall, we're in a very strong financial position.
With that I'd like now start the culinary operator would you please provide instructions to our listeners.
Ladies and gentlemen, if you have a question or comment at this time, please first as far than the one on your touched on telephone. If your question. If it is really where some of your support from the Q. Please press the pound.
Our first question comes from doors that goes with bank of America.
Hi, Michael higher and this is my bomb sitting on for George I wanted to first kind of ask about the increase in guidance and maybe how do you go into more detail on some of the puts and takes in the quarter.
More specifically what came in ahead of your.
Expectations are below and really what ultimately drove this increase was it just that you know the efficiency improvements more than offset some of these industrial market challenges any additional they take it would be helpful. Thank you.
Good morning, Molly glad to have you on the call today, you know, we feel very confidently that the structure, we put in place the philosophy, we put in place.
[noise] Brady actually company that will not only be able to handle downturns like this but fundamentally the key to our success is that coming out of these downturns because we continue to invest throughout the downturn, we will be much stronger than our competitors on the other side. So as you take a look good.
Why we're improving our guidance, it's because we are improving sustainably in our processes in our performance. If I look at your automation I regularly get around the World tour facilities, I think thats very important and were able now to work so much better interactively on improving our manufacturing.
This is our focus how we're implementing automation has a couple of examples years ago. When I got here on many of our processes were unique in every location and now we're looking at literally best in class ways of doing things and sharing goes around the world. I know result, we're not only becoming.
More efficient in individual facility were collectively becoming much more efficient.
Interestingly in a structure, we're really looking fundamentally as Aaron I think is spoken in the past about making sure we do things that not our cost saving opportunity, but are changing how we do business first to help our customers more effectively and efficiently but also to drive.
Ourselves into a more efficient perspective, what we find if were more efficient and helping our customers. It actually also drives down our costs. So nothing we've done this quarter is outside of the norm at all it's literally focused on doing better as an organization.
We continue to do that and plan to do that and that's why you see expanded expectations for the rest of the year.
Thank you Michael I was really helpful. I have one other on ideas and then I'll turn it over you know you talked about further expanding the sales force and saw the selected end markets that you're kind of focusing on for growth could you kind of maybe outlined what some of those pheno targeted verticals are for you and related Lee if you could get some detail on how some of the investments you've made.
I guess health care product line are playing out relative to expectations. Thanks, yes. So.
Well, we're actually talking geography versus versus industries, we have very broad coverage and industries. In fact, a brady has some of the broader coverage if any company you're going to see there really very few markets.
Industries that we're not in we're looking at specific geographies, where we feel that that were underserved and have an opportunity to accelerate our growth rate even in a declining economic situation. Once again those type of proactive efforts are sustainable big.
Most of our strong financial position.
And those type of efforts will help us when others are retracting their interaction with customers during the decline, we're increasing our interaction and when you come out of the decline that once again helps tremendously so really it's a geographic play as opposed to otherwise as far as foreign investment in marketplaces.
You can take a look it had many of the different segments and see that we are improving in places like our our wire identification space. We believe we have world class applicators at this point and are continuing to push the boundaries in a world that is.
Todd somebody being challenged by labor cost increases and actually far more importantly, a lack of labor.
Throughout many parts of the world to do a manual jobs are type of products are giving our customers in everywhere from a harder shops to aerospace.
Two hundreds of other types of businesses the opportunity to do a higher quality jobs at a lower cost, but also eliminate the need for very difficult to find labor. So there is an example, right there.
Thanks for that I'll turn it over.
Thanks, Mike.
Our next question comes from fuel cost them with Northcoast research.
Good morning, guys, Hey, Michael you know I don't health care, it's been area, it's in a focus or years, particularly for the past several years all those down again this quarter for a little bit more color on what's you're experiencing that area and your expectations for it to turn around and be a growth driver here the next year or two.
What Keith I think.
That's a good point effectively we did say was a self help story.
Really need to work on issues that were a challenges that we hadn't focused enough on his new product development as you saw on our overall idea space.
We've done a we've done a good job of rebuilding our pipeline there and we are doing that on health care.
Also we are really.
Rating, our capabilities and capacities in the space I was literally just in our Q1 of facility, which is the primary manufacturing location for this business and we can do a much more cost effective manufacturing model now than we were able to do even six months.
To go on many key products that puts us in a tremendous position in some of them more cost effective elements of that business to be very competitive I'd also very competitive in regions, where world for worn competitive as much in the past and so I think we not only are looking at new product innovation.
But we're also looking at positioning ourselves to be able to handle.
A good better best approach to the marketplace in a way we happened before not all of our customers have the same level it needs in that space and not all of the products. We make a service every application perfectly so we're doing a much better job of manufacturing.
At the right cost point and also creating the right products for each type the segment that we were before that is going to take a little time could develop in the marketplace. Because as you know healthcare is a slower adapter there are more careful industry than others for very valid reasons, but as they adopt.
There are products, we do believe that we're going to see continued traction.
Gosh I appreciate any animal health curious that primarily the U.S. space business is there an opportunity to take the international and is that one of the primary focus is or is that more a secondary focus.
Very true and we are looking at Europe, a you know more effectively once again cost points are different in Europe, and as we're able to manufacture both more locally and more effectively.
We are in a better positioned to service Europe in particular.
Gotcha and changing gears on you with the current a virus I appreciate the China was only 4% the business. Okay provide more color there in terms of your your factories ability to produce right now it is perhaps the it's the challenging market now front a virus is that more demand issue is that more supply chain or is it perhaps both.
Keith I want to start with the outcome of corner virus I don't believe is known by anybody at this point, so I'm not going to pretend to give you a long term diagnosis what I can tell you is.
But I believe we're in as good or better position as any of our industrial competitors by far first we've looked at our inventory positions for finished goods throughout the world on anything that is coming from China and we're in very strong positions across the board.
Okay.
There's a lot of reasons for that but but the result is it we're in very strong position second of all we look at our raw materials that are coming out of China and we also feel that were very strong physician.
Finally, the issue of our customer base, it's impacted by China. That's one that's a global impact and certainly will impact us as customer needs to go down because of their impact by China will definitely be impacted by that but we certainly don't believe will be the leading edge of the problems now let's.
Talking about our people and our.
Product manufacturing in China, we do have a number of facilities there.
Pete none of them are we in the worst impacted region. Most of our our factories are backed up and running most of what the majority of our people have been able to make it back to our factories that are working you know logistics are still problem suppliers are still a problem but were.
Getting tremendous support and my hats are off to our incredible management team both in China in Asia and in the U.S. and Europe really working together to drive the best solutions possible.
This really shows.
The brady's approach to working together in helping each other.
Does make a big difference we've already been able to resolve some critical.
[noise] component issues that would be very problematic, if we hadn't solve them. So we feel good that is an extended that will be to solid position and VIX scans globally for a long period of time, that's going to have a lot of impacts of world economy.
That certainly Brady won't be immune from.
Alright, thank you.
Thank you.
Our next question comes from Joe Mondillo with Dougherty and company.
Good morning, Joe Hi, Good morning, everyone I'm not so Michael I just wanted to ask about your R&D strategy. So R&D has been declining and accelerated rate on a year over year basis with twoq.
Down the most that we've seen can you just comment on the strategy just given that context.
Yes, I don't see that's a significant decline in fact, our focus on R&D is strong.
We've been looking at some other approaches to be very effective than our spend it is not just for us about the spend it's how we spend while we're focusing on how we're doing it.
Actually our pipeline is very exciting is getting stronger the the big difference between just a few years ago is every product line that we have I can show you a product pipeline a literally a road map to the future I can show you how we're bringing.
Products and have brought out products and that all of our product managers can give you a holistic approach of how we want to be the number one player.
In their space and how we can get there so I feel very good about our investment R&D.
And there is no.
Correlation to any.
Particular numbers without any less emphasis on R&D quite the opposite our focus is very strong and as we.
Our Ian in economic downturn on pushing our teams very hard to make sure. We're focused on the products don't be but most likely to succeed as we come out of a downturn and to make sure. If we see markets changing at all because of different needs that we're on top of that and willing to flex in that direction is needed we needed to have.
The best product for our customers. It is our major sustainable advantage in the future.
Okay and then your operating.
Income has been slowing in terms of growth just given the tougher comps and then also though obviously the macroeconomic trends that you're facing.
However, they actually spike quite a bit in this quarter and then your guidance is actually suggesting.
Reverting back to that slowdown that we saw so can you explain.
If there was sort of a one off it wasn't an easy comp in the second quarter that really spike the growth that we saw in the quarter itself and then just in that context refer to you know the guidance is really suggesting sort of flattish maybe modest growth.
Operating income in the back half of the year.
Yeah. Joe This is there and I can take that question as we look as we look at the guidance for the back half of the year. The biggest frankly, the biggest variable in our guidance is actually our tax rate.
As you as I'm sure you know last year in the back half of the year, we had a very low tax rate in fact, I believe we had a 15% tax rate in Q3 last year, and we're anticipating a higher tax rate in the back half of this year still consistent tax rate at about 20% for the full year, which would be consistent with last year, but the team.
I mean between quarters is definitely a play into into the into the guidance now if you would normalize that tax rate.
Our guidance effectively implies flat to plus 8% EPS in the back half of the year and given given a number of the other question marks from an economic and industrial economic standpoint, we'll continue to push our teams will continue to drive revenue wherever we possibly can and cannot.
You need to drive efficiencies a that should that should result in us and a solid back half of the here, but but you really got to look at our tax rate that definitely plays havoc with with the quarterly phasing.
Right. So just a follow up on that that's essentially what does the indicating I was indicating the operating income is gonna be sort of flattish like you decide if you normalize the tax rate earnings will be sort of flattish. So the margin expansion that you saw in the quarter, obviously is not going to be sustainable in the back half of the year.
I'm just curious was the second quarter was an easy comp issue with the quarter a year ago or was there a one off type thing that you benefited down in the second quarter that you're not going to see in the back half.
Yeah really really we Havent had we haven't had one off items at all and it's really not a comp issue either.
It's frankly, it was very strong performance in the second quarter.
And as I mentioned that the low end of our guidance range, you're right, we're anticipating effectively flat.
But don't forget we still have currency that that's going against us as well.
And then at the top end as I mentioned, it's somewhere in the neighborhood of 8% on the top end, which given the given the top line challenges that many industrials are seen at the moment given unfortunately, the continued strengthening of the of the U.S. dollar the guidance actually at the top end.
Suggests a pretty strong operating income growth.
Okay, and then I was hoping to get an update on the balance sheet. I mean, you guys have consistently sort of been consistent with your approach and answer regarding use of.
And your strategy with the balance sheet any update regarding that since we continue to.
Grow the cash balances.
Under Levered standpoint.
Yeah Joe.
We have.
Remained consistent.
We have said that what I first got here, we pulled away from an acquisitive mode.
Because our acquisitive mode. It.
Not been it's effective as I believe it should have been and we had do we.
Focus on the fundamentals of our business. We've done that I think we continue to do that we haven't stopped doing that but we are in a position have been.
Oh look carefully at acquisitions.
Particular use of cash those acquisitions I should be a technology focus they should be able to allow both the acquired company analysis to be better off we want to win win win because we believe that's the most effective go and of course.
The price points have to be realistic until recently I fundamentally believe many of the acquisition price points have not been realistic on but the market itself is in some space is getting more realistic and we'll continue to give more realistic and as that happens.
We have a number of technologies and companies that we're looking at.
But I'm never going to predict timing of use of cash like that I'm never going to predict timing of acquisitions.
Because that's not the goal to goal for US if you use our capital wisely and effectively and we believe that we're in a great position to do that.
Okay and lastly, your Capex is gonna be ramping up in the back half of the year could you just talk about projects that you're investing in.
You know we're investing in a number of projects, we don't give specific trying to actual projects at a time you can obviously understand that but we do have some facilities that we have to invest in that are significant our philosophy on facilities are pretty simple we want to own the facilities that are long term.
Critical they require customization that require major investments, we want to lease facilities that are smaller more flexible in nature, and we really don't know.
How they're going to grow or be sustained in the future things like sales offices, we certainly lease those but but our key factories and facilities. We've been working hard to acquire those so that we can really control our destiny and you will see some of that but also we have approximately.
I mean, there that we don't talk about specifically.
Okay, great. Thanks for taking my questions. Thank you Joe appreciate it.
And I'm not showing any further Chris this time I'd like turn the call back remarkable.
Thank you very much.
I'd like to leave you with a few concluding comments. This morning looking forward I believe that Brady is didn't at very enviable position despite weakness in industrial economy over the last several years, we've made increased investments to develop high quality innovative new products had those new products are now.
Now coming to market, we've improved our customer service and support which is improving customer loyalty. We have healthy gross profit margins that further improved this.
Quarter, and we expect to remain consistent.
And we've been aggressively driving sustainable efficiency gains, which you can see inter continued her junction in cash in a expense.
All this has made us a more effective and efficient organization and that is better able to react and adapt to change.
And that is critical at this point in our global situation. These improvement combined with our solid balance sheet puts Brady in a position of strength as we continue to invest in our future. So that when our end markets recover will be even in a strong position and emerge.
But even stronger financial results. Our team is very motivated and I'm motivated to Brady for every single day, we plan to keep investing in organic sales engine keep driving efficiencies throughout the organization and to keep growing earnings and cash flow approach.
Wow defaulted accomplished so far and I know that we're making the right decisions today to set up up up for long term.
Financial results as always if you have questions. Please contact us. Thank you all for participating today and have a great Hey, operator, you may disconnect the call.
Ladies and gentlemen. This concludes todays presentation you may now disconnect number wonderful day.
[noise].