Q3 2020 Earnings Call
A standby and welcome to the Q3 2020 Brady Corporation earnings Conference call at the time, all participants on the listen only mode. After the speaker presentation. There will be a question and answer session to ask a question during recession, you would need to press star one on your telephone.
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I like to hand to conference over to your speaker today, the answer one Chief Accounting officer. Thank you. Please go ahead.
Thank you very much good morning, welcome to the Brady Corporation fiscal 2023rd quarter earnings Conference call.
But for this morning's call are located on our website at Www Dot Brady Corp. Dot com flesh 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 maybe leave forecast and anticipate or just a few examples of words identifying the forward looking statement.
It's important to note that forward looking information is subject to various risk factors and uncertainties, which could significantly impact expected results.
Factors were noted in our our news release this morning, and in Brady's fiscal 2023rd 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 in broadcasting it on the Internet as such your participation in the Q and a session will constitute youre consent to being recorded.
I'll now turn the call over to Brady's, President and Chief Executive Officer, Michael nominee, Michael. Thank you and good morning, everyone and thank you all for joining US today. This morning, we released our fiscal 2023rd quarter financial results.
This is far from a normal quarter and we're not in normal times, but under the circumstances our results were strong.
Before we get too deep in I'd like to thank all 6000 Brady employees across the globe. The Brady team really stepped up and provided many necessary products for frontline healthcare workers and other critical industries to support the worldwide by other cobot 19 virus.
Brady is an essential business, we support first responders healthcare workers food processing companies logistics company and all 16 of the federally designated critical infrastructure sectors. Our team has worked tirelessly to help solve our customers' problems manufactured the liberal the products that they.
Need and divide the best possible service I'm extremely proud of how our products help keep the world safe and I'm extremely proud of how all of our Brady employees embraced our core values each and every day. It are people that truly make Brady a great company they're living.
Our motto, making the world better and safer every day.
Our products are used throughout the world to help hospitals and laboratories, it didn't apply attract samples and medical equipment and do it didn't apply and keep patient safe. Our products are you just don't businesses and governments, but social distancing signage is used all around the globe to help provide a safe work environment. When employees returned to work and our products are used to help company.
Is it didn't find track their assets when they have employees working at home.
Brady safety and identification products are definitely in demand during these challenging times.
Ladies operations are currently open worldwide. However, like many companies, we still have a significant number of employees working remotely.
Given brady's large baby footprint, we're taking different actions in different geography and in all cases were following the recommendations the local governments and health agencies.
During the quarter, we did have some factories, who were shut down for short periods of time. However, we do not believe that these shutdown impact of our customers in a material Mad men.
Financially Brady is very strong we have $239 million of cash in hand, with only $49 million of debt outstanding at the ended the quarter. We're incredibly good financial situation and are well situated for whatever the economy throws at us this strength enables us to stick to our strategies.
Well, many other competitors will need to dial back on their spending for the future. We are optimistically ramping up our growth investments. Other companies may be focused on surviving we're focused on thriving Brady would come out of its downturn stronger than ever.
Our strategy to perform during this period of economic challenge and come out of his downturn much stronger than our competitors are too first and foremost invest in growth. We are and will continue to invest in sales generating resources, we're improving our web sites around the globe, we're investing in new products, we're investing in capacity enhancements.
Scenery and we're doing what every weekend to increase customer satisfaction. It's at times like this where Brady strong focus on customer service can really separate us from or competition. Our multichannel business model enables us to further some men are strong customer relationships, especially during these tough.
Thanks.
Second we're continuing to drive efficiencies in automation across our global footprint, we're not backing away from ROI positive investment even if the respective investments make take sometime before the benefits are realized for instance in March we went live on S&P in our health care business in California and Mexico.
We certainly incurred costs. This quarter is all of the system go lives, but youre, absolutely pay dividends down the road as we're able to further streamlining our processes. Because we are now on a common ERP platform will not backed away from driving sustainable efficiency gains like this disease investments are critical to helping us maintain.
Our strong positive momentum.
Third we're consistently deploying our capital reinvesting back into organic business, we're paying a strong dividend and we repurchased shares this quarter fundamentally to the consistent execution of our capital allocation strategy is a strong balance sheet and a focus on cash generation both of which.
Hallmarks of Brady Lastly, our strategy to thrive when we come out of this challenging economic period involves being as efficient as possible. We will not let our strong balance sheet allow us to become complacent, we have been on a multiyear drive to become a leaner organization, which can clearly be seen in our financial trends.
As our gross margins are strong and our Sta expense is consistently declining this year, we excel this quarter, we accelerated many previously planned actions and we took numerous other actions to reduce costs.
Personnel costs, we reduced discretionary spending we shifted advertising dollars from print media to online campaigns and we streamlined our facility footprint. These actions have made Brady and even leaner organization, while not diminishing our ability to grow to contrary, we've been making decisions faster.
Sure and moving forward aggressively so that when we come out of this downturn and the economy begins to recover we will be well positioned to accelerate our growth within even lower cost structure.
As it relates to future cost containment efforts, we have a dynamic strategy that is focused on modifying our cost structure commensurate with changes in demand, while continuing to invest in the growth areas that I. Just mentioned we began formulating this plan over 18 months before this current downturn, which highlights our ability to drive too.
Market cycles in a thoughtful and strategic manner, focusing on the long term, while dealing with the short term.
Shifting gears to our financial results, our organic sales decreased 6%. This quarter. However that doesn't tell the whole story digging deeper into our order pattern organic sales actually grew 2.7% to the into March and then declined 22.6% in April.
Even with sales tailing off in April we still recorded our strongest quarterly cash generation of the year with cash flow from operations be 42.8 million and free cash flow 34.3 million.
As we move through late March and April order intake trend downward in both North America, and Europe, which is a direct result of many of the economies effectively being shut down as Europe and North America started to open up in May our bookings have stabilized although at a lower level.
Well North American Europe are struggling Cheney came back online in March our China business showed organic growth in the mid single digits in the quarter or Australia business is also doing extremely well as our work team worked tirelessly to provide the best possible service to our customers and supply critical products that they need.
In Australia, our business grew just over 30% this quarter.
Our current business philosophies are the same business philosophies that have served us well and that we've talked about in virtually every call for the last five years, we believe in having a strong balance sheet and never overextending ourselves, we make cash based decisions, where a manufacturer and we are focused on bringing innovative.
Safety, an identification solutions to our customers in niche markets, we pride ourselves and providing the best possible customer service and we never stop focusing on driving sustainable efficiency gains.
The simple business philosophies amongst others have put us in a very strong financial position that enables us to take competitive actions from a strong position of strength.
We're controlling what we can through our reduced cost structure, which will continue to result in cost savings. When you combine that leaner cost structure with our ongoing organic sales investments and our strong balance sheet, we're positioned extremely well for even stronger returns and growth once our key end markets recover I'll now turn the call over to.
Aaron to discuss our financial results, then will return to provide specific comments commentary about.
<unk> percent, while diluted EPS declined 60% to 26 cents compared to 65 cents in last year's third quarter pre tax earnings were impacted by $13.8 million of noncash impairment charges against trade names and other long lived assets. This quarter. The largest component of these charges was an impairment of trade name.
James in one of our WPS Americas businesses, where we primarily serves small companies such as restaurants salons and other small retail shops, many of which were completely shut down in March and April excluding these impairment charges, our third quarter pre tax earnings would have been down 12.2%.
Diluted EPS was also impacted by these impairment charges, which amounted to approximately 11.1 million after tax and our tax rate was higher than normal as well at 38.5%. This quarter, primarily because we recorded a valuation allowance against certain tax credit carryforwards. If you exclude these impairment charges and norm.
Analyze the tax rate to our projected longer term tax rate of 20%.
EPS would've been approximately 54 cents this quarter, a decrease of 11.5% versus Q3 of last year.
This quarter, we also incurred expenses, including severance charges. The write down of previously capitalized catalog costs and labor costs, where we were paying employees, who are not able to work due to stay at home orders. We also closed two small facilities and recorded the appropriate shutdown costs this quarter.
All of these incremental costs were effectively offset by reduced incentive based compensation, which we reduced this quarter because we no longer anticipate the same level of fiscal 2020 annual bonuses. Thus, we adjusted our estimates accordingly.
The actions, we took this quarter to reduce our cost structure. We're a combination of both short term items, such as reduced travel and print advertising as well as permanent cost reductions such as the head count reductions and facility consolidations I just mentioned.
Many of these actions were the acceleration of previously planned activities as we continually work to reduce our cost structure in a sustainable matter for instance, even though our facility closures. This quarter were small they are important as we continue to streamline our cost structure. So that we can come out of this period of reduced to economic activity with a cost structure that is permanent.
Leaner, while colocating employees enables us enables us to more efficiently serve our customers.
Turning to slide number five you'll find our quarterly sales trends.
Organic sales in our identification solutions division declined 8.2%, while organic sales in our workplace safety Division grew 0.2%.
Brady sales were buoyed by approximately $11 million of products directly related to supporting the fight against the Cobot 19 virus, we're quite proud that Brady products ranging from labels for test tubes for the collection of human saliva samples to floor markings for social distancing to signage to improve personal hygiene were used by people all around.
Hello to keep us safe, we believe that demand for many of these products will stay elevated for the foreseeable future as the world becomes more focused on personal hygiene and social distancing.
Slide number six is our gross profit margin trending our gross profit margin was 48.7% this quarter, which was a decrease of 160 basis points from last year's third quarter. We saw some cost French pressure subside this quarter, including tariffs and some raw product costs. However, we also incurred certain costs.
It's related to employee severance and the like excluding these one off costs product mix and excluding the benefits from the reversal of incentive based compensation. Our gross profit margin would have been in excess of 49%.
Our main operational goals this quarter were to ensure the health and safety of our employees and ensure that we gave the best possible customer service, while not backing away from investments that will grow future revenues are drive future efficiencies the efficiency focused culture that we've built over the last several years has been extremely effective and helping us maintain our.
Strong gross profit margins.
Turning to slide number seven you'll find our SG in a expense trending SDMA was 83.2 million this quarter compared to 94.7 million in the third quarter of last year as a percent of sales SGN a decrease from 32.7 in last year's third quarter to 31.3% of sales this quarter approach.
Approximately half of our SGN a decline was due to ongoing benefits from the efficiency actions, we've been driving over the last several years combined with the reduction in discretionary spending.
The strengthening of the US dollar contributed another 15% that the to the decline in SGN, a this quarter and the remaining 35% decline in SGN, a was due to reduced deferred compensation expense and other incremental charges such as severance net of reduced incentive based comp.
Slide number eight outlines the trending of our investments in research and development.
This quarter, we spent $9.8 million on 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 get the most out of every dollar spent on R&D. Our R&D spend was down this quarter due to reduced incentive based compensation and some reduction.
Runs and project spend we have no intention of backing away from our investments in R&D. As these investments are critical to our long term success. In fact now is when investing in innovation is most important because we suspect that many of our smaller competitors don't have the financial wherewithal to continue investing throughout and economic downturn.
Moving to slide number nine you will find quarterly trending of pre tax income.
If you exclude the $13.8 million of impairment charges that I mentioned than pre tax income would have been 36 million, which would have been a decline of 12.2% versus the third quarter of last year.
Slide number 10 illustrates our after tax income and EPS trends.
Feeding into this quarters. After tax results is an income tax rate of 38.5%. This compares to a tax rate of just 15.1% in last year's third quarter over the long term, we continue to expect our tax rate to be approximately 20%.
Net earnings and EPS were also impacted by the impairment charges that I just mentioned.
Turning to slide number 11, you'll find a summary of our quarterly cash generation, we generated $42.8 million of cash flow from operating activities and free cash flow was $34.3 million on an annual basis, we've 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 and this quarter was no exception as cash flow from operating activities was significantly higher than net earnings on a year to date basis cash flow from operating activities approximates 113% of net income.
Slide number 12 shows the trending of our cash position along with our debt structure at the end of the corridor. We finished the quarter with cash of 238.9 million and debt of 48.9 million, resulting in a net cash position of $190 million and on May 13th we fully repaid our price.
Other placement so as of today, we have no external debt and have access to our fully undrawn 200 million revolver, making our balance sheet very strong.
Our approach to capital allocation is consistent it is disciplined and we are patient first we use our cash to fully fund organic sales and efficiency opportunities throughout the economic cycle, even in very challenging economic times like we're experiencing today, we continue to fund investments in new product development sales general.
Adding resources improvements capability enhancing capital expenditures and Capex to further automate our facilities, we will keep funding these investments where it makes sense and where the investments our long term ROI positive and second we focused on returning cash to our shareholders in the form of dividends. This quarter, we paid 11.3.
In dollars and 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. This quarter, we repurchased 1.4 million shares.
Ladies strong balance sheet and strong cash generation, even in challenging economic times gives us the ability to stay consistent with our capital allocation strategy.
Before turning the call back over to Michael Let me comment on our guidance, which is on slide number 13.
As you can see were withdrawing our financial guidance for our fiscal year ending July 30, Onest 2020. This decision was based on our lack of future revenue and earnings visibility. Although we don't have a clear picture of what the macro economy will look like in the near term, we fully intend to continue to invest in ROI positive capital expenditures as it relate.
To our dividend, we just announced our normal quarterly dividend last night, and we have a streak of increasing our annual dividend for 34 consecutive years I just mentioned our consistent approach to share buybacks and of course, we will continue to invest in innovation sales generating resources efficiency activities and an actions that improve our customers experience.
It's during these challenging times when strong companies like Brady can keep investing and emerge a leaner yet stronger company. So although we're pulling our formal guidance, we're not changing our operating philosophies, we have a strong balance sheet and we will use it as a tool to drive outsized returns when we emerge from this period of depressed demand.
And.
I'll now turn the call back over to Michael to cover our divisional results and to provide some closing comments before the Q and a session. Michael. Thank you Aaron Slide number 14 outlined to first quarter financial results for our identification solutions business.
I'd add sales declined 9.7%, finishing at 193.2 million within organic sales decline of 8.2% and a decrease from foreign currency translation of 1.5%.
Our ideas business grew 2.2% organically through March and then declined 27.6% in April when the full impact of European and North American companies shutting down with felt we believe that part of the growth through March was due to distributors increasing inventory levels and we also believed that the large decline.
In April was partially due to some level of de stocking at the same distributors, we experienced modest organic sales growth in Asia. This quarter as most of the countries in the region opened up sooner than they did in Europe, and North America organic sales in both Europe and the U.S. group in March and then declined by more than 20.
Percent in April although we started to see what appears to be stabilization of order patterns in may our order intake is still well below prior year levels, indicating that may will also be a challenging month.
Aside affected the cobot 19 pandemic in the U.S. is it elective surgery and hospital admissions were down significantly in the quarter, especially late in the quarter as a result sales our healthcare product line decreased in the low teens this quarter.
We took many cost actions in our ideas business to counteract this revenue decline in April and we incurred certain expenses in the idea segment in direct response to these reduced revenue levels such as severance. However, these additional costs were also or more than offset by reduced incentive based compensation this quarter.
I'd add segment profit was 36.4 million compared to 39.9 million in last year's third quarter as a percentage of sales idea segment profit improved slightly over the third quarter of last year as a team did a nice job of quickly adjusting their cost structure to match the reduced revenue.
Levels.
We've continued to generate strong profitability, even though we had organic sales declined and foreign currency headwinds. This strong profitability is the result of the ongoing efficiency gains that we've been pushing for several years throughout our business and the significant reductions in discretionary spending.
We are committed to investing in R&D innovative new products have been and will continue to be a competitive differentiator for Brady. This quarter, we launched numerous new products specifically related to the fight of covert 19, and we also launched a number of other new products, including further expansion.
End of our laser marketable label lineup. These proprietary proprietary probably mid labels are designed to be permanently mark using IR lasers and are ideal for use in circuit board applications and electronic components. These laser remarkable labels resist repeated harsh washed down cycles resist tight.
Temperatures that occurred during soldering and are compatible with most IR laser marking systems. These are the type of innovative products for niche applications that Brady is known for.
Looking forward and ideas, our top priorities, our first and foremost keeping our people safe.
Investing inorganic growth opportunities in both sales and R&D to launch innovative new products to serve our customers extremely well and to continue to drive efficiency in our manufacturing processes at Ash DNA.
Slide number 15 outlines our workplace safety financial performance.
WPS organic sales grew 0.2% and foreign currency translation reduced sales by 4.1% this quarter through March our WPS business grew 4% organically and then declined 7.5% in April when the full force of European and North American companies shutting down took effect.
In Australia, where they weren't hit hard by the current virus. Our sales were up just over 30%. This quarter now we don't expect this level of growth to be sustainable in the future, but we do expect our Australian business to continue to grow throughout our fourth quarter.
Organic sales in our WPS Europe business were up in the low single digits. This quarter much like in Australia. The strong entrepreneurial spirit of our teams and the essential nature of products propelled us to grow this quarter, even though many businesses in Europe were closed for much of the quarter.
We're very pleased that we're able to grow and provide outstanding support to our customers in their time of need.
Our businesses in the Americas declined organically in the mid teens range of quarter, we have a business itself, mostly to very small businesses. This business was significantly impacted by government mandated shutdowns of our customers for most of March and all of April. These shutdowns were the main drivers of our weak sales at our double.
Bps Americas business.
Our workplace safety team around the globe launched many new products direct squarely at aiding in the Colgate 19 fight, we launched a complete line of social distancing for markings, a complete line of personal hygiene signage, several new and highly innovative temporary barriers ELP direct people equipment away from hazard.
And we also supplied many organizations with personal protective equipment.
As a result of these aggressive actions to reach as many companies is we could we added over 20000, new customers. This quarter. The addition of these new Custer Mers along with expanded product lineup will definitely make us a stronger company as we emerged from this period of economic weakness risk.
Positive rate to digital advertising increased this quarter, while the effectiveness of traditional catalogs decrease somewhat although this shift away from catalog online channels was certainly impacted by many people temporarily working from home. We believed that this pandemic may further accelerate this shift in buying patterns from tradition.
Catalogs to online channels, we're accelerating the migration of the last few remaining businesses to our global web App platform. We believe that accelerating these types of actions ultimately has a long term benefit as enables us to move significantly faster with website enhancements and the launching of new products.
In addition to increasing our customer list by providing higher quality customized products and delivering them faster than our competitors our model of having a very knowledgeable local sales team also provides significant benefits as we're able to help many customers by gaining a full understanding of their problems and quickly Kayla.
Blurring customized solution to meet their specific needs.
We remain focused on three primary priorities to return a WPS north Americas business to consistent organic sales growth and improved profitability first we're improving the buying experience for customers. So that as simple as possible, reaching our customers away they prefer to be reached whether its online mobile catalog in.
Person or through a combination of these channels is essential to return this business to growth, which is exactly why we're focused on having industry, leading web sites and talented customer service personnel. During these challenging times the combination of industry, leading websites and strong live customer service has shown itself to be powerful.
The combination second we're increasing our customer interactions beyond only fulfilling orders. This allows us to better understand what our customers are dealing with from a safety identification perspective, and helps us to better serve those needs by offering our compliance expertise and complete solutions, which are competitors do not possess.
Third one of our strengths is our ability to quickly customized products, we're improving our portfolio of products by introducing more customized and proprietary products that our customers need and want.
We're increasing the value that we bring to our customers by focusing on these priorities, which creates loyal customers and improves our sales and profitability over the long term.
Economic conditions, and our two largest geographies are challenging right now, but we're able to finished the quarter with slight organic sales growth in WPS WPS segment profit was 4.4 million this quarter compared to 6.1 million last year's third quarter, if you exclude onetime expenses, including the right.
The off of previously capitalized catalog costs and the benefit of reduced incentive based compensation. The Aaron mentioned R.W. past profit would've been approximately flat when compared to the third quarter of last year overall, our WPS business continues to improve and I'm confident that these recent increases in our customer lists.
A recent new product launches and the strong entrepreneurial spirit of our team.
That WPS business is poised for solid results when economies emerge from their lockdown.
Again.
Very proud of the role that Brady is playing in the fight of cultivate 19, our team has stepped up and our products are essential now and will be essential as a world gets back to work, we're a tough macro environment, but Brady is in a very strong financial position, we have a strong balance sheet as strong cash flow but.
We cannot and will not be complacent, we will be diligent on costs will continue to execute sustainable efficiency improvements, while investing in selling resources in R&D to drive organic sales growth over both the short and long term, we intend to come through this period, an even stronger position there were.
Today, and we're confident that by maintaining our focus and eliminating distractions, we're setting ourselves up to do just that with that I'd like now to start the acuity operator would you. Please provide instructions to our listeners.
Thank you Sir as a reminder to ask a question you would need to press star one on your telephone to withdraw your question press the pound.
Please standby, while we've compiled accuen a roster.
I show our first question comes from Allison Poliniak from Wells Fargo. Please go ahead.
Hi, guys good morning.
Wanted to talk about ethic I know one of your focus areas has been more of this consulting our full service approach.
Just given what's going on can you maybe talk about what you're seeing across Asia, and then Europe and North America in terms of inquiries around that I mean is that increasing free where do you think you came better share. During this good good morning, Allison well I will tell you as we mentioned our revenue.
Just from coal vivid and a lot of that comes from Consultive efforts and interactions is up $11 million I want to be very clear that is what we can determine easily and in a defined manner. We do sell a lot of products that it's not intuitively guaranteed that it's covered but we are seeing there's indications that more.
Our business is being sustained by that as well and that comes from our ability to as you pointed out a consultatively interact with our customers. We're also seeing improved our revenue from other product lines because of our covidien interactions and the discussions we have about a total approach to.
So servicing their safety needs. So we've actually seen an increase of covered to this but actually more importantly, we've seen an increase of noncovered products as the customer looks at the total safety package that they need to handle as we turn through this problem. The final thing I'd like to say is.
The fact that Weve now we're up to over 22000, new customers is not accidental that is part of this effort and is a direct result of a disconnect in the world that allows us to really penetrate many more customers that we expect to continue to consult with and to sell to as we not only moved through the transition.
Ins, but out of the transitions of this phase.
That's helpful and just want to get back to your comment on inventory levels in terms of stocking in answer to this destocking on phenomenon that happen do you feel like you stabilize that are you seeing I would assume just given your comments around asset sales that maybe that's behind us any color that you can provide there.
Right, so up for inventory levels for the business with their distributors. We did see what we believe was why stocking buyer distributor is if you recall that period of the pandemic around the globe people were very uncertain about supply chains and although Brady.
These supply chain is extremely strong our distributors were looking across the board and we believe we're bringing in more stock front loading. It just as we work by the way during that time period being result, as they feel more confident particularly in suppliers like us.
They obviously want to destock, because they had stocked up we believe.
For this and they want to bring it back to more normal levels. We do think that we have.
Flattened out at this point in our ordering levels, we see a trend now that we can say we believe is a flattening.
It is obviously at April levels as opposed to.
Higher levels.
Great. Thank you I'll pass it along.
Thank you Allison.
Thank you.
Your next question comes from Georgia Staffers from Bank of America. Please go ahead.
Hi, Mike Irons is actually buying bonds in Africa, our staff.
In call.
I want.
But with a question on.
Yes, so last where idea and Asia was down.
Mid single digits in this quarter was up modestly you view Asia as an early indicator of what maybe we could expect to see in Americas or in Europe kind of as needs.
So thats Dang regulations, and guidelines sort us start to ease but thank you. Thank you Molly appreciate the question.
It's a crystal ball type question obviously.
Much of out of China's sales come both internally and externally and so their internal economy is strengthening and they are selling more too.
Western companies than they were obviously when they were shut down for the pandemic. There is always a concern that you could see us some downside or turn.
Related to western companies and their shut down and there is slowing down because obviously a large part of that economy is dependent on that have that said I do believe western economies are opening up we've seen Europe opening up we're seeing the United States opening up and so at this point, we're hoping to see some.
Stabilization that doesn't mean, you won't see ripples.
During the process.
Understood. Thank you appreciate that Isnt there.
And my second question and I apologize, probably another crystal ball, one, but no efficient ultimately the markets right now, but it sounds like maybe.
Realization in May relative to April.
I was hoping to get some additional clarification on maybe some of the trends are the uncertainty that kind of gives you pause as to your core performance last quarter year, and really kind of what lesion withdrawn guidance, whether there's what potential sources of upside or downside there might be thinking.
Thank you.
Well Molly is you financially live through this.
Crisis as the rest of US have you watch the companies and what's going on.
I do realize industrial or were one of the early indicators of April results.
But april results were dramatically down.
For us and we are bought indicator of the industrial economy at large we actually sell to every S&P code there is.
So we can typically see an awful lot indicators also we don't have ever along backlog, we typically our book and ship very quickly. So in one hand I can't tell you. What July is going to look like in the other hand, I can see the different industries that are impacted and how they are impacted.
No surprise to you or anybody else on this call aerospace is struggling tremendously the automotive industry is trying to get back up and going but our they're facing their challenges.
Areas like leisure and entertainment can only be described as a short to medium term disaster. So as a result.
Even though we are seeing a flattening of our bookings which is good that we're seeing that they are stabilizing we don't want to pre predict.
How all of these different industries are going to react and as I said in the case of China. We may see ripples will that will rippled through very quickly to arc Asian business as well and although we feel very strongly that our Australian business is going to continued to do well.
We aren't sure exactly how much better they'll do we certainly commend them incredible team with 30% growth last quarter, but we don't expect that to happen again this quarter as an example.
Okay. Thank you I'll turn it over thanks, Thank you Molly.
Thank you.
Your next question comes from Joe Mondillo from Sidoti Capital. Please go ahead.
Good morning, everyone.
Good morning Wahler.
So just a follow up on Molly's question regarding Asia, and specifically China.
We are hearing a little of about potential second wave.
And some shutdowns that are happening in part of the country are you feeling any of the effects from the and what are what are your thoughts on what's going on with the economy over there given the.
Well I definitely don't want to be a news reported but I believe those are the regions that are close to all the Russian border and areas like that we don't do a tremendous about a business in that region. So I honestly coding comment specifically about those light it impacts I can say this I.
I think that our team in China has done an incredible job. They got to backfill worked very very quickly. They bought the business back up significantly in a rapid and thoughtful manner and I think even if we do see some downturn there again I.
I think it'll might mainly be from western business reductions as opposed to shutdown, but once again that is a crystal ball statements all want to be careful about letting you know that I I certainly don't have a brilliant insights on on particularly that region of China.
Okay understood.
Your comments on bookings sort of stabilizing in may.
Is that just an overall the last three weeks and my comment or when you look week to week and I never really want to talk week to week, but on this thing is just changing so quickly.
So I'm just curious was that a generalized comment on overall may or has anything changed over the last three weeks.
So first of all yes, I never comment on day to day I never react to day to day issue could imagine you know even looking at a holiday will give you a a gut wrenching feeling that every bit of business is shut down and then you realize Europe's on a holiday today, so you're right never wise to look at the very short.
Term, we're looking at trends and our trends show two things one that we've been actually much more stable in the gyrations. So if you looked at April our sales were going up and down.
Like a roller coaster.
In the month of April much more stable in may and they've stabilized at a consistent level as we said at approximately the revenue level of April.
Okay, Great and then regarding your cost reductions this couple of questions.
You mentioned head count and facility closures of all of that.
Is there any way you can quantify what is permanent.
Costs that you took out in the quarter.
Yeah.
It's a real challenge for us to suggest to determine what is permanent versus temporary I mean, right now many of our cost reductions.
I'll say on the surface would fall into the temporary Cam So think travel all employees on furlough et cetera.
Because of course, we want to make sure that we can balance the need to drive cash flow today without harming our future.
But we've also of course reduce some some permanent cost as well such as the system implementation that Michael mentioned.
The facility closures that I mentioned.
However, right now and frankly, it's quite difficult to comment how much is permanent versus how much is temporary it's a really blurry line I mean for instance, we we don't believe that the same level of catalog costs that we incurred prior to covert 19 will ever come back as an example.
So catalog drops will definitely increase in the future, but how much and what geographies. We just flat out I don't know the answer to that yet.
So basically as you think about our cost structure really the key to takeaway is that we remain committed to to driving efficiencies and as you can see in areas like SG and <unk>, we have a strong track record of reducing costs consistently and sustainable and frankly, we anticipate that that will continue into the future.
But it's it's again from a crystal ball standpoints really tough to determine exactly how much and when.
And layer okay understood.
Regarding the facility closures you guys still.
I mentioned those are two small facilities.
Even beyond that you have a I believe a ton of facilities around the around the world could you talk about the your manufacturing footprints.
And if theres any further opportunities to make any sort of structural more structural changes like that.
Joe I would actually say, that's one of our incredible strength as you look at this downturn.
And you look at companies its struggled getting out product we were not one of them. We have been working hard to get closer to our customers. Both from a sales perspective from a product development perspective, but also from a manufacturing perspective. So the one thing as we look.
Look at making sure our facilities are robust, we're not going to do and that is moved farther away from our customers I actually think we are three years ahead of the world in as a result of this pandemic in making sure that the supply line to our customers is very.
Short and very strong we are trying to increase.
Our ability to supply products.
From two weeks the overnight in some specific cases, and we were doing that before this.
Pandemic kit and we're going to continue to do this I will say that obviously, we did shutter a couple of very small facilities.
But and we will continue to look at that but the one thing we aren't going to do is moved farther away from our customers I think it's been an incredible strength of ours that we can chip overnight in some of the most challenged regions in the world and yet we were still shipping to people who were desperate for our products.
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Okay understood well, thanks, a lot thanks for taking my questions and hope everyone as well. Thanks. Thank you Joe Thanks for your time.
Thank you. Our next question comes from Keith Johnson from Northcoast Research. Please go ahead.
Good morning, everyone. Thanks for the questions.
Michael just trying to understand a little bit more the.
April ahead on ideas and WPS.
I understand the perhaps a de stocking impact on ideas.
There is obviously.
Significant difference between the two segments can you provide more color about perhaps why that was an is at $11 million or you think plus from the cover 19 impact the impact more I'd ask our WPS.
That was almost all right. So the 11 million that we are actually designated was almost all from WPS. It is much much more challenging for us to be able to determine whether was used for covestor not in it. So let me give you. An example, if we look at four markings.
If the floor, marking has stay away six feet on it I can clearly determined that cove it but the vast majority of ideas for marking does not specifically say that but it could very well be used for this particularly when factories are shut down. We just are not going to call out a number that.
We can't stand behind so, yes, I do though that said believe WPS as model of Super Rapid response Super innovative capabilities.
In some of our locations I was receiving updates from my the team that was so proud because they had reduced two day delivery during the height of the pandemic to overnight.
And literally 95% of their products were going out overnight when 70% of their products had been going out and to date and their volumes were off so I think WPS did have a a better ability through their customization their rapid turn to really respond and to cover the holes caused by.
Regular industrial business being down.
Got it appreciate it in Australia, just phenomenal quarter.
And I appreciate you don't expect that suit unnecessarily replicated those levels.
But can you provide more color about what they appear to be honest club villas.
Strong or have an impact, but what else. They do differently. There that I guess is that replicable to the rest of the company.
Well I will tell you there are very tight knit team, they're all co located and we do have a Perth facility. So I don't want to it first on the call most of them are co located.
In Sydney, but they were able to do a tremendous job of leveraging all the capabilities of our other groups around the world and by the way Keith I would say that Thats something we couldn't have done a few years ago. The cooperation between regions between divisions between businesses. During this town downturn is.
An extraordinary they were also able to speed up their processes tremendously. One example is if you look at the banner that goes on web sites.
They were doing stand up meetings, so remote stand up meetings every two hours because they were running on a product on a two hour basis to change their banner, whereas normally they would do that better change about every two weeks. So they sped up their process a fed up the thoughts they set up.
Our ability. They also are really did a great job of getting products in North America in particular, some of the op PPG products, we've struggled to get in in the way that other regions had been able to get in and Australia, just did a tremendous job in everything from mass.
Yes to gallons to first aid kits, which to gloves I mean, you name. It they were able to provide those to their customer base as by the way was Europe up much more to extend North America has been very very challenged not just.
Brady and WPS, but in general.
Great. Thanks, if I could just squeeze one more in here.
The impairment was related to what I understand trade names with and so some of the brands you saw the SMB portion of your overall business would you clarify I saw the smbs versus say, a large comp stores customers.
Yes, we don't look at that quite frankly, and I don't know that I'd break it out if I didn't look at it.
I will tell you that in one particular businesses, which is not a large business of ours, but large enough it had a big impact.
It is a significant 75% part of that business and when you do that but I will tell you incredibly proud of the way that team quickly responded.
Introduced new Kobin related products.
Really made sure they were reaching the customers they put them away they could and as we come out of this I think they're going to be able to be like Phoenix rising from the ashes or thats at least our our hope because of just how well they handle that turn and changed their approaches and philosophies and although.
We know very small businesses in North America are going to be challenge I mean, I've heard numbers of restaurants, and say, 40% may not come back once again im not a news reporter.
But but both of the type of numbers were hearing.
And if you look at retail I've been told small retail businesses.
Are going to be even more impacted.
It will be a challenge to come back.
But we will help and support those businesses as much as we can in any way that we can as they come back to social distance to handle hygiene. All the challenges. The last thing is small business owner, we struggled with cash employee issues getting customers back need for me about Keith I'm very proud that although.
No we don't break it out we are a backbone and support to those type of businesses in America at around the world and.
That makes you are proud because our job is to make it easier and to give our customers a safer.
More reliable environment.
Yes.
Mike I appreciate it thanks all of your thank you Sir or have a good day. Thank you.
Thank you.
Next question comes from George Staphos from Bank of America. Please go ahead.
Hi, guys into thinking on my follow up question, Hi, again.
The first question I was asking about kind of related capital allocation.
That's a pretty.
Sherry purchases this quarter and we've heard a lot of other companies based talking about.
Spending share repurchase just in light of all the uncertainty.
Around call that and I'm curious, how you're thinking about.
Yeah.
The return through the remainder of the year and Tom maybe we get more clarity in terms of what's going on that with the pandemic.
Thank you Molly I would I would say, we don't change our philosophy based on temporary circumstances, we clearly have in won't we have a very consistent capital allocation strategy. The strength of our balance sheet allows us to continue to do that.
And we are actually accelerating anywhere we can so our first goal is to reinvest in our businesses and I think you heard on equivocally. Our I have challenged every leader in our company to find ROI positive investment and to be making them and making them quickly and the great.
Part about that is I've seen.
That actually happening people are speeding up their processes and I look at the big ones, obviously and everyone I see I'm excited about so the second area that we work on is our dividend as Aaron already reflected we declared our dividend we have 34 straight years of increasing that dividend that's it.
Another area that we're looking at long term not short term and then we take a look at share buybacks.
And and as you saw we bought back this quarter.
We were getting nails.
In the very peak of the cycle for two things one we weren't buying companies, it's super high multiples when they are at their highest profit level and two we weren't buying back Brady stock at I think we peaked at about 50 950 and my answer to that both those questions are consist.
And with pharma to tell you now we don't value our stock that's down our job thats the job of our investors there that we create value. We ask you to determining we do though when we see it disconnect to significant disconnect like the buyback our stock as a way to improve our overall.
Turn for our shareholders, we feel very good about that that philosophy didn't change before the downturn is going to change during the downturn and won't change after the downturn and then the final factor, which you didnt ask but it see into the capital allocation is on acquisitions. Once again, we were getting nail.
That said, we're not in a hurry to spend cash it doesn't burn a hole in our pocket.
What we do care about is getting great technology into our company that we can't create on our own in a cost effective manner and so we have a large list of companies that we talked to interact with and research and as the time is right and there right.
We're going to continue to work in that direction that said, we're not going to catch a falling knife.
We're not going to look to see if we can be a fixer upper special we want strength of technology strength of opportunity. Good organizations. So Molly I hope that answers. Your question I think I added a little more to it.
But it's a pretty holistic approach that we have and it's a very long term approach that we have.
Yes definitely my question my second on the going to be about M&A, but thats about as well. So I appreciate I'll turn it over thank you sorry about that Molly.
Thank you.
Thank you.
No further questions in the queue. Sir at this time I like to turn the call over to Mr., Michael Norman President and CEO for closing remarks.
Thank you so much I'd like to leave you with a few concluding comments this morning.
While the timing may be uncertain did pandemic will eventually subside and we will return to an increased level of economic activity. When this happens it will not be business as usual the demand for certain of our identification and safety products has increased and we believe that certain changes in buying habits.
Have accelerated as well we also believe that this pandemic will impact supply chains for many years to come as companies reassess their dependency on certain countries or geographies companies will work to eliminate situations for the supply of critical components lack redundancy and resiliency we buy.
I'll leave that we're very well positioned to benefit from these changes.
Although the challenges may be short term our opportunities our long term.
We have been investing in new products and we gained many new customers in short we are very positive about brady's future.
Please stay safe and thank you for your time. This morning have a great day operator, you may disconnect the call.
Thank you, Sir ladies and gentlemen, this concludes todays conference call. Thank you for participation you may now disconnect.
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