Brady Corporation (NYSE:BRC) Q1 2023 Earnings Call Transcript

Steve Ferazani: Good morning Russell, Aaron. Thanks for all the detail on the call. I do €“ Aaron I want to dig into a little bit about with your comments on the guidance range, because it didn’t move. There is obviously a lot of moving parts here. Specifically, you pointed out the stronger dollar than it was three months ago, and the fact that that would have a $0.20 impact. And that would sort of lead to why isn’t the guidance coming down unless something else more positive offset it and I didn’t hear that. And just give us your comfort level on that range and what sort of needs to happen to get to that lower versus the higher end? Sort of a complicated question. Sorry, I know.

Aaron Pearce: That’s okay. So, coming into the year, when we provided our original guidance, we had provided a foreign currency headwind somewhere in the neighborhood of 15% to 18%. And of course, that’s translation as well as any margin compression that we would get from the stronger U.S. dollar. So, it clearly got a bit worse. But frankly, it hasn’t been that significant and we have been able to overcome it with continuing to push efficiency gains, of course, pricing we talked about as well. And frankly, sales have held in there pretty good and as Russell mentioned order patterns remained strong. So, we remain very confident that we will hit this guidance range even with the what seems to be never ending foreign currency headwind from the stronger U.S. dollar.

Steve Ferazani: What gets you to the higher end as opposed to the lower end, what needs to work out?

Aaron Pearce: Well for Brady, as you know at our 50% gross €“ 50%-ish gross profit margin. Sales are super important and continuing to make the investments that we need to drive the top line. So, of course, without our top line growth, we are not going to hit the top end of our guidance range. But again, we are confident that we will hit that, we will hit our guidance range. Plus, as you know, WPS has improved quite substantially on the bottom line. And we need that to continue as well. So, Brady is a pretty complicated $1.3 billion business with a lot of moving parts, and a summation of a lot of smaller businesses. And just like always, we need to execute and we need to continue to make the investments to drive the top line.

Steve Ferazani: Okay. That’s helpful. Alright. When I think about you covered the drain on the gross margin, softening sequentially, largely offset by much lower SG&A. It sounded like there are some one-offs there in terms of the lower SG&A this specific quarter, how can we think about that?

Aaron Pearce: Yes. There definitely were a couple that are relatively minor. However, we have been experiencing some €“ I will say some nice reductions in healthcare expenses, which certainly matters for us, we call that out. And we have had a reduction in incentive based compensation a bit as well, that we would expect to continue. So, over and then of course, the bigger component of all of this is foreign currency, much like foreign currency hurts our top line, it certainly drives down or SG&A expense as well. So, you can basically take the 5%-ish reduction that we anticipate in revenue, and apply that to SG&A expense as well. So, if foreign currency exchange rates stay where they were at October 31st, for the remainder of this year, you should see SG&A expense go down as well. And then of course, that is partially then offset by the continued investments that we are making in our sales force and marketing expenses, etcetera.

Steve Ferazani: Great. Thanks for that. If I can get one more in, I saw the announcement and the pictures from that the ribbon cutting for code in Utah. Can you talk a little bit about what that means and how that all sort of fits up in the process of bringing those acquisitions in?