Brady Corporation (NYSE: BRC) is a global leader in providing identification and protection solutions for a wide range of industries. With a market cap of $200 million, the company has demonstrated steady growth in both revenue and profitability over the years. Brady’s products are essential across various sectors, including industrials, data centers, IT departments, laboratories, hospitals, and retail environments. Its offerings range from labels and signs to lockout/tagout devices, ensuring the safety and proper identification of equipment and personnel.
Brady’s solutions are used for labeling cables in IT settings, marking conical tubes in hospitals, and identifying equipment in industrial environments. With over a century of experience, Brady stock has established itself as a trusted name in enhancing security, productivity, and performance worldwide.
Recent Brady Performance and Outlook
In the past few quarters, Brady Corporation (NYSE: BRC) has faced a decline in top-line growth due to the impact of divested businesses. In Q3, these divestitures contributed to a -2.3% growth rate, following a -3.5% decline in Q2. While management has downplayed these effects, calling them “not a significant growth vector,” the impact on revenue has been noticeable. The divested business, Personal Concepts, was responsible for these decreases, raising questions about whether the company can achieve substantial top-line growth moving forward.
Without the effects of the divestitures, Brady’s organic growth stood at around 4.5%, still trailing its 3-year compound annual growth rate (CAGR). For FY24, the company has set expectations for low single-digit growth, consistent with Q3 performance. Analysts forecast modest growth of around 1.3% for FY24, with acceleration to low single-digit growth thereafter. This suggests that the drag from divestitures may finally stop weighing on revenue.
Despite the top-line challenges, the company has shown confidence in its margin performance. During its Q3 earnings call, Brady raised its FY24 earnings guidance, indicating a positive outlook for margins, even as it streamlines operations and seeks further efficiencies.
Brady Growth in Southeast Asia and India
Brady Corporation (NYSE: BRC) has made significant strides in Southeast Asia and India over the past few years, transforming what were once greenfield opportunities into rapidly growing markets. India, in particular, has seen substantial growth, benefiting from the leadership team’s strategic focus on capturing the economic momentum in the region. Brady’s presence in India began over a decade ago with modest operations, but the company has expanded steadily, now operating two plants—one in Bangalore and another in Delhi. These investments have yielded strong results, with approximately 20% year-over-year growth, building on several years of consistent double-digit expansion.
BRC has also taken advantage of production relocations from China, which has further bolstered growth in Southeast Asia. Markets like Vietnam, though small, have seen extraordinary growth rates, showcasing the potential for further expansion in the region. Brady stock continues to deploy additional sales and support resources across Southeast Asia, aligning with its long-standing business model of identifying growing economies and strategically investing in them. The company’s positive trajectory in these regions could lead to further investments, including the possibility of opening a third plant in India if growth continues.
Capital Deployment and Share Buybacks Strategy
Brady stock has a strategic approach to capital deployment, balancing share buybacks with reinvestments in the business. The company has authorized $100 million for share buybacks, though it remains disciplined in its execution. Brady only moves forward with buybacks when its stock trades at a significant discount, reflecting management’s preference to invest capital elsewhere unless the share price is perceived as undervalued. This cautious approach ensures that resources are allocated efficiently.
From an organic perspective, Brady places a strong emphasis on research and development (R&D), which drives much of the company’s growth and margin improvement. Management views R&D as a key contributor to the company’s competitive edge, particularly in product innovation.
In terms of inorganic growth, Brady continues to explore mergers and acquisitions, particularly in areas that align with its strategic focus. The company is interested in expanding its capabilities in materials science, which plays a crucial role in its product differentiation, as well as part marking and identification technologies. If the right opportunities arise that meet Brady’s financial objectives, further acquisitions in these areas could be on the horizon, complementing its organic growth strategy.