Wednesday, May 19, 2010

Brady shares down, as investors wonder why full year guidance isn't raised... (BRC)

Shares of Brady Corp (BRC) are down 3% (well who isn't today) despite earnings that came in ahead of expectations.  The company beat Wall Street's numbers for earnings per share and revenue, but the disappointment came from the company's reluctance to increase full-year guidance, despite the (fiscal) year ending in just a few months.  Currency effect for Brady contributed 5.8% of the quarter's total 16.3% increase.

Brady shares are not expensive at $31.34, but there's not much to prevent them from pulling back to the mid-20's either.  While Free Cash Flow for the quarter was impressive, over half of it is not quite "free" -->> it must be used for principal payments on debt:


The worry for Brady - a company that is highly leveraged to capex cycles - is that huge amounts of capital spending were pulled forward, and thus growth in these end markets will be sluggish in the years ahead.  That said, the company stressed on the conference call that they have made strides in recent years to focus on industries (oil and gas, for instance) that have healthy balance sheets and little room to reduce capital spending.

Copyright 2010 AlphaNinja

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