For long-term investors, assessing earnings trend over time and against industry benchmarks is more beneficial than examining a single earnings announcement at a point in time. Investors may find my commentary, albeit very high-level and brief, on Brady Corporation (NYSE:BRC) useful as an attempt to give more color around how Brady is currently performing.
Was BRC’s recent earnings decline indicative of a tough track record?
BRC’s trailing twelve-month earnings (from 30 April 2018) of US$80.5m has declined by -15.0% compared to the previous year. Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 7.7%, indicating the rate at which BRC is growing has slowed down. Why is this? Let’s examine what’s transpiring with margins and whether the rest of the industry is facing the same headwind.
In the past couple of years, revenue growth has failed to keep up with earnings, which suggests that Brady’s bottom line has been propelled by unmaintainable cost-cutting. Looking at growth from a sector-level, the US commercial services industry has been growing its average earnings by double-digit 12.1% over the past year, and a more subdued 9.8% over the past half a decade. This growth is a median of profitable companies of 24 Commercial Services companies in US including Charah Solutions, OYO and Viad. This suggests that whatever uplift the industry is profiting from, Brady has not been able to gain as much as its average peer.
In terms of returns from investment, Brady has fallen short of achieving a 20% return on equity (ROE), recording 11.1% instead. However, its return on assets (ROA) of 8.0% exceeds the US Commercial Services industry of 6.3%, indicating Brady has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Brady’s debt level, has increased over the past 3 years from 11.2% to 16.7%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 32.8% to 7.9% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies that are profitable, but have capricious earnings, can have many factors affecting its business. You should continue to research Brady to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BRC’s future growth? Take a look at our free research report of analyst consensus for BRC’s outlook.
- Financial Health: Are BRC’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 30 April 2018. This may not be consistent with full year annual report figures.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.