Brady Corporation (BRC) Q2 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Brady Corporation Second Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this today's conference maybe recorded. I would now like to introduce your host for today conference Ann Thornton, Chief Accounting Officer. Please go ahead.

Good morning and welcome to the Brady Corporation fiscal 2017 second quarter earnings conference call. The slides for this morning's call are located on our website at www.bradycorp.com. We will begin our prepared remarks on Slide number 3. Please note that during this call, we may make comments about forward-looking information. Words such as expect, will, may, believe, forecast, and anticipate are just a few examples of words identifying a 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. Risk Factors were noted in our news release this morning and in Brady's fiscal 2016 Form 10-K, which was filed with the SEC in September of last year. 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 and broadcasting it on the Internet. As such, your participation in the Q&A session will constitute your consent to being recorded. I will now turn the call over to Brady's President and Chief Executive Officer, Michael Nauman.

Thank you, Ann. Good morning, and thank you all for joining us. This morning, we released our fiscal 2017 second quarter financial results. And I am pleased to report our sixth consecutive quarter of improved year-on-year profitability. We increased pretax earnings by 42% compared to second quarter of last year and increased EPS by 63%. These results were helped by lower than normal tax rate, but even without the lower the normal tax rate, we would have grown EPS by 33%. As part of our fundamental effort to improve the basics of our business, I'm pleased to report organic sales growth of 1.3% this quarter. We're working hard to improve our organic revenues and although, we do expect to see choppy organic growth patterns in the near-term, we believe we're beginning to move in the right direction. Our focused efforts on high quality product development providing excellent customer service developing efficient and effective manufacturing processes and driving efficiencies in our G&A structure continue to be drivers of our approved financial results. We're focused on delivering long-term consistent organic growth, because we believe this is a key to our continued success. Our priorities are focused on two parallel paths. With the first path focused on driving operational efficiencies, this means developing the right culture for success by driving decision making further into the business to ensure that we have the proper mix of local ownership and accountability. We're driving efficiencies and simplifying processes in our manufacturing facilities investing more efficient higher quality equipment, optimizing our product offering, reducing our centralized G&A structure and streamlining the processes that result at a relatively high SG&A expense. The second path is equally as important as the first and is focused on rebuilding our organic sales engine. We're excited about where this is taking us. As you can see in the results this morning, our R&D expense increased, as we're increasing our investment in new product development and emerging technologies. We expect to continue this increase in R&D spending in order to build the foundation for our future growth. Our R&D process and our new product pipeline are improving and our customers are responding positively to the printers we've launched over the past two years. In our WPS business, we continue to actively manage the catalog to digital shift. We're creating an industry leading digital marketplace with the mobile first mentality and we're sharpening our focus on compliance and customization for workplace safety critical industries. In addition to our renewed focus on innovation and executing the fundamentals of greater customers service, we're seizing every sales opportunity that we identify. From a macro perspective, we are seeing more optimism at the customer base and some other industrial companies. However, we have yet to see this optimism translate into positive sales momentum. In this environment, focus and consistency are critical to helping our team to execute every day to ensure that in the future when we achieve consistently positive top-line growth that we are able to turn these revenues into accelerated bottom-line improvements and cash generation. As such, our main priorities remain unchanged which are to serve our customers extremely well, to grow our pipeline of innovative new products and deliver operational efficiencies throughout our business that will generate results now and more importantly a sustainable improvement into the future. Our goals are not only to improve short term financial results but to build the solid foundation for successful future. Every employee is focused on making the right decisions today that will ensure our long-term success. The spirit of innovation that was a core of Brady success is taking hold again. From our efforts in R&D to the everyday improvements in work processes and providing excellent customer service. In many instances, these actions don't pay off immediately, but we're tackling these items every day because we know the position Brady for a long-term success. I'll now turn the call over to Aaron to discuss our second quarter financial results. I'll then be back to provide some specific commentary on our identification solutions and workplace safety businesses and a few closing comments. Aaron?

Thank you, Michael and good morning, everyone. I'll start the financial review on slide number three. This quarter, organic sales growth was $1.3% offsetting this quarter's organic sales growth was a decline of 1.5% due to foreign currency translation. The overall result was total revenue of $268 million down 0.2% from the same quarter last year. Our diluted EPS increased 63%, finishing at $0.49 this quarter, compared to $0.30 in last year's second quarter. This quarter, we benefited from a 13.1% income tax rate, which was caused primarily by one-time tax benefits from a cash repatriation of over $125 million to the U.S. in the second quarter. If our tax rate would have been closer to our historical average of 28% it would reduce reported diluted EPS to $0.40 this quarter which is Michael just mentioned would have been a 33% increase over the last year’s second quarter. Our cash flow from operating activities decline this quarter finishing at 19.3 million compare to 27.9% in the second quarter of last year. This decrease was cause by the timing of certain payments occurring in the first quarter of last year and the second quarter of this year. Our focus on strong cash generation and working capital management remain to unchanged and we expect our cash flow to remain strong in the back half of this fiscal year. Turning to slide number four, you'll find a summary of our quarterly sales trends. By division, organic sales increased 1.9% in the ID Solutions segment and decreased 0.2% in the Workplace Safety segment. Although Michael provide a bit more color on the drivers of the revenue changes in our two segments this quarter but let me touch on the impact of billing days. This quarter we benefited from an extra 1.3 billing days when compare to last year’s second quarter and it certainly helps contribute to our organic sales growth this quarter. On average, each work day represents a little over 1.5 points of organic sales growth, so in addition of 1.3 days equates to about 2% of organic sales growth. However, this billing day benefit will reverse in the third quarter, as we will have 1.7 fewer work days this year when compared to last year’s third quarter. So, the benefits from extra billing days that we just enjoy in the second quarter will effectively all be given back in the third quarter. Also, foreign currency remains a challenge for us as the strengthening of the U.S. dollar against our basket of currencies continue to challenge our financial results, reducing revenues by 1.5% this quarter. This is a trend that has continued over the last five plus years, which requires that we work that much harder to drive efficiency gains and organic sales growth to offset these foreign currency challenges. Slide number five provides an overview of our gross profit margin trending. We finished our second quarter with a gross profit margin of 50.1%. This is a 60-basis point increase over the 49.5% gross profit margin realized in the second quarter of last year. This year-over-year improvement was a direct result of our ongoing efforts to drive efficiencies, while providing the best quality of product and best experiences for our customers. Slide number six shows the trending of SG&A expense. SG&A was $94.7 million in this quarter, compared to $100.2 million in the second quarter of last year. This trend of decreasing SG&A as a result of our team's focused efforts to identify and drive efficiencies and savings throughout the entire organization. We're also finding that as we drive efficiencies in SG&A, the quality of our customers buying experience improves as we become a much easier company to work with. Turning to slide number seven, our diluted earnings per share grew 63% finishing at $0.49 this quarter compared to diluted EPS of 30% last year. As I just mentioned, our tax rate certainly contributed to our improved EPS and with the normalized tax rate, our EPS would have been $0.40. We were able to realize this improved EPS even with the decline in revenues caused by foreign currency and then intentional increase in R&D spending. This improvement and profitability was driven by a combination of our modest organic sales growth and the relentless pursuit of efficiency gains and our factories and our SG&A structure. Overall, the team executed well on the cost side while continuing to invest in growth initiatives and drive innovation. Slide number eight summarizes our cash generation. This quarter, we finished with $19.3 million of cash flow from operating activities compared to $27.9 million in last year's second quarter. Looking at free cash flow, we generated $16 million this quarter compared to $26 million in last year's second quarter. As I mentioned, our cash generation was impacted by the timing of our annual employee bonuses which were paid in the first quarter last year but were paid in the second quarter of this year. This was simply a timing item that doesn’t change the overall trend of consistent cash generation and excess of reported net earnings. Also, the repatriation of cash to the U.S. this quarter enabled us to reduce our overall debt balance. This quarter, we used 51 million to repay debt leaving us with 125 million of cash on hand at January 31st. Approximately 37 million of our cash was held in the U.S. at the end of our second quarter. If we move to slide number nine, we can see the trending of our net debt and our net debt-to-EBITDA over the last couple of years. At January 31, 2017, net debt was 37.7 million compared to 132.5 million just one year ago at January 31st of 2016. This brings our net debt-to-EBITDA to approximately 0.2 to 1 at the end of this quarter. As we look at deploying our cash, our capital allocation approach is disciplined and patient. First, we use our cash to fund organic growth opportunities, which includes funding investment in new product development, digital improvements, capability enhancing capital expenditures et cetera. Second, we focused on returning cash to our shareholders in the form of dividends. Third, we use our cash to improve shareholder return through opportunistic share repurchases. We currently have 2 million shares authorized for purchase. Fourth and finally, we use our cash for acquisitions. If we believe we have strong synergistic opportunities to give us a higher likelihood of success. Overall our cash generation is strong, our balance sheet is strong and we’re focused on driving long-term value to our shareholders through this disciplined approach to capital allocation. Slide number 10 summarizes our guidance for the full year ending July 31 of this year. We are increasing our full year EPS guidance to a range of $1.75 to $1.85. Included in our guidance, our expectations for organic sales ranging from a low single digit decline to slightly positive growth for the full year ending July 31, 2017. And as I just mentioned, this is impacted by 1.7 fewer billing days in our upcoming third quarter when compare to the third quarter of last year. Looking at our cost structure. We expect to see our investments and R&D continue to grow in the back half of fiscal 2017 at approximately the pace you saw in the first two quarters of this year. Offsetting this challenging revenue environment and the increased R&D expenses, our ongoing efficiency gains in our manufacturing facilities and in our selling, general and administrative expenses. When comparing our guidance range to our fiscal -- when comparing our guidance range to our financial performance in the third and fourth quarters of last year, there are two additional items that are significantly impacting these results. First, we expect the year-over-year impact from the strengthening U. S. dollar to reduce revenues by approximately 2.5% to 3% in back half of this year. The stronger dollar also comprises overseas gross margin as we have a fair amount of our cost denominated in USD, where as our foreign sales are mostly denominated in local foreign currency. Of course, we are working to overcome these margin pressures and the translation effect of the strong U.S. dollar by driving efficiency gains. But when comparing to the back half of the prior year, this has a pretty significant impact as the translation alone reduces our net earnings by approximately $0.04 per share and the compression of our margins accounts for another $0.02 of headwinds. Second, we expect that our tax rate will be in the upper 20% range in the second half of this fiscal year, which will be an increase over our approximate 25% tax rate in the second half of last year. Our tax rate tends to fluctuate from quarter-to-quarter, but over the long-term our tax rate tends to trend in the mid to upper 20% range. Other key operating assumption in our guidance include depreciation and amortization expense of approximately $30 million and capital expenditures of approximately $20. I’ll now turn the call back to Michael to give some color on our divisional operating performance. Michael?

Thank you, Aaron. Slide number 11 summarizes the Identification Solutions second quarter financial results. Organic sales increased 1.9% and foreign currency translation decreased sales by 1.3%. In total, IDS sales increased 0.6% finishing at $191 million this quarter. Organic sales were driven by our European IDS business which increased organically in the mid-single digit, while both our Americas and Asian IDS businesses increased organic sales in the low single digit this quarter. After a slight step, back in organic sales in the first quarter of this fiscal year, our European IDS businesses return to solid organic sales growth. I most encouraged by the improvement in organic sales growth in Asia for the second straight quarter. After struggling with declines for several quarters we have positive momentum and a solid pipeline of future sales opportunities. Within our IDS Americas region, organic sales were driven by low single digit increases in the U.S. and Canada, partially offset by declines in Brazil. As I mentioned we’re hearing about an increase in optimism in the U.S. well we have yet to see a trend like inter material project spend. We do believe that we are well positioned to capture increased growth in the U.S. and with our more efficient structure it picks up and spinning in the U.S. will have a positive impact on our bottom line. Our R&D spin falls primarily within the Identification Solution segment and as you can see R&D expense was up 4.2% this quarter when compared to second quarter of last year. We’ve been very clear that our investment in R&D is not simply about how much we spend, but our investment must be on the right products that our customers need and want. This launched during the past year and a half are selling better than planned and our customers are responding positively to them. This quarter, we launched a new outdoor label product which is extremely durable and was developed with our proprietary materials. This product will last for more than 12 years outdoors while protecting against liquids, UV lights and aberration. It’s a high quality long lasting label material designed for a wide variety of applications and industries, which is another example of Brady's unique capabilities in high performance materials. IDS finished with $29 million in segment profit in the quarter, which is an increase of 25.6% over the second quarter of last year. This is a direct result of the focus on efficiency and operational excellence that we’ve been working so diligently to improve upon over the past two years. As a percent of sales segment profit improved to 15.2% this quarter compared to 12.1% last year. I am pleased with the increase in segment profit in the IDS business. It’s a testament to the focused efforts of the entire team in driving cost efficiencies. Looking forward, we expect low single-digit organic sales growth in the full fiscal year and we expect to see IDS segment profit to continue to be in the mid-teens as a percentage of sales. We’re increasing R&D spend and we expect to incur additional expenses from these investments in innovation. We also expect to incur additional incentive compensation expense in the back half of this year when compared to last year. At the same time, we expect to see our ongoing efficiency activities at our factories and SG&A provide further benefits. Let’s move to slide number 12 for workplace safety review. Organic sales decreased 0.2% in the WPS segment this quarter. Our European business continues to perform well with another quarter of organic sales growth in the mid-single-digits. This is a continuation of the trends we saw throughout fiscal 2016. European digital sales increased by nearly 20% compared to the second quarter of last year and continued to be the driver of sales growth in the region, increasing organic sales and less than a robust economic condition was a direct result of our European leadership team’s ability to drive results and execute their strategy, which involves serving our customers how they want to be served be it online or through catalogs. We also realized organic sales growth in our Australian base business this quarter. Our team is stabilized and is focused on bringing Brady’s boost product offering to many different industry groups in Australia. Mining continues to be a challenge in Australia where we’re making up for this weakness by focusing our efforts in other areas of the economy. The improvement in organic sales in our European and Australian base businesses was offset by high single-digit declines in our North American business. We experienced sluggish demand in the U.S. but to continued adjustments through our cost structure, we’ve been able to mitigate much of the bottom-line impact from our sales volume decline. Foreign currency headwinds continued into Q2 of this year reducing our WPS sales by 2.1% primarily due to the impact of the British pound and the euro depreciating against the U.S. dollar. We’re focused on growing this business and improving profitability, each and every member of the WPS team has been driving three primary goals. First, managing the catalog digital channel-ship through efficient and effective catalog prospective. Secondly, we’re moving to a digitally focused produced catalog process. Second, our websites have been a focus on residual teams using responsive design to maximize our digital channel. We also believe that continually improving mobile prices is necessary to be an industry leader in this area and this is definitely what we’re working towards. Although mobile sales are still a relatively small part of our business sales generated our mobile devices are increasing every month as a result of our improved capabilities on these new sites. Third, we’re regaining product leadership in the safety identification product category through our focus on unique and customized offerings, and we’re taking advantage of our team’s deep knowledge and expertise in this area. Our focus and investment in these areas are creating long-term value to an improved customer expense in our digital and mobile capabilities and our strong, innovative product lines in every key category. Segment profited in the workplace safety platform was $6.1 million this quarter compared to $6.3 million in last year’s second quarter. As a percentage of sales, segment profit was 7.9% this quarter compared to 8% in last year second quarter. This reduction in segment profit was due to reduced revenues and compressed gross profit margins. Looking ahead, we anticipate low single-digit declines in organic sales and we expect segment profit to continue to be in the upper single-digit as a percentage of sales for this full fiscal year. Before turning the call over to Q&A, I’d like to provide a few concluding comments. I'm proud of what the Brady team has accomplished. We've been working and more than just driving efficiencies and pushing renovation. We’ve been working on a cultural shift as well. We’re focused on our strong talented and dedicated team toward consistently living our core values and driving to exceed our goals, I’ve seen our culture shift positively towards increased ownership and accountability. Thinking differently about performance, always delivering what we promised and always expecting to win. Brady has been a highly innovative company and with this increased level of local ownership and accountability, clear expectations and a shift in mindset we have a winning culture and the winning team that will enable us to be successful for years to come. We’ve made significant progress improving our operational issues and as a result, we’ve delivered six consecutive quarters of year-over-year profit improvements. We’re focused on delivering profitable organic sales growth and although we’ve started see an increase in positive sentiment both internally and with many of our customers, this is not yet materialized into increased project spend by our customers. This makes our efforts towards new product development and our focus in driving efficiencies to our manufacturing facilities and in SG&A every single day that much more important. I'm pleased with our progress and I know that we see continue to deliver even more. I’d now like to turn it over to start the Q&A operator would you please provide instructions to our listeners.

Certainly. [Operator Instructions] Our first question comes from the line of Joe Mondillo from Sidoti & Company. Your line is now open.

Hi, good morning guys.

Good morning, Joe.

So, my first question just regarding capital distribution. So, now that you’ve sort of paid down the balance -- some of your debt, so you're sort of almost right around net debt neutral at this point, sort of undelivered I’d say and given, you’re going to be generating over a $100 million of free cash flow going forward on a 12 months’ forward basis. Just wondering if you could update us, do you see any strategic acquisitions that you’ve talked about in the past, you’ve always talked about, but you don't intend then doing many acquisitions but if there is a strategic one, and if not I'm wondering if you’re going to plan on being a little more aggressive on the share buybacks going forward?

So, Joe, we continue our very disciplined approach to capital allocation. We know it is one of the absolute top priorities of our leadership for the company, we want to make sure that the first thing we always do is reinvest in the business and you're seeing that. In particular, you seeing that we're investing more in R&D and we’ve said that we'll continue to invest more in R&D. So, our first priority is always at, we also have the philosophy of any backup profit through dividends on a consistent and as you can tell from our long history an increasing basis year-over-year that remains our overall fundamental philosophy, we do believe in share buybacks, we don't believe in program buybacks. But we do approach buybacks in a disciplined and effective manner. In regard to acquisitions, we don’t speculate on acquisitions or our future potential to acquire companies, we believe fundamentally that -- we take that as a very careful disciplined approach first and foremost we look to acquire technology, technology that we as a company can make sure would fundamentally positively impact our company where we do not look specifically for market share acquisitions. Secondly, we want to make sure that these companies are once that we’re really be able to benefit from being with Brady and -- but in no way am I speculating about a change in philosophy or approach those of the same statements I have made when I arrived at Brady and once again we are very disciplined, we are very consistent and we are patient and making sure that we are not looking to do anything based on timing but rather based on specific opportunity.

Okay, thanks. And secondly, I was just wondering if you could provide a little more detail on, sort of what you doing with SG&A, I know there is probably still a lot more cost that you want to take out of the business but could you update us on just recently I think a quarter or two ago, you just shifted down a lot of the centralize corporate administrative type cost down to the segment levels change compensation to try to drive management at those segment levels to try to drive those cost out. Just wondering, if you could update us on that and also if you could provide any color on sort of what your goals are, what you’re looking at to sort of judge how that’s going it seems to be obviously going really well so far, but I think there is a lot more work that you talked about to do going forward. So, just on the SG&A front if you could provide a little more color there? Thanks.

Absolutely. I have always believed the ownership and accountability are key to success, and one of the areas that we have made a significant change is Brady historically has always worked off of income from operations and really treated our structural, our SG&A cost as separate entity, so to speak. I fundamentally have changed that, all of our incentive programs, our management, accountability, our daily, weekly, monthly and quarterly reviews, work down on operational income. So, now the business leaders, the profit leaders, the product managers are all being driven to total applied cost. So, if we can move it into the business, we do so and have been doing so and you pointed out and it's true, that’s been having a very positive impact on how people treat their investments, if you’re working in G&A, these are investments just like any other investment that we make, I don’t believe we historically view them that way, but we absolutely do now and so I would say as we continue Joe down this path and we do have more expenses that we are putting into the divisions as we see appropriate to do so, we continue to see people making smarter, wiser more careful decisions. I have got to tell you personally, I love to hear the dialogue about projects that people would have push for two years ago, that now they are asking why would we invest that when there isn’t a positive return on it for the company. That’s a type of dynamic that you can’t quantify upfront, but it's having a major impact on what we do and how we do it. But overall, we are also benchmarking ourselves in all of our functions and all of our units to make sure that we have logical reasons for the cost structures that we have and if not that we drive to inclusion of what we can do about and how we can do it. So, fundamentally we do see as we’ve shown in our guidance that we will continue to push down those costs. I fundamentally believe that remains a source of opportunity for us. But equally I believe as we really invest in the proper areas of R&D in a focus and effective manner that is really getting the guidance of our end users and our customers, I think you’re going to see that investment although that is increasing G&A cost and that area will pay-off significantly in the longer term.

And just a follow-up there, just real quick. In terms of at the rate of revenue that you’re doing right now, do you think that your SG&A as percent of sales can continue to fall and if so do you have any sort of goals that you like to quantify at all?

Well, I -- Joe I can comment on that goals and that is that we have a goal of 33.5% to 34.5% of sales included in our investor presentation, that still where we’re trending to. Clearly if we get to that level, we will than reset our goals because there is absolutely isn’t -- of process. So, that’s where we trending right now. Beyond now we don’t have other goals in place but as Michael mentioned this is a constant focus for the organization.

Okay, great. Thanks a lot, guys. Appreciate it.

Thank you.

Thank you. Our next question comes from the line of [Manta] from Robert Baird. Your line is now open.

Good morning, Michael and Aaron. This is Joe [indiscernible] on the line for Manta this morning.

Good morning, Joe.

Good morning. Congratulations on a solid quarter, and thanks for the detail on the billing days. I was wondering I assume part of the billing day drag in the third quarter is due to the leap year. last year that obviously doesn't repeat. How much is leap year impact to full year as far as billing days and a drag on organic growth?

Yes, I guess, I'm not sure if exactly what the impact of leap year is on the full year. But I can tell you this for the full we have I believe it's 1.1 days less than in the prior year. and that's for the full year.

Okay. And that's maybe 0.5% drag or maybe a little less I'm guessing?

Yes, probably above that so 240 billing days a year.

Sure. okay. Great, thanks for that. And switching to workplace safety, the Americas have been declining about high-single digits in the last couple of quarters. Maybe update us on what the catalog strategy is right now in the Americas and kind a where you're at on the catalog to digital shift in the Americas?

So, we continue to make progress. Obviously when know we unequally stated it's a challenging marketplace right now. Fundamentally I spoke when I first got here about a couple of real factors, we not only wanted to create a positive digital experience, but we wanted to really create an interactive digital catalog that allowed us to be more effective, lower cost and more focused in the catalogs that are going out that's one of the comments I made during the commentary, that is we create our catalogs in a digital manner. It allows us to be much more responsive and linear in our cost efforts. That not only reduces prices but means as we look at mid-segments to distribute catalogs to we can actually do that in a meaningful manner. Whereas with the higher cost structure catalog that becomes much more problematic. So, we are continuing to make that shift both in aligning the revenue we need to digital and interactive digital mediums. But we're also becoming much more effective and how we position and focus our hardline catalogs.

That make sense. And then I can just be making one last question, nice turnaround in Australia in workplace safety you mentioned in your prepared remarks focusing on other parts of the economy. If you could maybe drill a little deeper into that and kind a what's driving the turnaround in Australia?

Well, first of I'd like to give great credit to our leadership team in Australia they've done an amazing job of really reinvigorating a group with an extremely difficult challenge. The economy of Australia as you all know have been living large off of mining industry for an extended period of time. And when a major shift like that happens it is a painful transition. But they've gone across the board in a variety of industries to make sure that we're actually growing despite the losses in mining. I don't want to call out one particularly industry because quite frankly they've done a pretty good job of doing what I like to do anyway which is putting their eggs in multiple baskets. I think that if you look at the economy of Australia we're now broadly representative or much more broadly represented than we were before if where we had -- of our effort in mining. And I think that healthy for the long run, I want to be clear if mining does come back because all of these things are cyclical. We're still well positioned in that segment. But now we're fundamentally much better position in the broader economy.

Great, okay. Thanks guys, good luck in the second half.

So, Joe let me come back to your first question as well. I just want to make sure that we're very clear with respect to billing days this year. So, in the first half of this year so the summation of the first of the second quarter we had 2.2 more billing days than the year before. in the second half of this year we have 1.1 less billing days. So, for the full year we'll have 1.1 less billing days just to be clear on how that all breaks out between the first and second half.

Got it, okay. Thank you.

I'm sorry, 1.1 more.

1.1 more.

2.2 more in the first half 1.1 less in the second half 1.1 more for the full year.

1.1 more okay, got it. Okay. Thanks guys.

Thanks, Joe.

Thank you. Our next question comes from the line of Charley Brady from SunTrust. Your line is now open.

Hi, guys. This is actually [Patrick] standing in for Charley. Thanks for taking my question.

Good morning, Patrick.

Good morning, Mike. On IDS, just want to know - how much organic growth that you saw this quarter Irrespective of the billing days would you classify some products introducing past let's say 12 months.

Patrick, as you're probably aware in industrial segments, growth from product introduction takes a significant amount of time, as we talked about specifically our printers have been doing a much better than we expected, but the great part of our product offering particularly the printer segment is that introduction revenue is just the start of the positive revenue stream over many years. So, what we’re able to anticipate as a result of that is a continued improvement in the entire printer revenue space as we introduce new printer lines. It isn’t a significant increased in a revenue in the shorter term it is a good indicator that we are heading in the right direction as far as increased revenue in the longer-term. So, I would say it is as largest you might anticipate but all of the indicators based on the segment to ran the industry in the type of products we make are very positive.

Okay, that’s helpful. And just want to move to WPS side. The high single digits decline in the U.S. Can you just may be give a little more color on where, because actually the end market hoping this is and how does it look for the rest of the second half for ’17 and then on the margin side I think last quarter you’ve mentioned that, high single-digit approaching 10% is likely to end the year. Does that embedded in the organic growth or can it be pretty much achieve at the current quarter client basis is that something that you guy’s is still holding on too.

We are still holding. Are we, we still believe in that. And it can be achieved base on the current modeling. We do not have to achieve significant growth to get there, in regard to where we are seeing challenges. As we said in our commentary in general, we are hearing a lot positive information in the U.S. in particular, in regards to infrastructure and everything else in there. Is definitely a different sense of excitement and momentum? However, if you look at oil and gas although prices are certainly higher that industry is not in an investment mode. If you look at a lot of industrial factory construction. So, far although referred once again positive momentum we haven’t actually seen a shifting projects etcetera. So, what we are looking to see to change that and what we haven’t seen yet is a total project spend increasing in those key markets. And It’s just, not right now there as far as, general construction and particularly oil and gas etcetera throughout the industry.

Got it. Thanks.

We’ll be happy to see that.

Okay, got it. Thanks. Good quarter, guys.

Thank you.

Thank you. Our next question comes from the line of Allison Poliniak from Wells Fargo. Your line is now open.

Hi guys, good morning.

Good morning, Allison.

Aaron, could you help me with this days. I am just trying to understand the organic growth that you posted say an IDS, was that accounting for that incremental days or is that more of the flat number?

The organic growth would be the real organic growth regardless of days.

Regardless days.

Not an organic sale for day.

Got it, got it. Okay. And then just as looking at IDS specifically, you guys have done a lot on the cost side and trying to be optimistic here that we could be reaching inflection in terms of improving sales what levels of sales growth would you need to get or you feel you need to get to get back in sort of that high teen low 20 kind of EBIT margin but that’s even something that you cannot qualify?

I don’t really want to speculate on that. I can tell you on unequivocally Allison that we are driving hard through the fundamentals of R&D, market penetration, driving a much stronger product management based totally integrating our team so that they're working together. Engineers, salesmen, product managers in ways that they haven’t period before to really create a positive revenue momentum. And I think historically, you’ve seen and we believe that would be very true in the future that as we grow a real revenue financially a significant portion of that drops to the bottom line.

Great. Thank you.

Thank you.

Thank you. Our next question comes from the line of [Keith] from Northcoast Research. Your line is now open.

Good morning, everyone. Thanks for taking my question. I guess, the first question for you is on SG&A, it was there anything unusual during the quarter obviously, you had a nice year-over-year and a sequential drop and then in addition to that remind us again how much of that is variable versus fixed?

So, I’ll start and then we’ll have Aaron answer the second half of the question, I always say that onetime items occur on a constant basis and great companies find ways to overcome them so typically you will see some unusual items in the quarter but this was a wonderfully down quarter for us. We did not see any significant unusual items at all that we had delivered comp. but that’s also a part of the discipline we’re creating in an organization, but when you drive down the count ability when people are making decisions at the lowest level possible you don’t end up having these giant oops moments that we’ve seen in the past and so that is not just luck that we’re changing that over timing I believe that’s based on a philosophical change and a real change in how we do business.

As far as your second question regarding the breakout of fixed versus variable on SG&A, actually I don’t know the answer to that. We certainly never disclosed anything externally that’s actually not how we think about it internally either, so I'm not sure I can help you with that question.

I would argue that we look at it all as an opportunity and fundamentally there are some things we’ll give you an example we may have a long-term lease, we still look at the whole process of what do we do with those facilities, when do we want to do it. We look at everything as an open opportunity and so I would agree with Aron I never think of it as fixed or variable I think it is all as an opportunity and we have a lot of opportunities.

Got it, okay. And second question if I may. Obviously - questions regarding the workplace safety in the Americas, as you look at the Americas versus Europe the challenges that you’re facing in Americas versus the opportunities advance that you had in Europe how much is the market driven versus execution driven for you guys?

I think the answer to that question is yes. We certainly have more niche markets in Europe, we have a very strong team in Europe we have a great history there, we fundamentally did not made changes there to pricing and structure and organization that we did here I guess three plus years ago, that they really maintained a very solid and a very strong approach and I believe long term solid approaches with strong management teams of what really drives profitable organizations to grow and to maintain their liability. We had to change our resources in the U.S. and come back to fundamental approaches to do the business and as a result they’ve been struggling more. But I would also say that the market in the U.S. is a little more fluid and we have had therefore really worked very hard on positioning our expertise, our niche focus on our capabilities which are quite strong in a way that shows to our customer base.

Would you say that the Americas is more competitive than Europe or just or not?

I wouldn’t call it more competitive because historically Europeans are actually super hard price drivers that may not be intuitively obvious, but having done this for a long time I find European negotiators a very, very careful. I know we had some retail companies from the U.S. who’ve gone into for instance German market expecting to make solid profits on a low-cost model and found out that German suppliers and companies are extremely price conscious. So, I would absolutely not say that, I would say it's a different market and you have to show them a different value stream and we have been very good about being able to do that.

Great. Thank you.

Thank you. And at this time, I am not showing any further questions, I would now like to turn the call back to Ms. Ann Thornton for any closing remarks.

We thank you for your participation today. As a reminder, the audio and slides from this morning's call are also available on our website at www.bradycorp.com. The replay of this conference call will be available over the phone beginning at 12:30 Central Time today, February 23rd. The phone number to access the call is 1 (855) 859-2056. International callers can dial (404) 537-3406 and the passcode is 59663731. As always, if you have questions, please contact us. Thank you and have a nice day. Operator, could you please disconnect the call.

Ladies and gentlemen, thank you for participating in today's conference call. This does conclude the program, and you may all disconnect. Everyone, have a great day.