The amalgam of products that Brady (NYSE:BRC) creates could easily be called "eclectic." The maker of labels, safety signs, identification markers, and die-cut materials hasn't been content with its schizophrenic past and has continued to add new personalities to its collection. In just the past six months, it has bought nine more companies. But all of those acquisitions may be starting to take a toll.

The acquisitions do continue to fuel Brady's growth -- they've added 11% to sales in the second quarter and have created a surge in overseas sales, particularly in Asia, where sales account for 19% of revenues. But domestic sales continue to lag. The acquisitions have added only 9% to revenues here -- not much different from last quarter, when acquisitions accounted for 8% of sales and the base businesses added only 7% to the mix.

The merger-and-acquisition game is difficult to play over any length of time, and it becomes a problem if it's the only way a company can continue to grow. Not only must businesses continuously find new companies to buy, but it also becomes ever harder to digest and assimilate all of the disparate arms into one cohesive body. It's hard enough to absorb businesses with complementary product lines or management cultures; swallowing one that may be wholly different requires the buyer to assume, well, a whole new personality.

Brady reported earnings of $21.3 million, or $0.43 a share, on revenue of $231 million, which translates into increases of 3% and 18%, respectively, over the same period a year earlier, when it notched earnings of $20 million, or $0.41 per share, on $196.2 million in revenues. The current numbers also missed analyst projections, but investors might have been forewarned that it was coming if they had taken the time to look.

As I noted last quarter, the rate of growth in sales had plummeted by more than 50% from the prior year. The absolute numbers still looked good, but when the rate of growth drops that precipitously, it's a danger sign of things to come.

(in millions)
% Change
2006 2005 2004 2006 2005
Q1 $232.6 $200.4 $151.9 16.1% 31.9%
Q2 $231.0 $192.6 $152.9 19.9% 26.0%
Q3 * $209.8 $180.9 * 16.0%
Q4 * $210.8 $185.5 * 13.2%
$990 (est.) $816.4 $671.2 21.3% 21.6%

The company has significantly upped its forecast for the year -- it has raised full-year revenue projections to as high as $990 million from the previous level of $920 million. Even so, that translates into "growth" that's flat to slightly down from the previous year. The second half of the year is typically somewhat stronger for Brady than the first half is, but it will still be relying on the strength of its acquisitions to prime the pump, and I'm leery of what that will mean for investors down the road. Earnings follow sales, which in turn drive stock prices. I think Brady might have to look in the mirror and decide just who it is.

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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.