Why Brady Earnings Could Need a Jump-Start

Brady (BRC 2.28%) will release its quarterly report on Thursday, and the stock has gone on a roller-coaster ride so far in 2013 as investors try to assess the company's potential. With Brady earnings poised to post reasonable year-over-year gains this quarter, the bigger question is whether earnings growth will accelerate or falter in the future.

Brady provides a wide variety of products designed to help improve safety and security in business environments. From products as pedestrian as a lighted exit sign to advanced security technology that limits access to sensitive areas to key personnel, Brady has tapped into the increased need for businesses to protect their intellectual property and provide a safe working environment. Let's take an early look at what's been happening with Brady over the past quarter and what we're likely to see in its report.

Stats on Brady

Source: Yahoo! Finance.

Will Brady earnings keep investors safe this quarter?
Analysts have had narrowly mixed views on Brady earnings in recent months, raising their current fiscal-year estimates by a penny per share but cutting next year's anticipated results by $0.02 per share. The stock has moved sharply in both directions but has trended higher since early June, rising about 6%.

That share rise came as a bounce from an earlier decline after Brady's most recent quarterly release. The stock fell sharply when Brady's net income fell 85% in the April quarter, with most of the decline coming from charges related to its decision to sell off several of its weaker-performing businesses. Sales rose 11% and adjusted profits looked somewhat more promising, but even excluding one-time impacts, Brady didn't produce the financial results investors had hoped to see.

The big question facing Brady is whether its most recent announcement about its selling off its Asia-based die-cut business will give investors more confidence about the company's strength going forward. The company has been busy making purchases and sales, having divested three businesses prior to the move and having bought out health-care ID specialist Precision Dynamics late last year. The moves are designed to help Brady focus on what it sees as its highest-opportunity identification and security businesses, with which it has produced some lucrative business. Earlier this year, Hewlett-Packard (HPQ +2.88%) announced a collaboration with Brady to produce a one-stop resource for product tracking and authentication to serve enterprise customers.

Moreover, Brady faces competition from larger industry leaders. Just last month, Avery Dennison (AVY 0.94%) announced a new portfolio of security materials that are specifically designed to help businesses deter counterfeiters and avoid product tampering issues in order to protect their brands. Conglomerate 3M (MMM 0.55%) has an even bigger presence in some of Brady's markets, offering personal safety products, biometric identification systems, and comprehensive tracking technology that protects workers and company products. Brady has sought to develop particular expertise in its niche, but its continued success in doing so hinges in part on its staying under the radar of industry behemoths, especially 3M.

One thing to expect from Brady soon is a dividend increase. The company isn't in the S&P 500 and therefore doesn't qualify to join 3M on the highest-profile Dividend Aristocrat list, although it does make a broader list that includes mid-cap and small-cap stocks as well. Brady has boosted its annual payout for 27 years in a row, and it traditionally gives shareholders a raise in early September.

In the Brady earnings report, watch to see how the company's newly streamlined operations are performing. If Brady doesn't find new ways to bolster its growth as a result of its divestitures, then investors could easily be disappointed with a lack of progress.

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