Brady Corp (NYSE: BRC) Q3 2020 Earnings Call Transcript

Brady Corp (BRC) Q3 2020 earnings call dated May 21, 2020

Corporate Participants:

Ann Thornton — Chief Accounting Officer & Corporate Controller

Michael Nauman — President, Chief Executive Officer and Director

Aaron Pearce — Chief Financial Officer & Treasurer

Analysts:

Allison Poliniak — Wells Fargo — Analyst

Molly Baum — Bank of America — Analyst

Joe Mondillo — Sidoti & Company — Analyst

Keith Housum — Northcoast Research — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Q3 2020 Brady Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions].

I would now like to hand the conference over to your speaker today, Ms. Ann Thornton, Chief Accounting Officer. Thank you. Please go ahead, ma’am.

Ann Thornton — Chief Accounting Officer & Corporate Controller

Thank you very much. Good morning and welcome to the Brady Corporation fiscal 2020 third quarter earnings conference call. The slides for this morning’s call are located on our website at www.bradycorp.com/investors. 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 2020 third quarter Form 10-Q which was filed with the SEC this morning.

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’ll now turn the call over to Brady’s President and Chief Executive Officer, Michael Nauman. Michael?

Michael Nauman — President, Chief Executive Officer and Director

Thank you, Ann. Good morning, everyone, and thank you all for joining us today. This morning, we released our fiscal 2020 third quarter financial results. This is far from a normal quarter, and we are not in normal times. But under the circumstances, our results were strong.

Before we get to deep in, I’d like to thank all 6,000 Brady employees across the globe. The Brady team really stepped up and provided many necessary products to our front-line health-care workers and other critical industries to support the worldwide fight of the COVID-19 virus.

Brady is an essential business. We support first responders, health-care workers, food processing companies, logistics companies, and all 16 of the federally designated critical infrastructure sectors. Our team has worked tirelessly to help solve our customers’ problems, manufacturer and deliver the products that they need, and provide the best possible service. I’m extremely proud of how our products help keep the world safe, and I’m extremely proud of how all of our Brady employees embrace our core values, each and every day. It’s our people that truly make Brady a great company. They are living our model, making the world better and safer every day.

Our products are used throughout the world to help hospitals and laboratories identify and track samples and medical equipment, and to identify and keep patients safe. Our products are used to help businesses and governments with social distancing. Our signage is used all around the globe to help provide a safe work environment when employees return to work, and our products are used to help companies to identify and track their assets when they have employees working at home.

Brady’s safety and identification products are definitely in demand during these challenging times. Brady’s operations are currently open worldwide. However, like many companies, we still have a significant number of employees who are working remotely.

Given Brady’s large global footprint, we’re taking different actions in different geographies, and in all cases, we’re following the recommendations of the local governments and health agencies.

During the quarter, we did have some factories that were shut down for short periods of time. However, we do not believe that these shutdowns impacted our customers in a material manner.

Financially, Brady is very strong. We have $239 million of cash in hand with only $49 million of debt outstanding at the end of the quarter. We’re in incredibly good financial situation and are well situated for whatever the economy throws at us. This strength enable us to stick to our strategies. While many other competitors will need to dial back on their spending for the future, we are optimistically ramping up our growth investments. Other companies may be focused on surviving, we’re focused on thriving. Brady will come out of this downturn stronger than ever.

Our strategies to perform during this period of economic challenge and come out of this downturn much stronger than our competitors are to, first and foremost, invest in growth. We are, and will continue to invest in sales, generating resources. We’re improving our websites around the globe. We’re investing in new products. We’re investing in capacity enhancing machinery and we are doing whatever we can to increase customer satisfaction.

It’s at times like this where Brady’s strong focus and customer service can really separate us from our competition. Our multi-channel business model enables us to further cement our strong customer relationships, especially during these tough times.

Second, we’re continuing to drive efficiencies and automation across our global footprint. We are not backing away from ROI positive investments even if the respective investments may take some time before the benefits are realized.

For instance, in March, we went live on SAP in our healthcare business in California, and Mexico. We certainly incurred cost this quarter as a result of the system go-live, but we’ll absolutely pay dividends down the road as we’re able to further streamline our processes, because we are now on a common ERP platform. We will not back away from driving sustainable efficiency gains like this as these investments are critical to helping us maintain our strong positive momentum.

Third, we are consistently deploying our capital. We are investing back in our organic business, we’re paying a strong dividend and we repurchased shares this quarter. Fundamentally, to the consistent execution of our capital allocation strategy is a strong balance sheet and our focus on cash generation, both of which are hallmarks of Brady.

Lastly, our strategy to thrive when we come out of this challenging economic period involves being as efficient as possible. We will not let our strong balance sheet allow us to become complacent. We have been on a multi-year drive to become a leaner organization, which can clearly be seen in our financial trends as our gross margins are strong and our SG&A expense is consistently declining.

This quarter, we accelerated many previously planned actions and we took numerous other actions to reduce costs. We reduced personnel costs, we reduced discretionary spending, we shifted advertising dollars from print media to online campaigns, and we streamlined our facility footprint. These actions have made Brady and even leaner organization while not diminishing our ability to grow. To the contrary, we have been making decisions faster and moving forward aggressively, so that when we come out of this downturn and the economy begins to recover, we will be well positioned to accelerate our growth with an even lower cost structure.

As it relates to future cost containment efforts, we have a dynamic strategy that is focused on modifying our cost structure commensurate with changes in demand, while continuing to invest in the growth areas that I just mentioned. We began formulating this plan over 18 months before this current downturn, which highlights our ability to drive through all market cycles in a thoughtful and strategic manner, focusing on the long term, while dealing with the short term.

Shifting gears to our financial results, our organic sales decreased 6% this quarter. However, that doesn’t tell the whole story. Digging deeper into our order pattern, organic sales actually grew 2.7% through the end of March, and then declined 22.6% in April. Even with sales tailing off in April, we still recorded our strongest quarterly cash generation of the year with cash flow from operations being $42.8 million and free cash flow $34.3 million.

As we move through late March and April, order intake trends downward in both North America and Europe, which is a direct result of many of the economies effectively being shut down. As Europe and North America started to open up in May, our bookings have stabilized, although at a lower level.

While North America and Europe were struggling, China came back online in March. Our China business showed organic growth in the mid-single digits in the quarter. Our Australia business is also doing extremely well, as our team worked tirelessly to provide the best possible service to our customers and supply critical products that they need. In Australia, our business grew just over 30% this quarter.

Our current business philosophies are the same business philosophies that have served us well and that we have talked about in virtually every call for the last 5 years. We believe in having a strong balance sheet and never overextending ourselves. We make cash-based decisions. We’re a manufacturer and we are focused on bringing innovative safety and identification solutions to our customers in niche markets. We pride ourselves in providing the best possible customer service and we never stop focusing on driving sustainable efficiency gains. These simple business philosophies, amongst others, have put us in a very strong financial position that enables us to take competitive actions from a strong position of strength.

We’re controlling what we can through our reduced cost structure, which will continue to result in cost savings. When you combine this leaner cost structure with our ongoing organic sales investments and our strong balance sheet, we’re positioned extremely well for even stronger returns and growth once our key end markets recover.

I’ll now turn the call over to Aaron, to discuss our financial results. Then, I’ll return to provide specific commentary about our Identification Solutions and Workplace Safety businesses. Aaron?

Aaron Pearce — Chief Financial Officer & Treasurer

Thank you, Michael, and good morning, everyone. The financial review starts on Slide number 4. Sales in the third quarter were $265.9 million, which consisted of an organic sales decline of 6% and a decline of 2.2% from foreign currency translation.

Pre-tax income declined 45.9%, while diluted EPS declined 60% to $0.26 compared to $0.65 in last year’s third quarter. Pre-tax earnings were impacted by $13.8 million of non-cash impairment charges against trade names and other long-lived assets this quarter. The largest component of these charges was an impairment of trade names in one of our WPS America’s businesses, where we primarily serve small companies, such as restaurants, salons and other small retail shops, many of which were completely shut down in March and April. Excluding these impairment charges, our third quarter pre-tax earnings would have been down 12.2%.

Diluted EPS was also impacted by these impairment charges, which amounted to approximately $11.1 million after tax. And our tax rate was higher than normal as well at 38.5% this quarter, primarily because we recorded a valuation allowance against certain tax credit carry-forwards. If you exclude these impairment charges and normalize the tax rate to our projected longer-term tax rate of 20%, EPS would have been approximately $0.54 this quarter, a decrease of 11.5% versus Q3 of last year.

This quarter, we also incurred expenses including severance charges, the write-down of previously capitalized catalog costs, and labor costs, where we were paying employees who were not able to work due to stay-at-home orders. We also closed two small facilities and recorded the appropriate shutdown costs this quarter.

All of these incremental costs were effectively offset by reduced incentive-based compensation, which we reduced this quarter because we no longer anticipate the same level of fiscal 2020 annual bonuses. Thus, we adjusted our estimates accordingly.

The actions we took this quarter to reduce our cost structure, were a combination of both short-term items, such as reduced travel and print advertising, as well as permanent cost reductions, such as the headcount reductions and facility consolidations I just mentioned. Many of these actions were the acceleration of previously planned activities as we continually work to reduce our cost structure in a sustainable manner. For instance, even though our facility closures this quarter were small, they are important as we continue to streamline our cost structure, so that we can come out of this period of reduced economic activity with a cost structure that is permanently leaner while co-located employees enable us to more efficiently serve our customers.

Turning to Slide number 5, you will find our quarterly sales trends. Organic sales in our Identification Solutions division declined 8.2%, while organic sales in our Workplace Safety division grew 0.2%. Brady sales were buoyed by approximately $11 million of products directly related to supporting the fight against the COVID-19 virus. We are quite proud of Brady products ranging from labels for test tubes for the collection of human saliva samples, to floor markings for social distancing, to signage to improve personal hygiene. We’re used by people all around the globe to keep us safe.

We believe that demand for many of these products will stay elevated for the foreseeable future as the world becomes more focused on personal hygiene and social distancing.

Slide number 6 is our gross profit margin trending. Our gross profit margin was 48.7% this quarter, which was a decrease of 160 basis points from last year’s third quarter. We saw some cost pressures subside this quarter, including tariffs and some of our product costs.

However, we also incurred certain costs related to employee severance and the like. Excluding these one-off costs, product mix, and excluding the benefits from the reversal of incentive-based compensation, our gross profit margin would have been in excess of 49%. Our main operational goals this quarter were to ensure the health and safety of our employees and ensure that we gave the best possible customer service while not backing away from investments that will grow future revenues or drive future efficiencies. The efficiency focused culture that we’ve built over the last several years has been extremely effective in helping us maintain our strong gross profit margins.

Turning to Slide number 7, you’ll find our SG&A expense trending. SG&A was $83.2 million this quarter compared to $94.7 million in the third quarter of last year. As a percent of sales, SG&A decreased from 32.7% in last year’s third quarter to 31.3% of sales this quarter. Approximately, half of our SG&A decline was due to ongoing benefits from the efficiency actions we’ve been driving over the last several years, combined with the reduction in discretionary spending.

The strengthening of the U.S. dollar, contributed another 15% to the decline in SG&A this quarter, and the remaining 35% decline in SG&A was due to reduced deferred compensation expense and other incremental charges, such as severance, net of reduced incentive-based comp.

Slide number 8 outlines the trending of our investments in research and development. This quarter, we spent $9.8 million on R&D. We continue to have opportunities for investments in new product development and we’re committed to increasing our investments over time. While at the same time, ensuring that we get the most out of every dollar spent on R&D. Our R&D spend was down this quarter due to reduced incentive-based compensation and some reductions in project spend.

We have no intention of backing away from our investments in R&D, as these investments are critical to our long-term success. In fact, now is when investing in innovation is most important because we suspect that many of our smaller competitors don’t have the financial wherewithal to continue investing throughout an economic downturn.

Moving to Slide number 9, you’ll find quarterly trending of pre-tax income. If you exclude the $13.8 million of impairment charges that I mentioned, then pre-tax income would have been $36 million, which would have been a decline of 12.2% versus the third quarter of last year.

Slide number 10 illustrates our after-tax income and EPS trends. Feeding into this quarter’s after tax results in an income tax rate of 38.5%, this compares to a tax rate of just 15.1% in last year’s third quarter. Over the long-term, we continue to expect our tax rate to be approximately 20%.

Net earnings and EPS were also impacted by the impairment charges that I just mentioned.

Turning to Slide number 11, you’ll find a summary of our quarterly cash generation. We generated $42.8 million of cash flow from operating activities and free cash flow was $34.3 million.

On an annual basis, we’ve consistently generated cash flow in excess of net income, and we’re always focused on making the right long-term cash decisions for the organization. And this quarter was no exception, as cash flow from operating activities was significantly higher than net earnings. On a year-to-date basis, cash flow from operating activities approximates 113% of net income.

Slide number 12 shows the trending of our cash position, along with our debt structure at the end of the quarter. We finished the quarter with cash of $238.9 million and debt of $48.9 million, resulting in a net cash position of $190 million. And on May 13, we fully repaid our private placement. So as of today, we have no external debt and have access to our fully undrawn $200 million revolver, making our balance sheet very strong.

Our approach to capital allocation is consistent, it is disciplined, and we are patient. First, we use our cash to fully fund organic sales and efficiency opportunities throughout the economic cycle, even in a very challenging economic times like we’re experiencing today. We continue to fund investments in new product development, sales generating resources, IT improvements, capability enhancing capital expenditures, and capex to further automate our facilities. We will keep funding these investments where it makes sense and where the investments are long term ROI positive.

And second, we focus on returning cash to our shareholders in the form of dividends. This quarter we paid $11.3 million in dividends. After funding organic investments and dividends, we then deploy our cash in a disciplined manner for acquisitions, where we believe we have strong synergistic opportunities and we use our cash to improve shareholder returns through opportunistic share repurchases. This quarter, we repurchased 1.4 million shares.

Brady’s strong balance sheet and strong cash generation even in challenging economic times gives us the ability to stay consistent with our capital allocation strategy.

Before turning the call back over to Michael, let me comment on our guidance, which is on Slide number 13. As you can see, we are withdrawing our financial guidance for our fiscal year ending July 31, 2020 This decision was based on our lack of future revenue and earnings visibility. Although we don’t have a clear picture of what the macro economy will look like in the near term, we fully intend to continue to invest in ROI positive capital expenditures.

As it relates to our dividend, we just announced our normal quarterly dividend last night and we have a streak of increase in our annual dividend for 34 consecutive years. I just mentioned our consistent approach to share buybacks. And of course, we will continue to invest in innovation, sales generating resources, efficiency activities and in actions that improve our customers’ experience.

It’s during these challenging times when strong companies like Brady can keep investing and emerge a leaner yet stronger company.

So, although, we are pulling our formal guidance, we are not changing our operating philosophies. We have a strong balance sheet and we will use it as a tool to drive outsized returns when we emerge from this period of depressed demand.

I’ll now turn the call back over to Michael to cover our divisional results and to provide some closing comments before the Q&A session. Michael?

Michael Nauman — President, Chief Executive Officer and Director

Thank you, Aaron. Slide number 14 outlines the first quarter financial results for our Identification Solutions business. IDS sales declined 9.7%, finishing at $193.2 million with an organic sales decline of 8.2% and a decrease from foreign currency translation of 1.5%.

Our IDS business grew 2.2% organically through March and then declined 27.6% in April when the full impact of the European and North American companies shutting down was felt. We believe that part of the growth through March was due to distributors increasing inventory levels. And we also believe that the large decline in April was partially due to some level of destocking at these same distributors.

We experienced modest organic sales growth in Asia this quarter, as most of the countries in the region opened up sooner than they did in Europe and North America.

Organic sales in both Europe and the U.S. grew through March and then declined by more than 20% in April. Although, we started to see what appears to be stabilization of order patterns in May, our order intake is still well below prior year levels, indicating that May will also be a challenging month.

A side effect of the COVID-19 pandemic in the U.S. is elective surgery and hospital admissions were down significantly in the quarter, especially late in the quarter. As a result, sales in our health care product line decreased in the low teens this quarter.

We took many cost actions in our IDS business to counteract this revenue decline in April and we incurred certain expenses in the IDS segment in direct response to these reduced revenue levels such as severance. However, these additional costs were also more than offset by reduced incentive-based compensation this quarter.

IDS segment profit was $36.4 million compared to $39.9 million in last year’s third quarter. As a percentage of sales, IDS segment profit improved slightly over the third quarter of last year as the team did a nice job of quickly adjusting their cost structure to match the reduced revenue levels.

We continue to generate strong profitability even though we had organic sales declines and foreign currency headwinds. This strong profitability is a result of the ongoing efficiency gains that we’ve been pushing for several years throughout our business and the significant reductions in discretionary spending. We are committed to investing in R&D as innovative new products have been and will continue to be our competitive differentiator for Brady.

This quarter, we launched numerous new products specifically related to the fight of COVID-19, and we also launched a number of other new products including further expansion of our laser markable label lineup. These proprietary proprietary polyimide labels are designed to be permanently marked using IR lasers and are ideal for use in circuit board applications and electronic components. These laser markable labels resist repeated harsh wash down cycles, resist high temperatures that occur during soldering, and are compatible with most IR laser marking systems. These are the type of innovative products for niche applications that Brady is known for.

Looking forward in IDS, our top priorities are first and foremost, keeping our people safe, investing in organic growth opportunities in both sales and R&D to launch innovative new products, to serve our customers extremely well and to continue to drive efficiencies in our manufacturing processes and SG&A.

Slide number 15 outlines our workplace safety financial performance. WPS organic sales grew 0.2% and foreign currency translation reduced sales by 4.1% this quarter. Through March, our WPS business grew 4% organically and then declined 7.5% in April when the full force of European and North American companies shutting down took effect.

In Australia, where they weren’t hit as hard by the coronavirus, our sales were up just over 30% this quarter. Now, we don’t expect this level of growth to be sustainable in the future, but we do expect our Australian business to continue to grow throughout our fourth quarter.

Organic sales in our WPS Europe business were up in the low single digits this quarter. Much like in Australia, the strong entrepreneurial spirit of our teams and the essential nature our products propelled us to grow this quarter even though many businesses in Europe were closed for much of the quarter.

We are very pleased that we’re able to grow and provide outstanding support to our customers in their time of need. Our businesses in the Americas declined organically in the mid-teens range this quarter. We have a business that sells mostly to very small businesses. This business was significantly impacted by government mandated shutdowns of our customers, for most of March and all of April. These shutdowns were the main drivers of our weak sales in our WPS Americas business.

Our workplace safety team around the globe launched many new products direct squarely and aiding in the COVID-19 fight. We launched a complete line of social distancing floor markings, a complete line of personal hygiene signage, several new and highly innovative temporary barriers to help direct people and equipment away from hazards, and we also supplied many organizations with personal protective equipment.

As a result of these aggressive actions, to reach as many companies as we could, we added over 20,000 new customers this quarter. The addition of these new customers along with expanded product lineup will definitely make us a stronger company as we emerge from this period of economic weakness.

Responsive rates to digital advertising increased this quarter while the effectiveness of traditional catalogs decreased somewhat. Although the shift away from catalogs to online channels was certainly impacted by many people temporarily working from home, we believe that this pandemic may further accelerate the shift in buying patterns from traditional catalogs to online channels.

We’re accelerating the migration of the last few remaining businesses to our global web platform. We believe that accelerating these types of actions ultimately has a long-term benefit as it enables us to move significantly faster with website enhancements and the launching of new products.

In addition to increasing our customer list by providing higher quality customized products and delivering them faster than our competitors, our model of having a very knowledgeable local sales team also provide significant benefits as we’re able to help many customers by gaining a full understanding of their problems and quickly tailoring customized solution to meet their specific needs.

We remain focused on three primary priorities to return our WPS North America’s business to consistent organic sales growth and improved profitability.

First, we’re improving the buying experience for customers so that it’s simple as possible, reaching our customers the way they prefer to be reached, whether it’s online, mobile, catalog, in-person or through a combination of these channels is essential to return this business to growth, which is exactly why we’re focused on having industry leading websites and talented customer service personnel.

During these challenging times, the combination of industry-leading websites and strong live customer service has shown itself to be a powerful combination.

Second, we’re increasing our customer interactions beyond only fulfilling orders. This allows us to better understand what our customers are dealing with from a safety and identification perspective and helps us to better serve those needs by offering our compliance expertise and complete solutions, which our competitors do not possess.

Third, one of our strengths is our ability to quickly customize products. We’re improving our portfolio of products by introducing more customized and proprietary products that our customers need and want. We’re increasing the value that we bring to our customers by focusing on these priorities, which creates loyal customers and improves our sales and profitability over the long-term.

Economic conditions in our two largest geographies are challenging right now, but we’re able to finish the quarter with slight organic sales growth in WPS. WPS segment profit was $4.4 million this quarter compared to $6.1 million in last year’s third quarter. If you exclude one-time expenses, including the write-off of previously capitalized catalog costs and the benefit of reduced incentive-based compensation that Aaron mentioned, our WPS profit would have been approximately flat when compared to the third quarter of last year.

Overall, our WPS business continues to improve and I’m confident that these recent increases in our customer list, our recent new product launches and the strong entrepreneurial spirit of our team, that WPS business is poised for solid results when economies emerge from their lockdown.

Again, I’m very proud of the role that Brady is playing in the fight of COVID-19. Our team has stepped up and our products are essential now and will be essential as the world gets back to work.

We’re in a tough macro-environment, but Brady is in a very strong financial position. We have a strong balance sheet and strong cash flow. But we cannot and will not be complacent. We will be diligent on cost. We’ll continue to execute sustainable efficiency improvements, while investing in selling resources and R&D to drive organic sales growth over both the short and long-term.

We intend to come through this period in even stronger position than we’re in today, and we’re confident that by maintaining our focus and eliminating distractions, we’re setting ourselves up to do just that.

With that, I’d like now to start the Q&A. Operator, would you please provide instructions to our listeners.

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions] I show our first question comes from Allison Poliniak from Wells Fargo. Please go ahead.

Allison Poliniak — Wells Fargo — Analyst

Hi guys, good morning. Want to talk about the WPS. I know one of your focus areas has been more of this consulting a full-service approach. I mean, just given what’s going on, can you maybe talk about what you’re seeing across Asia and then Europe and North America in terms of inquiries around that? Is that increasing for you, where you think you can get better share during this?

Aaron Pearce — Chief Financial Officer & Treasurer

Good morning, Allison. Well, I will tell you, as we mentioned, our revenue just from COVID — and a lot of that comes from consulted efforts and interactions — is up $11 million. I want to be very clear, that is what we can determine easily and — in a defined manner. We do sell a lot of products that is not intuitively guaranteed that it’s COVID, but we are seeing those indications that more of our business is being sustained by that as well.

And that comes from our ability to, as you pointed out, our consultively interact with our customers. We’re also seeing improved revenue from other product lines because of our COVID interactions and the discussions we have about a total approach to servicing their safety needs.

So, we’ve actually seen an increase of COVID to this, but actually more importantly we’ve seen an increase of non-COVID products as the customer looks at the total safety package that they need to handle as we turn to this problem.

The final thing I’d like to say is the fact that now we’re up to over 22,000 new customers is not accidental. That is part of this effort and is a direct result of a disconnect in the world that allows us to really penetrate many more customers that we expect to continue to consult with and to sell to as we not only move through the transitions, but out of the transitions of this phase.

Allison Poliniak — Wells Fargo — Analyst

That’s helpful. And I just want to go back to your comment on inventory levels in terms of stocking and then sort of this destocking phenomenon that happened. Do you feel like you’ve stabilized that, or are you seeing — I would assume just given your comments around sales that maybe that’s behind us, any color that you can provide there?

Aaron Pearce — Chief Financial Officer & Treasurer

Right. So, for inventory levels for the IDS business with their distributors, we did see what we believe was wise stocking by our distributors. If you recall that period of the pandemic around the globe, people were very uncertain about supply chain. And although Brady supply chain is extremely strong, our distributors were looking across the board and we believe were bringing in more stock, front-loading it just as we were, by the way, during that time period.

The end result, as they feel more confident, particularly in suppliers like us, they obviously want to destock because they stocked up we believe for this and they want to bring it back to more normal levels. We do think that we have flattened out at this point in our ordering levels. We see a trend now that we can say we believe is a flattening. But it is obviously at April levels as opposed to higher levels.

Allison Poliniak — Wells Fargo — Analyst

Great. Thank you. I’ll pass it on.

Aaron Pearce — Chief Financial Officer & Treasurer

Thank you, Allison.

Operator

Thank you. I show our next question comes from George Staphos from Bank of America. Please go ahead.

Molly Baum — Bank of America — Analyst

Hi, Michael. Hi, Aaron. This is actually Molly Baum sitting in for George Staphos here at consulting call. I want to start with a question on IDS. So, last quarter IDS Asia was down mid-single digit. This quarter was up modestly. If you view Asia as an early indicator of what maybe we could expect to see in the Americas or in Europe kind of as these social distancing regulations and guidelines sort of start to ease a bit? Thank you.

Michael Nauman — President, Chief Executive Officer and Director

Thank you, Molly. Appreciate the question. It’s a crystal ball type question obviously. Much of China’s sales come both internally and externally. And so, their internal economy is strengthening and they are selling more to Western companies and they were obviously when they were shut down for the pandemic. There is always a concern that you could see some downturn related to Western companies and their shut down and their slowing down. Because obviously, a large part of that economy is dependent on that.

That said, I do believe Western economies are opening up. We’ve seen Europe opening up. We’re seeing the United States opening up. And so, at this point, we’re hoping to see some stabilization. That doesn’t mean you won’t see ripples during the process.

Molly Baum — Bank of America — Analyst

Understood. Thank you. I appreciate the additional color there. And my second question, I apologize, it’s probably another crystal ball one, but. Appreciate the volatility in the market right now, but it did sound like maybe you saw some stabilization in May relative to April. Certainly, hoping to get some additional clarification on maybe some of the trends or the uncertainty that kind of gives you pause as to your performance last quarter, year, and really kind of what leads to withdraw guidance whether there’s what potential source to the upside or downside there might be? Thank you.

Michael Nauman — President, Chief Executive Officer and Director

Well, Molly, as you financially live through this crisis as the rest of us have, you watch the companies and what’s going on. I do realize industrial were one of the early indicators of April results. But April results were dramatically down for us and we are a broad indicator of the industrial economy at large. We actually sell to every SIC code there is. So, we can typically see an awful lot of indicators.

Also, we don’t have ever a long backlog. We typically book and ship very quickly. So in one hand, I can’t tell you what July is going to look like. In the other hand, I can see the different industries that are impacted and how they’re impacted. No surprise to you or anybody else on this call. Aerospace is struggling tremendously. The automotive industry is trying to get back up and going, but they are facing their challenges. Areas like leisure and entertainment can only be described as a short to medium term disaster.

So, as a result, even though we are seeing a flattening of our bookings, which is good that we’re seeing that they are stabilizing. We don’t want to pre-predict how all of these different industries are going to react. And as I said in the case of China, we may see ripples. Well, that will ripple through very quickly to our Asian business as well.

And although we feel very strongly that our Australian business is going to continue to do well, we aren’t sure exactly how much better they’ll do. We certainly are commending them incredible team with 30% growth last quarter, but we don’t expect that to happen again this quarter, as an example.

Molly Baum — Bank of America — Analyst

Okay. Got it. Thank you. I’ll turn it over. Bye. Thanks.

Michael Nauman — President, Chief Executive Officer and Director

Thank you, Molly.

Operator

Thank you. I show our next question comes from Joe Mondillo from Sidoti Capital. Please go ahead.

Joe Mondillo — Sidoti & Company — Analyst

Good morning, everyone.

Michael Nauman — President, Chief Executive Officer and Director

Good morning, Joe. How are you, sir?

Joe Mondillo — Sidoti & Company — Analyst

Hope everyone is well.

Michael Nauman — President, Chief Executive Officer and Director

Yes, sir.

Joe Mondillo — Sidoti & Company — Analyst

So, just to follow-up on Molly’s question regarding Asia and specifically China, we’re hearing a little bit about potential second wave and some shutdowns that are happening in part of the country. Are you feeling any effects from that and what are your thoughts on what’s going on with the economy over there given that?

Michael Nauman — President, Chief Executive Officer and Director

Well, I definitely don’t want to be a news reporter, but I believe those are the regions that are close to the Russian border and areas like that. We don’t do a tremendous amount of business in that region. So, I honestly couldn’t comment specifically about those latest impacts.

I can say this, I think that our team in China has done an incredible job. They got back to work very-very quickly. They brought the business back up significantly in a rapid and thoughtful manner. And I think even if we do see some downturn there again, I think it will mainly be from Western business reductions as opposed to shut down.

But once again, that is a crystal ball statement, so I want to be careful about letting you know that I certainly don’t have a brain insight on particularly that region of China.

Joe Mondillo — Sidoti & Company — Analyst

Okay, understood. Your comments on bookings sort of stabilizing in May, is that just an overall the last three weeks in May comment? Or when you look week-to-week and I never really want to talk week-to-week, but this thing is just changing so quickly. And so, I’m just curious was that a generalized comment on overall May or has anything changed over the last three weeks in May?

Michael Nauman — President, Chief Executive Officer and Director

So, first of all, yes, I never comment on day-to-day. I never react to day-to-day. As you could imagine, even looking at a holiday will give you a gut-wrenching feeling that every bit of business is shut down. And then you realize Europe is on a holiday today.

So, you’re right, never wise to look at the very short-term. We are looking at trends and our trends show two things. One, that we’ve been actually much more stable in the gyration. So, if you looked at April, our sales were going up and down like a roller coaster in the month of April, much more stable in May. And they’ve stabilized at a consistent level, as we said, at approximately the revenue level of April.

Joe Mondillo — Sidoti & Company — Analyst

Okay, great. And then regarding your cost reductions, just couple questions. You mentioned headcount and facility closures, of all of that, is there any way you can quantify what is permanent cost that you took out in the quarter?

Aaron Pearce — Chief Financial Officer & Treasurer

Yes, it’s a real challenge for us to determine what’s permanent versus temporary. I mean, right now, many of our cost reductions would, I’ll say on the surface would fall into the temporary camps. So, I think travel, employees and furlough etc., because of course we want to make sure that we can balance the need to drive cash flow today without harming our future. But we’ve also of course reduced some permanent costs as well, such as the system implementation that Michael mentioned, the facility closures that I mentioned.

However, right now, and frankly it’s quite difficult to comment how much is permanent versus how much is temporary. It’s a really blurry line. I mean, for instance, we don’t believe that the same level of catalog costs that we incurred prior to COVID-19 will ever come back as an example.

So, catalog drops will definitely increase in the future, but how much and what geographies, we just flat out don’t know the answer to that yet. So basically, as you think about our cost structure, really the key to takeaway is that we remain committed to driving efficiencies. And as you can see in areas like SG&A, we have a strong track record of reducing costs consistently and sustainable.

And frankly, we anticipate that that will continue into the future. But it’s, again, from a crystal ball standpoint, it’s really tough to determine exactly how much and when and where.

Joe Mondillo — Sidoti & Company — Analyst

Okay, understood. Regarding the facility closures, you guys still — you mentioned those were two small facilities. Even beyond that, you have, I believe, a ton of facilities around the world. Could you talk about your manufacturing footprint, and if there’s any further opportunities to make any sort of structural — more structural changes like that?

Michael Nauman — President, Chief Executive Officer and Director

So, Joe, I would actually say that’s one of our incredible strength. As you look at this downturn and you look at companies that struggle getting out products, we were not one of them. We have been working hard to get closer to our customers, both from a sales perspective, from a product development perspective, but also from a manufacturing perspective. So, the one thing as we look at making sure our facilities are robust, we are not going to do, and that is move farther away from our customers. I actually think we are three years ahead of the world as a result of this pandemic, in making sure that the supply line to our customers is very short and very strong. We are trying to increase our ability to supply products from two weeks to overnight in some specific cases. And we are doing that before this pandemic hit and we’re going to continue to do this.

I will say that obviously we did shutter a couple of very small facilities, but — and we will continue to look at that. But the one thing we aren’t going to do is move farther away from our customers. I think it’s been incredible strength of ours that we can ship overnight in some of the most challenged regions in the world. And yet, we were still shipping to people who were desperate for our products.

Joe Mondillo — Sidoti & Company — Analyst

Okay. I understood. Well, thanks a lot. Thanks for taking my questions and hope everyone is well, thanks.

Michael Nauman — President, Chief Executive Officer and Director

Thank you, Joe. Thanks for your time.

Operator

Thank you. Our next question comes from Keith Housum from Northcoast Research. Please go ahead.

Keith Housum — Northcoast Research — Analyst

Good morning, everyone. Thanks for the questions. Michael, just trying to understand a little bit more the impact that April had on IDS and WPS. I understand that perhaps with destocking impact on IDS, but there is obviously a significant difference between the two segments. Can you provide a little bit more color about perhaps why that was? And is that $11 million that you think — plus — from the COVID-19 impact, that impact more IDS or WPS?

Michael Nauman — President, Chief Executive Officer and Director

That was almost — all right, so the $11 million were actually designated was almost all from WPS. It is much-much more challenging for us to be able to determine whether it was used for COVID or not in IDS.

So, let me give you an example. If we look at floor markings, if the floor marking has “stay-away-6-feet” on it, I can clearly determine that’s COVID. But the vast majority of IDS’ floor marking does not specifically say that, but it could very well be used for this, particularly when factories are shutdown. We just are not going to call out a number that we can stand behind.

So, yes, I do though, that said, believe WPS’ model of super rapid response, super innovative capabilities. In some of our locations, I was receiving updates from my team that was so proud, because they had reduced two-day delivery during the height of the pandemic to overnight.

And literally, 95% of their products were going out overnight, when 70% of their products had been going out in two days and their volumes were up. So, I think WPS did have a better ability through their customization, their rapid turn to really respond and to cover the holes caused by regular industrial business being down.

Keith Housum — Northcoast Research — Analyst

Got it. Appreciate it. In Australia, just a phenomenal quarter, and I know and I appreciate you don’t expect that to necessarily replicate at those levels. But can you provide some more color about what they did previously? I understand that COVID didn’t have strong of an impact there, but what else they do differently there that I guess is it replicable to the rest of the company?

Michael Nauman — President, Chief Executive Officer and Director

Well, what I will tell you, they are a very tight-knit team. They’re all co-located and we do have a first facility. So, I don’t want to first on the call, most of them are co-located in Sydney, but they were able to do a tremendous job of leveraging all the capabilities of our other groups around the world.

And by the way Keith, I would say that that’s something we couldn’t have done a few years ago. The cooperation between regions, between divisions, between businesses during this downturn has been extraordinary. They were also able to speed up their processes tremendously.

One example is, if you look at the banner that goes on websites, they were doing standup meetings. So, remote stand up meetings every two hours because they were running out of product on a two-hour basis to change their banner, whereas normally they would do that banner change about every two weeks.

So, they sped up their process. They sped up their thoughts. They sped up their ability. They also really did a great job of getting products in North America in particular. Some of the PPE products we’ve struggled to get in in a way that other regions have been able to get in. And Australia just did a tremendous job in everything from mask, to gowns, to first aid kits, to gloves. I mean, you name it, they were able to provide those to their customer base, as by the way was Europe, much more to an extent, North America has been very-very challenged, not just Brady and WPS, but in general.

Keith Housum — Northcoast Research — Analyst

Great, thanks. And if I could squeeze one more in here. The impairment was related to, what I understand, trade names in terms of some of the brands you sold to the SMBs. How much of your overall business would you clarify as sold SMBs versus say large customers?

Michael Nauman — President, Chief Executive Officer and Director

Yes, we don’t look at that quite frankly. And I don’t know that I’d break it out if I did look at it. I will tell you that in one particular business, which is not a large business of ours, but large enough that had a big impact, it is a significant 75% plus of that business.

And when you do that, what I will tell you, incredibly proud of the way that team quickly responded, introduced new COVID related products, really made sure they were reaching the customers they could in the way they could.

And as we come out of this, I think they’re going to be able to be like Phoenix rising from the ashes. Well that’s at least our hope because of just how well they handled it, turned and changed their approaches and philosophies.

And although, we know very small businesses in North America are going to be challenged. I mean, I’ve heard numbers of restaurants that say 40% may not come back. Once again, I’m not a news reporter, but those are the type of numbers we’re hearing.

And if you look at retail, I’ve been told small retail businesses are going to be even more impacted. It will be a challenge to come back. But we will help and support those businesses as much as we can in any way that we can as they come back to social distance, to handle hygiene, all the challenges. But the last thing is small business owner who’s struggling with cash, employee issues, getting customers back, needs to worry about.

Keith, I’m very proud that although we don’t break it out, we are a backbone of support to those type of businesses in America and around the world. And that makes you proud, because our job is to make it easier and to give our customers a safer, more reliable environment.

Keith Housum — Northcoast Research — Analyst

Yes. Thanks, Michael. I appreciate. Good luck to all of you.

Michael Nauman — President, Chief Executive Officer and Director

Thank you, sir. Have a good day. Thank you.

Operator

Thank you. Our next question comes from George Staphos from Bank of America. Please go ahead.

Molly Baum — Bank of America — Analyst

Hi guys. Thanks for taking my follow-up question, again. So, the first question I wanted to ask and they’re both kind of related to capital allocation. You guys had a pretty decent sized share repurchases this quarter and we’ve heard a lot of other companies in space talking about suspending share repurchase just in light of all the uncertainty around COVID.

And I’m curious how you’re thinking about value return through the remainder of the year until maybe we get some more clarity in terms of what’s going on with the pandemic? Thanks.

Michael Nauman — President, Chief Executive Officer and Director

Thank you, Molly. I would say we don’t change our philosophy based on temporary circumstances. We clearly haven’t and won’t. We have a very consistent capital allocation strategy. The strength of our balance sheet allows us to continue to do that and we are actually accelerating anywhere we can.

So, our first goal is to reinvest in our businesses. And I think you heard unequivocally, I have challenged every leader in our company to find ROI positive investment and to be making them and making them quickly.

And the great part about that is, I’ve seen that actually happening. People are speeding up their processes and I look at the big ones obviously and everyone I see, I’m excited about.

So, the second area that we work on is our dividend. As Aaron already reflected, we declared our dividend. We have 34 straight years of increasing that dividend. That’s another area that we are looking at long-term, not short-term. And then, we take a look at the share buybacks.

And as you saw, we bought back this quarter. We were getting nailed in the very peak of the cycle for two things. One, we weren’t buying companies, its super high multiples when they were at their highest profit level. And two, we weren’t buying back Brady’s stock — I think we peaked at about $59.50.

And my answer to both those questions are consistent with what I am going to tell you now. We don’t value our stock. That’s not our job. That’s the job of our investors. We create value. We ask you to determine it. We do though, when we see a disconnect, a significant disconnect, like to buyback our stock as a way to improve our overall return for our shareholders. We feel very good about that.

That philosophy didn’t change before the downturn, isn’t going to change during the downturn, and won’t change after the downturn.

And then the final factor which you didn’t ask, but it’s the end of the capital allocation, is on acquisitions. Once again, we were getting nailed. That said, we’re not in a hurry to spend cash. It doesn’t burn a hole in our pocket. What we do care about is getting great technology in our company that we can create on our own in a cost-effective manner.

And so, we have a large list of companies that we talk to, interact with and research. And as the time is right and they’re right, we are going to continue to work in that direction.

That said, we’re not going to catch a falling knife. We are not going to look to see if we can be a fixer up with special. We want strength of technology, strength of opportunity, good organization.

So, Molly, I hope that answers your question. I think I added a little more to it, but it’s a pretty holistic approach that we have and it’s a very long-term approach that we have.

Molly Baum — Bank of America — Analyst

That definitely answered my question. My second one was going to be about M&A, but you answered that one as well, so I appreciate. I’ll turn it over. But thank you for the detail.

Michael Nauman — President, Chief Executive Officer and Director

Sorry about that Molly

Molly Baum — Bank of America — Analyst

No worries at all. Thank you.

Operator

Thank you. I show no further questions in the queue, sir. At this time, I’d like to turn the call over to Mr. Michael Nauman, President and CEO, for closing remarks.

Michael Nauman — President, Chief Executive Officer and Director

Thank you so much. I’d like to leave you with a few concluding comments this morning.

While the timing may be uncertain, this pandemic will eventually subside and we will return to an increased level of economic activity. When this happens, it will not be business as usual. The demand for certain of our identification and safety products has increased, and we believe that certain changes in buying habits have accelerated as well. We also believe that this pandemic will impact supply chains for many years to come as companies reassess their dependency on certain countries or geographies.

Companies will work to eliminate situations for the supply of critical components, lack of redundancy and resiliency. We believe that we are very well positioned to benefit from these changes.

Although these challenges maybe short-term, our opportunities are long-term. We have been investing in new products and we’ve gained many new customers. In short, we are very positive about Brady’s future.

Please stay safe and thank you for your time this morning. Have a great day. Operator, you may disconnect the call.

Operator

[Operator Closing Remarks]