Brady's Q2 Growth Driven by Acquisitions and FX as Organic Sales Remain Tepid

What happened

Brady Corporation reported fiscal 2026 second quarter sales growth of 7.7%, driven primarily by acquisitions and foreign currency translation. Organic sales increased only 1.6%, while acquisitions contributed 2.3% and currency effects added 3.8%, highlighting reliance on external factors rather than strong internal demand. This aligns with the DeepValue report's caution that Brady must stabilize Europe's organic sales, which were negative in prior quarters, to justify its premium valuation. Management raised the low end of fiscal 2026 EPS guidance, signaling confidence in cost management and acquisition integration amid tariff headwinds. However, the modest organic improvement and ongoing dependence on non-operational drivers underscore persistent execution risks, keeping the investment thesis in a holding pattern.

Implication

The raised EPS guidance low end reflects management's ability to navigate cost pressures and integrate acquisitions, but organic sales growth of 1.6% fails to address core concerns about Europe's demand weakness and margin sustainability. With acquisitions and currency translation driving most of the sales increase, Brady's intrinsic growth engine remains fragile, reinforcing the need for clearer evidence of regional stabilization and tariff mitigation. The stock's current premium multiple at 22.2x P/E requires stronger organic acceleration or consistent margin expansion above 51% to be justified, which this quarter does not deliver. Until Europe demonstrates sustained positive organic sales and gross margin resilience net of one-time benefits, the risk-reward profile favors waiting for a valuation reset or more definitive operational proof. This news does not alter the fundamental narrative of a company leaning on external factors while core challenges persist.

Thesis delta

The thesis remains unchanged, as the key thresholds for upgrading the call—Europe organic sales ≥0% and gross margin ≥51.0%—are not conclusively met with this quarter's low organic growth and unspecified margin details. Raising the EPS guidance low end is a minor positive but does not shift the underlying risks from acquisition dependency, regional divergence, and tariff pressures.