Ann Thornton - Director, Investor Relations Michael Nauman - President, Chief Executive Officer, Director Aaron Pearce - Senior Vice President, Chief Financial Officer

Mig Dobre - Baird Alex Wong - Bank of America Merrill Lynch Charley Brady - SunTrust Robinson Humphrey Keith Housum - Northcoast Research Joe Mondillo - Sidoti and Company

Good day, ladies and gentlemen and welcome to the Brady Corporation Third Quarter 2016 Earnings Conference Call. At this time all participants are in 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 conference call may be recorded. I would now like to turn the conference call over to Ann Thornton, Director of Investor Relations. Ma'am, please go ahead.

Thank you. Good morning and welcome to the Brady Corporation fiscal 2016 third 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 2015 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. Thank you. 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. I am pleased to report that Brady's fiscal third quarter profits once again exceeded the prior year's results. This marks our third consecutive quarter of improved financial performance. I'm proud of our teams focus on continually improving the experience of our customers while creating a more efficient and effective organization, as we're seeing continued improvement in our manufacturing processes through increased gross margins and throughout the rest of the organization in reduced selling general and administrative cost. This quarter we experienced a 27% increase in GAAP earnings per share and a 40% increase in operating cash flow when compared to the same quarter of last year. I'm impressed with the level of focus and consistency that the team is showing in driving our organizational goals and we're pushing to carry this momentum through the fourth quarter and into fiscal 2017. Through the first nine months of the year, we've been able to remove most of the distractions that impacted our financial results last year. We're no longer consolidating facilities and dealing with operational and customer service disruption. We don't have an ongoing restructuring plan and we're not impairing our assets, instead our attention is returned to what has made Brady a great company. We are developing innovative products that fulfil our need for our customers while providing excellent customer service, growing the core business while continuing to drive operational efficiencies is our number one focus and will remain our priority next fiscal year as well. Although our organic revenue decline was less than we anticipated at 0.1%, the current economic environment is making our R&D and new product developmental efforts even more important, our R&D processes are improving each and every day, which is leading to stronger product introductions. Specifically, we launched a new printer in our Identification Solutions business this quarter and the new printers launched in the first half of this fiscal year are exceeding our sales expectations. I'm also excited about the products we have in the pipeline to launch in fiscal 2017. We've accomplished a lot through the first three quarters of this fiscal year, but we're not satisfied and we will continue pushing for stronger results. We still expect economic conditions to challenge our growth initiatives in the short-term, resulting in low single-digit organic sales declines in the fourth quarter and for this entire fiscal year. As we previously discussed, our business has a very short cycle from the time that we receive an order to when we ship the product to our customer, this limits our visibility into future order patterns and makes it challenging to predict future revenue trends. Our channel partners continue to note a difficult environment and softness in overall demand, to navigate through this macro environment and to offset the short-term organic sales growth challenges, we will continue investing in our future through increased and focused R&D spending, while driving operational efficiencies throughout our manufacturing sites and within selling general and administrative functions. We have confidence in our talented team and their level of motivation toward achieving our organizational goals. Every day we're tackling what we have the power to control by driving continuous improvement throughout the organization. Eliminating distractions and creating a stable environment has allowed each Brady employee to think differently about what to do and how to do it, we're finding opportunities to improve our cost structure and we have the right team in place to take Brady to the next level and to drive shareholder value. Now I'll turn the call over to Aaron to discuss our third quarter financial results. I'll then be back to provide some specific commentary on our Identification Solutions and Workplace Safety businesses and to provide a few closing comments. Aaron.

Thank you Michael and good morning everyone. I'll start the financial review on Slide number 3, this quarter revenues were down 1.2% to $286.8 million when compared to the third quarter of last year. This reduction consists of an organic sales decline of 0.1% and a reduction of 1.1% due to foreign currency translation. Turning to earnings, on a GAAP basis our EPS grew 27% this quarter. Diluted EPS was $0.42 in the quarter compared to GAAP EPS of $0.33 in the third quarter of last year. We have no non-GAAP items to call out this year. However, when comparing against the prior year earnings and EPS figures the best measure is prior year non-GAAP earnings from continuing operations as it excludes restructuring charges, discontinued operations and a one-time gain from a curtailment of a postretirement benefit plan. Non-GAAP EPS from continuing operations was $0.34 in last year's third quarter, which compares to our GAAP EPS of $0.42 in the current quarter, a solid increase of 23.5%. Slide number 4 is a summary of our quarterly sales trends. In the third quarter revenues finished at $286.8 million and as I just mentioned total company organic sales decreased by 0.1%. On a divisional basis, organic sales decreased by 0.8% in the Identification Solutions segment and increased by 1.2% in the Workplace Safety segment. Looking a bit deeper at our slight organic sales decline, we saw a declining sales in market such as Western Canada, Western Australia and parts of Texas and the Dakotas where our customer base and the economy in general has some times to natural resource extractions such as mining, natural gas or oil. At the same time we saw an improvement in geographies where there is less of tie to natural resources such as in Western Europe. This quarter we had benefited from an extra work day when compared to the prior year. This extra day won't repeat in the fourth quarter, in fact we will have one less work day in the fourth quarter of this year as compared to the fourth quarter of last year. We also experienced a slight slowdown in our order pattern in April after relative stability in February and March, neither our order patterns nor the number of work days sets up well for organic sales growth into the fourth quarter. Overall, foreign currency continues to be a bit of headwind when compared to the third quarter of last year, as evidenced by the 1.1% decline in sales attributed to foreign currency translation. However if we look at foreign currency on a sequential basis, the US Dollar depreciated this quarter versus a broad basket of currencies when compared to the second quarter of this fiscal year. To put this in perspective, coming into the quarter we anticipated an approximate 3% decline in sales during to foreign currency and we ended with 1.1% decline. Turning to Slide number 5, you can see that our third quarter gross profit margin finished at 50.7%. This represents a 210 basis point improvement over the third quarter of last year. More importantly, this continues the trend of sequential gross margin improvements up 120 basis points when compared to the second quarter of this fiscal year. Sequentially, we're seeing most of our gross profit margin improvement in the facilities that we consolidated in fiscal 2015. We're encouraged by these improvements but as Michael mentioned, we know that we have more work to do over the next several quarters and years in order to achieve our operational and efficiency goal. On the left-hand side of Slide number 6, is the trending of SG&A expense. SG&A expense was $105.8 million this quarter compared to $103 million in Q3 of last year. The prior year SG&A expense included a pre-tax gain of $4.3 million due to the curtailment of a postretirement medical plan. If you exclude the impact of this gain SG&A expense would have been down $1.5 million when compared in the third quarter of this year to the third quarter of last year. On the right-hand side of this page is the chart summarizing our general and administrative expenses. G&A expenses finished at $29.4 million in the third quarter compared to $24.8 million in last year's third quarter. Again if you adjust the prior year G&A expense for the curtailment gain I just mentioned, we see that G&A expense was effectively flat with the prior year. Moving onto Slide number 7, you can see that our diluted earnings per share was $0.42 this quarter which compares to non-GAAP EPS from continuing operations of $0.34 in last year's third quarter. Overall we're pleased with our team's ability to drive operational improvements resulting in improved gross profit margins, improved segment profit margins and controlled SG&A expenses resulting in growth in both earnings and EPS this quarter. The weaker macro environment has made sales growth a challenge which we expect to continue to the remainder of 2016 and into next fiscal year as well, but we know that the team is motivated and dedicated to achieving operational excellence in everything that we do and we know we have opportunities for continued profit improvement. Slide number 8 summarizes our quarterly cash generation. This quarter we finished with $40.3 million of cash from operating activities compared to $28.8 million in last year's third quarter. Looking at free cash flow, we finished this quarter at $36.8 million compared with $23.1 million in last year's third quarter. The chart in the upper left-hand corner of this slide provides more detail on cash generation. The bars represents cash flow from operation activities and illustrate how we realized improved cash flows over the last several quarters as we've moved beyond the period of elevated cash outflows from our restructuring programs and facility consolidation activities and into a period of increased focus, which is really helping in increased cash generation. We returned $10.2 million to our shareholders in the form of dividend this quarter, while repaying $13.3 million of debt. Looking forward, we expect cash flow to continue to be solid however due to tougher prior year comparables we do expect that our year-on-year free cash flow percentage growth will moderate in the fourth quarter. Our EBITDA trending and net debt trending are presented on Slide number 9. Our net debt to EBITDA was approximately 0.8 to 1 at the end of the quarter. Our total net debt position has been trending down since December 2012 and at April 30, 2016 it was $100.9 million compared to net debt of $167.9 million at the same time last year. Our balance sheet is strong which gives us the flexibility to fund future growth opportunities and return funds to our shareholders. Our disciplined and patient capital allocation approach remains unchanged. First, we use our cash to fund organic growth opportunities which includes funding, investments and new product development, digital enhancements, sales generating personnel capital expenditures and alike. Second, we're focused on returning cash to our shareholders in the form of dividends. Our streak of annual dividends, dividend increases has now reached 30 consecutive years. Third, we use our cash to improve shareholders returns through share repurchases. Share repurchases are executed in an opportunistic and patient manner, whereby we only repurchase shares when we see an opportunity to drive meaningful incremental shareholder value. Fourth and finally, we use our cash for acquisitions. As we've stated we do not expect acquisitions to be a significant use of cash in the near term. We believe that we can meaningful enhance shareholder value over the long-term by executing this prioritized and disciplined approach to capital allocation. Slide number 10 is our updated EPS guidance for fiscal 2016. We are increasing our full year guidance to $1.37 to $1.45 for the full fiscal year ending July 31. We expect that we will achieve this EPS guidance range on low single-digit organic revenue declines in both of our segments. Our revenue expectations are reflective of the current economic environment, which we believe provides near-term challenges in certain industrial end-markets and geographies including the US. In order to offset this weak sales outlook, we expect continued efficiency gains in our manufacturing facilities as well as in SG&A expenses. Other key assumptions in our guidance include CapEx which we believe will come in closer to $13 million versus our previous guidance range of $17 million to $20 million due to the timing of certain projects and we expect depreciation and amortization expense of approximately $33 million this fiscal year, which is also down slightly from our previous guidance range. Our tax rate is expected to be in the high 20% range. As is our historical practice, we are currently planning on providing formal fiscal 2017 guidance with our fourth quarter earnings release in September. However, we expect the current economic challenges to continue thus making organic growth difficult in fiscal 2017 and putting pressure on our ability to meaningfully improve earnings next year. These anticipated organic sales challenges as well as more clarity on our outlook and our priority, this will ultimately be incorporated into our full fiscal year 2017 guidance to be announced during our next earnings call in September. I'll now turn the call back to Michael to provide some color on our segments and some closing comments before turning the call over to Q&A. Michael?

Thank you, Aaron. Let's turn to Slide 11 for a summary of the Identification Solutions financial results for the third quarter. Organic sales decreased by 0.8% and foreign currency translation further decreased sales by 1.1%. In total, IDS sales were down 1.9% to $197 million this quarter. Our European IDS business had solid organic sales growth in the third quarter improving by mid-single digits compared to last year. Strong sales growth in Europe has been a consistent trend, which is a testament to our team in Europe who have been executing their plan effectively, specifically in Western Europe. IDS organic sales were weakest in our Americas and Asian regions. We continue to be impacted by the economy in Brazil as well as sluggish demand in the US and in Canada. Our customers in channel partners have seen reduction in revenues which has had an impact on Brady and we expect further declines in the near term. In Asia, our reduced sales are mostly driven by China but we're also finding the growth is difficult across the entire Asia-Pacific region. We've been taking actions to drive our Asian sales including certain focused hiring's in our sales organizations. Looking at segment profits; IDS finished at $46.4 million in the quarter compared to $41.6 million in last year's third quarter. As a percentage of sales, segment profit improved to 23.6% this quarter compared to 20.7% in last year's third quarter. I'm encouraged by the increase in segment profit margin in the IDS business. These improvements are a direct result of our continued focus on efficiency to our manufacturing processes in both the Americas and Europe as well as improving efficiency levels in both our sales and R&D organization. Meanwhile, we're not backing away from investments in innovation that will drive our future. This quarter, we launched the new BBP30 label printer, which is an entry level, user-friendly, industrial printer with a wide range of applications for dozens industries including manufacturing, hospitals, utilities, universities, building management and construction. It's compact in size and is designed for uses such as pipe marking, shelf and bin labeling, chemical labeling and warning labeling. We also introduced the new BSP45 Automated Sleeve Applicator in the third quarter. This product automates the wire sleeve application process by removing sleeves from a liner opening them and applying them to a wire. This applicator significantly reduces time required to apply sleeves to wires, while reducing the ergonomic stress on an operator, while performing this task manually. We designed it specifically for intensive wire sleeve users in the aerospace, defense, rail and chemical oil and gas industries. We are excited about these new launches as they continue our stream of innovative new products that our customers have come to expect and will keep us ahead of our competition. We expect to finish fiscal 2016 with a low single-digit decline in organic sales in the IDS business due to the current economic challenges in North America and Brazil. Our focus on efficiency gains throughout our manufacturing processes and sales organizations will result in full year segment profit to be slightly over 20% of sales. The Workplace Safety review begins on Slide 12. Organic sales increased by 1.2% this quarter, consistent with the first half of the year. Sales growth continuously driven by our European businesses which improved by mid-single digits compared to the prior year. Our European leadership team has done a terrific job executing their plans and their strength in this region drove the increase in organic [ph] growth for the quarter. Both catalog and digital sales increased with digital sales improving by 25% in Europe, when compared to the third quarter of last year. The improvement in our organic sales in our European based businesses was partly offset by low single-digit declines in our North American and Australian based businesses. The rates of decline in both of these regions decelerated during the third quarter especially in the US, where our digital investments are delivering positive results. At the same time, we've been adjusting our cost structure in both the US and Australia where we've been successful in improving segment profit as a percentage of sales when compared to the third quarter of last year. Throughout this fiscal year, we've experienced significant foreign currency headwinds in our European and Australian businesses which combined represents approximately two thirds of our WPS business. However, much of year-on-year headwind is now behind us, as foreign currency only reduced our WPS sales by 0.7% this quarter, as we saw a general weakening in the US Dollar against other currencies. During fiscal 2016, each and every member of the WPS team has been driving three primary goals. First, we're managing the catalog to digital channel shift that is underway through effective and efficient catalog prospecting. Our digital sales are growing with third quarter digital revenues up high single digits in the Americas and up 25% in Europe. We clearly have momentum and we're starting to see the payback on our digital investments. Second, we're creating an industry leading digital business by building website with a mobile first mentality. We now have 10 sites converted to mobile and we have seven sites in Europe remaining to convert in the fourth quarter. Although, mobile sales are still a small part of our business sales generated on mobile devices are increasing every month as a result of the improved capacities of these new sites. We believe that having a strong mobile presence is necessary in order to be an industry leader in this area. Third, we're driving product leadership in the safety identification product category to innovation and focus on unique and customized offerings. Our focus in investments in these areas is creating long-term value to an improved customer experience in our digital mobile capabilities and a strong innovative product line in every key category. Segment profit in Workplace Safety platform was $13.8 million this quarter compared to $12.3 million in last year's third quarter. As a percentage of sales segment profit was 15.3% this quarter compared to 13.7% in last year's third quarter. This improvement in segment profit margin is encouraging as it marks the fourth consecutive quarter of improvement over prior year comparables. Although we expect a low single-digit organic sales decline in fiscal 2016, we continue to expect WPS segment profit to be in the mid to upper teens as a percentage of sales for the full year. Before turning over the call to Q&A, I'd like to provide a few concluding comments. I'm proud of the entire team's hard work and dedication to our organizational goals, which have resulted in improved financial performance for three consecutive quarter. We're creating a culture of local accountability and ownership, which is allowed every member of our team to identify opportunities and to take actions to improve what we do and how we do it on a daily basis. Pushing our pay-for-performance approach is also contributing to an overall improvement in financial performance. With all 6,000 plus Brady employees working toward our long-term objective of developing high quality, innovative products and providing excellent customer service with an efficient streamlined organization. We will continue to show improved profitability and drive shareholder value. As we stated last quarter, we expected to see organic sales decline this quarter. However, our organic sales did not decline quite as much as we had anticipated coming into the quarter and we also did a better job of driving profitability improvements. Even with these better than anticipated profit results, we are concerned about our ability to deliver organic sales growth in the rest of the fiscal year and into the next fiscal year due to challenging economic conditions in several geographies including the US. We are committed to delivering our EPS guidance for this fiscal year. As we drive operational efficiencies and manage our cost, while keeping our focus on customer service as our top priority. Our key is more motivated than ever and we know that Brady is powerful brand. High quality products and commitment to the best possible customer experience will allow us to deliver what we promised to our customers, employees and shareholders. I'm pleased with our progress through three quarters of fiscal 2016 and I know we have the ability to achieve more as an organization. We are pushing ourselves to finish this year strong and to build momentum that will carry us into fiscal 2017. I'd like to now start the Q&A. Operator would you please provide instructions to our listeners.

[Operator Instructions] our first question comes from Mig Dobre with Baird. Your line is open.

Maybe a couple of questions on ID Solutions, I'm trying to understand the puts and takes of your margin performance in the quarter, which was quite good. If I'm to look at the third quarter and compared to your say first quarter numbers. In the first quarter, you pretty much had the same revenue as you had in the third yet you ended up with roughly $6 million more operating profit. So I'm trying to understand how much of that came from your initiatives from cost savings as opposed to mix and other items.

I can address that Mig. I'm going to take a broader step back and that is to look at our gross profit margin. So if you look at the gross profit margin improvements that we saw this quarter was effectively all in Identification Solutions as Workplace Safety was relatively flat with the prior year. So that's where the biggest benefit that you're seeing in ID solutions is coming from and frankly it's coming from primarily North America, where we've had the majority of our facility consolidation activities and we're seeing benefits literally across the board and I mean, we're seeing benefits in freight costs, we're seeing benefits in reduced personnel cost, reduced temporary labor cost, better material usage, less scrap, reduced supply purchases. The bottom line frankly is that when you look at the ID solutions performance on a profitability perspective, yes the team is doing a very nice job managing their selling expenses but the biggest benefit is coming from our gross profit margin.

Sure. You're talking year-over-year, I was really talking versus your first quarter where I'm going with this one is that, it seems to me that these benefits are really starting to kick in maybe in the third and really in all earnestness in the third quarter and going forward. Am I correct in that assumption?

You're correct. If you look at our gross margin in ID solutions it's been a nice steady improvement story.

And I do believe [ph], we conveyed that in previous quarter discussion with you [indiscernible] anticipation.

Sure, I mean your year-over-year comps are easy in this regard in the third and the fourth quarter. So I was checking that's still the case then looking at your guidance for the segment, you mentioned low single-digit decline for the year as a whole in IDS organically and margin slightly above 20%, if I look as to what that implies in the fourth quarter. It implies, call it relatively flattish revenue sequentially but the operating margin to be down sequentially and frankly not improve it whole lot year-over-year in the fourth quarter. So I'm trying to understand why you're framing the guidance that way or perhaps I'm not understanding something here.

Yes, I'll answer that one again. So when I look at the where we're year-to-date in Identification Solutions from a segment profit perspective we're at a little over 21%. So maybe it was the way that we phrased our guidance but as I think about just over 20%, I think we're actually in that range right now at that 21.4% that we finished year-to-date. So that's about where we would anticipate coming out for the rest of the year. My point is that, I don't anticipate a huge uptick or frankly or a large decline either and then shifting to organic growth year-to-date in Identification Solutions we're down 0.7% I believe and we would anticipate that perhaps could get a bit worse from a year-to-date perspective, so.

But Aaron I guess what I'm wondering here, you're not really expecting sequentially, a meaningful decline in revenue from the third quarter to the fourth in IDS. I'm wondering why you would expect your operating margin to decline then.

Yes, very good question. I'm sorry, I didn't answer that the first time. So when we look at, I'm going to back again to our gross profit margin and when we look at our, when we look at the third quarter in particular. I have to tell you, the third quarter is one of those where effectively everything went right. We didn't have much to go wrong in the way of one-off items, no one-off cost. Frankly there were no surprises in our gross profit margin and as we improve and continue to improve, where we've been seeing is that. We still do have some cost that get incurred that we need to overcome, frankly we didn't have that in the third quarter. Our third quarter margin performance in identification solutions was solid. So as we look at our fourth quarter. I mean we always expect that there will be a bit of something and again we didn't have that in the third quarter.

That's really helpful and then the last question from me is, really looking out into 2017 and so on, knowing the initiatives that you've already put through in terms of cost savings and maybe some of the other things that you have in the pipeline recognizing that the demand environment might be weak. Is it fair to assume that margins can continue to expand in IDS?

The answer to that is, yes however we're not putting out fiscal 2017 guidance at the moment as you know, but yes we absolutely believe that margins can expand in both ID solutions as well as workplace safety. The challenge that we have and why we're as cautious as we are, it really comes down to revenue and we have concerns about obviously we have concerns about the macro environments that we are operating in today, that is the real wild card that we're seeing at the moment.

Thank you for the color.

Thank you. Our next question comes from George Staphos with Bank of America Merrill Lynch. Your line is open.

Hi, it's actually Alex Wong on for George. Thanks for taking our questions. Just on the guidance, if we think about versus the previous guidance I think at the midpoint you raised it about $0.13 or so on the positive side of the ledger it looks like FX is maybe less of a headwind, you called out lower D&A I assume there is also some roll forward from the strong performance in the third quarter and then on the negative side the slightly higher tax rate, but I don't assume the necessary needle mover, but can you just maybe help us parse out maybe the raised guidance and how we should be thinking about that?

Well I think you hit on most of the components actually and then obviously the other piece to add would be the top line performance as well and when you add it all together, we do believe that we'll do a bit, I mean frankly we're anticipating that our fourth quarter will be a bit better than what we had anticipated about three months ago, which is why you see the increase in our guidance. So frankly beyond that, there is not much more to comment on SG&A continues to be an area of focus, continues to be an area that we're driving down margin performance we just talked about. So I think you just hit on, on the main components of the guidance.

I mean just to clarify, so would you say and the primary factor is really a more of a roll forward or are you saying underlying operational efficiency come in maybe better than your expectations.

We definitely saw operational improvements come in better than we had anticipated, when we gave our last guidance at the end of our second quarter. The financial that underpinned that guidance did not have the margin performance that you saw at this quarter. So clearly we've been improving our margin at a faster cliff than we had anticipated.

Appreciate that, just as a second question. It's maybe a little difficult sometimes to get visibility on some of the operational efficiency and SG&A trends until quarterly reporting. You just talked to some specific areas really across the board that you're seeing this improvement coming in ahead of your plans. Ultimately, maybe how much left is on the manufacturing efficiency related to the facility moves as we head into 2017, is it possible to quantify that versus maybe more normal improvements you're that you're trying to extract on an ongoing basis from productivity and asset utilization?

Yes, it's actually hard to parse out the two components of that Alex. We actually, we get a question quite often actually and that is what inning are you in, in your operational efficiencies and we typically answer the question. We haven't even got into the batter's box yet. I mean the reality is as we look at our operations and this isn't just our gross profit margin improvements but SG&A as well, we see a significant runway of opportunities, I mean frankly over the next several years and to parse it out between just facility consolidation related cost and I'll call it normal operational efficiencies, it becomes very difficult because frankly we've been in our consolidated facilities now for actually about a year and we're in bigger facilities, it's easier to identify operational improvements that are bigger improvements when you do identify them and you do execute them. So I know I'm not giving you a direct answer of how much is operational improvements versus facility consolidations but at the end of the day we see a pretty significant and long-term runway.

Understood and just last one before I turn it over. Europe continues I think to be a strong performer in the third quarter for both segments and then you also talked about maybe this bounce by some sluggishness in the US. Can you just talk about specific factors impacting one region versus the other whether maybe end market product mix or share gains or something else?

Sure Alex, if we take a look at our different regions we do see several different factors operating. If we walk through IDS there's no questions that the overall economy in the Americas, US, Canada and Brazil was slowing down. We did have some solid upside in Mexico and continue to see some very good and expect to see continued growth opportunities in Mexico. So the overall pattern was definitely related to the economy and particularly you can dive into areas like Houston, Western Canada where we see a lot of dependence on our oil and gas related products. You definitely see significant hits to our business in there. If you take a look at Europe on the other hand their economy is structured slightly different at this point. And as an end result, we're able to do better. We certainly have a very strong team there in IDS and they're doing a terrific job but a lot of other factors have to do with the nature of industry in Europe versus the nature of industry in the Americas. And finally, Asia really you can divide into several pieces for us. China, South eastern Asia actually Japan is differentiated from China and the GDP there, we're having mixed results with handling their entire GDP situation, we definitely though have an effort to increase some specific key sales efforts in there because we do believe, we can do a better job despite the downward trends. If we look at Americas and our WPS on the other hand, we see pretty similar trends, we would add Australia as oppose to China to that discussion and the good news there is that we're actually improving our revenue decline in Australia and we continue to see a stabilization of profits as we really leaned out the team and focused them. They are definitely undergoing some major long-term issues with commodities that are extraction industries in particular that are key to that region and key to our previous and future success there. So we have to work harder in the areas that aren't extraction related to overcome that situation but frankly that's a dominant force in their economy in the types of product that we manufacture. So that is a unique challenge to overcome with the proportion of their economy in that regard.

Much appreciated the thoughts.

Thank you. Our next question comes from Charley Brady with SunTrust Robinson Humphrey. Your line is open.

I just want to clarify a comment that Aaron made in response to question on the IDS operating margin, where the guidance being slightly over 20% for the year and year-to-date running at 21.3%. I thought I heard Aaron say that you know the 21.3% would be considered equivalent to just over 20% which seems like a pretty wide space to me. I just want to make sure, I heard you correctly on that.

You did hear me correctly.

Okay, so really you would expect year to be over 21%, rather than just over 20%.

Yes, I think that's fair.

Okay and I guess, as Aaron brought it but I know you're not giving guidance for 2018 but since Aaron kind of brought it up about the organic growth outlook. Can you talk about what you saw organic growth going just in the early part of fourth quarter and given your comments in organic growth and what you said about the ability going into 2018 and the EPS growth outlook, are you at this time expecting EPS to be up year-on-year in 2018 or do you think you would be flat?

I guess, I'll answer that. Well first of all, you're right we're not giving guidance for our fiscal 2017 and the specific question that you had with respect to how did we start our fourth quarter, I really rather not talk about that and the reason that I would not like to talk about it, is because when you look at our sales on per day basis throughout a month, it can be extremely misleading and it's hard to extrapolate in a 15 or 16-day period what the actual results will be for the month. So I guess I'd rather not comment on that and obviously as it relates to 2017 of course we anticipate increase in earnings per share, but beyond that, I'd rather not give any more color.

Okay, thanks.

Thank you, our next question comes from Keith Housum with Northcoast Research. Your line is open.

I guess my question is focused more on the balance sheet. As we look at your CapEx guidance further in the year, I think you guys pointed $25 million, you guys were down at $13 million for the year and I think you noted that just the timing of some of your projects but can you provide a little bit more color. I mean was there anything in the overall environment that's pushing out spending in the CapEx in press release projects maybe or the expansion of existing lines or facilities or any color you can give around the delayed projects?

Sure, straight out we're actually excited with our deployment of capital. We have become very disciplined in our approach, our product pipeline is increasing and becoming stronger and at the same time, we're looking at and pursuing capital equipment to help our factories become more efficient and effective and also for us to be less dependent in critical areas of sourcing. The end results is, I want to send a strong message to you that, we are actually working harder and more effectively in that area to put more into deploying proper capital, that said the timing of our use has not been exactly what we anticipated none of that is a negative for our future quite the contrary.

Great, thanks. And then as we look at your balance sheet especially your cash positions, probably the strongest I can remember being in many years and you guys have done a great job getting your net debt position down but there is been no change in your capital allocation strategy and as we look at your R&D numbers hasn't really changed much as well. So can you perhaps expand a little bit more on how you planning to put your balance sheet to work and with investing back into the business? Do you plan R&D increasing in the future or in growing the sales staff to help drive sales?

Well we're are always going to look at those factors very carefully but there is no question that we are refocused as in innovation product driven organization and that we're driving that mentality throughout our company in all of our businesses and we feel that we're making significant progress in that area but you're correct, we will be looking at some of our platforms in particular to drive a more innovative unique product centric culture but we're providing absolute differential value to our customers and at the same time providing differential value to ourselves. So yes, we would expect to see more both efficient, effective and increased efforts in the area of R&D. We also believe that our sales effort will continue to move forward as we see opportunities to expand into markets or to customer bases that we had not before, but there is an absolute effort become not just a farmer-driven mentality as an organization of sales but hunter-driven, where we go after opportunities earlier in the cycle so that we can actually provide more differential improvement.

Okay. And then I guess finally, as your cash position is growing, is there more a priority that you are going to give to share repurchases than perhaps dividends? Because I'm assuming that you are going to have more, I think, perhaps to dividend out without significantly increasing that dividend payment. I guess is there a change in the weighting you are giving in terms of your priorities for your capital allocation?

We're not changing the way we're doing our priorities specifically. We have 30 consecutive years of improving our divined, we're quite of proud of that, we believe that sends a very strong message of stability and consistency and we're not anticipating changing that model. On top of that, I think that you know I'm not a fan of programmed repurchases, we're always looking at our cash positions, our opportunities and the situation with our stock. We have purchased I believe just over $23 million worth of stock back this year a little over 1.5 million shares that is up above historical levels and certainly way above my first year here where we repurchased zero, but we believe and do believe that the price point that we purchased that was a terrific investment for our shareholders.

And just to clarify it was 1.1 million shares.

Oh, gosh I said 5. Yes, it 1.1.

And $23.5 million.

Right.

It was great guys, appreciated.

Our next question comes from Joe Mondillo with Sidoti and Company. Your line is open.

Just a jump on that, the prior R&D question just wondering how much change or benefit have you started to realize with the focus, the increased focus that you've put in place. I would imagine not a whole lot and are we expected to sort of see an accelerated amount of benefits over the next year or two.

Absolutely, that's - if we take a look at our approach on R&D you're correct, it is a longer term focus. We believe that the best way to create value for our shareholders is to truly drive it internally to create solutions, unique solutions in the nice markets that takes a while. Our marketplace tends to be slower to move in some that's good news on the back end of our product lifecycle but as you're developing products that also means it takes longer not only to introduce them to marketplace but to get traction in the marketplace, very, very positive results. We're introducing products specifically in business units that are very exciting that we have not been introducing products into in several years, that is an exact indicator to me of what we want to be doing for our future but I don't expect those products to have giant traction in the near future because it does take anywhere from 18 months to 3 to 5 years depending if it's medical space somewhere like that to actually get significant traction, but we're establishing the mentality, establishing the process and the structure, the innovative ideas and developing them to do exactly that, have a stronger, longer term path forwarding growth. As we spoke to you before, we're looking at operational efficiencies to help garner positive momentum for our value in the near term, we're looking at product innovation to help garner a much stronger value stream in the longer term.

All right and then in regards to the operational improvements IDS this year has seen, I think, a significant amount of margin improvement year-over-year as related to the easier comps with the inefficiencies related to the closing consolidation as well as the actual benefits from further improvement. WPS, could you talk about, that segment has seen a significant amount of margin expansion too, could you talk about what the drivers are there? I think it's a little different, given all the changes in restructuring that you are doing with that segment.

We are very pleased, as you saw we had growth in WPS this quarter, that in and of itself puts a tremendous positive pressure on our margins, that when we see declines because of the margin levels that we have and the fixed capital that we have in place, it definitely has a super significant impact. So being able to reverse that direction is a major player, that said we have really focused on becoming much more efficient and process driven on how that business functions, until a lot of those improvements you're seeing from the factories all the way up in our organization to the product management teams, to the development groups as we're introducing new products into that space as well, making sure that they're suited, that it works well and that we're driving efficiencies and effectiveness, so definitely seeing similar results.

So, I think a year or two ago for a matter of a few years, we were seeing a lot of competitive pressure, pricing pressures. Would you characterize it as primarily that or an inability or inefficiency of the business to sort of evolve to the market and more so an internally type of thing? And now it's really reversing that? Is it more that? Or is there still pricing pressure and you are just offsetting that with the improvements that you are making?

So you articulated it very well, it's acutely both. There has been a shift in the market in the way the market is viewed. We are now getting ahead of those shifts as oppose to being behind those shifts and we are becoming more focused on how we deliver our products in the new situations that we deal with. We're also developing more focused approaches to specific marketplaces that generate significantly more value to our customers. At the end of the day, all customers will flock into direction that provides them with the most value. We're now gaining that back and I think you're correct for a while there with the market shifts in our situation we had lost that momentum, but we're very strongly moving into the proper direction at this time, but it is absolutely both factors, it's not one or the other.

And in addition to IDS, do you still see a lot of upside in margin improvement there?

Yes, I mean the great news of that business is that. If we can hold the garner particularly revenue improvements, we'll see significant margin improvement.

Is that what it's going to take - is that the big - at this point in time, going forward, is that the big mover? You have to see organic revenue or.

That would be the biggest mover, yes. That would certainly, that certainly allows us to improve even more than operational efficiency.

So this year, we've sort of seen sort of call it flattish, maybe slightly negative organic revenue, but you saw a lot of margin improvement. You've already picked the low hanging fruit in terms of improvements and now it's sort of an organic revenue story? Is that what you are saying?

I want to be clear, we still see operational improvements for the next foreseeable future, three plus years.

For WPS?

For WPS and IDS, yes both businesses. However to be clear, revenue is a great friend of ours in WPS in regards to margin if we can improve it.

Sure, sure. Just lastly, I just wanted to ask a question on the G&A expenses. Even if you add back that $4.3 million, it looks like the year is sort of trending flattish. Is there - have you sort of, I guess, structured that cost structure to the point where you don't see any more sort of downside or was it a pause this year and you still see a lot of opportunity next year? How are you thinking about the G&A expense line?

Obviously G&A is a sticky cost that you have to pry culturally in most organization that said, we fundamentally believed that as we looked in best-in-class approaches, we still have opportunities in most of our functional areas, that's the good news. The challenge is, that takes time and it's not an issue of just cutting cost. It's an issue of thinking differently about how we do business and taking different approaches to our functions.

Okay. All right, thank you.

Thank you and we have a follow-up from George Staphos with Bank of American Merrill Lynch. Your line is open.

Thanks so much for taking a follow-up, just two quick questions. One, Aaron, can you just remind us again - so, can you comment to the extra day that impacted third-quarter? And is it possible to estimate the benefit? And how does this impact the fourth quarter?

Well one day on a quarter is about 1.5% of organic sales. So [indiscernible].

Appreciate that. And just as a second follow-up, kind of moving back to piggybacking the WPS question, you talked about some of the growth rates in digital in the quarter. It's nice to see I think this is all related to kind of consolidating the back end infrastructure that feeds into various front end displays, if I'm not mistaken. Maybe what's the next phase of digital investments required? I'm guessing it's mobile, but I would appreciate any views you could provide there.

Well I think you made some very salient comments there. It's a combination of improving our back end processes where we still have a lot of opportunities and also improving the actual front end interface and you're correct, we see a lot of headroom still in the mobile platform to improve that experience for our customers. At the end of the day that needs to be very focused experience that is very easy for them to navigate and to get to their particular need sets and purchase as quickly as possible. So we see improvement opportunities in the back end still significant and we see significant improvement opportunities in the front end interface mobile specifically.

Appreciate and would you need - just to clarify, would you need much incremental investments on that? Or much of it is the groundwork has been laid, so if there is minimal incremental investments related to improving that

Minimal incremental investments, we're anticipating having to make incremental investments.

Thanks very much, guys.

Thank you. I'm showing no further questions. I'd like to turn the call back to Ann Thornton for closing remarks.

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