Company posts second quarter net sales of
$215.4 million;Organic net sales rose 3.8
percent;Second quarter diluted EPS totaled
$0.79;Company reaffirms 2015 full year earnings guidance
range and lowers high end of sales guidance range
Tennant Company (NYSE:TNC), a world leader in designing,
manufacturing and marketing of solutions that help create a
cleaner, safer, healthier world, today reported net earnings of
$14.8 million, or $0.79 per diluted share, on net sales of $215.4
million for the second quarter ended June 30, 2015. On a “Constant
Currency” basis (assuming no change in foreign exchange rates from
the prior year), Tennant would have reported 2015 second quarter
net sales of $227.4 million and net earnings per diluted share of
$0.92, which would have been an increase of 10.8 percent over the
prior year quarter. In the 2014 second quarter, Tennant reported
net earnings of $15.5 million, or $0.83 per diluted share, on net
sales of $219.1 million.
Commented Chris Killingstad, Tennant Company's president and
chief executive officer: “Tennant posted another solid quarter, led
by robust sales to strategic accounts in North America and global
sales of new products. We are pleased with our continued strong
performance in Tennant’s largest market, North America, which was
the chief driver of our organic sales growth.”
Added Killingstad: “Overall, we remain pleased with the
company’s progress against our organic sales growth goals during
the 2015 second quarter and first half, as we strive to reach $1
billion in revenues by 2017. We continue to anticipate organic
sales gains and improved profitability for the full year, despite
ongoing global economic uncertainty and foreign currency
headwinds.”
Tennant plans to meet its $1 billion strategic growth goal
through a strong new product pipeline in both the core business and
in the Orbio Technologies Group, continued gains in emerging
markets, growth in Europe, focus on strategic accounts and an
enhanced go-to-market strategy designed to significantly expand its
global market coverage and customer base.
Second Quarter Operating
ReviewThe company's 2015 second quarter consolidated net
sales of $215.4 million decreased 1.7 percent compared to the prior
year quarter. Unfavorable foreign currency exchange reduced
consolidated net sales by approximately 5.5 percent. Organic net
sales, which exclude the impact of foreign currency exchange (and
acquisitions when applicable), increased approximately 3.8
percent.
In addition to higher sales to strategic accounts in North
America in the 2015 second quarter, Tennant saw continued strong
global demand for new products, especially the T12 and T17, the
company’s new modular rider scrubbers for the industrial
market.
Geographically, sales rose 5.0 percent in Tennant’s largest
region, the Americas, or grew approximately 7.5 percent
organically, excluding an unfavorable foreign currency exchange
impact of about 2.5 percent. Sales in Europe, Middle East and
Africa (EMEA) were down 18.2 percent, or decreased approximately
1.7 percent organically, excluding an unfavorable foreign currency
exchange impact of about 16.5 percent. Organic sales growth in
Western Europe was more than offset by lower sales of outdoor
equipment. Sales in the Asia Pacific region (APAC) declined 16.1
percent, or down approximately 8.1 percent organically, excluding
an unfavorable foreign currency exchange impact of about 8.0
percent. Tennant’s organic sales in China rose approximately 15
percent in the 2015 second quarter, although this was not enough to
offset continued economic weakness, primarily in Australia,
compared to the prior year quarter. For both EMEA and APAC, the
company continues to anticipate organic sales growth for the 2015
full year.
Tennant's gross margin in the 2015 second quarter was 44.1
percent versus 43.5 percent in the prior year quarter. Several
factors led to the gross margin improvement, including improved
operating efficiencies in the direct service organization and
manufacturing operations, and also a greater mix of higher margin
business. The company anticipates gross margin for the 2015 full
year will be at its target range of approximately 43 percent.
Research and development (R&D) expense for the 2015 second
quarter totaled $8.4 million, or 3.9 percent of sales, compared to
$7.7 million, or 3.5 percent of sales, in the same quarter last
year. The company continued to invest in developing innovative new
products for its traditional core business, as well as in its Orbio
Technologies Group, which is focused on advancing a suite of
sustainable cleaning technologies.
Selling and administrative (S&A) expense in the 2015 second
quarter totaled $64.0 million, or 29.7 percent of sales, which was
in line with the company’s expectations, as Tennant continued to
invest in its sales growth initiatives. S&A in the 2014 second
quarter was $64.5 million, or 29.4 percent of sales.
Tennant's 2015 second quarter operating profit was $22.6
million, or 10.5 percent of sales, versus an operating profit of
$23.1 million, or 10.6 percent of sales, in the year ago quarter.
Due to the strength of the U.S. dollar in the 2015 second quarter,
foreign currency exchange reduced operating profit by approximately
$3.4 million. Tennant remains committed to the goal of a 12 percent
or above operating profit margin.
New Product and Technology
PipelineCommented Killingstad: “We are excited about the
steady launch cadence of Tennant’s new core equipment offerings and
continued progress with sustainable cleaning solutions from our
Orbio Technologies Group. The introduction of new products and
technologies is important to our revenue growth. We remain
committed to being an industry innovation leader and raising the
standard for sustainable cleaning around the world.”
Tennant Company continues to execute against the strongest new
product pipeline in its history. Year to date in 2015, Tennant has
introduced 33 new products and product variants and plans to
introduce three additional new products in the second half of 2015,
on top of 55 new products launched from 2012 to 2014.
In the 2015 second quarter, Tennant introduced the T300
Walk-Behind Scrubber-adding to its broad portfolio of commercial
floor scrubbers in one of the largest unit categories in the floor
cleaning industry. The T300 is the first scrubber equipped with
Tennant’s next generation of sustainable cleaning technology,
ec-H2O NanoClean™. The name NanoClean refers to the creation of
nano-scale bubbles that are an important part of the cleaning
mechanism. Like the original ec-H2O, the next generation ec-H2O
NanoClean technology electrically converts water into an innovative
cleaning solution that cleans effectively, saves money and reduces
environmental impact compared to daily floor cleaning chemicals.
This converted water is created by an on-board e-cell that
generates millions of microscopic bubbles– nanobubbles–per
milliliter of solution.
The new ec-H2O NanoClean technology will soon be available on
the company’s full line of commercial scrubbers.
In addition, the new Orbio® os3, which delivers on-site
generation of an anti-microbial solution, as well as an effective
multi-surface cleaner, continues to receive positive response from
customers across a variety of industries.
2015 First Half ResultsFor
the six months ended June 30, 2015, Tennant’s net earnings totaled
$19.8 million, or $1.06 per diluted share, on net sales of $401.1
million. In the prior year first six months, Tennant reported net
earnings of $21.3 million, or $1.14 per diluted share, on net sales
of $403.1 million. Net sales declined 0.5 percent, or grew
approximately 5.0 percent organically, excluding an unfavorable
foreign currency exchange impact of about 5.5 percent.
Year-to-date 2015 gross margin was 43.2 percent versus 42.7
percent in the prior year period. R&D expense in the 2015 first
half was $16.1 million, or 4.0 percent of sales, compared to $15.1
million, or 3.8 percent of sales, in the prior year period. S&A
expense in the 2015 first half was $126.2 million, or 31.4 percent
of sales, versus $124.7 million, or 30.9 percent of sales, in the
first six months of 2014.
Operating profit in the 2015 first half was $30.8 million, or
7.7 percent of sales, compared to $32.4 million, or 8.0 percent of
sales, in the prior year first six months. Due to the strength of
the U.S. dollar in the 2015 first half, foreign currency exchange
reduced operating profit by approximately $5.3 million.
Tennant generated $6.6 million in cash from operations in the
2015 first half. Cash on the balance sheet at June 30, 2015,
totaled $67.6 million, up from $62.6 million a year ago. The
company's total debt was $24.6 million, down from $28.2 million at
the end of the 2014 first half. During the first six months of
2015, Tennant paid a total of $7.3 million in cash dividends to
shareholders and repurchased 220,120 shares at a cost of $14.2
million.
Business OutlookBased on its
year-to-date results and expectations of performance for the
remainder of the year, Tennant Company now estimates 2015 full year
net sales in the range of $825 million to $845 million, up 0.4
percent to 2.8 percent, or up approximately 5 percent to 9 percent
organically, assuming an unfavorable foreign currency exchange
impact on sales in the range of 4 percent to 6 percent. Previously,
Tennant anticipated 2015 full year net sales in the range of $825
million to $855 million. The company continues to expect 2015 full
year earnings in the range of $2.40 to $2.70 per diluted share. As
stated previously, foreign currency exchange headwinds in 2015 are
estimated to negatively impact operating profit in the range of $10
million to $12 million, or approximately $0.37 to $0.44 earnings
per diluted share. The estimated higher effective tax rate in 2015
is anticipated to negatively impact earnings per diluted share by
approximately $0.14. The company expects its 2015 financial results
to be stronger in the second half of the year. For the 2014 full
year, diluted earnings per share totaled $2.70 on net sales of $822
million.
Tennant’s 2015 annual financial outlook includes the following
assumptions:
- Economic strength in North America and
modest improvement in Europe, and growth in emerging markets;
- Increased foreign currency impact on
sales for the full year in the range of an unfavorable 4 percent to
6 percent, with a $10 million to $12 million negative effect on
operating profit;
- Gross margin performance of
approximately 43 percent;
- R&D expense of approximately 4
percent of sales, as the company continues to invest in its core
products and in water-based cleaning technologies;
- Capital expenditures in the range of
$25 million to $28 million; and
- An effective tax rate of approximately
31 percent, including the anticipated enactment of the 2015 Federal
R&D tax credit.
Commented Killingstad: “We are continuing to invest in our
growth agenda, and we remain on track to deliver gains in organic
sales and operating profit margin in 2015. We expect Tennant’s
financial performance to be stronger in the second half of 2015,
despite foreign currency headwinds. We are focused on creating
value through new product introductions, and expanding our global
sales and marketing initiatives to increase our global market
share, while concurrently running a more efficient business to
raise productivity.”
Conference CallTennant will
host a conference call to discuss the 2015 second quarter results
today, July 23, 2015, at 10 a.m. Central Time (11 a.m. Eastern
Time). The conference call and accompanying slides will be
available via webcast on Tennant's investor website. To listen to
the call live and view the slide presentation, go to
investors.tennantco.com and click on the link at the bottom of the
Home page. A taped replay of the conference call with slides will
be available at investors.tennantco.com for approximately three
months after the call.
About Tennant
CompanyMinneapolis-based Tennant Company (TNC) is a
world leader in designing, manufacturing and marketing solutions
that empower customers to achieve quality cleaning performance,
significantly reduce their environmental impact and help create a
cleaner, safer, healthier world. Its products include equipment for
maintaining surfaces in industrial, commercial and outdoor
environments; chemical-free and other sustainable cleaning
technologies; and coatings for protecting, repairing and upgrading
surfaces. Tennant's global field service network is the most
extensive in the industry. Tennant has manufacturing operations in
Minneapolis, Minn.; Holland, Mich.; Louisville, Ky.; Uden, The
Netherlands; the United Kingdom; São Paulo, Brazil; and Shanghai,
China; and sells products directly in 15 countries and through
distributors in more than 80 countries. For more information, visit
www.tennantco.com.
Forward-Looking
StatementsCertain statements contained in this document,
as well as other written and oral statements made by us from time
to time, are considered “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act. These
statements do not relate to strictly historical or current facts
and provide current expectations or forecasts of future events. Any
such expectations or forecasts of future events are subject to a
variety of factors. These include factors that affect all
businesses operating in a global market as well as matters specific
to us and the markets we serve. Particular risks and uncertainties
presently facing us include: the competition in our business,
foreign currency exchange rate fluctuations, particularly the
relative strength of the U.S. dollar against other major
currencies; geopolitical and economic uncertainty throughout the
world; our ability to attract and retain key personnel; our ability
to successfully upgrade, evolve and protect our information
technology systems; fluctuations in the cost, quality, or
availability of raw materials and purchased components; our ability
to effectively manage organizational changes; our ability to comply
with laws and regulations; the occurrence of a significant business
interruption; our ability to develop and commercialize new
innovative products and services; and unforeseen product liability
claims or product quality issues.
We caution that forward-looking statements must be considered
carefully and that actual results may differ in material ways due
to risks and uncertainties both known and unknown. Shareholders,
potential investors and other readers are urged to consider these
factors in evaluating forward-looking statements and are cautioned
not to place undue reliance on such forward-looking statements. For
additional information about factors that could materially affect
Tennant's results, please see our other Securities and Exchange
Commission filings, including disclosures under “Risk Factors.”
We do not undertake to update any forward-looking statement, and
investors are advised to consult any further disclosures by us on
this matter in our filings with the Securities and Exchange
Commission and in other written statements we make from time to
time. It is not possible to anticipate or foresee all risk factors,
and investors should not consider any list of such factors to be an
exhaustive or complete list of all risks or uncertainties.
TENNANT COMPANYCONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(In thousands, except shares and per share data)
Three Months Ended Six Months Ended June 30
June 30 2015 2014 2015
2014 Net Sales $ 215,404 $ 219,084 $ 401,144 $ 403,063 Cost
of Sales 120,371 123,821 228,030
230,883 Gross Profit 95,033
95,263 173,114 172,180
Gross Margin 44.1 % 43.5 % 43.2 % 42.7 % Operating Expense:
Research and Development Expense 8,404 7,651 16,114 15,132 Selling
and Administrative Expense 64,042 64,471
126,159 124,670 Total Operating
Expense 72,446 72,122 142,273
139,802 Profit from Operations 22,587 23,141
30,841 32,378 Operating Margin 10.5 % 10.6 % 7.7 % 8.0 % Other
Income (Expense): Interest Income 53 95 103 170 Interest Expense
(419 ) (419 ) (796 ) (905 ) Net Foreign Currency Transaction
(Losses) Gains (225 ) 328 (668 ) 120 Other Expense, Net (185
) (89 ) (237 ) (120 ) Total Other Expense, Net
(776 ) (85 ) (1,598 ) (735 )
Profit Before Income Taxes 21,811 23,056 29,243 31,643 Income Tax
Expense 6,994 7,533 9,400
10,325 Net Earnings $ 14,817 $ 15,523 $
19,843 $ 21,318 Net Earnings per Share: Basic
$ 0.81 $ 0.85 $ 1.09 $ 1.17 Diluted $
0.79 $ 0.83 $ 1.06 $ 1.14
Weighted Average Shares Outstanding: Basic 18,197,431 18,167,054
18,240,027 18,242,240 Diluted 18,672,040 18,675,607 18,724,859
18,776,369 Cash Dividends Declared per Common Share $ 0.20 $
0.20 $ 0.40 $ 0.38
GEOGRAPHICAL NET SALES(1)
(Unaudited)
(In thousands)
Three Months Ended
Six Months Ended June 30 June 30 2015
2014 % 2015 2014
% Americas $ 161,429 $ 153,698 5.0 $ 295,432 $
276,087
7.0
Europe, Middle East and Africa 33,741 41,273 (18.2) 68,388 84,336
(18.9)
Asia Pacific 20,234 24,113 (16.1) 37,324
42,640
(12.5)
Total $ 215,404 $ 219,084 (1.7) $ 401,144 $ 403,063
(0.5)
(1) Net of intercompany sales.
TENNANT COMPANYCONDENSED
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands)
June 30, December
31, June 30, 2015 2014 2014 ASSETS
Current Assets: Cash and Cash Equivalents $ 67,638 $ 92,962 $
62,603 Restricted Cash 349 352 427 Net Receivables 151,146 152,383
158,338 Inventories 86,534 80,511 79,034 Prepaid Expenses 11,357
9,552 9,150 Deferred Income Taxes, Current Portion 9,747 9,738
9,390 Other Current Assets 1,844 1,591
1,716 Total Current Assets 328,615
347,089 320,658 Property, Plant and
Equipment 269,368 262,214 310,703 Accumulated Depreciation
(180,207 ) (175,671 ) (226,233 ) Property, Plant and
Equipment, Net 89,161 86,543 84,470 Deferred Income Taxes,
Long-Term Portion 7,625 8,165 6,507 Goodwill 17,670 18,355 19,295
Intangible Assets, Net 14,292 15,588 18,136 Other Assets
12,379 11,192 16,962 Total
Assets $ 469,742 $ 486,932 $ 466,028
LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities:
Short-Term Borrowings and Current Portion of Long-Term Debt $ 3,435
$ 3,566 $ 3,640 Accounts Payable 59,735 61,627 60,122 Employee
Compensation and Benefits 28,566 33,842 27,101 Income Taxes Payable
3,579 1,087 968 Other Current Liabilities 41,494
45,508 43,456 Total Current Liabilities
136,809 145,630 135,287
Long-Term Liabilities: Long-Term Debt 21,143 24,571 24,572
Employee-Related Benefits 24,800 25,711 24,958 Deferred Income
Taxes, Long-Term Portion 4,343 5,989 6,542 Other Liabilities
4,543 4,380 5,281 Total
Long-Term Liabilities 54,829 60,651
61,353 Total Liabilities 191,638
206,281 196,640 Shareholders’ Equity:
Preferred Stock — — — Common Stock 6,848 6,906 6,894 Additional
Paid-In Capital 17,185 26,247 21,470 Retained Earnings 298,586
286,091 264,073 Accumulated Other Comprehensive Loss (44,515
) (38,593 ) (23,049 ) Total Shareholders’ Equity
278,104 280,651 269,388
Total Liabilities and Shareholders’ Equity $ 469,742 $
486,932
$
466,028
TENNANT COMPANYCONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Six Months Ended June 30
2015 2014 OPERATING ACTIVITIES Net
Earnings $ 19,843 $ 21,318 Adjustments to reconcile Net Earnings to
Net Cash Provided by Operating Activities: Depreciation 8,155 8,818
Amortization 1,036 1,223 Deferred Income Taxes (1,754 ) 3,964
Share-Based Compensation Expense 4,889 3,756 Allowance for Doubtful
Accounts and Returns 1,246 776 Other, Net (74 ) 13 Changes in
Operating Assets and Liabilities: Receivables (1,717 ) (18,649 )
Inventories (11,002 ) (13,208 ) Accounts Payable (3,440 ) 7,540
Employee Compensation and Benefits (5,970 ) (5,471 ) Other Current
Liabilities (3,174 ) (2,238 ) Income Taxes 1,668 2,819 Other Assets
and Liabilities (3,133 ) (153 ) Net Cash Provided by
Operating Activities 6,573 10,508
INVESTING
ACTIVITIES Purchases of Property, Plant and Equipment (7,594 )
(7,411 ) Proceeds from Disposals of Property, Plant and Equipment
190 118 Increase in Restricted Cash (18 ) (12 ) Net
Cash Used in Investing Activities (7,422 ) (7,305 )
FINANCING ACTIVITIES Payments of Short-Term Debt — (1,500 )
Payments of Long-Term Debt (3,429 ) (2,013 ) Purchases of Common
Stock (14,229 ) (13,609 ) Proceeds from Issuances of Common Stock
802 705 Excess Tax Benefit on Stock Plans 669 1,329 Dividends Paid
(7,348 ) (7,172 ) Net Cash Used in Financing
Activities (23,535 ) (22,260 ) Effect of Exchange Rate
Changes on Cash and Cash Equivalents (940 ) 676
Net Decrease in Cash and Cash Equivalents (25,324 )
(18,381 ) Cash and Cash Equivalents at Beginning of Period
92,962 80,984 Cash and Cash Equivalents at End of
Period $ 67,638 $ 62,603
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version on businesswire.com: http://www.businesswire.com/news/home/20150723005143/en/
Tennant CompanyInvestor Contact:Tom
Paulson, 763-540-1204Senior Vice President and Chief
Financial OfficerorMedia Contact:Kathryn Lovik, 763-540-1212Global
Communications Director
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