Tennant Company Reports 2012 Fourth Quarter and Full Year Results
Tennant Company Reports 2012 Fourth Quarter and Full Year Results
Quarterly net sales of $187.5 versus record 2011 fourth quarter of $193.2
million;
North America region returns to net sales growth in quarter;
Quarterly diluted EPS of $0.73, or $0.62 as adjusted, up from $0.59 diluted
EPS in year ago period;
Quarterly gross margin of 44.5 percent exceeded target range;
Operating profit margin rose to 10.1 percent from 8.0 percent in prior year
quarter;
2012 diluted EPS of $2.18, or $2.08 as adjusted, up from 2011 adjusted diluted
EPS of $1.95;
Company provides 2013 sales and earnings guidance
Business Wire
MINNEAPOLIS -- February 19, 2013
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 $13.8 million, or $0.73 per diluted share, on
net sales of $187.5 million for the fourth quarter ended December 31, 2012.
Results in the 2012 fourth quarter included a special item of $0.11 per
diluted share related to tax benefits from an international entity
restructuring. Excluding the special tax benefit, adjusted 2012 fourth quarter
earnings totaled $0.62 per diluted share. (See the Supplemental Non-GAAP
Financial Table.) In the 2011 fourth quarter, Tennant reported net earnings of
$11.3 million, or $0.59 per diluted share, on record net sales of $193.2
million.
“Our balanced strategy to aggressively lower Tennant's cost structure, while
investing in future growth, is paying off,” said Chris Killingstad, Tennant
Company's president and chief executive officer. “In the 2012 fourth quarter,
our operational excellence initiatives helped generate our strongest gross
margins since 1999, a fourth quarter double-digit operating profit margin for
the first time in 12 years, and record fourth quarter adjusted earnings. On
the revenue side, we returned to growth in North America, and we expect
continued improvement in our financial metrics as the economy recovers.”
Fourth Quarter Operating Review
Tennant's consolidated net sales were down 2.9 percent to $187.5 million
versus $193.2 million in the 2011 fourth quarter. Unfavorable foreign currency
exchange impact reduced net sales by approximately 0.5 percent compared to the
prior year period. Organic net sales, which exclude acquisitions and foreign
currency impact, decreased approximately 2.4 percent. Organic net sales rose
approximately 3.3 percent in Tennant's Americas region, excluding unfavorable
foreign currency exchange of approximately 0.5 percent. The increase stemmed
from a sales rebound in Tennant's largest geography of North America due to
higher sales to strategic accounts, as well as continued double-digit growth
in Latin America. Organic sales in the Europe, Middle East and Africa (EMEA)
region were down approximately 14.6 percent, excluding unfavorable foreign
currency exchange of approximately 2.0 percent, due to macroeconomic
conditions adversely impacting sales and lower sales to large customers
compared to the 2011 fourth quarter. Organic sales in the Asia Pacific region
declined approximately 4.9 percent, excluding approximately 0.5 percent
favorable foreign currency impact, resulting from softening economies,
particularly in Australia.
Tennant's gross margin in the 2012 fourth quarter rose 130 basis points to
44.5 percent, above the company's target range of 42 percent to 43 percent,
and up from 43.2 percent in the 2011 fourth quarter. Gross margins benefited
from favorable product mix, stable commodity costs and production
efficiencies. The company's gross margin has exceeded 43 percent in all four
quarters of 2012.
For the 2012 fourth quarter, Tennant's research and development expense
totaled $7.7 million, or 4.1 percent of sales, as anticipated, compared to
$7.7 million, or 4.0 percent of sales, in the prior year quarter. The company
continued to invest in developing innovative new products for its traditional
core business and its sustainable, Orbio water-based cleaning technologies.
Tennant has one of the most robust new product and technology pipelines in the
company's history. The company introduced 17 new products in the 2012 fourth
quarter and will launch an additional 25 new products in 2013, including the:
* T12 rider scrubber, which is the first new product in Tennant's redesigned
modular large equipment portfolio;
* T3 Orbital Scrubber, which provides a chemical-free way to clean and strip
floors; and
* B10, Tennant's first rider burnisher, which enables rapid cleaning and
polishing of large areas.
These new core equipment offerings are engineered to improve cleaning
performance and operator safety, lower operating costs and reduce
environmental impact.
Selling and administrative (S&A) expense in the 2012 fourth quarter totaled
$56.8 million, or 30.3 percent of sales, versus $60.4 million, or 31.3 percent
of sales, in the year ago quarter. Tennant continued to make progress on
reducing S&A spending and improving operating leverage. S&A declined 6.0
percent on a dollar basis and was down 100 basis points as a percent of sales.
Operating profit increased 23 percent to $19.0 million, or 10.1 percent of
sales, up from an operating profit of $15.5 million, or 8.0 percent of sales,
in the prior year quarter. Operating profit margin rose 210 basis points
versus the 2011 fourth quarter due to higher gross margins and improved
operating efficiencies.
“The gain in Tennant's operating profit margin reflects our successful
management of the business in a tough economic environment and demonstrates
the strength of the company's business model,” said Killingstad.
2012 Full Year Results and Liquidity
For the 2012 full year, Tennant reported consolidated net sales of $739.0
million compared to $754.0 million in 2011. Tennant's 2012 net sales decreased
2.0 percent versus the prior year and organic net sales were essentially flat,
excluding unfavorable foreign currency exchange impact of approximately 2.0
percent. Organic sales growth of approximately 3.1 percent in Tennant's
Americas region, excluding unfavorable foreign currency exchange of
approximately 1.0 percent, was offset by an organic sales decline in EMEA of
approximately 6.3 percent, excluding unfavorable foreign currency exchange of
approximately 5.5 percent, and an organic sales decrease in the Asia Pacific
region of approximately 4.2 percent, excluding favorable foreign currency
exchange of approximately 0.5 percent.
“Sales of scrubbers equipped with ec-H2O™ totaled $141 million in 2012,”
commented Killingstad. “We continued to increase the market acceptance of our
water-based ec-H2O cleaning technology in 2012, and the majority of our sales
of applicable scrubbers now have ec-H2O on-board.”
Tennant's gross margin for the 2012 full year rose to 44.0 percent, above the
company's target range of 42 percent to 43 percent, and up from 42.3 percent,
or 42.5 percent as adjusted, in the prior year. The 2012 full year operating
profit margin improved to 8.5 percent compared to 6.6 percent, or 7.3 percent
as adjusted, in the 2011 full year. (See the Supplemental Non-GAAP Financial
Table.) The improvement in margins was primarily due to product mix, stable
commodity markets and improved operating leverage in all geographies.
For 2012, Tennant reported net earnings of $41.6 million, or $2.18 per diluted
share. Excluding special items, the company's 2012 adjusted full year net
earnings increased to $39.7 million, or $2.08 per diluted share, compared to
2011 adjusted net earnings of $37.7 million, or adjusted earnings of $1.95 per
diluted share.
Tennant recorded special items in 2012 that increased net earnings by a total
of $0.10. In addition to the previously noted special item that was recorded
in the 2012 fourth quarter, the company had special items in the 2012 third
quarter that in total reduced earnings by $0.01 per diluted share. These items
included: a pre-tax gain on sale of business of $0.8 million, or $0.03 per
diluted share, as Tennant transitioned to a master distributor business in the
Central Eastern Europe, Middle East and Africa markets; and a pre-tax
restructuring charge of $0.8 million, or $0.04 per diluted share, to align
workforce levels in Tennant's European factories with current production
demand. Tennant's 2011 full year results included net special items that
decreased earnings by $0.26 per diluted share. (See the Supplemental Non-GAAP
Financial Table.)
Tennant continued to have a strong balance sheet and generated $47.6 million
in cash from operations in 2012. Cash and cash equivalents at December 31,
2012, totaled $53.9 million, and debt decreased to $32.3 million. Included in
these 2012 results were cash contributions of $16.7 million to Tennant's U.S.
Pension Plan, of which $15.0 million was discretionary. In a testament to the
company's commitment to enhancing shareholder value, Tennant raised its
quarterly cash dividend in the 2012 fourth quarter and has now increased its
annual cash dividend payout for 41 consecutive years. During 2012, Tennant
paid cash dividends of $12.8 million and repurchased 621,340 shares of the
company's stock for $25.3 million. Tennant had 18.5 million common shares
outstanding at December 31, 2012.
Business Outlook
“Our strategies are working and we drove significant gains in our
profitability in 2012,” said Killingstad. “We have demonstrated that the
company is capable of reaching our ambitious long-term goal of a 12 percent
operating profit margin. As we've previously stated, however, attaining this
milestone requires a return to organic revenue growth in the mid- to
high-single digits. At this time, we are uncertain that global economic
conditions, particularly in Europe, will support this level of sales growth in
2013. When the global economy improves and demand for cleaning equipment
regains momentum, Tennant is poised to achieve even greater profitability on
higher sales, and meet our 12 percent operating profit margin goal.”
Based on its 2012 results and expectations of future performance, Tennant
Company estimates 2013 full year earnings in the range of $2.20 to $2.50 per
diluted share on net sales in the range of $750 million to $770 million. For
the 2012 full year, adjusted diluted earnings per share were $2.08 on net
sales of $739 million.
The company's 2013 annual financial outlook includes the following
expectations:
* Modest economic improvement in North America, continued uncertainty in
Europe and steady growth in emerging markets;
* Unfavorable foreign currency impact on sales for the full year in the
range of 0 to 1 percent;
* Gross margin performance similar to 2012;
* 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;
and
* Capital expenditures in the range of $18 million to $20 million.
Tennant will continue to manage its business with a focus on operational
excellence and strong cost controls, and make selective investments in
innovative technologies and other key strategic priorities.
Conference Call
Tennant will host a conference call to discuss the 2012 fourth quarter and
full year results today, Feb. 19, 2012, at 10 a.m. Central Time (11 a.m.
Eastern Time). The conference call will be available via webcast on the
investor portion of Tennant's website. To listen to the call live, go to
www.tennantco.com and click on Company, Investors. A taped replay of the
conference call will be available at www.tennantco.com for approximately two
weeks after the call.
Company Profile
Minneapolis-based Tennant Company (NYSE: TNC) is a world leader in designing,
manufacturing and marketing solutions that 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 Statements
Certain 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: geopolitical
and economic uncertainty throughout the world; the competition in our
business; our ability to effectively manage organizational changes; our
ability to comply with laws and regulations; our ability to attract and retain
key personnel; our ability to develop and fund new innovative products and
services; unforeseen product liability claims or product quality issues; our
ability to successfully upgrade and evolve the capabilities of our computer
systems; the occurrence of a significant business interruption; the relative
strength of the U.S. dollar, which affects the cost of our materials and
products purchased and sold internationally; the occurrence of disruptions to
our supply and delivery chains; fluctuations in the cost or availability of
raw materials and purchased components; and the impact of the economic
uncertainty on our customers' ability to obtain credit.
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.
Non-GAAP Financial Measures
This news release includes presentations of non-GAAP measures that include or
exclude special items. Management believes that the non-GAAP measures provide
useful information to investors regarding the company's results of operations
and financial condition because they permit a more meaningful comparison and
understanding of Tennant Company's operating performance for the current, past
or future periods. Management uses these non-GAAP measures to monitor and
evaluate ongoing operating results and trends, and to gain an understanding of
the comparative operating performance of the company. See the Supplemental
Non-GAAP Financial Table.
TENNANT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(In thousands,
except shares Three Months Ended Twelve Months Ended
and per share
data)
December 31 December 31
2012 2011 2012 2011
Net Sales $ 187,507 $ 193,158 $ 738,980 $ 753,998
Cost of Sales 104,044 109,629 413,684 434,817
Gross Profit 83,463 83,529 325,296 319,181
Gross Margin 44.5 % 43.2 % 44.0 % 42.3 %
Operating
Expense
(Income):
Research and
Development 7,705 7,675 29,263 27,911
Expense
Selling and
Administrative 56,788 60,402 234,114 241,625
Expense
Gain on Sale — — (784 ) —
of Business
Total
Operating 64,493 68,077 262,593 269,536
Expense
Profit from 18,970 15,452 62,703 49,645
Operations
Operating 10.1 % 8.0 % 8.5 % 6.6 %
Margin
Other Income
(Expense):
Interest 198 276 1,069 752
Income
Interest (496 ) (624 ) (2,517 ) (2,238 )
Expense
Net Foreign
Currency 93 509 (1,403 ) 559
Transaction
Gains (Losses)
Other
(Expense) (137 ) 45 38 12
Income, Net
Total Other
Income (342 ) 206 (2,813 ) (915 )
(Expense), Net
Profit Before 18,628 15,658 59,890 48,730
Income Taxes
Income Tax 4,784 4,394 18,306 16,017
Expense
Net Earnings $ 13,844 $ 11,264 $ 41,584 $ 32,713
Earnings per
Share:
Basic $ 0.75 $ 0.60 $ 2.24 $ 1.74
Diluted $ 0.73 $ 0.59 $ 2.18 $ 1.69
Weighted
Average Shares
Outstanding:
Basic 18,397,138 18,688,956 18,544,896 18,832,693
Diluted 18,946,696 19,193,359 19,102,016 19,360,428
Cash Dividend
Declared per $ 0.18 $ 0.17 $ 0.69 $ 0.68
Common Share
GEOGRAPHICAL NET SALES^(1) (Unaudited)
(In Three Months Ended Twelve Months Ended
thousands)
December 31 December 31
2012 2011 % 2012 2011 %
Americas $ 125,935 $ 122,514 2.8 $ 491,661 $ 481,426 2.1
Europe,
Middle 40,635 48,746 (16.6 ) 166,208 188,338 (11.8 )
East and
Africa
Asia 20,937 21,898 (4.4 ) 81,111 84,234 (3.7 )
Pacific
Total $ 187,507 $ 193,158 (2.9 ) $ 738,980 $ 753,998 (2.0 )
^(1) Net of intercompany sales.
TENNANT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands) December 31, December 31,
2012 2011
ASSETS
Current Assets:
Cash and Cash Equivalents $ 53,940 $ 52,339
Restricted Cash 187 3,279
Accounts Receivable, Net 138,147 128,873
Inventories 58,136 65,912
Prepaid Expenses 11,309 10,320
Deferred Income Taxes, Current Portion 11,339 10,358
Other Current Assets 388 1,015
Total Current Assets 273,446 272,096
Property, Plant and Equipment 294,910 286,949
Accumulated Depreciation (208,717 ) (199,795 )
Property, Plant and Equipment, Net 86,193 87,154
Deferred Income Taxes, Long-Term Portion 10,989 15,014
Goodwill 19,717 20,303
Intangible Assets, Net 21,393 23,758
Other Assets 9,022 5,937
Total Assets $ 420,760 $ 424,262
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Current Portion of Long-Term Debt $ 2,042 $ 4,166
Accounts Payable 47,002 46,869
Employee Compensation and Benefits 33,021 32,934
Income Taxes Payable 785 619
Other Current Liabilities 38,844 39,404
Total Current Liabilities 121,694 123,992
Long-Term Liabilities:
Long-Term Debt 30,281 32,289
Employee-Related Benefits 25,873 40,089
Deferred Income Taxes, Long-Term Portion 3,325 3,189
Other Liabilities 4,533 3,851
Total Long-Term Liabilities 64,012 79,418
Total Liabilities 185,706 203,410
Shareholders’ Equity:
Preferred Stock — —
Common Stock 6,924 7,063
Additional Paid-In Capital 22,398 15,082
Retained Earnings 236,065 227,944
Accumulated Other Comprehensive Loss (30,333 ) (29,237 )
Total Shareholders’ Equity 235,054 220,852
Total Liabilities and Shareholders’ Equity $ 420,760 $ 424,262
TENNANT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands) Twelve Months Ended
December 31
2012 2011
OPERATING ACTIVITIES
Net Earnings $ 41,584 $ 32,713
Adjustments to reconcile Net Earnings to Net
Cash Provided by Operating Activities:
Depreciation 18,072 18,088
Amortization 2,800 3,330
Impairment of Intangible Assets — 2,058
Deferred Income Taxes 3,166 (1,352 )
Share-Based Compensation Expense 9,092 5,407
Allowance for Doubtful Accounts and Returns 1,427 1,879
Gain on Sale of Business (784 ) —
Other, Net (126 ) 508
Changes in Operating Assets and Liabilities:
Accounts Receivable (11,811 ) (4,451 )
Inventories (149 ) (7,665 )
Accounts Payable 970 4,612
Employee Compensation and Benefits (3,005 ) 1,177
Other Current Liabilities 1,549 1,711
Income Taxes 797 1,668
U.S. Pension Plan Contributions (16,731 ) —
Other Assets and Liabilities 715 (2,774 )
Net Cash Provided by Operating Activities 47,566 56,909
INVESTING ACTIVITIES
Purchases of Property, Plant and Equipment (15,623 ) (13,902 )
Proceeds from Disposals of Property, Plant and 1,028 601
Equipment
Acquisition of Businesses, Net of Cash Acquired (750 ) (2,917 )
Proceeds from Sale of Business 1,014 —
Decrease (Increase) in Restricted Cash 3,089 (3,279 )
Net Cash Used for Investing Activities (11,242 ) (19,497 )
FINANCING ACTIVITIES
Change in Short-Term Borrowings, Net — —
Payment of Long-Term Debt (2,986 ) (19,272 )
Issuance of Long-Term Debt — 20,000
Purchases of Common Stock (25,343 ) (17,603 )
Proceeds from Issuance of Common Stock 4,167 4,214
Tax Benefit on Stock Plans 2,047 1,266
Dividends Paid (12,817 ) (12,852 )
Net Cash Used for Financing Activities (34,932 ) (24,247 )
Effect of Exchange Rate Changes on Cash and Cash 209 (355 )
Equivalents
Net Increase in Cash and Cash Equivalents 1,601 12,810
Cash and Cash Equivalents at Beginning of Period 52,339 39,529
Cash and Cash Equivalents at End of Period $ 53,940 $ 52,339
TENNANT COMPANY
SUPPLEMENTAL NON-GAAP FINANCIAL TABLE
(In thousands,
except per Three Months Ended Twelve Months Ended
share data)
December 31 December 31
2012 2011 2012 2011
Net Sales $ 187,507 $ 193,158 $ 738,980 $ 753,998
Cost of Sales 104,044 109,629 413,684 434,817
Gross Profit - 83,463 83,529 325,296 319,181
as reported
Gross Margin 44.5 % 43.2 % 44.0 % 42.3 %
Adjustments:
Hofmans
Product — — — 1,482
Obsolescence
Gross Profit - 83,463 83,529 325,296 320,663
as adjusted
Gross Margin 44.0 % 42.5 %
Operating
Expense
(Income):
Research and
Development 7,705 7,675 29,263 27,911
Expense
Selling and
Administrative 56,788 60,402 234,114 241,625
Expense
Gain on Sale — — (784 ) —
of Business
Total
Operating 64,493 68,077 262,593 269,536
Expense
Profit from
Operations - $ 18,970 $ 15,452 $ 62,703 $ 49,645
as reported
Operating 10.1 % 8.0 % 8.5 % 6.6 %
Margin
Adjustments:
Gain on Sale — — (784 ) —
of Business
Restructuring — — 760 —
Charge (S&A)
Hofmans
Product — — — 4,300
Obsolescence
(CGS & S&A)
International
Executive — — — 1,217
Severance
(S&A)
Profit from
Operations - $ 18,970 $ 15,452 $ 62,679 $ 55,162
as adjusted
Operating 10.1 % 8.0 % 8.5 % 7.3 %
Margin
Other Income
(Expense):
Interest 198 276 1,069 752
Income
Interest (496 ) (624 ) (2,517 ) (2,238 )
Expense
Net Foreign
Currency 93 509 (1,403 ) 559
Transaction
Gains (Losses)
Other
(Expense) (137 ) 45 38 12
Income, Net
Total Other
Income (342 ) 206 (2,813 ) (915 )
(Expense), Net
Profit Before
Income Taxes - $ 18,628 $ 15,658 $ 59,890 $ 48,730
as reported
Adjustments:
Gain on Sale — — (784 ) —
of Business
Restructuring — — 760 —
Charge
Hofmans
Product — — — 4,300
Obsolescence
International
Executive — — — 1,217
Severance
Profit Before
Income Taxes - $ 18,628 $ 15,658 $ 59,866 $ 54,247
as adjusted
TENNANT COMPANY
SUPPLEMENTAL NON-GAAP FINANCIAL TABLE
(In thousands,
except per share Three Months Ended Twelve Months Ended
data)
December 31 December 31
2012 2011 2012 2011
Income Tax Expense - $ 4,784 $ 4,394 $ 18,306 $ 16,017
as reported
Adjustments:
International Entity 2,043 — 2,043 —
Restructuring
Gain on Sale of — — (276 ) —
Business
Restructuring Charge — — 90 —
Hofmans Product — — — 489
Obsolescence
Income Tax Expense - $ 6,827 $ 4,394 $ 18,120 $ 16,506
as adjusted
Net Earnings - as $ 13,844 $ 11,264 $ 41,584 $ 32,713
reported
Adjustments:
International Entity (2,043 ) — (2,043 ) —
Restructuring
Gain on Sale of — (508 ) —
Business
Restructuring Charge — 670 —
Hofmans Product — — — 3,811
Obsolescence
International — — — 1,217
Executive Severance
Net Earnings - as $ 11,801 $ 11,264 $ 39,703 $ 37,741
adjusted
Earnings per Share:
Basic $ 0.75 $ 0.60 $ 2.24 $ 1.74
Diluted Earnings per $ 0.73 $ 0.59 $ 2.18 $ 1.69
Share - as reported
Adjustments:
International Entity (0.11 ) — (0.11 ) —
Restructuring
Gain on Sale of — (0.03 ) —
Business
Restructuring Charge — 0.04 —
Hofmans Product — — — 0.20
Obsolescence
International — — — 0.06
Executive Severance
Diluted Earnings per $ 0.62 $ 0.59 $ 2.08 $ 1.95
Share - as adjusted
Contact:
Tennant Company
INVESTOR CONTACT:
Tom Paulson, 763-540-1204
Vice President and Chief Financial Officer
or
MEDIA CONTACT:
Kathryn Lovik, 763-540-1212
Director, Global Corporate Communications
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