Tennant Company Reports 2013 First Quarter Results

  Tennant Company Reports 2013 First Quarter Results

  First quarter diluted EPS of $0.27, or $0.29 as adjusted, on net sales of
                               $168.1 million;
    Gross margin of 43.1 percent within target range of 43 to 44 percent;
                     New product introductions under way;
                  Company reaffirms 2013 full year guidance

Business Wire

MINNEAPOLIS -- April 22, 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 $5.1 million, or $0.27 per diluted share, on
net sales of $168.1 million for the first quarter ended March 31, 2013. The
2013 first quarter included two special items. The company took a $1.4 million
pre-tax restructuring charge, or $0.05 per diluted share, to rightsize the
European operations, given continued challenging economic conditions there.
This was partially offset by a $0.6 million, or $0.03 per diluted share, tax
benefit, related to the retroactive reinstatement of the 2012 U.S. Federal R&D
Tax Credit. Excluding these special items, adjusted 2013 first quarter
earnings totaled $5.5 million, or $0.29 per diluted share. (See the
Supplemental Non-GAAP Financial Table.) In the 2012 first quarter, Tennant
reported net earnings of $5.3 million, or $0.28 per diluted share, on net
sales of $173.7 million.

Commented Chris Killingstad, Tennant Company's president and chief executive
officer: “We expected increased sales, even though our first quarter is
traditionally our slowest and most unpredictable quarter. The first two months
came in as anticipated, but March sales were a bit below our expectations.
This was primarily due to a slower than anticipated transition to new
products, coupled with sluggish sales of city cleaning equipment in all
geographies.”

Killingstad added: “On a positive note, we see growing momentum in new product
orders and continued growth in our global strategic accounts and our overall
business in the Americas. As a result, we are reaffirming our previously
provided 2013 guidance range, and anticipate a stronger second half than first
half.”

Operating Review
The company's 2013 first quarter consolidated net sales of $168.1 million
decreased 3.2 percent compared to $173.7 million in the prior year quarter.
Unfavorable foreign currency exchange impacted consolidated net sales by
approximately 1.0 percent. Organic net sales, which exclude the impact of
foreign currency exchange (and acquisitions when applicable), decreased
approximately 2.2 percent.

Geographically, sales increased 1.6 percent in the Americas, driven by
broad-based growth in Latin America and also sales of industrial equipment in
North America, including scrubbers equipped with ec-H2O™ technology. Organic
sales rose approximately 2.6 percent, excluding an unfavorable foreign
currency exchange impact of about 1.0 percent. Sales in the Europe, Middle
East and Africa (EMEA) region were down 10.5 percent, and there was minimal
foreign currency exchange impact. Tennant's sales of city cleaning equipment
continue to be constrained primarily due to tight municipal spending in
Europe; excluding that part of the business, sales strengthened in several key
countries. Sales in the Asia Pacific region were in line with expectations and
declined 15.4 percent, or down approximately 12.4 percent organically, with an
unfavorable foreign currency exchange impact of about 3.0 percent. Sales in
China declined approximately 15 percent due primarily to unusually large sales
of city cleaning equipment in the 2012 first quarter and, excluding those
deals, sales in China grew about 20 percent in the 2013 first quarter.

Tennant's gross margin in the 2013 first quarter was 43.1 percent versus 43.4
percent in the prior year quarter, and was within the company's target range
of 43 to 44 percent. Gross margin was adversely impacted by lower sales volume
and mix of products sold.

For the 2013 first quarter, Tennant's research and development (R&D) spending
totaled $7.5 million, or 4.5 percent of sales, compared to $7.3 million, or
4.2 percent of sales, in the prior year quarter. Tennant continued to invest
in developing innovative new products for its traditional core business, as
well as investing in its Orbio business, which is focused on advancing a
platform of chemical-free and other sustainable, water-based cleaning
technologies.

Selling and administrative expense (S&A) in the 2013 first quarter totaled
$58.1 million, or 34.6 percent of sales, and $56.7 million as adjusted or 33.7
percent of sales as adjusted, versus $59.7 million, or 34.4 percent of sales,
in the first quarter last year. Said Killingstad, “We continued to make
progress on our S&A leverage. S&A spending as adjusted on a dollar basis
decreased 5.1 percent and was down 70 basis points as a percent of sales in
the 2013 first quarter compared to a year ago.”

Tennant's 2013 first quarter operating profit was $6.9 million, or 4.1 percent
of sales, versus an operating profit of $8.3 million, or 4.8 percent of sales,
in the year ago quarter. As adjusted, Tennant's 2013 first quarter operating
profit was $8.3 million, or 5.0 percent of sales. The 20 basis point increase
in adjusted operating profit was a result of improved S&A leverage, more than
offsetting the slightly lower gross margin and higher R&D spending in the 2013
first quarter.

Cash from operations, which is typically negative in the first quarter due to
the seasonality in the business, was a positive $7.3 million versus a negative
$2.9 million in the year earlier quarter. The company's total debt was $31.8
million, down from $36.0 million at the end of the prior year quarter. Cash on
the balance sheet totaled $49.8 million, up from $39.5 million a year ago. The
company's stock repurchases in the market during the quarter totaled
approximately 159,000 shares at a cost of $7.5 million.

Product Highlights
Scrubbers equipped with Tennant's ec-H2O technology continued to outperform
the company's overall equipment portfolio in the 2013 first quarter. In
addition, Tennant is executing against one of the most robust new product and
technology pipelines in the company's history. Tennant 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. Tennant remains committed to being an industry
innovation leader and aims to set the standard for sustainable cleaning around
the world.

Business Outlook
Killingstad said, “We expect 2013 sales to be stronger in the back half of the
year, as the new product sales momentum accelerates and growth continues in
global strategic accounts and our overall Americas business.”

Tennant Company continues to estimate 2013 full year adjusted 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. Including the 2013 first quarter special items of a
net loss of $0.02 per diluted share, the Company expects 2013 full year
diluted earnings per share in the range of $2.18 to $2.48. For the 2012 full
year, adjusted diluted earnings per share were $2.08 on net sales of $739
million. (See the Supplemental Non-GAAP Financial Table.)

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 2013 first quarter results
today, April 22, 2013, 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 and per share         Three Months Ended
data)
                                                   March 31
                                                   2013          2012
Net Sales                                          $  168,092     $  173,712
Cost of Sales                                      95,569        98,393     
Gross Profit                                       72,523        75,319     
Gross Margin                                       43.1       %   43.4       %
Operating Expense (Income):
Research and Development Expense                   7,518          7,270
Selling and Administrative Expense                 58,122        59,714     
Total Operating Expense                            65,640        66,984     
Profit from Operations                             6,883          8,335
Operating Margin                                   4.1        %   4.8        %
Other Income (Expense):
Interest Income                                    114            310
Interest Expense                                   (467       )   (712       )
Net Foreign Currency Transaction Losses            (324       )   (230       )
Other Income, Net                                  6             35         
Total Other Expense, Net                           (671       )   (597       )
Profit Before Income Taxes                         6,212          7,738
Income Tax Expense                                 1,153         2,414      
Net Earnings                                       $  5,059      $  5,324   
                                                                  
Earnings per Share:
Basic                                              $  0.28       $  0.28    
Diluted                                            $  0.27       $  0.28    
                                                                  
Weighted Average Shares Outstanding:
Basic                                              18,343,933     18,722,156
Diluted                                            18,889,317     19,228,272
                                                                  
Cash Dividend Declared per Common Share            $  0.18        $  0.17



                               
GEOGRAPHICAL NET SALES^(1) (Unaudited)
                                 
(In thousands)                   Three Months Ended
                                 March 31
                                 2013         2012         %
Americas                         $ 113,247     $ 111,413     1.6
Europe, Middle East and Africa   39,191        43,804        (10.5)
Asia Pacific                     15,654       18,495       (15.4)
Total                            $ 168,092    $ 173,712    (3.2)
                                                             
^(1) Net of intercompany sales.
                                                             

                                                               
TENNANT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
                                                                   
(In thousands)                        March 31,     December 31,   March 31,
                                      2013          2012           2012
ASSETS
Current Assets:
Cash and Cash Equivalents             $ 49,755      $  53,940      $ 39,537
Restricted Cash                       188           187            3,292
Accounts Receivable, Net              130,427       138,147        123,981
Inventories                           64,126        58,136         68,128
Prepaid Expenses                      13,177        11,309         11,687
Deferred Income Taxes, Current        10,294        11,339         10,483
Portion
Other Current Assets                  253          388           115       
Total Current Assets                  268,220      273,446       257,223   
Property, Plant and Equipment         294,884       294,910        292,347
Accumulated Depreciation              (210,437  )   (208,717   )   (205,053  )
Property, Plant and Equipment, Net    84,447        86,193         87,294
Deferred Income Taxes, Long-Term      10,352        10,989         16,365
Portion
Goodwill                              19,798        19,717         20,442
Intangible Assets, Net                19,929        21,393         23,532
Other Assets                          9,503        9,022         5,717     
Total Assets                          $ 412,249    $  420,760    $ 410,573 
                                                                   
LIABILITIES AND SHAREHOLDERS’
EQUITY
Current Liabilities:
Current Portion of Long-Term Debt     $ 1,567       $  2,042       $ 4,156
Accounts Payable                      51,580        47,002         44,238
Employee Compensation and Benefits    24,999        33,021         23,295
Income Taxes Payable                  1,019         785            354
Other Current Liabilities             36,876       38,844        36,401    
Total Current Liabilities             116,041      121,694       108,444   
Long-Term Liabilities:
Long-Term Debt                        30,200        30,281         31,836
Employee-Related Benefits             25,784        25,873         38,542
Deferred Income Taxes, Long-Term      3,164         3,325          3,551
Portion
Other Liabilities                     4,577        4,533         3,897     
Total Long-Term Liabilities           63,725       64,012        77,826    
Total Liabilities                     179,766      185,706       186,270   
Shareholders’ Equity:
Preferred Stock                       —             —              —
Common Stock                          6,911         6,924          7,061
Additional Paid-In Capital            23,928        22,398         15,922
Retained Earnings                     233,134       236,065        228,137
Accumulated Other Comprehensive       (31,490   )   (30,333    )   (26,817   )
Loss
Total Shareholders’ Equity            232,483      235,054       224,303   
Total Liabilities and Shareholders’   $ 412,249    $  420,760    $ 410,573 
Equity
                                                                             

                                                       
TENNANT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
                                                       
(In thousands)                                         Three Months Ended
                                                       March 31
                                                       2013        2012
OPERATING ACTIVITIES
Net Earnings                                           $ 5,059      $ 5,324
Adjustments to reconcile Net Earnings to Net Cash
Provided by Operating Activities:
Depreciation                                           4,492        4,464
Amortization                                           644          776
Deferred Income Taxes                                  1,537        (998     )
Share-Based Compensation Expense                       1,707        1,690
Allowance for Doubtful Accounts and Returns            313          286
Other, Net                                             5            (25      )
Changes in Operating Assets and Liabilities:
Accounts Receivable                                    5,939        5,107
Inventories                                            (7,097   )   (2,851   )
Accounts Payable                                       5,816        (1,176   )
Employee Compensation and Benefits                     (8,736   )   (10,310  )
Other Current Liabilities                              (469     )   (3,056   )
Income Taxes                                           (1,847   )   3,477
U.S. Pension Plan Contributions                        —            (846     )
Other Assets and Liabilities                           (100     )   (4,792   )
Net Cash Provided by Operating Activities              7,263        (2,930   )
                                                                    
INVESTING ACTIVITIES
Purchases of Property, Plant and Equipment             (4,017   )   (4,219   )
Proceeds from Disposals of Property, Plant and         39           138
Equipment
Proceeds from Sale of Business                         699         —        
Net Cash Used for Investing Activities                 (3,279   )   (4,081   )
                                                                    
FINANCING ACTIVITIES
Payment of Long-Term Debt                              (428     )   (967     )
Purchases of Common Stock                              (7,515   )   (4,109   )
Proceeds from Issuance of Common Stock                 2,795        1,624
Tax Benefit on Stock Plans                             708          612
Dividends Paid                                         (3,314   )   (3,203   )
Net Cash Used for Financing Activities                 (7,754   )   (6,043   )
Effect of Exchange Rate Changes on Cash and Cash       (415     )   252      
Equivalents
Net Increase in Cash and Cash Equivalents              (4,185   )   (12,802  )
Cash and Cash Equivalents at Beginning of Period       53,940      52,339   
Cash and Cash Equivalents at End of Period             $ 49,755    $ 39,537 
                                                                             

                                                 
TENNANT COMPANY
SUPPLEMENTAL NON-GAAP FINANCIAL TABLE
                                                   
(In thousands, except per share data)              Three Months Ended
                                                   March 31
                                                   2013         2012
                                                                 
Net Sales                                         $ 168,092   $ 173,712 
                                                                 
Cost of Sales                                      95,569       98,393    
Gross Profit - as reported                         72,523       75,319    
Gross Margin                                       43.1      %   43.4      %
                                                                 
Operating Expense (Income):
Research and Development Expense                   7,518         7,270
Selling and Administrative Expense                 58,122       59,714    
Total Operating Expense                            65,640       66,984    
                                                                 
Profit from Operations - as reported               $ 6,883       $ 8,335
Operating Margin                                   4.1       %   4.8       %
Adjustments:
Restructuring Charge                               1,440        —         
Profit from Operations - as adjusted               $ 8,323      $ 8,335   
Operating Margin                                  5.0       %  4.8       %
                                                                 
Other Income (Expense):
Interest Income                                    114           310
Interest Expense                                   (467      )   (712      )
Net Foreign Currency Transaction Losses            (324      )   (230      )
Other Income, Net                                  6            35        
Total Other Expense, Net                           (671      )   (597      )
                                                                 
Profit Before Income Taxes - as reported           $ 6,212       $ 7,738
Adjustments:
Restructuring Charge                               1,440        —         
Profit Before Income Taxes - as adjusted          $ 7,652     $ 7,738   
                                                                 
Income Tax Expense - as reported                   $ 1,153       $ 2,414
Adjustments:
Restructuring Charge                               417           —
Discrete Tax Item Related to 2012 R&D Tax Credit   582          —         
Income Tax Expense - as adjusted                  $ 2,152     $ 2,414   
                                                                           

                                                 
TENNANT COMPANY
SUPPLEMENTAL NON-GAAP FINANCIAL TABLE
                                                                       
(In thousands, except per share data)              Three Months Ended
                                                   March 31
                                                   2013       2012
                                                                       
Net Earnings - as reported                         $ 5,059    $ 5,324 
Adjustments:
Restructuring Charge                               1,023       —
Discrete Tax Item Related to 2012 R&D Tax Credit   (582    )   —       
Net Earnings - as adjusted                         $ 5,500    $ 5,324 
                                                                  
Earnings per Share:
Basic                                              $ 0.28     $ 0.28  
Diluted Earnings per Share - as reported           $ 0.27     $ 0.28  
Adjustments:
Restructuring Charge                               0.05        —
Discrete Tax Item Related to 2012 R&D Tax Credit   (0.03   )   —       
                                                                       
Diluted Earnings per Share - as adjusted           $ 0.29     $ 0.28  



                                         
TENNANT COMPANY
SUPPLEMENTAL NON-GAAP FINANCIAL TABLE
                                           
(In thousands, except per share data)      Full
                                           Year
                                           2012
                                           
Diluted Earnings per Share - as reported   $ 2.18 
Adjustments:
International Entity Restructuring         (0.11  )
Gain on Sale of Business                   (0.03  )
Restructuring Charge                       0.04   
                                           
Diluted Earnings per Share - as adjusted   $ 2.08 



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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