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Tennant Company Reports 2013 Second Quarter Results



  Tennant Company Reports 2013 Second Quarter Results

   Second quarter diluted EPS rose to $0.76 on net sales of $200.2 million;
              Gross margins of 43.8 percent within target range;
                  Operating profit margin was 10.8 percent;
                  Company maintains 2013 full year guidance

Business Wire

MINNEAPOLIS -- July 25, 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 $14.3 million, or $0.76 per diluted share, on
net sales of $200.2 million for the second quarter ended June 30, 2013. In the
prior year quarter, Tennant reported net earnings of $13.7 million, or $0.71
per diluted share, on net sales of $199.5 million.

Commented Chris Killingstad, Tennant Company's president and chief executive
officer: “We are pleased to report a very solid 2013 second quarter, with
increased sales and earnings versus the prior year. Strong demand for new
products and continuing momentum in global strategic accounts contributed to
higher sales. We were encouraged to see total organic sales rise about 1
percent following three consecutive quarters of approximately 2 percent
negative organic sales growth. In addition, we continued to achieve further
efficiencies in our cost structure which we anticipate will lead to higher
profitability in the future.”

Second Quarter Operating Review
The company's 2013 second quarter consolidated net sales of $200.2 million
were up 0.4 percent compared to the prior year quarter. Unfavorable foreign
currency exchange reduced consolidated net sales by approximately 0.5 percent.
Organic net sales, which exclude the impact of foreign currency exchange (and
acquisitions when applicable), increased approximately 0.9 percent.

Contributing to 2013 second quarter results were sales to strategic accounts,
sales in the Americas of scrubbers equipped with Tennant's ec-H2O^TM
technology and strong shipments of newly introduced products. Of note, Tennant
saw high demand for the T12 rider scrubber, which is the first new product in
Tennant's redesigned modular large equipment portfolio.

Geographically, sales increased 2.9 percent in the Americas, driven by record
quarterly sales in North America, with particular sales gains to strategic
accounts, and continued broad-based growth in Latin America. Sales in the
Americas rose approximately 3.4 percent organically, excluding an unfavorable
foreign currency exchange impact of about 0.5 percent. Sales in Europe, Middle
East and Africa (EMEA) were down 8.2 percent, declining approximately 9.2
percent organically, excluding a favorable foreign currency exchange impact of
about 1.0 percent. Sales of city cleaning equipment continue to be constrained
primarily due to tight municipal spending in Europe, while sales to strategic
accounts continued to gain momentum and sales in France were particularly
robust. Sales in the Asia Pacific region (APAC) increased 2.0 percent, growing
about 5.5 percent organically, excluding an unfavorable foreign currency
exchange impact of about 3.5 percent. Organic sales growth resumed in the APAC
region due mainly to strong sales performance in Australia.

Tennant's gross margin in the 2013 second quarter was 43.8 percent compared to
44.6 percent in the prior year quarter, and within the company's targeted
range of 43 percent to 44 percent. Gross margin in the 2013 second quarter was
impacted by the selling channel mix, with strong sales to strategic accounts.

Research and development (R&D) expense for the 2013 second quarter totaled
$7.8 million, or 3.9 percent of sales, compared to $6.9 million, or 3.5
percent of sales, in the prior year quarter. The company continued to invest
in developing innovative new products for its traditional core business, as
well as in its Orbio business, which is focused on advancing a platform of
chemical-free and other sustainable, water-based cleaning technologies.

Selling and administrative (S&A) expense in the 2013 second quarter totaled
$58.3 million, down from $60.4 million in the second quarter last year. As a
percent of sales, S&A decreased to 29.1 percent in the 2013 second quarter
compared to 30.3 percent in the same quarter last year. S&A spending declined
3.5 percent on a dollar basis and was down 120 basis points as a percent of
sales compared to the 2012 second quarter. The improvement in S&A was due to
continued tight cost controls and improved operating efficiencies.

Commented Killingstad: “Through strict cost controls and process improvement
initiatives, we succeeded in reducing 2013 second quarter S&A expense to below
30 percent of sales, which is the lowest percentage achieved in at least 10
years.”

The company's 2013 second quarter operating profit was $21.6 million, or 10.8
percent of sales, equal to the year ago quarter.

Strong New Product Pipeline
Tennant continues to execute against one of the most robust new product and
technology pipelines in the company's history. The company resolved the supply
chain issues it encountered in the 2013 first quarter related to the
transition to new products, and sales of new products in the 2013 second
quarter met internal plans. By 2013 third quarter-end, sales of new products
are expected to be back on track on a year-to-date basis.

The company introduced 17 new products in the 2012 fourth quarter and is
launching 25 new products in 2013. Product introductions in 2013 to date
include the:

  * T12 rider scrubber, which as noted above 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.

In addition, Tennant's Orbio Technologies Group is developing an exciting new
product with Split Stream Technology that will deliver an anti-microbial
solution, as well as an effective multi-surface cleaner, for use in a wide
variety of customer segments. The company plans to introduce this new Orbio
product in 2014.

Tennant remains committed to being an industry innovation leader and aims to
set the standard for sustainable cleaning around the world.

2013 First Half Results
For the six months ended June 30, 2013, Tennant reported net earnings of $19.3
million, or $1.03 per diluted share, on net sales of $368.3 million. Excluding
special items in the 2013 first quarter, adjusted 2013 net earnings totaled
$19.8 million, or $1.05 per diluted share. (See the Supplemental Non-GAAP
Financial Table.) In the prior year first six months, Tennant reported net
earnings of $19.0 million, or $0.99 per diluted share, on net sales of $373.2
million.

Year-to-date 2013 gross margin was 43.5 percent versus 44.0 percent in the
prior year period and was down 50 basis points primarily due to a change in
product mix. R&D expense in the 2013 first half increased to $15.3 million, or
4.2 percent of sales, compared to $14.2 million or 3.8 percent of sales, in
the prior year period. S&A expense in the 2013 first half declined to $116.4
million, or 31.6 percent of sales, and $115.0 million or 31.2 percent of sales
as adjusted, versus $120.1 million, or 32.2 percent of sales, in the first six
months of 2012.

Operating profit in the 2013 first half was $28.5 million, or 7.7 percent of
sales, and $29.9 million or 8.1 percent of sales as adjusted, compared to
$29.9 million, or 8.0 percent of sales, in the first six months of 2012.

Tennant generated $15.2 million in cash from operations in the 2013 first
half. Cash on the balance sheet at June 30, 2013, totaled $48.6 million, up
from $38.4 million a year ago. The company's total debt was $32.2 million,
down from $34.3 million, at the end of the 2012 first half. During the 2013
first half, Tennant's stock repurchases in the market totaled approximately
257,000 shares at a cost of $12.1 million. The company also paid $6.6 million
in cash dividends to shareholders.

Business Outlook
Based on its first half 2013 results and expectations of performance for the
remainder of the year, 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 in the range of 43 percent to 44 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;
    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.

Killingstad said, “We are pleased with our current momentum and prospects for
the rest of the year. We continue to expect 2013 sales to be stronger in the
back half of the year, as new product sales accelerate and growth continues in
Tennant's global strategic accounts and our overall Americas business.”

Conference Call
Tennant will host a conference call to discuss the 2013 second quarter results
today, July 25, 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      Three Months Ended                  Six Months Ended
and per share
data)
                   June 30                             June 30
                   2013             2012               2013             2012
Net Sales          $ 200,238        $ 199,493          $ 368,330        $ 373,205
Cost of Sales        112,497          110,542            208,066          208,935     
Gross Profit         87,741           88,951             160,264          164,270     
Gross Margin         43.8       %     44.6       %       43.5       %     44.0       %
Operating
Expense:
Research and
Development          7,821            6,935              15,339           14,205
Expense
Selling and
Administrative       58,298           60,419             116,420          120,133     
Expense
Total
Operating            66,119           67,354             131,759          134,338     
Expense
Profit from          21,622           21,597             28,505           29,932
Operations
Operating            10.8       %     10.8       %       7.7        %     8.0        %
Margin
Other Income
(Expense):
Interest             114              330                228              642
Income
Interest             (411       )     (669       )       (878       )     (1,381     )
Expense
Net Foreign
Currency             (419       )     (880       )       (743       )     (1,111     )
Transaction
Losses
Other
(Expense)            (87        )     41                 (81        )     76          
Income, Net
Total Other          (803       )     (1,178     )       (1,474     )     (1,774     )
Expense, Net
                                                                         
Profit Before        20,819           20,419             27,031           28,158
Income Taxes
Income Tax           6,565            6,748              7,718            9,163       
Expense
Net Earnings       $ 14,254         $ 13,671           $ 19,313         $ 18,995      
                                                                         
Earnings per
Share:
Basic              $ 0.78           $ 0.74             $ 1.06           $ 1.02        
Diluted            $ 0.76           $ 0.71             $ 1.03           $ 0.99        
                                                                         
Weighted
Average Shares
Outstanding:
Basic                18,253,326       18,594,207         18,298,379       18,658,182
Diluted              18,787,880       19,203,563         18,835,542       19,262,469
                                                                         
Cash Dividend
Declared per       $ 0.18           $ 0.17             $ 0.36           $ 0.34
Common Share
                                                                         

 
GEOGRAPHICAL NET SALES^(1) (Unaudited)
 
(In            Three Months Ended                         Six Months Ended
thousands)
               June 30                                    June 30
               2013            2012            %          2013          2012            %
Americas       $ 139,593       $ 135,689       2.9        $ 252,840     $ 247,102       2.3
Europe,
Middle           39,838          43,414        (8.2 )       79,029        87,218        (9.4 )
East and
Africa
Asia             20,807          20,390        2.0          36,461        38,885        (6.2 )
Pacific
Total          $ 200,238       $ 199,493       0.4        $ 368,330     $ 373,205       (1.3 )

^(1) Net of intercompany sales.

 
 
TENNANT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
 
(In thousands)                  June 30,         December 31,     June 30,
                                2013             2012             2012
ASSETS
Current Assets:
Cash and Cash Equivalents       $ 48,576         $ 53,940         $ 38,432
Restricted Cash                   394              187              1,586
Accounts Receivable, Net          146,789          138,147          135,062
Inventories                       62,699           58,136           68,413
Prepaid Expenses                  10,875           11,309           11,598
Deferred Income Taxes,            9,619            11,339           10,114
Current Portion
Other Current Assets              2,431            388              16        
Total Current Assets              281,383          273,446          265,221   
Property, Plant and               299,284          294,910          293,631
Equipment
Accumulated Depreciation          (215,038 )       (208,717 )       (206,941 )
Property, Plant and               84,246           86,193           86,690
Equipment, Net
Deferred Income Taxes,            10,428           10,989           16,607
Long-Term Portion
Goodwill                          19,263           19,717           19,830
Intangible Assets, Net            19,245           21,393           22,198
Other Assets                      8,389            9,022            5,397     
Total Assets                    $ 422,954        $ 420,760        $ 415,943   
                                                                   
LIABILITIES AND
SHAREHOLDERS’ EQUITY
Current Liabilities:
Short-Term Borrowings and
Current Portion of              $ 4,013          $ 2,042          $ 3,235
Long-Term Debt
Accounts Payable                  52,763           47,002           49,039
Employee Compensation and         24,496           33,021           24,763
Benefits
Income Taxes Payable              963              785              2,699
Other Current Liabilities         39,156           38,844           36,836    
Total Current Liabilities         121,391          121,694          116,572   
Long-Term Liabilities:
Long-Term Debt                    28,169           30,281           31,049
Employee-Related Benefits         25,168           25,873           38,343
Deferred Income Taxes,            3,070            3,325            3,434
Long-Term Portion
Other Liabilities                 4,643            4,533            3,945     
Total Long-Term Liabilities       61,050           64,012           76,771    
Total Liabilities                 182,441          185,706          193,343   
Shareholders’ Equity:
Preferred Stock                   —                —                —
Common Stock                      6,899            6,924            6,977
Additional Paid-In Capital        25,892           22,398           17,882
Retained Earnings                 241,065          236,065          228,332
Accumulated Other                 (33,343  )       (30,333  )       (30,591  )
Comprehensive Loss
Total Shareholders’ Equity        240,513          235,054          222,600   
Total Liabilities and           $ 422,954        $ 420,760        $ 415,943   
Shareholders’ Equity
                                                                              

 
TENNANT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
(In thousands)                                     Six Months Ended
                                                   June 30
                                                   2013            2012
OPERATING ACTIVITIES
Net Earnings                                       $ 19,313        $ 18,995
Adjustments to reconcile Net Earnings to Net
Cash Provided by Operating Activities:
Depreciation                                         8,858           8,937
Amortization                                         1,281           1,432
Deferred Income Taxes                                1,898           (1,271  )
Share-Based Compensation Expense                     3,439           3,911
Allowance for Doubtful Accounts and Returns          703             1,148
Other, Net                                           1               19
Changes in Operating Assets and Liabilities:
Accounts Receivable                                  (11,514 )       (7,538  )
Inventories                                          (7,536  )       (7,278  )
Accounts Payable                                     6,145           3,978
Employee Compensation and Benefits                   (8,875  )       (8,438  )
Other Current Liabilities                            1,825           (1,714  )
Income Taxes                                         1,752           855
U.S. Pension Plan Contributions                      —               (846    )
Other Assets and Liabilities                         (2,066  )       353      
Net Cash Provided by Operating Activities            15,224          12,543
                                                                    
INVESTING ACTIVITIES
Purchases of Property, Plant and Equipment           (7,192  )       (7,482  )
Proceeds from Disposals of Property, Plant and       60              534
Equipment
Acquisition of Businesses, Net of Cash               (750    )       (750    )
Acquired
Proceeds from Sale of Business                       699             —
(Increase) Decrease in Restricted Cash               (228    )       1,691    
Net Cash Used for Investing Activities               (7,411  )       (6,007  )
                                                                    
FINANCING ACTIVITIES
Short-Term Borrowings                                1,500           —
Payment of Long-Term Debt                            (733    )       (1,764  )
Purchases of Common Stock                            (12,141 )       (15,281 )
Proceeds from Issuance of Common Stock               3,812           1,952
Tax Benefit on Stock Plans                           1,506           1,076
Dividends Paid                                       (6,611  )       (6,358  )
Net Cash Used for Financing Activities               (12,667 )       (20,375 )
                                                                    
Effect of Exchange Rate Changes on Cash and          (510    )       (68     )
Cash Equivalents
                                                                    
Net Decrease in Cash and Cash Equivalents            (5,364  )       (13,907 )
                                                                    
Cash and Cash Equivalents at Beginning of            53,940          52,339
Period
                                                                    
Cash and Cash Equivalents at End of Period         $ 48,576        $ 38,432   
                                                                    

 
TENNANT COMPANY
SUPPLEMENTAL NON-GAAP FINANCIAL TABLE
 
(In thousands,
except per         Three Months Ended              Six Months Ended
share data)
                   June 30                         June 30
                   2013            2012            2013            2012
                                                                    
Net Sales          $ 200,238       $ 199,493       $ 368,330       $ 373,205  
                                                                    
Cost of Sales        112,497         110,542         208,066         208,935  
Gross Profit -       87,741          88,951          160,264         164,270  
as reported
Gross Margin         43.8    %       44.6    %       43.5    %       44.0    %
                                                                    
Operating
Expense:
Research and
Development          7,821           6,935           15,339          14,205
Expense
Selling and
Administrative       58,298          60,419          116,420         120,133  
Expense
Total
Operating            66,119          67,354          131,759         134,338  
Expense
                                                                    
Profit from
Operations -       $ 21,622        $ 21,597        $ 28,505        $ 29,932
as reported
Operating            10.8    %       10.8    %       7.7     %       8.0     %
Margin
Adjustments:
Restructuring        —               —               1,440           —        
Charge
Profit from
Operations -       $ 21,622        $ 21,597        $ 29,945        $ 29,932   
as adjusted
Operating            10.8    %       10.8    %       8.1     %       8.0     %
Margin
                                                                    
Other Income
(Expense):
Interest             114             330             228             642
Income
Interest             (411    )       (669    )       (878    )       (1,381  )
Expense
Net Foreign
Currency             (419    )       (880    )       (743    )       (1,111  )
Transaction
Losses
Other
(Expense)            (87     )       41              (81     )       76       
Income, Net
Total Other          (803    )       (1,178  )       (1,474  )       (1,774  )
Expense, Net
                                                                    
Profit Before
Income Taxes -     $ 20,819        $ 20,419        $ 27,031        $ 28,158
as reported
Adjustments:
Restructuring        —               —               1,440           —        
Charge
Profit Before
Income Taxes -     $ 20,819        $ 20,419        $ 28,471        $ 28,158   
as adjusted
                                                                    
Income Tax
Expense - as       $ 6,565         $ 6,748         $ 7,718         $ 9,163
reported
Adjustments:
Restructuring        —               —               417             —
Charge
Discrete Tax
Item Related         —               —               582             —        
to 2012 R&D
Tax Credit
Income Tax
Expense - as       $ 6,565         $ 6,748         $ 8,717         $ 9,163    
adjusted
                                                                              

 
TENNANT COMPANY
SUPPLEMENTAL NON-GAAP FINANCIAL TABLE
 
(In thousands, except        Three Months Ended        Six Months Ended
per share data)
                             June 30                   June 30
                             2013         2012         2013           2012
                                                                       
Net Earnings - as            $ 14,254     $ 13,671     $ 19,313       $ 18,995
reported
Adjustments:
Restructuring Charge           —            —            1,023          —
Discrete Tax Item
Related to 2012 R&D Tax        —            —            (582   )       —
Credit
Net Earnings - as            $ 14,254     $ 13,671     $ 19,754       $ 18,995
adjusted
                                                                       
Earnings per Share:
Basic                        $ 0.78       $ 0.74       $ 1.06         $ 1.02
Diluted Earnings per         $ 0.76       $ 0.71       $ 1.03         $ 0.99
Share - as reported
Adjustments:
Restructuring Charge           —            —            0.05           —
Discrete Tax Item
Related to 2012 R&D Tax        —            —            (0.03  )       —
Credit
                                                                       
Diluted Earnings per         $ 0.76       $ 0.71       $ 1.05         $ 0.99
Share - as adjusted
                                                                         

                                                
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
Global Communications Director
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