Tennant Company Reports 2013 Third Quarter Results

  Tennant Company Reports 2013 Third Quarter Results

   Third quarter diluted EPS rose to $0.56 on net sales of $188.5 million;
         Net sales increased 5.8 percent, or 6.8 percent organically;
                   Operating profit margin of 8.6 percent;
                Company narrows 2013 full year guidance range

Business Wire

MINNEAPOLIS -- October 23, 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 $10.6 million, or $0.56 per diluted share, on
net sales of $188.5 million for the third quarter ended September 30, 2013. In
the prior year quarter, Tennant reported net earnings of $8.7 million, or
$0.46 per diluted share, on net sales of $178.3 million. The 2012 third
quarter results included two special items that reduced earnings by a total of
$0.01 per diluted share. (See the Supplemental Non-GAAP Financial Table.)

Commented Chris Killingstad, Tennant Company's president and chief executive
officer: “We are pleased to report a strong 2013 third quarter. Tennant
achieved increased earnings on record sales for a third quarter, led by record
third quarter sales in our largest geography, the Americas. Sales rose due to
continued high demand for new products and strong sales of industrial
equipment. Notably, our organic sales growth of nearly 7 percent marked the
highest level achieved in two years. And our ongoing focus on operational
excellence initiatives resulted in further leverage of our cost structure.”

Third Quarter Operating Review
The company's 2013 third quarter consolidated net sales of $188.5 million rose
5.8 percent compared to the prior year quarter. Unfavorable foreign currency
exchange reduced consolidated net sales by approximately 1 percent. Organic
net sales, which exclude the impact of foreign currency exchange (and
acquisitions when applicable), increased approximately 6.8 percent.

Contributing to 2013 third quarter results was demand for newly introduced
products, especially the T12 rider scrubber, which is the first new product in
Tennant’s redesigned modular large equipment portfolio, as well as strong
sales of industrial equipment and sales to strategic accounts.

Geographically, sales increased 9.6 percent in the Americas, driven by record
third quarter sales in North America and continued growth in Latin America.
Sales in the Americas rose approximately 10.6 percent organically, excluding
an unfavorable foreign currency exchange impact of about 1.0 percent. Sales in
Europe, Middle East and Africa (EMEA) were down 2.4 percent, declining
approximately 5.9 percent organically, excluding a favorable foreign currency
exchange impact of about 3.5 percent. EMEA sales of city cleaning equipment
continued to be constrained primarily due to tight municipal spending in
Europe, while sales through distribution gained momentum. Sales in the Asia
Pacific region (APAC) decreased 1.0 percent, rising about 7.5 percent
organically, excluding an unfavorable foreign currency exchange impact of
about 8.5 percent. The APAC organic sales increase was mainly due to strong
sales performance in China, which had approximately 30 percent organic sales
growth in the 2013 third quarter.

Tennant's gross margin in the 2013 third quarter was 43.4 percent compared to
43.5 percent in the prior year quarter and was within the company's targeted
range of 43 percent to 44 percent. Gross margin in the 2013 third quarter was
adversely impacted by the mix of selling channel and products sold.

Research and development (R&D) expense for the 2013 third quarter totaled $8.0
million, or 4.2 percent of sales, compared to $7.4 million, or 4.1 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 third quarter totaled
$57.7 million, or 30.6 percent of sales, versus $56.4 million as adjusted, or
31.7 percent of sales as adjusted, in the third quarter last year. S&A expense
declined 110 basis points as a percent of sales compared to the 2012 third
quarter, as adjusted. Tennant continued to gain leverage in S&A spending due
to tight cost controls and improved operating efficiencies.

The company's 2013 third quarter operating profit was $16.2 million, or 8.6
percent of sales, up from $13.8 million, or 7.7 percent of sales, in the prior
year quarter.

Strong Pipeline of Innovative New Products and Technologies
Tennant continues to execute against one of the most robust new product and
technology pipelines in the company's history. In addition to the T12 gains
cited above, Tennant experienced growth in the 2013 third quarter from the
B10, the company's first rider burnisher, which enables rapid cleaning and
polishing of large areas, and the T3 orbital scrubber, which provides a
chemical-free way to clean and strip floors.

In the 2013 fourth quarter, Tennant also plans to introduce several new
products, including a line of walk-behind burnishers, and canister carpet
extractors and grout cleaners with high heat functionality. 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 is on track to introduce this new
Orbio product in the first half of 2014.

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

2013 First Nine Month Results
For the nine months ended September 30, 2013, Tennant reported net earnings of
$30.4 million, as adjusted, or $1.61 per diluted share, as adjusted, on net
sales of $556.9 million. In the prior year first nine months, Tennant reported
adjusted net earnings of $27.9 million, or $1.46 per diluted share, as
adjusted, on net sales of $551.5 million. (See the Supplemental Non-GAAP
Financial Table.)

Year-to-date 2013 gross margin was 43.5 percent versus 43.9 percent in the
prior year period, down 40 basis points primarily due to selling channel and
product mix. R&D expense in the 2013 first nine months increased to $23.3
million, or 4.2 percent of sales, compared to $21.6 million, or 3.9 percent of
sales in the previous year. S&A expense in the 2013 first nine months totaled
$174.1 million, or 31.3 percent of sales, and $172.6 million, or 31.0 percent
of sales, as adjusted, versus $177.3 million, or 32.2 percent of sales, and
$176.6 million, or 32.0 percent of sales, as adjusted, in the first nine
months of 2012.

Operating profit in the 2013 first nine months rose to $44.7 million, or 8.0
percent of sales, and $46.2 million, or 8.3 percent of sales, as adjusted,
compared to $43.7 million, or 7.9 percent of sales, on a GAAP and adjusted
basis, in the first nine months of 2012.

Tennant generated $36.8 million in cash from operations in the 2013 first nine
months and paid $9.9 million in cash dividends to shareholders. Cash on the
balance sheet at September 30, 2013, totaled $65.3 million, up from $62.7
million a year ago. The company's total debt was $32.0 million, down from
$33.6 million at September 30, 2012.

Business Outlook
Based on its year-to-date 2013 results and expectations of performance for the
remainder of the year, Tennant Company has narrowed its estimated 2013 full
year adjusted earnings to the range of $2.25 to $2.40 per diluted share on net
sales in the range of $750 million to $760 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 $2.23 to
$2.38. 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 $14 million to $16 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 encouraged that our organic sales growth returned to
the mid-single digits in the 2013 third quarter. We expect a solid finish to
2013, as new product sales accelerate and growth continues in both our global
strategic accounts and overall Americas business. We also anticipate further
improvement in our operating profit margin, as we strive to attain our goal of
12 percent.”

Conference Call
Tennant will host a conference call to discuss the 2013 third quarter results
today, October 23, 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 otherSecurities and Exchange
Commissionfilings, 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                Nine Months Ended
and per share
data)
                   September 30                      September 30
                   2013           2012             2013           2012
Net Sales          $  188,541       $  178,268       $  556,871       $  551,473
Cost of Sales      106,679         100,705         314,745         309,640    
Gross Profit       81,862          77,563          242,126         241,833    
Gross Margin       43.4       %     43.5       %     43.5       %     43.9       %
Operating
Expense:
Research and
Development        7,970            7,353            23,309           21,558
Expense
Selling and
Administrative     57,663           57,193           174,083          177,326
Expense
Gain on Sale       —               (784       )     —               (784       )
of Business
Total
Operating          65,633          63,762          197,392         198,100    
Expense
Profit from        16,229           13,801           44,734           43,733
Operations
Operating          8.6        %     7.7        %     8.0        %     7.9        %
Margin
Other Income
(Expense):
Interest           67               229              295              871
Income
Interest           (440       )     (640       )     (1,318     )     (2,021     )
Expense
Net Foreign
Currency           (303       )     (385       )     (1,046     )     (1,496     )
Transaction
Losses
Other
(Expense)          (157       )     99              (238       )     175        
Income, Net
Total Other        (833       )     (697       )     (2,307     )     (2,471     )
Expense, Net
                                                                      
Profit Before      15,396           13,104           42,427           41,262
Income Taxes
Income Tax         4,779           4,359           12,497          13,522     
Expense
Net Earnings       $  10,617       $  8,745        $  29,930       $  27,740  
                                                                      
Earnings per
Share:
Basic              $  0.58         $  0.47         $  1.64         $  1.49    
Diluted            $  0.56         $  0.46         $  1.59         $  1.45    
                                                                      
Weighted
Average Shares
Outstanding:
Basic              18,267,828       18,468,546       18,288,083       18,594,508
Diluted            18,811,638       19,040,875       18,823,745       19,154,844
                                                                      
Cash Dividend
Declared per       $  0.18          $  0.17          $  0.54          $  0.51
Common Share
                                                             


GEOGRAPHICAL NET SALES^(1) (Unaudited)
                                                       
(In              Three Months Ended                         Nine Months Ended
thousands)
                 September 30                               September 30
                 2013          2012          %          2013          2012          %
Americas         $ 130,037       $ 118,624       9.6        $ 382,877       $ 365,726       4.7
Europe,
Middle East      37,436          38,355          (2.4 )     116,465         125,573         (7.3 )
and Africa
Asia Pacific     21,068         21,289         (1.0 )     57,529         60,174         (4.4 )
Total            $ 188,541      $ 178,268      5.8       $ 556,871      $ 551,473      1.0  
                                                                                            
^(1) Net of
intercompany
sales.
                                                                                            


TENNANT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
                                                          
(In thousands)                September 30,     December 31,     September 30,
                              2013              2012             2012
ASSETS
Current Assets:
Cash and Cash Equivalents     $  65,309         $  53,940        $  62,699
Restricted Cash               404               187              187
Accounts Receivable, Net      139,813           138,147          124,125
Inventories                   67,390            58,136           60,953
Prepaid Expenses              12,111            11,309           11,653
Deferred Income Taxes,        8,986             11,339           10,521
Current Portion
Other Current Assets          1,696            388             53          
Total Current Assets          295,709          273,446         270,191     
Property, Plant and           305,381           294,910          297,496
Equipment
Accumulated Depreciation      (220,899    )     (208,717   )     (210,608    )
Property, Plant and           84,482            86,193           86,888
Equipment, Net
Deferred Income Taxes,        12,830            10,989           15,568
Long-Term Portion
Goodwill                      19,246            19,717           19,779
Intangible Assets, Net        19,411            21,393           21,912
Other Assets                  7,303            9,022           8,736       
Total Assets                  $  438,981       $  420,760      $  423,074  
                                                                 
LIABILITIES AND
SHAREHOLDERS’ EQUITY
Current Liabilities:
Short-Term Borrowings and
Current Portion of            $  3,935          $  2,042         $  2,731
Long-Term Debt
Accounts Payable              49,295            47,002           43,537
Employee Compensation and     31,096            33,021           32,300
Benefits
Income Taxes Payable          1,349             785              1,304
Other Current Liabilities     40,512           38,844          37,519      
Total Current Liabilities     126,187          121,694         117,391     
Long-Term Liabilities:
Long-Term Debt                28,042            30,281           30,917
Employee-Related Benefits     25,988            25,873           38,022
Deferred Income Taxes,        2,834             3,325            3,240
Long-Term Portion
Other Liabilities             4,701            4,533           3,895       
Total Long-Term               61,565           64,012          76,074      
Liabilities
Total Liabilities             187,752          185,706         193,465     
Shareholders’ Equity:
Preferred Stock               —                 —                —
Common Stock                  6,864             6,924            6,967
Additional Paid-In            28,828            22,398           20,061
Capital
Retained Earnings             246,093           236,065          231,501
Accumulated Other             (30,556     )     (30,333    )     (28,920     )
Comprehensive Loss
Total Shareholders’           251,229          235,054         229,609     
Equity
Total Liabilities and         $  438,981       $  420,760      $  423,074  
Shareholders’ Equity
                                                                             


TENNANT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
                                                  
(In thousands)                                       Nine Months Ended
                                                     September 30
                                                     2013         2012
OPERATING ACTIVITIES
Net Earnings                                         $ 29,930       $ 27,740
Adjustments to reconcile Net Earnings to Net
Cash Provided by Operating Activities:
Depreciation                                         13,178         13,239
Amortization                                         1,914          2,096
Deferred Income Taxes                                (4       )     (731     )
Share-Based Compensation Expense                     5,106          7,175
Allowance for Doubtful Accounts and Returns          1,153          1,528
Gain on Sale of Business                             —              (784     )
Other, Net                                           155            130
Changes in Operating Assets and Liabilities:
Accounts Receivable                                  (6,551   )     1,756
Inventories                                          (11,798  )     (3,097   )
Accounts Payable                                     2,826          (2,348   )
Employee Compensation and Benefits                   (2,620   )     (2,767   )
Other Current Liabilities                            1,716          (84      )
Income Taxes                                         940            4,902
U.S. Pension Plan Contributions                      —              (1,288   )
Other Assets and Liabilities                         863           (4,185   )
Net Cash Provided by Operating Activities            36,808         43,282
                                                                    
INVESTING ACTIVITIES
Purchases of Property, Plant and Equipment           (11,380  )     (11,110  )
Proceeds from Disposals of Property, Plant and       97             280
Equipment
Acquisition of Businesses, Net of Cash Acquired      (750     )     (750     )
Proceeds from Sale of Business                       3,520          1,014
(Increase) Decrease in Restricted Cash               (224     )     3,089    
Net Cash Used for Investing Activities               (8,737   )     (7,477   )
                                                                    
FINANCING ACTIVITIES
Short-Term Borrowings                                1,500          —
Payment of Long-Term Debt                            (938     )     (2,450   )
Purchases of Common Stock                            (16,626  )     (18,567  )
Proceeds from Issuance of Common Stock               5,994          2,798
Tax Benefit on Stock Plans                           2,944          1,213
Dividends Paid                                       (9,918   )     (9,508   )
Net Cash Used for Financing Activities               (17,044  )     (26,514  )
                                                                    
Effect of Exchange Rate Changes on Cash and Cash     342           1,069    
Equivalents
                                                                    
Net Increase in Cash and Cash Equivalents            11,369         10,360
                                                                    
Cash and Cash Equivalents at Beginning of Period     53,940         52,339
                                                                   
Cash and Cash Equivalents at End of Period           $ 65,309      $ 62,699 
                                                                             


TENNANT COMPANY
SUPPLEMENTAL NON-GAAP FINANCIAL TABLE
                                              
(In thousands,
except per         Three Months Ended              Nine Months Ended
share data)
                   September 30                    September 30
                   2013          2012            2013          2012
                                                                   
Net Sales        $ 188,541    $ 178,268    $ 556,871    $ 551,473 
                                                                   
Cost of Sales      106,679        100,705        314,745        309,640   
Gross Profit -     81,862         77,563         242,126        241,833   
as reported
Gross Margin       43.4      %     43.5      %     43.5      %     43.9      %
                                                                   
Operating
Expense:
Research and
Development        7,970           7,353           23,309          21,558
Expense
Selling and
Administrative     57,663          57,193          174,083         177,326
Expense
Gain on Sale       —              (784      )     —              (784      )
of Business
Total
Operating          65,633         63,762         197,392        198,100   
Expense
                                                                   
Profit from
Operations -       $ 16,229        $ 13,801        $ 44,734        $ 43,733
as reported
Operating          8.6       %     7.7       %     8.0       %     7.9       %
Margin
Adjustments:
Restructuring      —               760             1,440           760
Charge
Gain on Sale       —              (784      )     —              (784      )
of Business
Profit from
Operations -       $ 16,229       $ 13,777       $ 46,174       $ 43,709  
as adjusted
Operating        8.6       %   7.7       %   8.3       %   7.9       %
Margin
                                                                   
Other Income
(Expense):
Interest           67              229             295             871
Income
Interest           (440      )     (640      )     (1,318    )     (2,021    )
Expense
Net Foreign
Currency           (303      )     (385      )     (1,046    )     (1,496    )
Transaction
Losses
Other
(Expense)          (157      )     99             (238      )     175       
Income, Net
Total Other        (833      )     (697      )     (2,307    )     (2,471    )
Expense, Net
                                                                   
Profit Before
Income Taxes -     $ 15,396        $ 13,104        $ 42,427        $ 41,262
as reported
Adjustments:
Restructuring      —               760             1,440           760
Charge
Gain on Sale       —              (784      )     —              (784      )
of Business
Profit Before
Income Taxes -   $ 15,396     $ 13,080     $ 43,867     $ 41,238  
as adjusted
                                                                   
Income Tax
Expense - as       $ 4,779         $ 4,359         $ 12,497        $ 13,522
reported
Adjustments:
Restructuring      —               90              417             90
Charge
Discrete Tax
Item Related       —               —               582             —
to 2012 R&D
Tax Credit
Gain on Sale       —              (276      )     —              (276      )
of Business
Income Tax
Expense - as     $ 4,779      $ 4,173      $ 13,496     $ 13,336  
adjusted
                                                                             


TENNANT COMPANY
SUPPLEMENTAL NON-GAAP FINANCIAL TABLE
                                                
(In thousands,
except per share        Three Months Ended           Nine Months Ended
data)
                        September 30                 September 30
                        2013         2012          2013         2012
                                                                    
Net Earnings - as       $ 10,617      $ 8,745      $ 29,930      $ 27,740 
reported
Adjustments:
Restructuring           —              670           1,023          670
Charge
Discrete Tax Item
Related to 2012 R&D     —              —             (582     )     —
Tax Credit
Gain on Sale of         —             (508    )     —             (508     )
Business
Net Earnings - as       $ 10,617      $ 8,907      $ 30,371      $ 27,902 
adjusted
                                                        
Earnings per Share:
Basic                   $ 0.58        $ 0.47       $ 1.64        $ 1.49   
Diluted Earnings
per Share - as          $ 0.56        $ 0.46       $ 1.59        $ 1.45   
reported
Adjustments:
Restructuring           —              0.04          0.05           0.04
Charge
Discrete Tax Item
Related to 2012 R&D     —              —             (0.03    )     —
Tax Credit
Gain on Sale of         —             (0.03   )     —             (0.03    )
Business
                                                                    
Diluted Earnings
per Share - as          $ 0.56        $ 0.47       $ 1.61        $ 1.46   
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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