Net sales increased 9.4 percent, or 8.9
percent organically, to record $219.1 million;Diluted EPS up
9.2 percent to $0.83;Company raises 2014 full year sales
range
Tennant Company (NYSE:TNC), a world leader in designing,
manufacturing and marketing of solutions that help create a
cleaner, safer, healthier world, today reported net earnings of
$15.5 million, or $0.83 per diluted share, on record net sales of
$219.1 million for the second quarter ended June 30, 2014. In the
2013 second quarter, Tennant reported net earnings of $14.3
million, or $0.76 per diluted share, on net sales of $200.2
million.
Commented Chris Killingstad, Tennant Company's president and
chief executive officer: “The company executed very well on our
growth strategies in the second quarter. We are pleased to report
the highest quarterly revenue in our history. Sales rose in all of
our product categories, with strong contributions from sales
through our direct selling channel and new product launches.”
Added Killingstad: “Our stated goal is to reach $1 billion in
revenues by 2017. All of our key drivers to reach this goal
performed well in the first six months of 2014, and we expect
continued sales gains and improved profitability as the year
progresses. As a result, we are increasing our 2014 full year sales
range and raising the low end of our earnings guidance range.”
Second Quarter Operating
ReviewThe company's 2014 second quarter consolidated net
sales of $219.1 million rose 9.4 percent compared to the prior year
quarter. Favorable foreign currency exchange benefited 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 8.9 percent.
Contributing to 2014 second quarter results were strong sales
through the direct selling channel, demand for new products such as
the T12 rider scrubber, and gains in commercial, industrial and
outdoor equipment. Record sales of scrubbers equipped with ec-H2O™
technology grew 7.6 percent versus the prior year quarter and
surpassed $40 million in quarterly sales for the first time.
Geographically, sales increased 10.1 percent in Tennant’s
largest region, the Americas, or 11.1 percent organically,
excluding an unfavorable foreign currency exchange impact of about
1.0 percent. North America achieved record quarterly revenue. Sales
in Europe, Middle East and Africa (EMEA) were up 3.6 percent, but
down 1.9 percent organically, excluding a favorable foreign
currency exchange impact of about 5.5 percent. Tennant expects EMEA
to return to organic sales growth in the 2014 second half. Sales in
the Asia Pacific (APAC) region increased 15.9 percent, rising
approximately 18.9 percent organically, excluding an unfavorable
foreign currency exchange impact of about 3.0 percent. The APAC
organic sales gain was broad based and included continued strong
sales performance in China, which had approximately 25 percent
growth in the 2014 second quarter compared to the prior year
quarter.
Tennant's target range for gross margin is 43 percent to 44
percent. In the 2014 second quarter, gross margin was 43.5 percent
compared to 43.8 percent in the prior year quarter. Gross margin
increased sequentially from 41.8 percent in the 2014 first quarter
to 43.5 percent in the 2014 second quarter; this was due primarily
to a higher mix of sales through the direct selling channel which
tend to have higher gross margins and also benefits from recently
enacted selling price increases. While fluctuations can occur due
to shifts in both product mix and selling channel mix, and changes
in cost and selling prices, the company anticipates that gross
margin for the 2014 full year will be within its target range.
Research and development (R&D) expense for the 2014 second
quarter totaled $7.7 million, or 3.5 percent of sales, compared to
$7.8 million, or 3.9 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
Technologies Group, which is focused on advancing a suite of
sustainable cleaning technologies.
Selling and administrative (S&A) expense in the 2014 second
quarter totaled $64.5 million, or 29.4 percent of sales. S&A in
the 2013 second quarter was $58.3 million, or 29.1 percent of
sales. The higher dollar level reflects the direct sales,
distribution, and marketing investments Tennant is making to build
organic sales.
Tennant's 2014 second quarter operating profit was $23.1
million, or 10.6 percent of sales, versus an operating profit of
$21.6 million, or 10.8 percent of sales, in the year ago
quarter.
New Product and Technology
PipelineTennant Company continues to have the most
robust new product pipeline in its history. The company plans to
launch more than 63 new products and technologies between 2014 and
2016, on top of 37 new products that were introduced from 2012 to
2013.
Tennant launched nine products in the 2014 first half and plans
to announce seven additional new products in the second half of the
year. The 2014 second quarter new product highlights included:
- The T17 mid-size battery-powered rider
scrubber, the second product in Tennant’s redesigned modular
equipment portfolio. The T17 has the largest available battery
capacity in its class, making it highly productive; and
- Walk-behind battery-operated burnishers
that are emissions-free and deliver high performance, propane-like,
gloss results.
Further, the Orbio Technologies Group from Tennant Company
introduced the Orbio® os3, which delivers on-site generation of an
anti-microbial solution, as well as an effective multi-surface
cleaner, for use in a wide variety of customer segments.
“The os3 offers customers a flexible, easy-to-use and
sustainable approach to cleaning and disinfecting their facilities.
We are encouraged by the positive response to the os3 across a
broad range of customers and industries, as well as the market’s
reception to our other new core equipment models and sustainable
technologies,” said Killingstad.
Tennant remains committed to being an industry innovation leader
and aims to set the standard for sustainable cleaning around the
world.
2014 First Half ResultsFor
the six months ended June 30, 2014, Tennant’s net earnings totaled
$21.3 million, or $1.14 per diluted share, on net sales of $403.1
million. In the prior year first six months, 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 net earnings for the first six months of 2013
totaled $19.8 million, or $1.05 per diluted share. (See the
Supplemental Non-GAAP Financial Table.)
Year-to-date 2014 gross margin was 42.7 percent versus 43.5
percent in the prior year period. The decline was primarily due to
changes in selling channel mix and product mix in the 2014 first
quarter. R&D expense in the 2014 first half was $15.1 million,
or 3.8 percent of sales, compared to $15.3 million, or 4.2 percent
of sales, in the prior year period. S&A expense in the 2014
first half was $124.7 million, or 30.9 percent of sales, versus
$116.4 million, or 31.6 percent of sales, and $115.0 million, or
31.2 percent of sales as adjusted, in the first six months of
2013.
Operating profit in the 2014 first half was $32.4 million, or
8.0 percent of sales, compared to $28.5 million, or 7.7 percent of
sales, and $29.9 million, or 8.1 percent of sales as adjusted, in
the first six months of 2013.
Tennant generated $10.5 million in cash from operations in the
2014 first half. Cash on the balance sheet at June 30, 2014,
totaled $62.6 million, up from $48.6 million a year ago. The
company's total debt was $28.2 million, down from $32.2 million, at
the end of the 2013 first half. For the June 2014 dividend, Tennant
raised the payment 11 percent from $0.18 to $0.20 per share,
marking the company’s 43rd year of increasing the annual cash
dividend payout. During the 2014 first half, Tennant paid a total
of $7.2 million in cash dividends to shareholders and repurchased
217,534 shares at a cost of $13.6 million.
Tennant Company Targets $1 Billion in
Revenues By 2017Earlier this year, Tennant announced its
growth strategy to reach sales of $1 billion by 2017. The plan
reflects the fact that over the past five years, Tennant has been
building a scalable business model capable of delivering improved
operational efficiency and profitability. To take full advantage of
that effort, the company has shifted its focus to organic revenue
growth to increase market share and enhance the organization’s
ability to reach a 12 percent or above operating profit margin.
Stated Killingstad: “Initial results from our new growth
strategy are very encouraging. We already have generated robust
organic sales gains in both the 2014 first and second
quarters.”
Tennant plans to meet its objectives through a strong new
product pipeline in both the core business and in the Orbio
Technologies Group, continued gains in emerging markets, growth in
Europe, focus on strategic accounts and an enhanced go-to-market
strategy, designed to significantly expand its global market
coverage and customer base.
Business OutlookBased on its
2014 first half results and expectations of future performance,
Tennant Company is increasing its estimate for 2014 full year net
sales to the range of $800 million to $815 million, up 6 percent to
8 percent, compared to 2013. The company is raising the low end of
the prior earnings range to $2.60 per diluted share, while
maintaining the top end of the range at $2.80 per diluted share, an
increase of 15 percent to 24 percent, compared to 2013, as
adjusted. Previously, Tennant anticipated 2014 net sales in the
range of $780 million to $800 million and earnings in the range of
$2.50 to $2.80 per diluted share. The company continues to
anticipate that its 2014 earnings will be stronger in the second
half of the year, as its growth investments gain further traction
and generate incremental revenues and profits. For the 2013 full
year, adjusted diluted earnings per share totaled $2.26 on net
sales of $752 million. (See the Supplemental Non-GAAP Financial
Table.)
The company's 2014 annual financial outlook includes the
following expectations:
- Modest economic improvement in North
America and Europe, and steady growth in emerging markets;
- Foreign currency impact on sales for
the full year in the range of neutral to an unfavorable 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
$20 million to $22 million.
“The first half of 2014 is off to a terrific start and we
anticipate continued growth in the second half of the year, as we
reach more customers with our enhanced marketing strategies and new
products,” said Killingstad. “We also remain committed to
operational excellence and strong cost controls, in order to
continue to deliver improved profitability.”
Conference CallTennant will
host a conference call to discuss the 2014 second quarter results
today, July 24, 2014, 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.
About Tennant
CompanyMinneapolis-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
StatementsCertain statements contained in this document,
as well as other written and oral statements made by us from time
to time, are considered “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act. These
statements do not relate to strictly historical or current facts
and provide current expectations or forecasts of future events. Any
such expectations or forecasts of future events are subject to a
variety of factors. These include factors that affect all
businesses operating in a global market as well as matters specific
to us and the markets we serve. Particular risks and uncertainties
presently facing us include: geopolitical and economic uncertainty
throughout the world; the competition in our business; our ability
to attract and retain key personnel; our ability to successfully
upgrade, evolve and protect our information technology systems; our
ability to develop and commercialize new innovative products and
services; our ability to comply with laws and regulations;
fluctuations in the cost or availability of raw materials and
purchased components; unforeseen product liability claims or
product quality issues; the occurrence of a significant business
interruption; the occurrence of disruptions to our supply and
delivery chains; and the relative strength of the U.S. dollar,
which affects the cost of our materials and products purchased and
sold internationally.
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
MeasuresThis 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 data)
Three Months
Ended Six Months Ended June 30 June 30
2014 2013 2014
2013 Net Sales $ 219,084 $ 200,238 $ 403,063 $ 368,330 Cost
of Sales 123,821 112,497 230,883 208,066
Gross Profit 95,263 87,741 172,180
160,264 Gross Margin 43.5 % 43.8 % 42.7 % 43.5 % Operating
Expense: Research and Development Expense 7,651 7,821 15,132 15,339
Selling and Administrative Expense 64,471 58,298
124,670 116,420 Total Operating Expense 72,122
66,119 139,802 131,759 Profit from Operations
23,141 21,622 32,378 28,505 Operating Margin 10.6 % 10.8 % 8.0 %
7.7 % Other Income (Expense): Interest Income 95 114 170 228
Interest Expense (419 ) (411 ) (905 ) (878 ) Net Foreign Currency
Transaction Gains (Losses) 328 (419 ) 120 (743 ) Other Expense, Net
(89 ) (87 ) (120 ) (81 ) Total Other Expense, Net (85 ) (803 ) (735
) (1,474 ) Profit Before Income Taxes 23,056 20,819 31,643
27,031 Income Tax Expense 7,533 6,565 10,325
7,718 Net Earnings $ 15,523 $ 14,254 $ 21,318
$ 19,313 Net Earnings per Share: Basic $ 0.85
$ 0.78 $ 1.17 $ 1.06 Diluted $ 0.83
$ 0.76 $ 1.14 $ 1.03 Weighted
Average Shares Outstanding: Basic 18,167,054 18,253,326 18,242,240
18,298,379 Diluted 18,675,607 18,787,880 18,776,369 18,835,542
Cash Dividends Declared per Common Share $ 0.20 $ 0.18 $
0.38 $ 0.36
GEOGRAPHICAL NET SALES(1)
(Unaudited)
(In thousands)
Three Months
Ended Six Months Ended June 30 June 30
2014 2013 %
2014 2013 %
Americas $ 153,698 $ 139,593 10.1 $ 276,087 $ 252,840 9.2 Europe,
Middle East and Africa 41,273 39,838 3.6 84,336 79,029 6.7 Asia
Pacific 24,113 20,807 15.9 42,640 36,461
16.9 Total $ 219,084 $ 200,238 9.4 $ 403,063
$ 368,330 9.4
(1) Net of intercompany sales.
TENNANT COMPANY CONDENSED CONSOLIDATED
BALANCE SHEETS (Unaudited)
(In thousands)
June 30, December 31, June
30, 2014 2013 2013 ASSETS Current Assets:
Cash and Cash Equivalents $ 62,603 $ 80,984 $ 48,576 Restricted
Cash 427 393 394 Net Receivables 158,338 140,182 146,789
Inventories 79,034 66,906 62,699 Prepaid Expenses 9,150 11,426
10,875 Deferred Income Taxes, Current Portion 9,390 13,723 9,619
Other Current Assets 1,716 1,682 2,431 Total
Current Assets 320,658 315,296 281,383
Property, Plant and Equipment 310,703 300,906 299,284 Accumulated
Depreciation (226,233 ) (217,430 ) (215,038 ) Property, Plant and
Equipment, Net 84,470 83,476 84,246 Deferred Income Taxes,
Long-Term Portion 6,507 2,423 10,428 Goodwill 19,295 18,929 19,263
Intangible Assets, Net 18,136 19,028 19,245 Other Assets 16,962
17,154 8,389 Total Assets $ 466,028 $
456,306 $ 422,954 LIABILITIES AND
SHAREHOLDERS’ EQUITY Current Liabilities: Short-Term Borrowings and
Current Portion of Long-Term Debt $ 3,640 $ 3,803 $ 4,013 Accounts
Payable 60,122 53,079 52,763 Employee Compensation and Benefits
27,101 29,756 24,496 Income Taxes Payable 968 812 963 Other Current
Liabilities 43,456 44,076 39,156 Total Current
Liabilities 135,287 131,526 121,391 Long-Term
Liabilities: Long-Term Debt 24,572 28,000 28,169 Employee-Related
Benefits 24,958 25,173 25,168 Deferred Income Taxes, Long-Term
Portion 6,542 2,870 3,070 Other Liabilities 5,281 4,891
4,643 Total Long-Term Liabilities 61,353
60,934 61,050 Total Liabilities 196,640
192,460 182,441 Shareholders’ Equity: Preferred Stock
— — — Common Stock 6,894 6,934 6,899 Additional Paid-In Capital
21,470 31,956 25,892 Retained Earnings 264,073 249,927 241,065
Accumulated Other Comprehensive Loss (23,049 ) (24,971 ) (33,343 )
Total Shareholders’ Equity 269,388 263,846 240,513
Total Liabilities and Shareholders’ Equity $ 466,028
$ 456,306 $ 422,954
TENNANT
COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)
Six Months
Ended June 30 2014 2013
OPERATING ACTIVITIES Net Earnings $ 21,318 $ 19,313
Adjustments to reconcile Net Earnings to Net Cash Provided by
Operating Activities: Depreciation 8,818 8,858 Amortization 1,223
1,281 Deferred Income Taxes 3,964 1,898 Share-Based Compensation
Expense 3,756 3,439 Allowance for Doubtful Accounts and Returns 776
703 Other, Net 13 1 Changes in Operating Assets and Liabilities:
Receivables (18,649 ) (11,514 ) Inventories (13,208 ) (7,536 )
Accounts Payable 7,540 6,145 Employee Compensation and Benefits
(5,471 ) (8,875 ) Other Current Liabilities (2,238 ) 1,825 Income
Taxes 2,819 1,752 Other Assets and Liabilities (153 ) (2,066 ) Net
Cash Provided by Operating Activities 10,508 15,224
INVESTING ACTIVITIES Purchases of Property, Plant and
Equipment (7,411 ) (7,192 ) Proceeds from Disposals of Property,
Plant and Equipment 118 60 Acquisition of Business, Net of Cash
Acquired — (750 ) Proceeds from Sale of Business — 699 Increase in
Restricted Cash (12 ) (228 )
Net Cash Used for Investing Activities
(7,305 ) (7,411 )
FINANCING ACTIVITIES Payments of
Short-Term Debt (1,500 ) — Short-Term Debt Borrowings — 1,500
Payments of Long-Term Debt (2,013 ) (733 ) Purchases of Common
Stock (13,609 ) (12,141 ) Proceeds from Issuances of Common Stock
705 3,812 Tax Benefit on Stock Plans 1,329 1,506 Dividends Paid
(7,172 ) (6,611 ) Net Cash Used for Financing Activities (22,260 )
(12,667 ) Effect of Exchange Rate Changes on Cash and Cash
Equivalents 676 (510 ) Net Decrease in Cash and Cash
Equivalents (18,381 ) (5,364 ) Cash and Cash Equivalents at
Beginning of Period 80,984 53,940 Cash
and Cash Equivalents at End of Period $ 62,603 $ 48,576
TENNANT COMPANY SUPPLEMENTAL
NON-GAAP FINANCIAL TABLE (In
thousands, except per share data)
Three Months Ended Six
Months Ended June 30 June 30 2014
2013 2014 2013 Net
Sales $ 219,084 $ 200,238
$ 403,063 $ 368,330
Cost of Sales 123,821 112,497 230,883
208,066 Gross Profit - as reported 95,263 87,741
172,180 160,264 Gross Margin 43.5 % 43.8 %
42.7 % 43.5 % Operating Expense: Research and Development
Expense 7,651 7,821 15,132 15,339 Selling and Administrative
Expense 64,471 58,298 124,670 116,420
Total Operating Expense 72,122 66,119 139,802
131,759 Profit from Operations - as reported $ 23,141
$ 21,622 $ 32,378 $ 28,505 Operating Margin - as reported 10.6 %
10.8 % 8.0 % 7.7 %
Adjustments:
Restructuring Charge — — — 1,440 Profit
from Operations - as adjusted $ 23,141 $ 21,622 $
32,378 $ 29,945 Operating Margin - as adjusted
10.6 % 10.8 % 8.0 %
8.1 % Other Income (Expense): Interest Income 95 114
170 228 Interest Expense (419 ) (411 ) (905 ) (878 ) Net Foreign
Currency Transaction Gains (Losses) 328 (419 ) 120 (743 ) Other
Expense, Net (89 ) (87 ) (120 ) (81 ) Total Other Expense, Net (85
) (803 ) (735 ) (1,474 ) Profit Before Income Taxes - as
reported $ 23,056 $ 20,819 $ 31,643 $ 27,031
Adjustments:
Restructuring Charge — — — 1,440 Profit
Before Income Taxes - as adjusted $ 23,056
$ 20,819 $ 31,643
$ 28,471 Income Tax Expense - as reported $
7,533 $ 6,565 $ 10,325 $ 7,718
Adjustments:
Restructuring Charge — — — 417 Discrete Tax Item Related to 2012
R&D Tax Credit — — — 582 Income Tax
Expense - as adjusted $ 7,533 $
6,565 $ 10,325 $ 8,717
TENNANT COMPANY SUPPLEMENTAL
NON-GAAP FINANCIAL TABLE (In
thousands, except per share data)
Three Months Ended Six
Months Ended June 30 June 30 2014
2013 2014 2013 Net
Earnings - as reported $ 15,523 $ 14,254 $ 21,318
$ 19,313
Adjustments:
Restructuring Charge — — — 1,023 Discrete Tax Item Related to 2012
R&D Tax Credit — — — (582 ) Net Earnings -
as adjusted $ 15,523 $ 14,254 $ 21,318 $
19,754
Net Earnings per Share - as reported: Basic $ 0.85 $
0.78 $ 1.17 $ 1.06 Diluted $ 0.83 $
0.76 $ 1.14 $ 1.03
Adjustments:
Restructuring Charge — — — 0.05 Discrete Tax Item Related to 2012
R&D Tax Credit — — — (0.03 )
Diluted Net Earnings per Share - as adjusted $ 0.83 $ 0.76
$ 1.14 $ 1.05
Full
Year 2013 Diluted Earnings per Share - as
reported $ 2.14 Adjustments: Restructuring Charges 0.15
Discrete Tax Item Related to 2012 R&D Tax Credit (0.03 )
Diluted Earnings per Share - as adjusted $ 2.26
Tennant CompanyINVESTOR CONTACT:Tom Paulson,
763-540-1204Senior Vice President and Chief Financial
OfficerorMEDIA CONTACT:Kathryn Lovik, 763-540-1212Global
Communications Director
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