Tennant Company Q1 2010 Earnings Call Transcript

Tennant Company Q1 2010 Earnings Call Transcript
By Seeking Alpha ,

Tennant Company

(

TNC

)

Q1 2010 Earnings Call Transcript

April 22, 2010 11:00 am ET

Executives

Tom Paulson – VP and CFO

Chris Killingstad – President and CEO

Analysts

Ted Kundtz – Needham

Seaver Wang – HFP Capital Markets

Joe Maxa – Dougherty & Company

Rob Crystal – Goldman Sachs Asset Management

Zahid Siddique – Gabelli

Presentation

Operator

Compare to:
Previous Statements by TNC
» Tennant Q2 2009 Earnings Transcript
» Tennant Company Q1 2009 Earnings Call Transcript
» Tennant Q4 2008 Earnings Call Transcript

Good morning and thank you for participating in Tennant Company's first-quarter earnings conference call. This call is being recorded. If you do not wish to participate, you may disconnect at this time. (Operator Instructions) We ask that you remain online for closing remarks by management after the question-and-answer session. Beginning today's meeting is Tom Paulson, Vice President and Chief Financial Officer for Tennant Company. Mr. Paulson, you may begin.

Tom Paulson

Thanks, Rachel. Good morning, everyone and welcome to Tennant Company's first quarter 2010 earnings conference call. I'm Tom Paulson, Vice President and Chief Financial Officer of Tennant Company. With me on the call today are Chris Killingstad, Tennant's President and CEO; Pat O'Neill, our Treasurer; and Karen Durant, our Corporate Controller.

Our agenda today is to review Tennant's performance during the quarter and our outlook for 2010. First, Chris will brief you on our operations and then I will cover the financials. After that, we will open up the call for your questions.

Before we begin, please be advised that our remarks this morning and our answers to questions may contain forward-looking statements regarding the company's expectations of future performance. Such statements are subject to risks and uncertainties and our actual results may differ materially from those contained in the statements. These risks and uncertainties are described in today's news release and the documents we file with the Securities and Exchange Commission. We encourage you to review those documents, particularly our Safe Harbor statement, for a description of the risks and uncertainties that may affect our results.

Additionally, on this conference call, we will discuss non-GAAP measures that include or exclude special or non-recurring items. For each non-GAAP measure, we also provide the most directly comparable GAAP measure. Our release includes a reconciliation of those non-GAAP measures to our first quarter 20009 GAAP results. Our earnings release was issued this morning via Business Wire and is also posted on the investors section of our website at tennantco.com.

At this point, I'll turn the call over to Chris.

Chris Killingstad

Thank you, Tom and thanks to all of you for joining us this morning. Today, I'll discuss the highlights of the 2010 first quarter and our strategic priorities. To began, I'd like to share with you an honor that Tenant just received.

PepsiCo fleet North America named Tennant supplier of the year last week, during a lunch in with about 1,000 PepsiCo employees. Of the 1,200 vendors that PepsiCo works with, Tennant was one of just five vendors. PepsiCo chose Tennant because of our outstanding sales and service report, innovation, sustainability and quality of products. We are proud to receive this recognition from one of our larger customers.

Turning now to our financial performance, we probably all saw our April 12

pre-release. Tennant pre-announced stronger than expected first quarter results and increased sales and earnings guidance for the year. We were delighted to share that news.

In the first quarter, our net sales increased 16.7% with sales rising in nearly all geographies. Notably, Tennant's organic mix of net sales which exclude the impact of foreign currency, grew approximately 12%. This was the second consecutive quarter that we have posted year-over-year organic sales growth.

While organic sales in EMEA were down 2%, we were pleased with the 18% organic sales gains in both our Americas and Asia-Pacific regions. The higher sales volume coupled with our continued emphasis on controlling and improving our cost structure led to increase gross margins and earnings per share.

Gross margins rose 150 basis points to 42.5%, up from 41% a year ago and our first quarter earnings per share totaled $0.21 versus an adjusted loss of $0.04 in the prior year quarter. The company generated $14.1 million in cash from operations in the quarter and we ended the 2010 first quarter with total debt of $33.1 million, down from $91.9 million at the end of the prior year quarter.

Now, I'd like to take you to the factors influencing our strong notes. Tennant's first quarter double-digit sales gains were cheaply driven by continued demand for our proprietary easy water technology platform as well as sales to our strategic account customers. Many of these customers have recently designated Tennant as a preferred supplier.

As you are aware, our proprietary and environmentally friendly ec-water platform converts plane tap water into a powerful cleaning agent without any added chemicals. This industry-leading technology continues to gain momentum in the marketplace. We believe and I think our results are beginning to back us up on this that ec-water gives Tennant a significant competitive advantage.

For customers with large fleets of cleaning machines, the cost to switch suppliers can be high but in many situations already, the benefits of ec-water have been compelling enough to motivate a shift to Tennant. We are pleased with the increased sales to our strategic account customers and building service contractors.

Our first quarter results benefited from the significant number of orders, we received from existing strategic accounts and new ones that we signed throughout 2009. These new customers include many national and global big box retailers and consumer goods companies.

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