Tennant Co. (TNC)

Q2 2010 Earnings Call Transcript

July 30, 2010 11:00 am ET

Executives

Tom Paulson – VP and CFO

Chris Killingstad – President and CEO

Analysts

Ted Kundtz – Needham & Company

Joe Maxa – Dougherty & Company

Presentation

Operator

Good morning and thank you for participating in Tennant Company's second quarter earnings conference call. This call is being recorded. If you do not wish to participate, you may disconnect at this time. After the speakers' remarks, there will be a question-and-answer session. (Operator instructions)

Beginning today's meeting is Tom Paulson, Vice President and Chief Financial Officer for Tennant Company. Mr. Paulson, you may begin.

Tom Paulson

Thanks, Amanda. Good morning, everyone and welcome to Tennant Company's second 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 second quarter and our outlook for 2010. First, Chris will brief you on our operations and then I'll cover the financials. After that, we'll 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 nonrecurring 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 half 2009 GAAP results. We have no special items thus far in 2010.

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 want to cover highlights of the 2010 second quarter and update you on our strategic priorities.

As you saw in today's release, Tennant is off to a good start in the first half of 2010. We were very pleased to see favorable trends in the first quarter continue into the second quarter. As a result of the company's strong sales and earnings in the first two quarters, we are increasing our full year guidance again, after raising it in the first quarter as well. Tom will provide more detail on our outlook in just a moment.

In the second quarter, net sales increased 11.8% with our business maintaining its strong growth in the Americas and in Asia, most notably China and Australia. As in the 2010 first quarter, the double-digit sales gains were led by demand for scrubbers equipped with our proprietary ec-H2O technology platform and sales to strategic accounts in the Americas.

Many of our strategic account customers have designated Tennant as a preferred supplier, largely due to ec-H2O's proven chemical free cleaning capabilities. Importantly, Tennant's organic net sales, which exclude the impact of foreign currency, grew approximately 12% this was the third consecutive quarter of organic net sales growth overall and the second consecutive quarter that we have posted year-over-year organic growth of 12%.

The quarter's higher sales volume, coupled with our continued emphasis on controlling and improving our cost structure, again led to increased gross margins and earnings per share. Gross margins rose 270 basis points to 43.1% versus 40.4% in the year earlier quarter. And our second quarter earnings per share doubled to $0.32 up from $0.16 in the prior year quarter.

Marketplace momentum for ec-H2O remains very encouraging. I've said many times that our breakthrough ec-H2O technology has significant revenue and market share potential. As an industry innovation leader, we are aggressively pursuing the development of electrically activated water into a chemical free cleaning platform. To that end, we established our Orbio Technologies Group in 2009. This group is dedicated to developing and marketing environmentally friendly cleaning technologies under the ORBIO brand name.

We intend for ORBIO to set the standard for sustainable cleaning around the world. Leveraging our proprietary and award winning ec-H2O technology, the Orbio Technologies Group is focused on creating and delivering sustainable cleaning solutions to Tennant's existing and new markets.

We think ec-H2O is potentially relevant in a vast array of applications. The platform has two equally important benefits. The first is scalability. As you know, we have created an electrolyzed water cell large enough to be used on our scrubbers and we have figured out how to miniaturize it so that it fits into the head of a spray bottle, we now believe that we can package the technology and adapt it to a wide variety of cleaning devices.

The second platform benefit is performance. We know that our scrubbers equipped with ec-H2O deliver great cleaning results without chemicals and we know that ec-H2O technology on Activeion's handheld spray devices cleans and sanitizes hard surfaces, again without chemicals. We are continuing to explore the possibility that our chemical-free, electrically activated cleaning technologies can be further developed to act as a disinfectant and we have made important progress.

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