Tennant Company Reports 2012 Second Quarter Results

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 $13.7 million, or $0.71 per diluted share, on net sales of $199.5 million for the second quarter ended June 30, 2012. In the prior year quarter, Tennant reported net earnings including special charges of $5.9 million, or $0.30 per diluted share, on net sales of $201.3 million; the special charges totaled $5.0 million after tax, or a $0.26 loss per diluted share. Excluding these special charges, adjusted second quarter 2011 net earnings totaled $10.9 million, or $0.56 per diluted share.

Commented Chris Killingstad, Tennant Company's president and chief executive officer: “We are pleased to report a solid second quarter, with record operating profit resulting in very strong operating profit margins and higher earnings. Our strategies to innovate in our core business and with new water-based technologies while lowering Tennant’s cost structure to enhance profitability are working. Although sales growth was constrained by global economic headwinds, organic sales rose about 3 percent, driven by an organic sales increase of approximately 7 percent in our largest geography, the Americas.”

Second Quarter Operating ReviewThe company's 2012 second quarter consolidated net sales of $199.5 million were down 0.9 percent compared to the prior year quarter. Unfavorable foreign currency exchange reduced consolidated net sales by approximately 3.5 percent. Organic net sales, which exclude the impact of foreign currency exchange (and acquisitions when applicable), increased approximately 2.6 percent. This compares to record 2011 second quarter net sales which grew 21 percent, or approximately 15.6 percent organically.

Contributing to 2012 second quarter results were sales to strategic accounts, as well as sales of two of Tennant’s environmentally friendly offerings: industrial rider scrubbers equipped with ec-H2O TM electrically activated water technology and the lithium-ion battery powered Green Machines TM 500ze city cleaning sweepers. Tennant’s ec-H2O technology converts water into an innovative cleaning solution that cleans effectively, saves money, improves safety and reduces environmental impact compared to daily cleaning floor chemicals. The Green Machines 500ze city cleaning sweepers offer zero carbon emissions, with reduced noise levels to quietly sweep anywhere at any time.

Commented Killingstad: “Tennant remains committed to being an industry innovation leader and aims to set the standard for sustainable cleaning around the world. These two products illustrate that we’re making progress toward that goal.”

Geographically, sales increased 4.8 percent in the Americas, driven by 11 percent growth in scrubbers equipped with ec-H2O technology in North America. Sales in the Americas grew approximately 6.8 percent organically, excluding an unfavorable foreign currency exchange impact of about 2.0 percent. Sales in Europe, Middle East and Africa (EMEA) were down 12.1 percent, or a decline of approximately 3.6 percent organically, excluding an unfavorable foreign currency exchange impact of about 8.5 percent. This stemmed from uncertain economic conditions in Europe and a continued tight credit environment that made it difficult for Tennant customers to obtain financing. Sales in the Asia Pacific region (APAC) decreased 8.9 percent, or down about 7.9 percent organically. Sales were lower in the mature markets primarily due to softer economic conditions. However, sales in China remained robust, growing organically approximately 30 percent in the 2012 second quarter.

Tennant's gross margin in the 2012 second quarter rose to 44.6 percent, up from 41.5 percent in the prior year quarter, or 42.2 percent as adjusted, and above the company's targeted range of 42 percent to 43 percent. The strong performance was chiefly driven by improvement in gross margins in all geographies, due to product mix, stable commodity costs and production efficiencies.

Research and development (R&D) for the 2012 second quarter totaled $6.9 million, or 3.5 percent of sales, compared to $6.7 million, or 3.3 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 expense (S&A) in the 2012 second quarter totaled $60.4 million, down from $66.5 million, or $62.5 million as adjusted, in the second quarter last year. As a percent of sales, S&A was 30.3 percent in the 2012 second quarter compared to 33.0 percent, or 31.0 percent as adjusted, in the same quarter last year. S&A spending decreased 3.3 percent on a dollar basis and was down 70 basis points as a percent of sales compared to adjusted S&A in the 2011 second quarter, due to continued tight cost controls and improved operating efficiencies.

The company’s 2012 second quarter operating profit increased to $21.6 million, or 10.8 percent of sales, compared to an operating profit of $10.2 million, or 5.1 percent of sales, in the year ago quarter. Adjusted operating profit in the 2011 second quarter was $15.8 million, or 7.8 percent of sales, excluding special charges. Tennant continues to leverage its existing global workforce of about 2,800 employees, and has maintained that staffing level for the past three years, while significantly growing sales. The company's goal remains to achieve a 12 percent operating margin in the fourth quarter of 2013.

Commented Killingstad: “We have stated that, as our productivity initiatives take hold, the company will start to see greater operating leverage and that is happening. We are pleased with the traction we’re gaining in our operating profit margin through strong expense control and targeted process improvement programs.”

2012 First Half ResultsFor the six months ended June 30, 2012, Tennant reported net earnings of $19.0 million, or $0.99 per diluted share, on net sales of $373.2 million. In the prior year first six months, Tennant reported net earnings of $11.7 million, or $0.60 per diluted share, on net sales of $373.8 million. Excluding special items in the 2011 second quarter of $5.0 million, or a $0.26 loss per diluted share, the company's 2011 first half adjusted net earnings were $16.7 million, or $0.86 per diluted share.

Year-to-date 2012 gross margins were 44.0 percent versus 41.6 percent, or 42.0 percent as adjusted, in the first six months of 2011, an increase of 200 basis points primarily due to product mix, stable commodity costs and production efficiencies. S&A expense in the 2012 first half totaled $120.1 million, or 32.2 percent of sales, versus $124.0 million, or 33.2 percent of sales, and $119.9 million or 32.1 percent of sales as adjusted, in the first six months of 2011.

Operating profit in the 2012 first half rose to $29.9 million, or 8.0 percent of sales, up from an operating profit of $18.4 million, or 4.9 percent of sales, and $23.9 million, or 6.4 percent of sales as adjusted, in the first six months of 2011.

Tennant generated $12.5 million in cash from operations in the 2012 first half. Total cash and cash equivalents at June 30, 2012, was $38.4 million, compared with $41.5 million a year ago. The company's total debt was $34.3 million, down from $41.3 million at the end of the 2011 first half. During the 2012 first half, Tennant repurchased approximately 360,000 shares of the company's stock. Tennant had approximately 18.6 million common shares outstanding at June 30, 2012.

Business OutlookBased on its first half 2012 results and expectations of performance for the remainder of the year, Tennant Company continues to estimate 2012 full year earnings in the range of $2.30 to $2.45 per diluted share. The company is adjusting its net sales guidance to a range of $770 million to $785 million. Previously, Tennant estimated 2012 sales in the range of $790 million to $805 million. For full year 2011, adjusted earnings totaled $1.95 per diluted share on net sales of $754 million.

The company's 2012 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 2 to 3 percent;
  • Minimal inflation net of cost-saving initiatives and selling price increases;
  • A gross margin slightly above the targeted range of 42 to 43 percent;
  • R&D expense of approximately 4 percent of sales, as the company continues to invest in its core products and increases investment in its water-based cleaning business; and
  • Capital expenditures in the range of $16 million to $18 million.

Commented Killingstad: “We remain committed to growing Tennant’s sales by innovating in our core equipment business and advancing our water-based technologies, while building a more scalable business model with standardized global processes to further improve profitability.”

Conference CallTennant will host a conference call to discuss the 2012 second quarter results today, July 26, 2012, 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 ProfileMinneapolis-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 effectively manage organizational changes; our ability to comply with laws and regulations; our ability to effectively maintain and manage the data in our computer systems; unforeseen product liability claims or product quality issues; our ability to develop and fund new innovative products and services; our ability to attract and retain key personnel; our ability to successfully upgrade and evolve the capabilities of our computer systems; the occurrence of a significant business interruption; fluctuations in the cost or availability of raw materials and purchased components; our ability to acquire, retain and protect proprietary intellectual property rights; 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 Tables.
 

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
2012     2011 2012     2011
Net Sales $ 199,493 $ 201,259 $ 373,205 $ 373,849
Cost of Sales   110,542     117,791     208,935     218,450  
Gross Profit   88,951     83,468     164,270     155,399  
Gross Margin 44.6 % 41.5 % 44.0 % 41.6 %
 
Operating Expense:
Research and Development Expense 6,935 6,717 14,205 12,997
Selling and Administrative Expense   60,419     66,513     120,133     123,973  
Total Operating Expense   67,354     73,230     134,338     136,970  
 
Profit from Operations 21,597 10,238 29,932 18,429
Operating Margin 10.8 % 5.1 % 8.0 % 4.9 %
 
Other Income (Expense):
Interest Income 330 184 642 252
Interest Expense (669 ) (545 ) (1,381 ) (960 )
Net Foreign Currency Transaction (Losses) Gains (880 ) 913 (1,111 ) 1,440
Other Income (Expense), Net   41     (65 )   76     (33 )
Total Other (Expense) Income, Net   (1,178 )   487     (1,774 )   699  
 
Profit Before Income Taxes 20,419 10,725 28,158 19,128
Income Tax Expense   6,748     4,870     9,163     7,407  
 
Net Earnings $ 13,671   $ 5,855   $ 18,995   $ 11,721  
 
Earnings per Share:
Basic $ 0.74   $ 0.31   $ 1.02   $ 0.62  
Diluted $ 0.71   $ 0.30   $ 0.99   $ 0.60  
 
Weighted Average Shares Outstanding:
Basic 18,594,207 18,941,131 18,658,182 18,952,093
Diluted 19,203,563 19,467,553 19,262,469 19,491,056
 
Cash Dividend Declared per Common Share $ 0.17 $ 0.17 $ 0.34 $ 0.34
 
 

GEOGRAPHICAL NET SALES(1) (Unaudited)
                       
(In thousands) Three Months Ended Six Months Ended
June 30 June 30
2012 2011 % 2012 2011 %
Americas $ 135,689 $ 129,490 4.8 $ 247,102 $ 237,632 4.0
Europe, Middle East and Africa 43,414 49,383 (12.1 ) 87,218 94,992 (8.2 )
Asia Pacific   20,390   22,386 (8.9 )   38,885   41,225 (5.7 )
Total $ 199,493 $ 201,259 (0.9 ) $ 373,205 $ 373,849 (0.2 )
 

(1) Net of intercompany sales.
 
 

TENNANT COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
           
(In thousands) June 30, December 31, June 30,
2012 2011 2011
ASSETS
Current Assets:
Cash and Cash Equivalents $ 38,432 $ 52,339 $ 41,451
Restricted Cash 1,586 3,279 -
Accounts Receivable, Net 135,062 128,873 140,244
Inventories 68,413 65,912 74,394
Prepaid Expenses 11,598 10,320 11,162
Deferred Income Taxes, Current Portion 10,114 10,358 8,815
Other Current Assets   16     1,015     26  
Total Current Assets   265,221     272,096     276,092  
 
Property, Plant and Equipment 293,631 286,949 281,793
Accumulated Depreciation   (206,941 )   (199,795 )   (198,597 )
Property, Plant and Equipment, Net 86,690 87,154 83,196
 
Deferred Income Taxes, Long-Term Portion 16,607 15,014 13,408
Goodwill 19,830 20,303 21,917
Intangible Assets, Net 22,198 23,758 26,433
Other Assets   5,397     5,937     8,244  
Total Assets $ 415,943   $ 424,262   $ 429,290  
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Current Portion of Long-Term Debt $ 3,235 $ 4,166 $ 4,002
Short-Term Borrowings - - -
Accounts Payable 49,039 46,869 55,667
Employee Compensation and Benefits 24,763 32,934 26,051
Income Taxes Payable 2,699 619 843
Other Current Liabilities   36,836     39,404     40,055  
Total Current Liabilities   116,572     123,992     126,618  
 
Long-Term Liabilities:
Long-Term Debt 31,049 32,289 37,254
Employee-Related Benefits 38,343 40,089 32,303
Deferred Income Taxes, Long-Term Portion 3,434 3,189 4,011
Other Liabilities   3,945     3,851     5,676  
Total Long-Term Liabilities   76,771     79,418     79,244  
 
Total Liabilities   193,343     203,410     205,862  
 
Shareholders' Equity:
Preferred Stock - - -
Common Stock 6,977 7,063 7,096
Additional Paid-In Capital 17,882 15,082 12,259
Retained Earnings 228,332 227,944 219,365
Accumulated Other Comprehensive Loss   (30,591 )   (29,237 )   (15,292 )
Total Shareholders’ Equity   222,600     220,852     223,428  
 
Total Liabilities and Shareholders’ Equity $ 415,943   $ 424,262   $ 429,290  
 
 
TENNANT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
   
(In thousands) Six Months Ended
June 30
2012     2011
OPERATING ACTIVITIES
Net Earnings $ 18,995 $ 11,721
Adjustments to reconcile Net Earnings to Net Cash Provided by Operating Activities:
Depreciation 8,937 8,664
Amortization 1,432 1,704
Impairment of Intangible Assets - 1,805
Deferred Income Taxes (1,271 ) 3,249
Stock-Based Compensation Expense 3,911 2,490
Allowance for Doubtful Accounts and Returns 1,148 642
Other, Net 19 385
Changes in Operating Assets and Liabilities:
Accounts Receivable (7,538 ) (12,593 )
Inventories (7,278 ) (10,273 )
Accounts Payable 3,978 14,515
Employee Compensation and Benefits (8,438 ) (6,105 )
Other Current Liabilities (1,714 ) (538 )
Income Taxes 855 116
Other Assets and Liabilities   (493 )   (3,072 )
Net Cash Provided by Operating Activities 12,543 12,710
 
INVESTING ACTIVITIES
Purchases of Property, Plant and Equipment (7,482 ) (4,023 )
Proceeds from Disposals of Property, Plant and Equipment 534 255
Acquisition of Businesses, Net of Cash Acquired (750 ) (2,916 )
Decrease in Restricted Cash   1,691     -  
Net Cash Used for Investing Activities (6,007 ) (6,684 )
 
FINANCING ACTIVITIES
Change in Short-Term Borrowings, Net - (35 )
Payment of Long-Term Debt (1,764 ) (12,268 )
Issuance of Long-Term Debt - 20,000
Purchases of Common Stock (15,281 ) (9,159 )
Proceeds from Issuance of Common Stock 1,952 1,782
Tax Benefit on Stock Plans 1,076 739
Dividends Paid   (6,358 )   (6,471 )
Net Cash Used for Financing Activities (20,375 ) (5,412 )
 
Effect of Exchange Rate Changes on Cash and Cash Equivalents   (68 )   1,308  
 
Net (Decrease) Increase in Cash and Cash Equivalents (13,907 ) 1,922
 
Cash and Cash Equivalents at Beginning of Period 52,339 39,529
   
Cash and Cash Equivalents at End of Period $ 38,432   $ 41,451  
 

 
TENNANT COMPANY
SUPPLEMENTAL NON-GAAP FINANCIAL TABLES
               
 
(In thousands, except per share data) Three Months Ended Six Months Ended
June 30 June 30
2012 2011 2012 2011
 
Net Sales     $ 199,493       $ 201,259       $ 373,205       $ 373,848  
 
Cost of Sales   110,542     117,791     208,935     218,450  
Gross Profit - as reported   88,951     83,468     164,270     155,398  
Gross Margin 44.6 % 41.5 % 44.0 % 41.6 %

Adjustments:

Hofmans Product Obsolescence
  -     1,482     -     1,482  
Gross Profit - as adjusted   88,951     84,950     164,270     156,880  
Gross Margin 44.6 % 42.2 % 44.0 % 42.0 %
 
Operating Expense:
Research and Development Expense 6,935 6,717 14,205 12,998
Selling and Administrative Expense   60,419     66,513     120,133     123,971  
Total Operating Expense   67,354     73,230     134,338     136,969  
 
Profit from Operations - as reported $ 21,597 $ 10,238 $ 29,932 $ 18,429
Operating Margin 10.8 % 5.1 % 8.0 % 4.9 %

Adjustments:
Hofmans Product Obsolescence (CGS & S&A) - 4,300 - 4,300
International Executive Severance (S&A)   -     1,217     -     1,217  
Profit from Operations - as adjusted $ 21,597   $ 15,755   $ 29,932   $ 23,946  
Operating Margin       10.8 %       7.8 %       8.0 %       6.4 %
Other Income (Expense):
Interest Income 330 184 642 252
Interest Expense (669 ) (545 ) (1,381 ) (960 )
Net Foreign Currency Transaction Gains (Losses) (880 ) 913 (1,111 ) 1,440
Other Income (Expense), Net   41     (65 )   76     (33 )
Total Other Income (Expense), Net (1,178 ) 487 (1,774 ) 699
 
Profit Before Income Taxes - as reported $ 20,419 $ 10,725 $ 28,158 $ 19,128

Adjustments:
Hofmans Product Obsolescence - 4,300 - 4,300
International Executive Severance   -     1,217     -     1,217  
Profit Before Income Taxes - as adjusted     $ 20,419       $ 16,242       $ 28,158       $ 24,645  
Income Tax Expense (Benefit) - as reported $ 6,748 $ 4,870 $ 9,163 $ 7,407

Adjustments:
Hofmans Product Obsolescence   -     489     -     489  
Income Tax Expense - as adjusted     $ 6,748       $ 5,359       $ 9,163       $ 7,896  
 
 
 
TENNANT COMPANY
SUPPLEMENTAL NON-GAAP FINANCIAL TABLES
 
(In thousands, except per share data) Three Months Ended Six Months Ended
June 30 June 30
2012 2011 2012 2011
 
Net Earnings - as reported $ 13,671   $ 5,855   $ 18,995   $ 11,721  

Adjustments:
Hofmans Product Obsolescence - 3,811 - 3,811
International Executive Severance   -     1,217     -     1,217  
Net Earnings - as adjusted $ 13,671   $ 10,883   $ 18,995   $ 16,749  
                         
Earnings per Share:
Basic $ 0.74   $ 0.31   $ 1.02   $ 0.62  
Diluted Earnings per Share - as reported $ 0.71   $ 0.30   $ 0.99   $ 0.60  

Adjustments:
Hofmans Product Obsolescence - 0.20 - 0.20
International Executive Severance   -     0.06     -     0.06  
 
Diluted Earnings per Share - as adjusted $ 0.71   $ 0.56   $ 0.99   $ 0.86  
 

 
   
TENNANT COMPANY
SUPPLEMENTAL NON-GAAP FINANCIAL TABLES
 
(In thousands, except per share data) Full
Year
2011
 
Diluted Earnings per Share - as reported $ 1.69

Adjustments:
Hofmans Product Obsolescence 0.20
International Executive Severance   0.06
 
Diluted Earnings per Share - as adjusted $ 1.95
 

Copyright Business Wire 2010

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