Tennant's Q1 2025: Navigating Contradictions in EBITDA Margins, Backlog Growth, and Inflation Strategies

EBITDA margin guidance and inflationary pressures, backlog conversion and order growth, inflationary pressures and pricing strategies, AMR adoption and sales strategy, and impact of tariffs and supply chain mitigation are the key contradictions discussed in Tennant's latest 2025Q1 earnings call.



Order Growth and Market Dynamics:
- Tennant Company reported a 13% increase in order rates during the first quarter of 2025, marking the fourth consecutive quarter of near or above double-digit order growth.
- The growth was driven by strong demand for products despite economic uncertainties like tariffs, and the order backlog remained at normal levels.
- However, the company noted that strong order growth may not directly translate into equivalent organic sales growth due to prior year backlog reductions.

Regional Performance and Strategic Investments:
- Organic net sales in the Americas declined 6.9%, primarily due to lapping a significant backlog benefit from the previous year, although order rates increased 20%.
- EMEA grew 2% on a constant currency basis, driven by pricing increases and an acquisition in Eastern Europe, despite mixed performance across countries.
- APAC experienced a decline in sales due to market challenges in China and Australia, highlighting the need for strategic execution and disciplined market approach.

Pricing and Product Strategy:
- Tennant Company is planning to capture 50 to 100 basis points of annual pricing growth as part of their long-term goals, with favorable pricing growth observed in EMEA and Latin America.
- New product development, particularly in AMR, contributed to an increase in sales, with the X4 ROVR experiencing a 30% year-on-year growth.
- The introduction of the Clean 360 program aims to enhance AMR adoption by offering an autonomous subscription model with a 90% uptime guarantee.

Margin Challenges and Tariff Impact:
- Gross margin was 41.4%, down 280 basis points year-over-year, affected by product and customer mix shifts and ongoing inflation.
- The company estimates a $40 million tariff impact on its full-year 2025 COGS, which it plans to mitigate through sourcing actions and pricing initiatives.
- Despite the challenges, Tennant is confident in offsetting tariff costs and achieving full-year guidance due to disciplined cost management and strategic actions.