TNC outpaces expectations; raises outlook

Tennant Company (TNC) reported second-quarter earnings that exceeded analyst expectations, with net sales of $331 million, up 2.9% year-over-year, beating the forecasted $327 million. Adjusted earnings per share (EPS) came in at $1.83, surpassing the expected $1.72, though slightly lower than the $1.86 recorded in the same period last year. The strong performance was primarily driven by robust pricing realization and steady demand for their cleaning products and solutions.

Shares of TNC recently slipped below the 200-sma ($99). It has found support at the $95 level and this report should provide further at that level. The stock trades at approx 13.5x forward earnings.

Regionally, Tennant experienced varied performance. The Americas region saw a 5.5% increase in sales, driven by favorable price realization and net volume increases from product and channel mix. However, this was partially offset by a decline in unit volumes for commercial-application machines. In contrast, the EMEA region reported a slight 0.3% decrease in sales due to volume declines in equipment and parts, despite price realization efforts. The APAC region faced the most significant challenge with an 11.9% decrease in sales, primarily due to volume declines in China and Australia amid market saturation and price pressure.

Tennant raised its full-year 2024 revenue guidance to a range of $1.28 billion to $1.31 billion, up from the previous forecast of $1.27 billion to $1.295 billion. This revised outlook reflects the company's confidence in continued strong sales performance and effective cost management strategies. The company also updated its Adjusted EBITDA guidance to between $205 million and $215 million, demonstrating an optimistic view of its financial health moving forward.

Gross profit margin slightly decreased by 30 basis points to 43.1% compared to the second quarter of 2023, primarily due to higher inflation. However, this was largely offset by effective price realization and cost-saving measures. The margin rate was also supported by a shift towards industrial equipment and the direct sales channel, which helped maintain overall profitability.

Selling and Administrative expenses totaled $92.9 million, an increase of $5.9 million year-over-year, including significant costs related to ERP modernization and acquisitions. Adjusted EBITDA for the quarter was $58.6 million, a slight increase from $57.6 million in the previous year, primarily driven by sales growth in the Americas. The Adjusted EBITDA margin remained relatively flat at 17.7%, compared to 17.9% in the prior-year period.

Net income for the quarter was $27.9 million, down from $31.3 million in the same period last year, affected by ERP modernization and integration costs. However, adjusted net income rose slightly to $35.2 million, primarily due to lower interest expenses from decreased average debt balances, partially offset by higher income taxes and changes in the earnings mix by country. Overall, Tennant's performance in Q2 2024 showcases its ability to navigate economic challenges while maintaining a positive outlook for the future.