Tennant Company Reports 2011 First Quarter Results

Net sales rose 15 percent to $172.6 million;

Quarterly EPS up 43 percent to $0.30 per diluted share;

Company posted fifth consecutive quarter of double-digit organic sales growth;

Full year guidance raised for 2011 sales and earnings 

MINNEAPOLIS, April 21, 2011—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 $5.9 million, or $0.30 per diluted share, on net sales of $172.6 million for the first quarter ended March 31, 2011. In the prior year quarter, Tennant reported net earnings of $4.1 million, or $0.21 per diluted share, on net sales of $150.1 million. 

Commented Chris Killingstad, Tennant Company’s president and chief executive officer: “We are pleased that Tennant generated record sales for a first quarter and significantly higher earnings. Sales increased in all of our geographic regions, with particularly robust results in the Americas and Asia Pacific. This was the company’s fifth consecutive quarter of double-digit organic sales growth. Once again, demand for our proprietary ec-H2O™ technology platform was a strong contributor to our performance.” 

Through its Orbio™ Technologies Group, Tennant is committed to expanding the global growth of its water-based cleaning technologies and setting the standard for sustainable cleaning around the world.

Operating Review

The company’s consolidated net sales of $172.6 million for the 2011 first quarter increased 15.0 percent compared to the 2010 first quarter. All major product categories were up over year ago levels, with strong sales of industrial sweepers and scrubbers equipped with ec-H2O technology. Favorable foreign currency exchange effects added approximately 1.5 percent to consolidated net sales. Organic net sales, which exclude the impact of foreign currency exchange (and acquisitions when applicable), rose approximately 13.5 percent. Organic sales by geographic region grew approximately 15.7 percent in the Americas, 6.1 percent in EMEA and 21.7 percent in the Asia Pacific region.

Tennant's gross profit margin in the 2011 first quarter was 41.7 percent versus 42.5 percent in the 2010 first quarter. The lower gross margin was primarily due to higher inflation in material costs than anticipated, which was partially offset by the favorable impact of higher production volume. To counter rising material costs, Tennant has announced a price increase on its products. As a result, the company expects its gross margins to improve and return to the targeted range of 42 percent to 43 percent for the full year of 2011.

“While we anticipated inflationary pressures, the increase was higher and swifter than initially projected, and we are adjusting our selling prices as quickly as possible,” said Killingstad. “Based on the current inflation outlook, we believe we can still achieve our 2011 gross margin goals.”

For the 2011 first quarter, Tennant’s research and development (R&D) spending totaled $6.3 million, or 3.6 percent of sales, compared to $5.5 million, or 3.7 percent of sales, in the prior year quarter. Tennant continued to invest in developing innovative new products for its traditional core business, as well as for its Orbio business, which is focused on advancing a platform of sustainable, water-based cleaning technologies.

Selling and administrative expense (S&A) in the 2011 first quarter totaled $57.5 million versus $51.7 million in the first quarter last year. The rise in S&A expense was primarily attributable to increased variable selling costs related to higher sales volume and investments in new product launch activities. However, as a percent of sales, S&A was 33.3 percent in the 2011 first quarter, down 120 basis points from 34.5 percent in the same quarter last year, reflecting the company’s initiatives to control costs.

Tennant's 2011 first quarter operating profit was $8.2 million, or 4.7 percent of sales, compared to an operating profit of $6.5 million, or 4.3 percent of sales, in the year ago quarter.

“We are firmly resolved to continue to control costs across the organization and achieve operating leverage in order to further enhance bottom-line returns from anticipated top-line growth,” stated Killingstad. “Although inflationary pressures on gross margins will make this a bit more challenging, we remain committed to reaching an operating profit margin of 12 percent during the 2013 fourth quarter.”

As expected, Tennant’s cash from operations in the 2011 first quarter was a negative $7.2 million, compared to a positive $14.1 million in the year earlier quarter primarily due to higher working capital to support sales growth and higher incentives and rebate payments. The company’s total debt was $40.3 million versus $33.1 million at the end of the prior year quarter. Cash on the balance sheet totaled $38.9 million, up from $27.3 million a year ago.

Product Innovation
Sales of scrubbers equipped with Tennant’s ec-H2O technology grew approximately 65 percent in the 2011 first quarter compared to the prior year quarter. The environmentally friendly ec-H2O process converts water into a cleaning solution that cleans as well as or better than traditional general-purpose chemicals and provides a lower total cost of ownership and safety benefits. This year, ec-H2O is available on 15 of the company’s scrubbers, up from 12 in the 2010 first quarter. The company continues to expect significant growth in 2011 from products equipped with this technology.

Building on the success of Tennant’s ec-H2O water-based technology, in the 2011 first quarter Tennant launched the Orbio^® 5000-Sc, an innovative dispensing unit that automatically generates an effective cleaning solution on-site and is designed to replace most daily cleaning chemicals. The patent-pending 5000-Sc uses Orbio Split Stream technology that combines tap water, a small amount of salt and electricity to create an effective and eco-friendly multi-purpose cleaning solution. The 5000-Sc cleaning solution effectively cleans fats, proteins, organic oils and other soils. It matches or exceeds the performance of most daily cleaners, allowing customers to eliminate many costly and potentially harmful chemicals from their cleaning process.

ARAMARK, a world leader in providing professional services, partnered with Tennant to test the 5000-Sc and validate its effectiveness in universities, school districts, convention centers and businesses across the United States. As a result, ARAMARK has incorporated this technology into its environmentally friendly “Blue Cleaning” program, announced in March.

“We believe that the Orbio 5000-Sc further strengthens our position as an industry innovation leader,” said Killingstad. “It is an example of Tennant’s commitment to clean more of our customers’ spaces in more environmentally friendly ways.”

Business Outlook
“We are raising our 2011 full year sales and earnings guidance to reflect our expectation of higher sales and improving profitability,” stated Killingstad.

Based on its 2011 first quarter results and projected future performance, Tennant Company now estimates 2011 full year earnings in the range of $1.75 to $1.95 per diluted share on net sales in the range of $710 million to $730 million. Previously, the company anticipated 2011 full year earnings of $1.70 to $1.90 per diluted share on net sales in the range of $705 million to $725 million. For full year 2010, adjusted earnings totaled $1.31 per diluted share on net sales of $667.7 million.

Tennant will continue to manage its business with a focus on operational excellence and strong cost controls, and make selective investments in key strategic priorities. In 2011, the company anticipates continued recovery in North America, strong growth in emerging markets and modestly improving conditions in Europe. Tennant continues to closely monitor commodity prices, which have risen recently. In addition, Tennant's 2011 full year financial outlook includes the following expectations:

• Minimal foreign currency impact on sales for the full year;
• Minimal inflation net of cost-saving initiatives and selling price increases;
• A gross margin of approximately 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.

Tennant remains committed to profitably growing its traditional business and expanding its global leadership position in sustainable, water-based cleaning technologies.

“We believe that Tennant can continue to post strong growth going forward by successfully executing our current strategy and assuming the global economy as a whole continues to improve,” said Killingstad. “We are confident that our strategic direction, coupled with rigorous cost controls, improved operating efficiency and new products, will further enhance our value-creation potential.”

Conference Call
Tennant will host a conference call to discuss the first quarter results today, April 21, 2011, 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 http://www.tennantco.com and click on Investor Relations. A taped replay of the conference call will be available at http://www.tennantco.com for approximately two weeks after the call.