Earnings call: Tennant Company reports robust Q3 2023 results, raises full-year guidance and unveils growth strategy

Tennant Company (NYSE:TNC) presented notable Q3 2023 results during its recent earnings call, along with an updated enterprise strategy set to launch in 2024. The company’s Q3 net sales reached $304.7 million, driven by a 13.9% organic sales growth and a significant reduction in backlog. Tennant also raised its full-year 2023 net sales guidance to between $1.23 billion and $1.25 billion, and its adjusted EBITDA guidance to between $190 million and $200 million.

Key takeaways from the earnings call include:

• Q3 net sales grew by $41.8 million, with all regions contributing to the growth. The Americas experienced a substantial increase of 21.4%, while EMEA and Asia Pacific saw 4.3% and 8% increases, respectively.
• Adjusted EBITDA for Q3 reached $45.9 million, with a margin of 15.1%. Gross profit was $132 million, with a margin of 43.3%.
• Tennant Company reported strong liquidity, with $97 million in cash and cash equivalents.
• The company’s new enterprise strategy, set to launch in 2024, will focus on growth, performance, and people. It plans to supplement organic growth with strategic acquisitions, targeting bolt-on acquisitions in the core market and expansion into non-cleaning mobile equipment.
• Tennant Company reported a 20% increase in sales in China due to market reopening and plans to capitalize on the order demand in Q4.
• The company is working on data analysis and market competitiveness to offer a compelling value proposition and expects a traditional annual price increase in the low-single digits in 2024.
• Tennant Company is modernizing its ERP system to enhance digital infrastructure, scalability, cybersecurity, compliance, and customer experience.

Tennant’s Q3 results were bolstered by sales growth in all regions, with the Americas leading the pack with a 21.4% increase. Equipment sales grew by 23.2% year-over-year, contributing to the robust net sales figure. The company’s liquidity remained strong, with $97 million in cash and cash equivalents.

The company also discussed its performance in China, reporting a 20% sales increase due to the reopening of markets. Tennant remains optimistic about order demand in China for Q4 and plans to capitalize on this opportunity. The company’s investment in the acquisition of the Gaomei brand and its broad product portfolio in China were also highlighted.

Tennant’s new growth-focused enterprise strategy, set to launch in 2024, aims to supplement organic growth with strategic acquisitions. The company targets bolt-on acquisitions in the core market and expansion into non-cleaning mobile equipment. Tennant also plans to modernize its ERP system, aiming to enhance digital infrastructure, scalability, cybersecurity, compliance, and improved customer experience.

Finally, Tennant expressed excitement about the growth of e-commerce and its potential impact on their business. The company plans to leverage its acquired platforms to compete in mid-tier markets globally, with a particular focus on Latin America and Southeast Asia. They are considering a two-tiered offering in developed markets and are assessing which product is a better fit.

InvestingPro Insights

According to InvestingPro’s real-time data, Tennant Company (NYSE:TNC) shows promising financial strength. The company’s market cap is valued at $1380M USD, and it operates with a moderate P/E Ratio of 14.54, which is considered low relative to its near-term earnings growth. Additionally, Tennant’s revenue growth has been accelerating, with an increase of 8.71% in the last twelve months as of Q2 2023.

InvestingPro Tips suggest that Tennant’s financial performance is not only solid but also consistent. It has raised its dividend for 30 consecutive years, indicating a stable return for its shareholders. Moreover, it yields a high return on invested capital, which is a strong indicator of the firm’s efficiency at generating profits from its investments.

For those interested in more detailed insights, InvestingPro offers numerous additional tips and data metrics. This includes information about Tennant’s liquidity, debt level, and analysts’ earnings revisions. These insights could prove invaluable for potential investors or current shareholders looking to understand the company’s financial health and future prospects.

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