Tennant Co (TNC) Q2 2024 Earnings Call Highlights: Navigating Growth Amidst Challenges
Net Sales: Increased 2.9% to $331 million in Q2 2024.
Adjusted EBITDA: Rose to $58.6 million, with a margin of 17.7%.
GAAP Net Income: $27.9 million, down from $31.3 million in the prior year period.
Adjusted Net Income: $35.2 million, a 1.4% increase from the prior year period.
Adjusted EPS: Decreased 1.6% to $1.83 per diluted share.
Gross Margin: 43.1%, a 30-basis-point decrease from the prior year quarter.
Operating Cash Flow: $18.6 million, down from $39.1 million in the prior year period.
Free Cash Flow: $14.4 million for the quarter.
Capital Expenditures: $4.2 million in Q2 2024.
Cash and Cash Equivalents: $84.6 million at the end of Q2 2024.
Debt Refinancing: Increased revolving credit facility limit to $650 million.
2024 Guidance: Net sales forecasted between $1.28 billion and $1.305 billion; adjusted EPS of $6.15 to $6.55; adjusted EBITDA between $205 million and $215 million.
Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Tennant Co (NYSE:TNC) achieved a 2.9% increase in net sales to $331 million and an increase in adjusted EBITDA to $58.6 million, resulting in a margin of 17.7%.
The company reported strong order demand with double-digit growth compared to both the first quarter of 2024 and the second quarter of 2023.
Tennant Co (NYSE:TNC) is increasing its full-year guidance for both net sales and adjusted EBITDA due to strong first-half performance.
The company successfully launched the X4 ROVR, its first purpose-built autonomous floor-cleaning machine, and increased manufacturing capacity due to strong customer interest.
Tennant Co (NYSE:TNC) is making significant progress in sustainability, reducing Scope 1 and 2 greenhouse gas emissions by 13% and sourcing 92% of global electricity from renewable sources.
Negative Points
Net income decreased to $27.9 million from $31.3 million in the prior year period, partly due to volume declines in EMEA and APAC regions.
The APAC region faced a difficult quarter with an 11.9% decline in organic sales, primarily due to volume declines in China and Australia.
Operating expenses increased due to ERP implementation and costs associated with investments in Brain Corp and the acquisition of TCS.
Gross margin decreased by 30 basis points to 43.1% due to higher inflation, despite price realization and cost-saving activities.
Free cash flow decreased to $14.4 million from $39.1 million in the prior year period, driven by increases in working capital and ERP modernization costs.
Q & A Highlights
Q: Given the strength of EPS and strong orders, why did you decide to lower the high range of your EPS guidance? A: Fay West, CFO, explained that factors such as tax rate, interest expense, and overall expenses contributed to the decision to adjust the EPS guidance.
Q: Are you seeing any recovery in other areas within EMEA besides Italy? A: David Huml, CEO, noted that demand remains sluggish across the region, but there are positive signs in the UK and from the TCS acquisition in Central and Eastern Europe.
Q: Could you provide an update on the M&A pipeline? A: David Huml, CEO, stated that Tennant is focused on deals that enhance their core business, connected autonomy, and mobile equipment adjacencies. They have a funnel of over 800 target companies and are actively working on it, with recent successes including the Brain Corp agreement and TCS acquisition.
Q: How is the Brain Corp agreement benefiting Tennant? A: David Huml, CEO, mentioned that the equity stake in Brain Corp and the agreement are accelerating AMR adoption and sales, providing commercial benefits.
Q: What financial position does Tennant have to support future M&A activities? A: David Huml, CEO, highlighted that Tennant has reduced debt leverage below one time, expanded their revolver, and is showing strong cash conversion, providing financial firepower for future deals.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.