Tennant Company Gets the Job Done on First-Quarter Earnings

Cleaning product specialist Tennant Co. (TNC 0.24%) today posted first-quarter earnings results that beat Wall Street expectations on both the top and bottom lines. Sales ticked higher by 1% to a record $185.7 million as profit shrunk by 16%. However, analysts had braced for an even bigger year-over-year earnings dip.

Source: Yahoo! Finance and Tennant financial filing.

Steady sales growth
The revenue figure understates Tennant's real growth in the quarter. Organic sales rose by 6% absent foreign currency exchange swings that axed 5 percentage points from growth. On that basis, Tennant's first-quarter results were right in line with management's goal of boosting sales by between 5% and 9% for the full year. 

The company performed particularly well in its top market, North America, where organic sales rose by 12%. That's a slowdown from the prior quarter's 16% bounce, but it still represents a solid start to 2015.

Earnings and innovation
Earnings came in slightly higher than expected thanks to success in marketing to Tennant's biggest, most profitable clients. The company also booked profit gains from increased sales of new products such as its T12 and T17 rider scrubbers.

T3 Scrubber. Source: Tennant.

New products like those promise to be a bigger part of the growth story going forward. Tennant plans to launch 36 new cleaning solutions this year, up from roughly 20 in each of the last three fiscal years. That's why spending on research and development has run ahead of management's long-term goal of keeping it to about 3% of sales. The R&D expense was 4.2% of sales in the quarter, up from 4.1% a year ago. 

But the payoff should come in the form of faster sales growth. In fact, innovative product launches are a key reason why management believes it can reach $1 billion in annual sales by 2017 -- up from $822 million in 2014. So investors will want to pay close attention to Tennant's growing product portfolio this year. Since the company hasn't expanded at this pace before, it's also reasonable to expect a few manufacturing hiccups along the way that could temporarily raise costs.

Outlook for 2015
Tennant management reaffirmed a full-year guidance for steady growth toward its 2017 targets. Sales growth in 2015 should be roughly 2% -- 7% on an organic basis. Earnings are still expected at $2.55 per share, down substantially from last year but only because of foreign currency swings that should slice as much as $0.44 per share from reported profit.