What happened
Shares of Tennant (TNC 2.93%) traded up more than 12% on Wednesday afternoon after the manufacturer of industrial-grade floor cleaning-equipment reported second-quarter earnings that easily exceeded expectations. The report continues a strong run for Tennant shares so far this year, with the stock now up more than 45% year to date.
So what
Before markets opened on Wednesday, Tennant reported non-GAAP earnings of $1.13 per share and GAAP earnings of $0.81 per share. This surpassed the $0.75-per-share consensus estimate despite revenue that, at $299.7 million, missed expectations by about $1.3 million. The non-GAAP results exclude charges related to the exit of two product lines.
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The company's revenue was up 2.6% year over year, and non-GAAP net income was up close to 37%. Sales were up 12.7% in the Asia-Pacific region and up 6% in the Americas, more than offsetting a 7.4% decline, including currency adjustments, in Europe.
CEO Chris Killingstad said in a statement that the results exceeded internal expectations, fueled by the company's efforts to grow profitability.
"Tennant Company's transition from a period of strategic expansion to a heightened focus on profitable growth is supported by three strategic pillars: winning where we have the strongest value proposition; reducing complexity and building scalable processes; and building on our position as an innovation leader," Killingstad said.
Adjusted gross margin was 41.4% in the quarter, a 130-basis-point improvement year over year, thanks to better pricing, favorable geographic and product mix, and operational efficiencies.
Now what
Going into 2019, Killingstad was worried that headwinds including tariffs, rising freight costs, and higher commodity prices would pressure results, but it's been so far so good for Tennant. The company is forecasting modest full-year sales growth of 3% to 4% and adjusted EPS of $2.65 to $2.85 per diluted share compared to $1.82 per share in 2018 and a loss of $0.35 per share in 2017.
It seems unlikely, given those headwinds, that the stock's second-half performance will match the year-to-date gains, but this is a well-run company that is managing its way through what should be a tough environment.
