Shares of leading floor-care equipment and cleaning solutions provider Tennant Company (TNC 0.98%) are down 26% as of 1 p.m. ET on Tuesday after the company delivered lackluster fourth-quarter earnings. Sales, adjusted EBITDA, and adjusted earnings per share (EPS) sank 11%, 46%, and 68%, after Tennant's plant ERP transition in November disrupted operations. The company's Q4 sales of $292 million and adjusted EBITDA of $45 million were impacted by $30 million and $22 million, respectively, due to order-entry, production, and shipping issues tied to the ERP transition. Worse yet, management estimated that of the $30 million in lost sales, roughly half would be unrecoverable, as customer relationships were strained due to the three-week disruption.
NYSE: TNC
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As a Dividend King -- an S&P 500 company that has grown its dividend for 50 years or more -- this type of tumult is almost hard to fathom, as the dividend growth stocks in this group are some of the steadiest stocks in the world. In this light, it makes sense that Tennant is working with activist investing firm Vision One, which now owns a 2% stake in the cleaning company. Even before Q4's issues, Tennant's stock was in the midst of a 50% pullback from its 2024 all-time high as its revenue growth rate slowed to 3% annually over the last five years.
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Looking ahead, management believes the ERP issues will stabilize by Q2 and organic sales will rise between 3% and 6.5% in 2026. Meanwhile, they estimate adjusted EPS will land somewhere between $4.70 and $5.30. This leaves Tennant trading around just 12 times next year's earnings, so the market is continuing to price in a lot of turmoil. That said, Tennant remains the leader in its floor-care equipment niche and develops best-in-class autonomous mobile robots for cleaning, so it could be a turnaround stock if it can rein in its ERP pitfalls. Ultimately, Tennant's 2% dividend yield and dividend increase streak look safe, but the company is best left to the most patient investors as it navigates this rough patch.
