Tennant Co. (NYSE: TNC) reported Q2 EPS of $0.60, $0.19 worse than the analyst estimate of $0.79. Revenue for the quarter came in at $270.8 million versus the consensus estimate of $269.54 million.

2017 Business Outlook

Killingstad concluded: “Our current set of strategies are focused on one goal - re-engineering a Tennant Company with the market position, product portfolio, customer centricity and operating excellence that positions us for profitable growth. As our efforts in the first half of 2017 demonstrate, we are committed to pursuing the opportunities and navigating the challenges that come with change. We achieved several strategic milestones in the first half of 2017. Tennant, through the acquisition of IPC, has improved its global market position. Our commitment to innovation and new product launches remains on schedule, and we are in the process of better aligning our resources to drive improved efficiencies and optimize expense levels. The global macroeconomic environment still merits caution, but we are optimistic about our sales momentum as we head into the second half of 2017; however, it will be difficult to improve the field service and manufacturing challenges fast enough to offset the unfavorable variances we had in the first half of 2017. Therefore, we are reaffirming our full year sales guidance range and lowering our full year earnings guidance range.”

Tennant Company continues to estimate 2017 full year net sales in the range of $960 million to $990 million, up 18.7 percent to 22.4 percent, or up approximately 1 percent to 3 percent organically, assuming an unfavorable foreign currency exchange impact on sales of approximately 1 percent, an additional 0.8 percent inorganic growth from the August 2016 Florock acquisition, and inorganic growth from the April 2017 IPC acquisition in the range of 18.6 percent to 20.4 percent. Tennant now expects 2017 full year reported earnings in the range of $0.85 to $1.05 per diluted share, which includes the first quarter restructuring charge, one-time acquisition and financing costs related to the IPC Group acquisition, the impact on earnings from the preliminary estimate of IPC acquisition-related inventory step-up flow through, a pension plan settlement charge, and the interest expense from the IPC acquisition-related financing. Previously, the company expected 2017 full year reported earnings in the range of $1.05 to $1.25 per diluted share. Tennant now expects 2017 full year adjusted earnings in the range of $2.20 to $2.40 per diluted share. Previously, the company expected 2017 full year adjusted earnings in the range of $2.40 to $2.60 per diluted share. The 2017 full year adjusted earnings exclude the following non-recurring costs totaling $31.4 million pre-tax, or $1.36 per diluted share:

1. $8.0 million restructuring charge (recorded in the 2017 first quarter in S&A Expense)
2. $7.6 million IPC acquisition costs ($2.9 million recorded in the 2017 first quarter and $4.7 million recorded in the 2017 second quarter in S&A Expense)
3. $7.4 million IPC-related financing costs ($1.2 million recorded in the 2017 first quarter and $6.2 million recorded in the 2017 second quarter in Other Expense, Net)
4. $8.2 million IPC acquisition inventory step-up ($6.2 million recorded in the 2017 second quarter in Cost of Sales and the remainder to be recorded in the 2017 third quarter)
5. $0.2 million pension plan settlement charge (recorded in the 2017 second quarter in S&A Expense)

Foreign currency exchange in 2017 is estimated to negatively impact operating profit by approximately $2.5 million, or a negative impact of approximately $0.10 per diluted share. On an as adjusted and “Constant Currency” basis (assuming no change in foreign exchange rates from the prior year), 2017 full year earnings are now estimated to be in the range of $2.30 to $2.50 per diluted share. Previously, the company expected 2017 full year earnings on an as adjusted and “Constant Currency” basis in the range of $2.50 to $2.70 per diluted share. The revised 2017 full year earnings guidance still anticipates an as adjusted 2017 dilution from the IPC acquisition of $0.10 per diluted share. For the 2016 full year, earnings per diluted share totaled $2.59 on net sales of $808.6 million.

Tennant’s 2017 annual financial outlook includes the following additional assumptions:

• Continued stable economy in North America, modest improvement in Europe and a challenging business environment in APAC;
• Gross margin performance in the range of 41 to 42 percent;
• R&D expense in the range of 3 percent to 4 percent of sales;
• Capital expenditures in the range of $25 million to $30 million; and
• An effective tax rate of approximately 29 percent.

GUIDANCE:

Tennant Co. sees FY2017 EPS of $2.20-$2.40, versus the consensus of $2.52. Tennant Co. sees FY2017 revenue of $960-990 million, versus the consensus of $979.88 million.

For earnings history and earnings-related data on Tennant Co. (TNC) click here.