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Tnc q3 2016_earnings_presentation_final
- 1. TENNANT COMPANY Earnings Release Conference Call Third Quarter 2016 Tuesday, October 25, 2016 1
- 2. Chris Killingstad President and CEO Tom Paulson Senior VP, CFO 2 TENNANT COMPANY On the Call Today
- 3. Our remarks this morning and our answers to questions may contain forward-looking statements regarding the company’s expectations of future performance. Such statements are subject to risks and uncertainties, and our actual results may differ materially from those contained in the statements. These risks and uncertainties are described in today’s news release and the documents we file with the Securities and Exchange Commission. We encourage you to review those documents, particularly our Safe Harbor statement, for a description of the risks and uncertainties that may affect our results. Additionally, on this conference call we will discuss non-GAAP measures that include or exclude special or non-recurring items. For each non-GAAP measure, we also provide the most directly comparable GAAP measure. There were special non-GAAP items in the third quarter of 2015. Our 2016 third quarter earnings release includes a reconciliation of these non-GAAP measures to our GAAP results for the third quarter and EPS for 2015 full year. 3 TENNANT COMPANY FORWARD LOOKING STATEMENTS & NON-GAAP MEASURES
- 4. • 2016 third quarter consolidated net sales of $200.1M – Sluggish environment for industrial manufacturers – Lower sales in EMEA and APAC – Record revenue for a third quarter in Americas • Sales through strategic accounts and sales of new products – Net earnings of $0.64 per diluted share • Tennant remains competitively well positioned for growth – Expect to return to organic sales growth in 2016 fourth quarter 4 TENNANT COMPANY 2016 Third Quarter Overview
- 5. • Acquired Florock® Brand – Expands our commercial floor coatings business – Combination of Tennant Coatings and Florock opens new markets and strengthens value proposition • Acquired Assets of Dofesa Barrido Mecanizado – Long-time distributor of Tennant equipment in central Mexico – Acquisition is a key investment for growth in Latin America – Enhances Tennant’s sales and service capabilities 5 TENNANT COMPANY 2016 Third Quarter Acquisitions
- 6. 6 • New products and technologies – Sales of new products introduced in last three years was 37% of equipment sales in 2016 first nine months • Plan to launch 10 new products in 2016 – Several significant industrial machine launches – Launched M20 & M30 Sweeper-Scrubbers and T20 Heavy-Duty Industrial Rider Scrubber with high-tech features – Launched M17 Battery-Powered Sweeper-Scrubber TENNANT COMPANY New Products
- 7. ec-H2O NanoClean® The Responsible Way to Clean Next generation ec-H2O | Cleans more soils in more applications HOW IT WORKS:EC-H2O™ SCRUBBERS | 2008 thru 3Q 2016 $1.0 billion+ cumulative revenue 8,000+ customers 30,000+ sites 85,000+ machines 7 Record Sales of $157M in 2015
- 8. – + Water Recycling Battery Technologies Robotics (AGV) Asset Management Advanced Product Development Future Technologies 8
- 10. • Diverse portfolio of initiatives to create value • Introductions of new products and technologies • Expanding global sales and marketing to increase global market share • Building Tennant’s e-Business capabilities • Concurrently running a more efficient business to raise productivity 10 TENNANT COMPANY Growth & Profitability
- 11. 11 Q3’16 SALES GROSS MARGIN R&D EXPENSE (% of sales) Adjusted* S&A EXPENSE (% of sales) Adjusted* OPERATING PROFIT Adjusted* OPERATING PROFIT MARGIN Adjusted* DILUTED EPS Q3’15 CHANGE TENNANT COMPANY 2016 THIRD QUARTER $200.1 M 42.6% 4.2% 30.3% $16.3 M 8.1% $0.64 $204.8 M 43.3% 4.0% 30.7% $17.5 M 8.6% $0.68 (2.3%) (70 bps) +20 bps (40 bps) (7.4%) (50 bps) (5.9%) Organic Sales Growth (2.2%) | Americas Organic Growth 1.2% *Q3’15 results are adjusted to exclude restructuring charge in S&A of $1.8M pre-tax ($0.09 per diluted share) and non-cash long-lived asset impairment of $11.2M pre-tax ($0.64 per diluted share).
- 12. 12 • Sales up 1.2% organically (excluding 1.0% impact from Florock acquisition) • Record sales for a third quarter • Increased sales to strategic accounts and sales of new products • Latin America achieved 10% organic sales growth • Larger-than-normal order backlog at quarter end TENNANT COMPANY 2016 Third Quarter by Region AMERICAS
- 13. • Sales decreased 7.6% organically (excluding approx. 2.5% unfavorable foreign currency impact and 5.0% impact from divestiture of Green MachinesTM outdoor city cleaning line) • Positive organic sales growth through distribution in Western Europe, more than offset by organic sales declines elsewhere, particularly in the U.K. 13 EMEA TENNANT COMPANY 2016 Third Quarter by Region
- 14. • Sales declined 15.1% organically in 2016 third quarter (excluding 2.0% favorable foreign currency impact) • Strong organic sales growth of 21.3% in 2015 third quarter and organic sales increased in all countries within this region 14 APAC TENNANT COMPANY 2016 Third Quarter by Region
- 15. 15 Q3’16 SALES GROSS MARGIN R&D EXPENSE (% of sales) Adjusted* S&A EXPENSE (% of sales) Adjusted* OPERATING PROFIT Adjusted* OPERATING PROFIT MARGIN Adjusted* DILUTED EPS Q3’15 CHANGE TENNANT COMPANY 2016 THIRD QUARTER $200.1 M 42.6% 4.2% 30.3% $16.3 M 8.1% $0.64 $204.8 M 43.3% 4.0% 30.7% $17.5 M 8.6% $0.68 (2.3%) (70 bps) +20 bps (40 bps) (7.4%) (50 bps) (5.9%) Organic Sales Growth (2.2%) | Americas Organic Growth 1.2% *Q3’15 results are adjusted to exclude restructuring charge in S&A of $1.8M pre-tax ($0.09 per diluted share) and non-cash long-lived asset impairment of $11.2M pre-tax ($0.64 per diluted share).
- 16. 16 SALES GROSS MARGIN Adjusted* OPERATING PROFIT Adjusted* OPERATING PROFIT MARGIN Adjusted* DILUTED EPS Q3’16 Q3’15 CHANGE TENNANT COMPANY 2016 THIRD QUARTER “CONSTANT CURRENCY” VIEW (excludes estimated foreign exchange impact) CONSTANT(1) CURRENCY Q3’16 AS REPORTED (1)“Constant Currency”: estimated income statement which assumes no change in exchange rates from prior year. *Q3’15 results are adjusted to exclude restructuring charge in S&A of $1.8M pre-tax ($0.09 per diluted share) and non-cash long-lived asset impairment of $11.2M pre-tax ($0.64 per diluted share). $200.1 M 42.4% $15.8 M 7.9% $0.62 $204.8 M 43.3% $17.5 M 8.6% $0.68 (2.3%) (90 bps) (10.2%) (70 bps) (8.8%) $200.1 M 42.6% $16.3 M 8.1% $0.64
- 17. Remain committed to at least 12% OP Margin • Drive organic revenue growth in mid- to high-single digits • Hold fixed costs essentially flat in manufacturing as volume rises • Strive for zero net inflation at gross profit line • Standardize and simplify processes to improve scalability of business model 17 TENNANT COMPANY Operating Profit Margin Goal
- 18. • Overall effective tax rate for 2016 first nine months of 30.6% • Base tax rate of 31.7% (excluding routine discrete items) • Federal R&D tax credit – was re-enacted for 2016; favorable benefit included in 2016 tax rate 18 TENNANT COMPANY Successful Tax Strategies
- 19. 19 TENNANT COMPANY Strong Balance Sheet Commitment To Shareholder Return FY ‘15 YTD Sept ‘15 YTD Sept ‘16
- 20. 20 TENNANT COMPANY 2016 EPS & Sales Guidance 2015 ACTUAL As Reported $1.74EPS $811.8MSALES AsAdjusted $2.49EPS $811.8MSALES 2016 Financial Outlook $2.40 to $2.60/$805M to $815M KEY EXPECTATIONS FOR 2016 • Net sales in the range of $805M to $815M versus $811.8M in 2015. • Continued slow economic growth in North America, modest improvement in Europe, and growth in emerging markets. • Unfavorable foreign currency impact on sales of approximately 1%. • Sales decline from Green Machines divestiture of approximately 1%. • Sales increase from Florock acquisition of approximately 1%. • Organic sales growth, excluding foreign currency exchange impact, divestiture and acquisition in the range of 0.2% to 1.4%. • Foreign currency exchange headwinds estimated to negatively impact operating profit in the range of $2M to $3M, or approximately $0.08 to $0.12 EPS. • Gross margin performance in the range of 43% to 44%. • R&D expense of approximately 4% of sales. • Effective tax rate of approximately 31% (negatively impacting 2016 by approximately $0.05). • Capital expenditures in the range of $25M to $30M.
- 21. QUESTIONS? 21
- 22. Tennant is Well Positioned! 22 Competitively advantaged in the market with our innovative product and technology portfolio and go-to- market strategy Well positioned to leverage our operational efficiency