Tennant Company reported net earnings of $4.4 million, or $0.25 per diluted share, on net sales of $179.9 million for the first quarter ended March 31, 2016.
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On a constant currency basis Tennant would have reported 2016 first quarter net earnings per diluted share of $0.29, up 7.4 percent, compared to the prior year quarter.
In the 2015 first quarter, Tennant reported net earnings of $5.0 million, or $0.27 per diluted share, on record net sales for a first quarter of $185.7 million.
The company's 2016 first quarter consolidated net sales of $179.9 million were down 3.2 percent compared to the prior year quarter
Contributing to 2016 first quarter results were increased sales through distribution and direct sales, particularly in Tennant’s largest region, the Americas
Geographically, organic sales grew approximately 1.7 percent in the Americas, excluding unfavorable foreign currency exchange of approximately 2.0 percent, despite lapping the very robust Americas organic sales growth of approximately 11.5 percent in the prior year quarter.
Sales in Europe, Middle East and Africa (EMEA) decreased 11.3 percent. Organic net sales in EMEA were down approximately 2.8 percent, excluding the impact of the Green Machines divestiture of 6.5 percent and unfavorable foreign currency exchange impact of approximately 2.0 percent.
Strong sales to strategic accounts throughout EMEA were more than offset by lower direct sales and sales through distribution. Sales in the Asia Pacific (APAC) region declined 8.8 percent, or down approximately 5.8 percent organically, excluding an unfavorable foreign currency exchange impact of about 3.0 percent. In APAC, organic sales grew in Australia, Japan and China but declined in other Asian countries.
Tennant's gross margin in the 2016 first quarter rose to 43.1 percent compared to 42.0 percent in the prior year quarter.
Gross margin in the 2016 first quarter improved 110 basis points, due to a more favorable channel mix and product mix, despite foreign currency headwinds that reduced gross margin by approximately 40 basis points. On a “Constant Currency†basis, first quarter gross margin would have been 43.5 percent.
Research and development (R&D) expense for the 2016 first quarter totaled $7.9 million, or 4.4 percent of sales, compared to $7.7 million, or 4.2 percent of sales, in the same quarter last year.
The company continued to invest in developing innovative new products for its traditional core business, as well as in its Orbio Technologies Group, which is focused on advancing a suite of detergent-free and other sustainable cleaning technologies.
Selling and administrative (S&A) expense in the 2016 first quarter totaled $62.4 million, or 34.7 percent of sales. Tennant is investing in its digital transformation to build the company’s e-Business capabilities, which is anticipated to meet customers’ changing needs and enhance long-term sales growth. S&A in the 2015 first quarter was $62.1 million, or 33.4 percent of sales.
Tennant's 2016 first quarter operating profit was $7.1 million, or 3.9 percent of sales, versus an operating profit of $8.3 million, or 4.4 percent of sales, in the year ago quarter. Due to the continued strength of the U.S. dollar in the 2016 first quarter, foreign currency exchange rates reduced operating profit by approximately $1.1 million.
Tennant’s operating profit margin would have been 4.5 percent on a constant currency basis, excluding the impact of unfavorable foreign currency exchange. Tennant remains committed to the goal of a 12 percent or above operating profit margin.
Cash from operations, which is typically negative in the first quarter due to the seasonality in the business, totaled a negative $6.5 million compared to a negative $2.1 million in the year earlier quarter. The company's total debt was $22.7 million, down from $26.1 million at the end of the prior year quarter. Cash on the balance sheet totaled $26.9 million versus $76.8 million a year ago.
Reflecting Tennant’s ongoing commitment to enhancing shareholder return, the company paid cash dividends of $3.5 million in the 2016 first quarter and repurchased 137,069 shares of common stock at a cost of $7.1 million. During 2015, Tennant repurchased 764,046 shares of common stock at a cost of $46.0 million. ■