Tennant Company
Q4 2015 Earnings Call Transcript

Published: 23 Feb 2016

[Operator:]

[Operator Instructions] Thank you for participating in Tennant Company's fourth quarter earnings conference call. Beginning today's meeting is Mr. Tom Paulson, Senior Vice President and Chief Financial Officer for Tennant Company. Mr. Paulson, you may begin.

[Tom Paulson:]

Thanks, Sean. Good morning, everyone, and welcome to Tennant Company's fourth quarter 2015 earnings conference call. I'm Tom Paulson, Senior Vice President and Chief Financial Officer of Tennant Company. With me on the call today are Chris Killingstad, Tennant's President and CEO; Karen Durant, Vice President and Controller; and Tom Stueve, Treasurer. Our agenda today is to review Tennant's performance during the 2015 fourth quarter and full-year and our outlook for the 2016 full-year. First, Chris will brief you on our operations, and then I'll cover the financials. After that, we'll open up the call for your questions. We are using slides to accompany this conference call. Well, we hope this makes it easier for you to review our results. A taped replay of this conference call along with these slides will be available on our Investor Relations website at investors.tennantco.com for approximately three months after this call. Now, before we begin, please be advised that 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 filed 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 fourth quarter 2015. Our 2015 fourth quarter earnings release includes a reconciliation of these non-GAAP measures to our GAAP results for the 2015 fourth quarter and full-year. Our earnings release was issued this morning via Business Wire and is also posted on our Investor Relations website. At this point, I'll turn the call over to Chris.

[Chris Killingstad:]

Thank you, Tom, and thanks to all of you for joining us this morning. Like other industrial companies, we saw a more sluggish business environment in the 2015 fourth quarter, coupled with continued foreign currency headwinds. Despite adverse macroeconomic conditions and lapping a strong prior-year quarter, our growth strategies are working. On a constant currency basis, Tennant would have reported 2015 fourth quarter net sales up 0.2% to $216.7 million and adjusted net earnings per diluted share on a constant currency basis of $0.93, equal to the prior-year quarter. For the 2015 full-year on a constant currency basis, Tennant would have reported organic sales growth of 4.3% and adjusted earnings per diluted share up 11.1%. We know that our growth strategies have led and will continue to lead to market share gains over time. In the current volatile economic environment, one way to validate our performance is to compare results to our only public cleaning industry competitor. On a global basis, our organic sales growth has outpaced them in each of the last eight quarters through the 2015 third quarter. In our largest region, the Americas, our organic sales growth for the 2015 first nine months was 8.8% compared to their organic sales decline of 4% over the same period. This was on top of our organic sales growth in the Americas of 11.6% for the 2014 full-year, compared to their organic sales growth of 3% for the 2014 full-year. This is evidence that our growth strategies are working. Our goal is to continue to perform well and remain competitively advantaged in our industry. Contributing to our 2015 fourth quarter results were solid sales through distribution and to strategic accounts, particularly in North America and EMEA. In Tennant’s largest region, the Americas, organic sales increased approximately 0.5% on top of the very robust organic sales growth of 16% in the prior-year quarter. We also were pleased to see fourth quarter organic sales gains in the EMEA region for the first time in 2015, where organic sales rose approximately 1.1%. Another bright spot was sales of scrubbers equipped with ec-H2O technology, which increased nearly 4% in the fourth quarter. This set a record quarter for ec-H2O technology sales. For the 2015 full-year, sales of scrubbers equipped with ec-H2O technology grew 2.6% to $156.9 million. Now I'd like to comment on our sale of the Green Machines outdoor city cleaning line that is noted in our press release. We announced our intent to sell this line in the 2015 third quarter after determining that it did not sufficiently complement our core business. At the end of January 2016, we sold this business to our master distributor for the Central Eastern Europe, Middle East and Africa region. This is the right decision for Tennant. The primary customer for the Green Machines products is municipal governments, where the selling process is much different than it is with our core target customers, and the Green Machines’ products needed further investment to remain competitive. We are pleased with the structure of this sale. The buyer will continue to invest in and manufacture the product in Scotland and maintain jobs and employment conditions. Additionally, Tennant has an opportunity to generate revenue two ways

[Tom Paulson:]

Thanks Chris. In my comments today, all references to earnings per share are on a fully diluted basis. Also please note, as I go through the results, I'll generally not comment on the year-to-date financials as those are detailed on the earning release. For the fourth quarter ended December 31, 2015, Tennant reported net sales of $205.9 million, compared to $216.3 million in the prior-year quarter. Excluding an unfavorable foreign currency exchange impact of about 5%, organic sales grew approximately 0.2% in the 2015 fourth quarter. On a reported basis, the 2015 fourth quarter sales of $205.9 million were 0.5% higher sequentially compared to the 2015 third quarter. For the 2015 full-year, organic sales rose approximately 4.3%, excluding an unfavorable foreign currency exchange impact of about 5.5%. For the 2014 full-year, organic sales rose approximately 10.3%, excluding an unfavorable foreign currency exchange impact of about 1%. As Chris mentioned, we believe our growth strategy will allow us to continue to increase our market share. As adjusted, our fourth quarter 2015 net earnings were $14 million or $0.78 per share. These as-adjusted results exclude the restructuring charge of $2 million pre-tax or a loss of $0.09 per share and a $0.04 per share favorable tax true-up related to the 2015 third quarter long-lived asset impairment charge. In the year-ago quarter, Tennant reported net earnings of $17.5 million or $0.93 per share. Foreign currency exchange headwinds unfavorably impacted our 2015 fourth quarter financial results. I'll provide more information about the special items and foreign currency exchange impact in just a few minutes. Turning now to a more detailed review of the 2015 fourth quarter. Our sales are categorized into three geographic regions, which are

[Operator:]

[Operator Instructions] And there are currently no questions. Mr. Paulson, I turn the conference back to you.

[Tom Paulson:]

Do you want to check - we’ll give the queue just another 15 seconds so just to make sure that there isn't questions, then I’ll actually turn it over to Chris to make the closing remarks.

[Operator:]

[Operator Instructions]

[Tom Paulson:]

Okay. We’ll close it with Chris.

[Chris Killingstad:]

All right, I will close. While we anticipate foreign currency and global economic volatility to remain challenging in the coming quarters, we believe that Tennant is competitively advantaged through our innovative products and technologies and our go-to market strategy, and we are well positioned to perform efficiently. We remain committed to reaching our goals of a $1 billion in organic sales and a 12% or above operating profit margin, and we are very excited about Tennant's future. We look forward to updating you on our 2016 first quarter results in April. Thank you for your time today and for your questions. Take care everybody.

[Operator:]

And this concludes today's conference. You may now disconnect.