Business Overview
Tennant Company, founded in 1870, is a world leader in designing, manufacturing, and marketing solutions that empower customers to achieve quality cleaning performance, reduce environmental impact, and help create a cleaner, safer, and healthier world. The company's commitment to innovation and excellence has been the driving force behind its success over the past century and a half.
Tennant Company's origins trace back to a one-man woodworking business started by George H. Tennant in 1870. Over the decades, the company evolved from a successful wood flooring and wood products manufacturer into a leading producer of floor cleaning equipment. This transformation has been fueled by the company's relentless pursuit of technological advancements and its ability to anticipate and address the evolving needs of its diverse customer base.
In 1909, Tennant Company was incorporated as a Minnesota corporation, marking a significant milestone in its growth. Throughout its history, Tennant has remained focused on advancing its industry by aggressively pursuing new technologies and creating a culture that celebrates innovation. This commitment to excellence has extended across every aspect of its business, from product development and customer service to manufacturing and marketing.
Over the past century, Tennant Company has expanded its brand portfolio, diversified its product offerings, and advanced its technologies through innovation and strategic acquisitions. This disciplined approach to growth ensured that each acquisition complemented the company's existing capabilities and added value by enhancing its product range or improving technological expertise.
Throughout its history, Tennant Company has faced various challenges, including navigating economic downturns, adapting to changing customer needs and preferences, and staying ahead of the competition. However, the company's dedication to producing high-quality, reliable products and its willingness to invest in research and development have allowed it to overcome these obstacles and maintain its position as a leading manufacturer of floor cleaning equipment.
Today, Tennant Company operates 11 global manufacturing locations and serves customers in over 100 countries through its extensive sales and service network. The company's product portfolio includes manual and autonomous mechanized cleaning equipment, detergent-free and other sustainable cleaning technologies, aftermarket parts and consumables, equipment maintenance and repair services, and business solutions such as financing, rental, and leasing programs.
Tennant's customers span a wide range of industries, including retail, distribution, manufacturing, warehousing, public venues, education, healthcare, and more. The company's innovative offerings are designed to meet the unique cleaning challenges faced by these diverse end markets, providing solutions that improve efficiency, enhance safety, and advance sustainability objectives.
Financial Overview
Tennant Company has demonstrated impressive financial resilience, with a track record of consistent revenue growth and profitability. In the fiscal year 2024, the company reported net sales of $1.287 billion, a 3.5% increase from the prior year. This was driven by a 3.2% organic growth rate, which was primarily attributed to price realization across all regions. The growth was also supported by a 0.7% contribution from acquisitions, partially offset by a 0.4% unfavorable impact from foreign currency exchange.
The company's adjusted EBITDA for the full year 2024 was $208.8 million, with an adjusted EBITDA margin of 16.2%. This represented a 70 basis point improvement in adjusted EBITDA margin compared to the previous year, highlighting Tennant's ability to effectively manage costs and generate operating leverage.
Tennant's net income for the fiscal year 2024 was $83.7 million, or $4.38 per diluted share. While this represents a decrease from the $109.5 million, or $5.83 per diluted share, reported in the prior year, the company's financial performance remained strong, with adjusted earnings per share of $6.57, on par with the previous year's results.
The company's gross profit margin improved by 30 basis points to 42.7% in 2024, as pricing and cost-reduction initiatives offset the impact of inflationary pressures. However, selling and administrative expenses increased by 210 basis points to 30.5% of net sales, primarily due to ERP modernization costs, legal expenses, and restructuring charges.
Liquidity and Cash Flow
In terms of liquidity and cash flow, Tennant generated $89.7 million in net cash from operating activities in 2024 and $68.8 million in free cash flow. The company's balance sheet remained healthy, with a net debt position of $98.7 million and a net leverage ratio of 0.48 times adjusted EBITDA, well within the company's target range of 1 to 2 times.
As of December 31, 2024, Tennant had $99.8 million in cash and cash equivalents. The company's debt-to-equity ratio stood at 0.41, while its current ratio was 2.0 and quick ratio was 1.3. Tennant also maintained access to $449.3 million under its revolving credit facility, providing ample financial flexibility.
Performance by Geographic Markets
Tennant's performance varied across its geographic segments in 2024:
Americas: Net sales increased by 5.7% over the prior year, or 6.3% on an organic basis. The increase was driven by a relatively even split between volume and price growth. The Americas segment accounted for $888.5 million in net sales.
Europe, Middle East, and Africa (EMEA): Net sales increased by 1.3%, primarily due to the acquisition of TCS, which contributed 2.6% of inorganic net sales growth. Organic net sales declined 1.6% due to lower volumes in both equipment sales and parts and consumables, partially offset by price realization. The EMEA segment generated $318.5 million in sales.
Asia Pacific (APAC): Net sales decreased by 10.3%, or 9.5% on an organic basis. This decline was driven primarily by volume declines in China and Australia, partially offset by price growth in Australia. The APAC region saw net sales of $79.7 million.
Operational Highlights
Tennant's commitment to innovation has been a key driver of its success. In 2024, the company continued to invest in developing new and improved products, with a focus on three strategic areas: autonomous mobile robots (AMR), small space cleaning solutions, and product line extensions.
The company's AMR portfolio, including the successful launch of the X4 ROVR model, generated $75 million in sales in 2024, underscoring the strong customer demand for these autonomous cleaning solutions. Tennant also announced the upcoming introduction of the larger X6 ROVR, which features enhanced cleaning capacity and an optional autonomous charging station. The company is targeting over $100 million in annual AMR sales by 2027, recognizing this segment as one of the fastest-growing in the floor care industry.
In the small space cleaning segment, Tennant expanded the international reach of its i-mop family of products, introducing them to new markets such as Brazil, France, Portugal, and Spain. This global expansion contributed to the company's growth in this rapidly evolving product category.
Additionally, Tennant's strategy of leveraging product line extensions, such as the T1581 Ride-On Scrubber and the T291 Small Walk-behind Scrubber, has proven to be an effective way to gain market share and generate incremental profitable revenue.
Risks and Challenges
While Tennant Company has demonstrated resilience and adaptability, the company is not immune to the macroeconomic and industry-specific challenges that have impacted the broader cleaning equipment and solutions market.
The company's operations in the Asia-Pacific (APAC) region, particularly in China, have faced significant headwinds due to market saturation and increased pricing pressures. Tennant has acknowledged these challenges and pivoted its approach in the APAC market, focusing on more favorable vertical markets and customers where the company can leverage its product performance, service capabilities, and channel reach.
Furthermore, Tennant is not immune to the global supply chain disruptions and inflationary pressures that have affected many industries. The company has implemented various strategies, such as local-for-local manufacturing and proactive cost management, to mitigate the impact of these external factors on its financial performance.
Outlook and Conclusion
Looking ahead, Tennant Company has provided guidance for the fiscal year 2025, which reflects the company's confidence in its ability to navigate the current economic environment and continue executing its strategic initiatives.
For 2025, Tennant expects net sales to be in the range of $1.210 billion to $1.250 billion, with an organic sales decline of 1% to 4% due to the significant backlog reduction experienced in 2024. The company also anticipates a foreign exchange headwind of approximately 2%. Despite these top-line challenges, Tennant is targeting adjusted EBITDA in the range of $196 million to $209 million, with an adjusted EBITDA margin of 16.2% to 16.7%.
Additional guidance for 2025 includes: - GAAP EPS of $3.80 to $4.30 per diluted share - Adjusted EPS of $5.70 to $6.20 per diluted share - Capital expenditures of approximately $20 million - Adjusted effective tax rate of 23% to 27%
Tennant expects to achieve gross margin expansion in 2025 through pricing discipline and cost reduction initiatives. The company anticipates $10 million in annual cost savings from a strategic restructuring. Despite projecting an organic sales decline, Tennant expects order growth of 3.5% to 7% in 2025, which is offset by a $125 million backlog headwind from 2024.
It's worth noting that Tennant exceeded its long-term target of 50-100 basis points of annual price impact in 2024, delivering over 200 basis points of price growth. The company's order rates in Q2-Q4 2024 were nearly double-digit year-over-year, and Tennant achieved new highs in 2024 for net sales, adjusted EBITDA, and adjusted EBITDA margin.
Tennant's robust innovation pipeline, disciplined cost management, and strategic focus on high-growth areas like AMR and small space cleaning solutions position the company well to navigate the current market landscape and continue delivering value to its customers and shareholders. As the company leverages its legacy of innovation and its commitment to sustainability, Tennant remains poised to capitalize on the evolving demands of the cleaning equipment and solutions industry.