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TENNANT COMPANYEarnings Release Conference Call
Third Quarter 2016
Tuesday, October 25, 2016
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Chris KillingstadPresident and CEO
Tom PaulsonSenior VP, CFO
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TENNANT COMPANY
On the Call Today
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.
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TENNANT COMPANY
FORWARD LOOKING STATEMENTS & NON-GAAP MEASURES
• 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
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TENNANT COMPANY
2016 Third Quarter Overview
• 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
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TENNANT COMPANY
2016 Third Quarter Acquisitions
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• 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
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
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Record Sales of $157M in 2015
– +
Water
Recycling
Battery
TechnologiesRobotics
(AGV)
Asset
Management
Advanced Product DevelopmentFuture Technologies
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DIGITAL TRANSFORMATION
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IRIS®
e-Business
e-CommercePlatform
CRM
• 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
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TENNANT COMPANY
Growth & Profitability
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Q3’16
SALES
GROSS MARGIN
R&D EXPENSE (% of sales)
Adjusted*S&A EXPENSE (% of sales)
Adjusted*
OPERATING PROFITAdjusted*
OPERATING PROFIT MARGINAdjusted*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).
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• 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
• 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.
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EMEA
TENNANT COMPANY
2016 Third Quarter by Region
• 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
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APAC
TENNANT COMPANY
2016 Third Quarter by Region
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Q3’16
SALES
GROSS MARGIN
R&D EXPENSE (% of sales)
Adjusted*S&A EXPENSE (% of sales)
Adjusted*
OPERATING PROFITAdjusted*
OPERATING PROFIT MARGINAdjusted*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).
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SALES
GROSS MARGINAdjusted*OPERATING PROFITAdjusted*
OPERATING PROFIT MARGINAdjusted*
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
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
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TENNANT COMPANY
Operating Profit Margin Goal
• Overall effective tax rate for 2016 first nine monthsof 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
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TENNANT COMPANY
Successful Tax Strategies
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TENNANT COMPANY
Strong Balance Sheet
Commitment To Shareholder Return
FY ‘15 YTD Sept ‘15 YTD Sept ‘16
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TENNANT COMPANY
2016 EPS & Sales Guidance
2015ACTUAL
As Reported$1.74 EPS
$811.8M SALES
As Adjusted
$2.49 EPS$811.8M SALES
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.
QUESTIONS?
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Tennant is Well Positioned!
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Competitively advantaged in the market
with our innovative product and technology
portfolio and go-to-market strategy
Well positioned to leverage our
operational efficiency