Tennant Company 2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019. The filing also reports unaudited fourth-quarter results. Amounts are in U.S. dollars unless stated otherwise.
Business context
Tennant designs, manufactures and sells commercial cleaning equipment, parts and consumables, services, sustainable cleaning technologies and related solutions. It operates across the Americas, Europe, Middle East and Africa (EMEA), and Asia Pacific (APAC), selling through direct sales and service teams and distributors. The January 2019 acquisition of Chinese cleaning-equipment businesses Gaomei expanded its APAC presence.
Financial performance and position
| Metric | 2019 | 2018 |
|---|---|---|
| Net sales | $1,137.6 million | $1,123.5 million |
| Gross profit / margin | $461.7 million / 40.6% | $445.0 million / 39.6% |
| Operating profit / margin | $71.8 million / 6.3% | $58.0 million / 5.2% |
| Net earnings attributable to Tennant | $45.8 million | $33.4 million |
| Diluted earnings per share | $2.48 | $1.82 |
| Cash from operations | $71.9 million | $80.0 million |
| Capital expenditures, net of disposals | $38.3 million | $18.7 million |
| Cash, cash equivalents and restricted cash | $74.6 million | $86.1 million |
| Total debt | $338.8 million | $355.1 million |
| Current ratio / debt-to-capital | 1.7 / 48.5% | 1.9 / 53.0% |
Fourth quarter: Sales were $294.8 million versus $285.2 million in Q4 2018. Net earnings were $10.9 million versus $7.7 million, and diluted EPS was $0.59 versus $0.42.
Full-year sales increased 1.3%: organic growth of 2.2% and Gaomei contribution of 1.3% were offset in part by a 2.2% adverse foreign-currency impact. Americas sales rose 4.5%; EMEA fell 8.3%; APAC rose 11.0%, primarily reflecting Gaomei. Operating cash flow declined by $8.1 million, with inventory growth and higher receivables among the uses of cash. Investing cash outflow was $55.6 million, including $38.3 million of net capital expenditures and $19.7 million for Gaomei. Debt-to-capital improved, though cash and the current ratio declined.
Changes, outlook and material items
- Gross margin improved 100 basis points, mainly from pricing, cost reductions and product mix; higher material and labor costs, tariffs, and product-line discontinuation costs partly offset gains.
- 2019 included $4.8 million of restructuring charges, $3.3 million for discontinued product lines, a $0.9 million Gaomei inventory step-up and a $2.7 million write-down of a note receivable. The company also recorded a $1.8 million acquisition-related indemnification settlement in other income.
- Gaomei’s purchase price was $27.1 million, including $4.7 million estimated acquisition-date contingent consideration. A payment from zero to $42.4 million may be due in March 2021 if specified gross-profit growth targets are met; its year-end fair value was $2.1 million.
- The company did not provide specific 2020 financial guidance in the supplied filing text. Management states an objective to invest approximately 3% of annual sales in R&D. It highlights autonomous cleaning, fleet management and sustainable technologies as development areas.
- The filing, dated February 27, 2020, identifies the coronavirus outbreak in China at the start of 2020 as a potential risk to customers, employees, operations and supply chains; it does not quantify an expected financial effect.
- Other significant risks include economic weakness affecting customer capital spending, tariffs and input-cost inflation, supply concentration and sole-source vendors, foreign exchange, acquisition integration, cybersecurity, product quality, and debt covenants. The company noted LIBOR transition uncertainty for its credit agreement. It reported compliance with financial covenants at year-end and approximately $156.7 million of unused revolving borrowing capacity.
- Cash dividends increased to $0.88 per share for 2019. The company reported no material pending legal proceedings beyond routine litigation. KPMG gave unqualified opinions on the financial statements and internal control; Gaomei was excluded from management’s internal-control assessment for 2019.
Important facts for investors to verify
- Whether organic sales growth and margin gains continue, particularly given weaker EMEA demand and China distribution softness.
- Gaomei’s performance, integration progress and potential contingent-consideration payment against the stated targets.
- Working-capital trends, especially inventory growth, and whether operating cash flow recovers after declining in 2019.
- Debt repayment plans, covenant headroom, refinancing exposure and the credit agreement’s transition from LIBOR.
- The realized effects of tariffs, labor and material inflation, currency movements, and the coronavirus-related risks identified after year-end.
- The costs and savings from restructuring and discontinued product lines, and the company’s ability to sustain margin improvement.