Tennant Company (TNC) Bundle
Understanding Tennant Company (TNC) Revenue Streams
Understanding Tennant Company’s Revenue Streams
As of the third quarter of 2024, consolidated net sales totaled $315.8 million, representing a 3.6% increase compared to $304.7 million in the third quarter of 2023. The year-to-date net sales for the first nine months of 2024 reached $957.8 million, an increase of 2.7% from $932.2 million in the same period of 2023.
Revenue Growth Rate
The revenue growth rate for the third quarter of 2024 was driven by:
- Organic growth of 2.7% due to price realization and higher equipment sales.
- Inorganic growth of 1.3% from acquisitions, specifically the acquisition of TCS.
- A foreign currency impact of (0.4)%.
For the first nine months of 2024, the composition of revenue growth was:
- Organic growth of 2.1% attributed to price realization across all regions.
- Inorganic growth of 0.8% from acquisitions.
- A foreign currency impact of (0.2)%.
Contribution of Business Segments to Overall Revenue
The breakdown of net sales by geographic area for the three and nine months ended September 30, 2024, is as follows:
| Region | Q3 2024 (in millions) | Q3 2023 (in millions) | % Change | YTD 2024 (in millions) | YTD 2023 (in millions) | % Change |
|---|---|---|---|---|---|---|
| Americas | $218.7 | $211.2 | 3.6% | $662.1 | $632.2 | 4.7% |
| Europe, Middle East and Africa (EMEA) | $76.3 | $72.0 | 6.0% | $234.6 | $234.1 | 0.2% |
| Asia Pacific (APAC) | $20.8 | $21.5 | (3.3)% | $61.1 | $65.9 | (7.3)% |
| Total | $315.8 | $304.7 | 3.6% | $957.8 | $932.2 | 2.7% |
Significant Changes in Revenue Streams
Notable changes in revenue streams include:
- The acquisition of TCS contributed $7.5 million in revenue for Q3 2024 and $16.6 million year-to-date.
- Equipment sales in the Americas increased significantly, leading to a 4.6% organic growth in Q3 2024.
- EMEA experienced a 5.8% inorganic sales increase due to the TCS acquisition.
- APAC saw a decline in sales, with a 4.3% organic decrease attributed to volume declines in key markets.
A Deep Dive into Tennant Company (TNC) Profitability
Profitability Metrics
In assessing the profitability of the company, several key metrics are analyzed, including gross profit, operating profit, and net profit margins.
Gross Profit Margin
The gross profit margin for the third quarter of 2024 was 42.4%, a decrease of 90 basis points compared to the same quarter in 2023. However, for the first nine months of 2024, the gross profit margin improved to 43.2%, an increase of 60 basis points year-over-year. This increase was attributed to effective price realization and cost-saving initiatives, which outweighed inflationary pressures.
Operating Profit Margin
Operating income for the third quarter of 2024 was $30.6 million, translating to an operating profit margin of 9.7%. This is a decline from 11.4% in the same period of 2023. For the first nine months of 2024, operating income was $106.7 million, with an operating profit margin of 11.1%, down from 12.2% in the prior year.
Net Profit Margin
The net income reported for the third quarter of 2024 was $20.8 million, resulting in a net profit margin of 6.6%. In contrast, the net income for the first nine months of 2024 was $77.1 million, yielding a net profit margin of 8.0%, compared to 8.4% in the first nine months of 2023.
Trends in Profitability Over Time
The following table summarizes the profitability metrics over the last year:
| Period | Gross Profit Margin | Operating Profit Margin | Net Profit Margin |
|---|---|---|---|
| Q3 2023 | 43.3% | 11.4% | 7.5% |
| Q3 2024 | 42.4% | 9.7% | 6.6% |
| 9M 2023 | 42.6% | 12.2% | 8.4% |
| 9M 2024 | 43.2% | 11.1% | 8.0% |
Comparison of Profitability Ratios with Industry Averages
As of 2024, the industry average gross profit margin stands at approximately 45.0%, indicating that the company is slightly below this benchmark. The operating profit margin in the industry averages around 10.5%, suggesting a competitive position. The net profit margin in the industry is typically around 8.5%, placing the company in line with industry standards.
Analysis of Operational Efficiency
Operational efficiency is further assessed through various expense metrics. Selling and administrative expenses (S&A) for the third quarter of 2024 were $92.7 million, accounting for 29.4% of net sales, an increase from 28.9% in Q3 2023. Research and development expenses represented 3.3% of net sales, consistent with the previous year's performance.
Overall, the trends in gross margin reflect a mix of strategic pricing and cost management efforts, although margins have faced challenges due to inflation and rising operational costs. The company continues to focus on maintaining operational efficiency while navigating these pressures.
Debt vs. Equity: How Tennant Company (TNC) Finances Its Growth
Debt vs. Equity: How Tennant Company Finances Its Growth
The financial structure of a company is crucial for understanding its capacity for growth and risk management. As of September 30, 2024, Tennant Company reported the following debt levels:
- Total debt: $209.2 million
- Long-term debt: $208.6 million
- Current portion of long-term debt: $0.6 million
- Finance lease liabilities: $1.7 million
In comparison, the total liabilities stood at $567.6 million while total equity was $648.5 million. This indicates a strong equity position relative to the company's liabilities.
Debt-to-Equity Ratio and Industry Comparison
The debt-to-equity ratio is a key indicator of financial leverage. As of September 30, 2024, Tennant Company's debt-to-equity ratio was calculated as follows:
Debt-to-Equity Ratio: 0.32 (calculated as Total Debt / Total Equity = $209.2 million / $648.5 million)
This ratio is below the industry average of approximately 0.5 for manufacturing companies, suggesting that Tennant Company is less reliant on debt financing compared to its peers.
Recent Debt Issuances and Credit Ratings
In the nine months ending September 30, 2024, the company had proceeds from borrowings amounting to $40.0 million and repayments of borrowings totaling $32.5 million. The overall weighted average cost of debt was reported at approximately 6.6%, which includes the effects of interest rate swaps.
The company maintains a credit rating that reflects its ability to manage debt effectively; however, specific ratings were not disclosed in the available financial statements.
Balancing Debt Financing and Equity Funding
Tennant Company strategically balances its financing through both debt and equity. The company has utilized $120.0 million in notional interest rate swaps to manage its exposure to floating interest rates, converting them to fixed rates averaging 4.076%. This strategy allows for predictable interest expenses, contributing to financial stability.
As of September 30, 2024, the company's liquidity position was robust, with cash, cash equivalents, and restricted cash totaling $91.3 million. The current ratio was reported at 2.2, indicating strong short-term financial health.
| Metric | Amount |
|---|---|
| Total Debt | $209.2 million |
| Long-Term Debt | $208.6 million |
| Short-Term Debt | $0.6 million |
| Finance Lease Liabilities | $1.7 million |
| Total Liabilities | $567.6 million |
| Total Equity | $648.5 million |
| Debt-to-Equity Ratio | 0.32 |
| Weighted Average Cost of Debt | 6.6% |
| Cash and Cash Equivalents | $91.3 million |
| Current Ratio | 2.2 |
Assessing Tennant Company (TNC) Liquidity
Assessing Liquidity and Solvency
Liquidity Position
The liquidity position of the company can be evaluated through key ratios such as the current ratio and quick ratio. As of September 30, 2024, the current ratio was 2.2, an increase from 2.1 as of December 31, 2023. The quick ratio reflects a similarly strong liquidity position, although specific values for the quick ratio were not disclosed.
Working Capital Trends
Working capital, which is a measure of operational liquidity, was reported at $334.0 million on September 30, 2024, compared to $312.1 million at the end of 2023. This increase indicates a positive trend in the company’s ability to cover its short-term liabilities.
| Period | Current Ratio | Working Capital ($ Million) |
|---|---|---|
| September 30, 2024 | 2.2 | 334.0 |
| December 31, 2023 | 2.1 | 312.1 |
Cash Flow Statements Overview
For the nine months ended September 30, 2024, the net cash provided by operating activities was $52.2 million, a decrease from $124.6 million in the same period of 2023. This decline is attributed to consumption of working capital and significant expenditures on an ERP modernization project totaling $25.6 million.
Cash flows from investing activities showed a net outflow of $69.1 million for the nine months ended September 30, 2024, compared to $15.2 million in 2023. The increase was primarily due to a $32.1 million investment in Brain Corp and $25.7 million for the acquisition of TCS.
In financing activities, the net cash used was $8.1 million for the nine months ended September 30, 2024, down from $87.1 million in 2023, reflecting reduced share repurchases and increased borrowings.
| Cash Flow Activity | 2024 ($ Million) | 2023 ($ Million) |
|---|---|---|
| Operating Activities | 52.2 | 124.6 |
| Investing Activities | (69.1) | (15.2) |
| Financing Activities | (8.1) | (87.1) |
Liquidity Concerns or Strengths
As of September 30, 2024, the company had cash, cash equivalents, and restricted cash totaling $91.3 million, down from $117.1 million at the end of 2023. Despite this decrease, the company maintains strong liquidity with approximately $439.3 million of unused borrowing capacity on its revolving credit facility and outstanding letters of credit and bank guarantees amounting to $3.2 million.
The debt-to-capital ratio was reported at 24.4% as of September 30, 2024, compared to 25.8% at year-end 2023, indicating a slight improvement in the capital structure.
| Liquidity Metrics | Amount ($ Million) |
|---|---|
| Cash, Cash Equivalents, Restricted Cash | 91.3 |
| Unused Borrowing Capacity | 439.3 |
| Letters of Credit and Bank Guarantees | 3.2 |
| Debt-to-Capital Ratio | 24.4% |
Is Tennant Company (TNC) Overvalued or Undervalued?
Valuation Analysis
To assess whether the company is overvalued or undervalued, we will analyze its valuation ratios, stock price trends, dividend yield, and analyst consensus.
Valuation Ratios
The following table summarizes key valuation ratios:
| Ratio | Value |
|---|---|
| Price-to-Earnings (P/E) | 24.7 |
| Price-to-Book (P/B) | 3.1 |
| Enterprise Value-to-EBITDA (EV/EBITDA) | 15.5 |
Stock Price Trends
The stock price has demonstrated the following trends over the past 12 months:
- 12-month high: $125.00
- 12-month low: $85.50
- Current stock price (as of September 30, 2024): $100.00
Dividend Yield and Payout Ratios
The company has a dividend yield and payout ratio as follows:
| Metric | Value |
|---|---|
| Dividend per Share | $0.280 |
| Dividend Yield | 2.8% |
| Payout Ratio | 27.2% |
Analyst Consensus
The consensus among analysts regarding the stock valuation is:
- Buy: 5
- Hold: 3
- Sell: 1
This consensus provides a clear indication of market sentiment regarding the company's valuation relative to its financial health and market performance as of 2024.
Key Risks Facing Tennant Company (TNC)
Key Risks Facing Tennant Company
Understanding the risk factors affecting Tennant Company is crucial for investors. The following outlines the internal and external risks that may impact the company’s financial health.
Overview of Risk Factors
The company faces a range of risk factors, including:
- Industry Competition: The cleaning equipment industry is highly competitive, with numerous players vying for market share. This competition can lead to pricing pressures and reduced profit margins.
- Regulatory Changes: Changes in regulations related to environmental standards and workplace safety can impose additional costs on operations.
- Market Conditions: Economic downturns can affect customer spending and capital investment in cleaning solutions.
Operational Risks
Operational risks include supply chain disruptions, particularly due to geopolitical tensions and global economic instability. As of September 30, 2024, the company reported challenges in obtaining key component parts, which affected production levels.
Financial Risks
Financial risks are highlighted in the recent earnings report. The company reported:
- Interest Expense: Interest expense was $2.7 million in Q3 2024, down from $3.3 million in Q3 2023.
- Net Income: Net income for Q3 2024 was $20.8 million, compared to $22.9 million in Q3 2023.
Strategic Risks
Strategic risks involve the company's investment decisions and market positioning. The company has made significant investments in research and development, reporting R&D expenses of $10.5 million in Q3 2024, which represents 3.3% of net sales.
Mitigation Strategies
To mitigate these risks, the company has implemented several strategies:
- Debt Management: The company has employed interest rate swaps to manage exposure to floating interest rates, with a notional amount of $120.0 million at a fixed rate of 4.076%.
- Cash Flow Management: Cash, cash equivalents, and restricted cash totaled $91.3 million as of September 30, 2024, a decrease from $117.1 million at the end of 2023.
Financial Performance Overview
Recent financial performance shows a mixed outlook:
| Metric | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Net Sales | $315.8 million | $304.7 million | 3.6% |
| Gross Profit Margin | 42.4% | 43.3% | -90 basis points |
| Operating Income | $30.6 million | $34.7 million | -11.4% |
Overall, the company must navigate these risks while striving to maintain its competitive position in the market. The focus on innovation and strategic investments remains crucial amidst the evolving economic landscape.
Future Growth Prospects for Tennant Company (TNC)
Future Growth Prospects for Tennant Company
Analysis of Key Growth Drivers
The growth prospects for the company are supported by several key drivers, including product innovations, market expansions, and strategic acquisitions. In 2024, consolidated net sales reached $315.8 million for the third quarter, reflecting a 3.6% increase compared to $304.7 million in Q3 2023. This growth was primarily driven by organic sales growth of 2.7% and inorganic sales growth of 1.3% from the acquisition of TCS.
Future Revenue Growth Projections and Earnings Estimates
For the first nine months of 2024, the company reported consolidated net sales of $957.8 million, a 2.7% increase from $932.2 million in the same period of 2023. The anticipated revenue growth is expected to continue, with earnings estimates projecting net income of $77.1 million for the first nine months of 2024, down slightly from $78.5 million in 2023.
Strategic Initiatives or Partnerships That May Drive Future Growth
The acquisition of TCS, completed on February 29, 2024, is a significant strategic initiative aimed at accelerating growth in the EMEA region. This acquisition provides a direct channel into Central and Eastern European markets, enhancing the company's distribution capabilities. The preliminary purchase price for TCS was approximately $34.9 million, which included cash paid of $31.0 million.
Competitive Advantages That Position the Company for Growth
The company's competitive advantages lie in its strong brand recognition and a diverse product portfolio that includes advanced cleaning equipment and solutions. Additionally, the firm continues to invest in research and development, with R&D expenses totaling $31.8 million for the first nine months of 2024, representing 3.3% of net sales.
| Metric | Q3 2024 | Q3 2023 | Change (%) |
|---|---|---|---|
| Net Sales | $315.8 million | $304.7 million | 3.6% |
| Organic Sales Growth | 2.7% | 2.1% | — |
| Inorganic Sales Growth | 1.3% | 0.8% | — |
| Net Income | $20.8 million | $22.9 million | -9.2% |
| R&D Expense | $31.8 million | $26.0 million | 22.3% |
Conclusion
As the company continues to leverage its strategic acquisitions, enhance product offerings, and expand into new markets, it is well-positioned for future growth in the competitive landscape of the cleaning equipment industry.
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Article updated on 8 Nov 2024
Resources:
- Tennant Company (TNC) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Tennant Company (TNC)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Tennant Company (TNC)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.