Despite sales slowing in Europe and higher freight and raw-material costs, Tennant Co. raised its financial outlook for the remainder of the year after reporting on a strong third quarter.
The Golden Valley-based global provider of mechanized cleaning equipment and supplies reported quarterly sales of $273.3 million, up 4.3 percent over the same period a year ago. Organic sales growth, which accounts for currency translations, was up 6.1 percent with the strongest regions being North America and the Asia Pacific.
Tennant's third-quarter net earnings were $9.7 million, or 52 cents per share, up from $3.6 million, or 20 cents per share, a year ago. Earnings per share adjusted for nonoperation items were 54 cents per share, which beat analysts' estimates.
"We remain pleased with our ability to generate broad-based growth across our geographies, products and channels, improving efficiencies in our business and continuing to invest for the future," Chris Killingstad, president and chief executive of Tennant Co., said in a statement. "While gross margin performance in the period reflected factors affecting U.S.-based manufacturers, such as labor and raw material shortages, tariffs and higher freight costs, we did continue to improve our field-service utilization and manufacturing productivity."
The gross margins decreased from 39.9 percent in last year's third quarter to 39.6 percent. The gross margin decline was due in part to higher freight and logistics costs, early impacts of tariffs and to a lesser extent productivity issues related to raw material and employment shortages.
In April 2017, the company completed its largest-ever acquisition, the Italian IPC Group, a maker of small-to-midsize commercial cleaning machines. Killingstad said on the conference call that the integration was continuing and a combined Tennant/IPC leadership team would be in place early in 2019.
"I am proud of our ability to unify the Tennant and IPC teams, while preserving the stability and growth profile of our business in the region," Killingstad told analysts.
The company raised guidance for the remainder of the year and now expects full year sales between $1.115 billion and $1.125 billion, which would represent an 11.2 to 12.2 percent increase over annual revenue in 2017. It now expects adjusted EPS of between $2.05 and $2.15 per share. When announcing second-quarter results in July, the company said it expected adjusted EPS in the range of $1.95 to $2.10 per share.
In a down day for the overall stock market, Tennant shares closed Wednesday at $61.58, down nearly 5 percent. Year-to-date shares are down 9.7 percent.