Tennant Reports Third Quarter Results
For the nine months ended September 30, 2002, Tennant reported net earnings of $7.9 million, or $.87 per diluted share, before unusual charges, on net sales of $309.8 million. Including unusual charges of $3.6 million after tax, or $.40 per share, the company's net earnings for the nine months ended September 30, 2002, were $4.3 million, or $.47 per diluted share. In the comparable 2001 period, Tennant reported net earnings of $11.3 million, or $1.23 per diluted share, before unusual charges, on net sales of $319.4 million. Including unusual charges of $6.9 million after tax, or $.75 per diluted share, the company's net earnings for the nine months ended September 30, 2001, totaled $4.4 million, or $.48 per diluted share. The unusual charges in the year-to-date periods relate primarily to restructuring actions.
"As we reported in mid-September, business conditions in industrial markets worldwide remain very challenging and we have yet to see a recovery in capital spending," said Janet M. Dolan, Tennant Company's president and chief executive officer. "Reflecting this weakness, sales of our most profitable products, industrial cleaning equipment, continue to lag year-ago levels. Our consolidated net sales and operating profit, however, increased 2.3% and 8.7%, respectively, compared with the 2001 third quarter. Third quarter commercial, service and coatings revenues grew modestly compared with a year ago. In addition, third quarter net sales benefited from contributions from the Centurion(TM) street sweeper, a new product this year."
Dolan noted that an increase in the company's effective tax rate to 42.5% in the 2002 third quarter compared with 35.5% in the 2001 third quarter reduced net earnings by approximately $300,000, or $.03 per diluted share. The increase in tax rate results from the mix of taxable earnings by country compared with 2001. The company currently expects its effective tax rate for the full year will be 41%.
Dolan reiterated that Tennant currently expects earnings per diluted share before unusual items will range from $1.25 to $1.50 for the year ending December 31, 2002. The company reported net earnings before unusual items of $12.3 million or $1.33 per diluted share in 2001.
"While there appeared to be some signs of an emerging recovery earlier in the year, they faded over the summer. We have still not seen a turnaround in sales of industrial equipment, the largest portion of our business," said Dolan.
To align output with the weak demand for industrial equipment, Tennant shut down its industrial equipment manufacturing operations for two week-long periods during the third quarter. In addition, in part through efficiency improvements, the company recently reduced direct labor in industrial equipment manufacturing by 5%, eliminating 18 positions. "In our flexible environment for industrial equipment manufacturing, we can make these reductions in direct labor while preserving our ability to ramp-up production quickly once an increase in demand materializes. We expect to enjoy very favorable operating leverage once the global industrial economies recover," said Dolan.
Dolan noted that Tennant is maintaining its commitment to investments in developing breakthrough new products despite the difficult business conditions.
"Our prior investments in product development are helping us weather the current downturn," said Dolan. "For example, we raised our original 2002 orders target for Centurion based on strong interest among municipalities and contract street sweepers. In addition, our patented foam scrubbing technology, FaST, which we can employ on the full range of our commercial scrubbing equipment, has also been well received in its initial introduction to the market. Both of these products deliver superior cleaning results, improve customers' labor productivity and operate in a much more environmentally friendly fashion than alternatives."