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TC

TENNANT CO (TNC)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered net sales of $303.3M and adjusted EPS of $1.46; sequential margins improved (gross margin 42.7%, adjusted EBITDA margin 16.4%), but revenue and adjusted EPS were modestly below Wall Street consensus ($306.0M revenue*, $1.50 EPS*), and adjusted EBITDA of $49.8M was slightly below the $50.35M* consensus .
  • Guidance reaffirmed: FY net sales $1.210–$1.250B, adjusted EPS $5.70–$6.20, adjusted EBITDA $196–$209M; organic net sales decline range was lowered to (3)%–(5)% from (1)%–(4)% previously, and management expects EBITDA toward the lower end of the range .
  • Management cited tariff-driven uncertainty and North American industrial softness as primary headwinds; orders grew 2% YoY and service/consumables performance offset equipment volume declines, supporting margin expansion .
  • Capital allocation remained active: $28.0M returned to shareholders in Q3 (dividends and buybacks), quarterly dividend raised 5.1% to $0.31, liquidity solid at $99.4M cash and ~$409M revolver availability .
  • Product catalysts: launch of T360 walk‑behind scrubber and continued traction with Z50 Citadel outdoor sweeper and X6 ROVR AMR platform; AMR sales up 9% YTD and units up 25%, supporting the medium‑term narrative .

What Went Well and What Went Wrong

What Went Well

  • Adjusted EBITDA margin expanded 120 bps YoY to 16.4% on pricing discipline and S&A leverage; gross margin rose 30 bps YoY despite tariff inflation pressures .
  • Orders grew 2% YoY, with strength in service (+5.9%) and parts/consumables (+2.5%), supporting revenue quality and margin stability; CEO: “We generated 2% year‑over‑year order growth... expanded gross margins by 30 bps... and prudently managed S&A expenses to grow adjusted EBITDA margins” .
  • Product pipeline execution: T360 launch, Z50 Citadel outdoor sweeper traction, and AMR growth (sales +9% YTD, units +25%); CEO highlighted a major new product launch each quarter in 2025 .

What Went Wrong

  • Americas organic sales down 7% YoY; industrial equipment demand softened in North America due to tariff uncertainty impacting customer capex timing .
  • GAAP diluted EPS fell to $0.80 (from $1.09 YoY), impacted by ERP, legal contingency, and restructuring costs; adjusted EPS of $1.46 grew YoY, but was modestly below consensus* .
  • Organic net sales guidance tightened lower (from (1)%–(4)% to (3)%–(5)%) with EBITDA expected near the low end of the range—reflecting first‑half margin headwinds and tariff impacts .

Financial Results

Quarterly Trend (Sequential)

MetricQ1 2025Q2 2025Q3 2025
Net Sales ($USD Millions)$290.0 $318.6 $303.3
Gross Margin %41.4% 42.1% 42.7%
Diluted EPS (GAAP, $)$0.69 $1.08 $0.80
Adjusted EPS ($)$1.12 $1.49 $1.46
Adjusted EBITDA ($USD Millions)$41.0 $51.0 $49.8
Adjusted EBITDA Margin %14.1% 16.0% 16.4%

Year-over-Year Comparison (Q3)

MetricQ3 2024Q3 2025
Net Sales ($USD Millions)$315.8 $303.3
Diluted EPS (GAAP, $)$1.09 $0.80
Adjusted EPS ($)$1.39 $1.46
Adjusted EBITDA ($USD Millions)$47.9 $49.8
Gross Margin change (bps)—+30 bps vs Q3’24

Consensus vs Actual (Q3 2025)

MetricActualConsensus*Surprise
Revenue ($USD Millions)$303.3 $306.0*Miss
Adjusted EPS ($)$1.46 $1.50*Miss
Adjusted EBITDA ($USD Millions)$49.8 $50.35*Slight miss

Segment/Geography Breakdown (Q3)

RegionQ3 2024 Net Sales ($M)Q3 2025 Net Sales ($M)YoY Change
Americas$218.7 $203.6 (6.9)%
EMEA$76.3 $80.5 +5.5%
APAC$20.8 $19.2 (7.7)%
Total$315.8 $303.3 (4.0)%

KPIs (Q3 2025)

KPIValue
Order Growth YoY+2%
Equipment Net Sales YoY(8.7)%
Service Net Sales YoY+5.9%
Parts & Consumables YoY+2.5%
Free Cash Flow ($M)$22.3
FCF Conversion (ex‑ERP)183.3%
Cash & Equivalents ($M)$99.4
Net Leverage (x Adj. EBITDA)0.69x
Capex ($M)$6.4
S&A Expense ($M, reported)$96.6
Adjusted S&A (% of Sales)27.5%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales ($B)FY 2025$1.210 – $1.250 $1.210 – $1.250 Maintained
Organic Net Sales Decline (%)FY 2025(1)% – (4)% (3)% – (5)% Lowered
Adjusted EPS ($)FY 2025$5.70 – $6.20 $5.70 – $6.20 Maintained
Adjusted EBITDA ($M)FY 2025$196 – $209 $196 – $209; expect lower end Maintained; bias lower end
Adjusted EBITDA Margin (%)FY 202516.2% – 16.7% 16.2% – 16.7% Maintained
Capex ($M)FY 2025~ $20 ~ $20 Maintained
Adjusted Effective Tax Rate (%)FY 202523% – 27% 23% – 27% Maintained
DividendNext Payout—Quarterly dividend increased to $0.31 (5.1%) Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q1 2025)Current Period (Q3 2025)Trend
Tariffs/MacroMonitoring tariff impacts; mitigation via supply chain and pricing Tariff uncertainty cited by North American industrial customers delaying purchases; pricing actions offset input costs Worsening demand sensitivity; mitigation ongoing
ERP ModernizationInvestment elevated; implementation plans communicated APAC go‑live successful; North America in Q4; EMEA targeted Q1 2026 Execution milestone achieved; continued rollout
AMR/TechnologyX6 ROVR launch; automation as growth driver AMR sales +9% YTD, units +25%; Gen‑3 autonomy; Clean 360 model Strengthening adoption
Product LaunchesZ50 Citadel outdoor sweeper announced T360 mid‑tier scrubber launched; Z50 traction; pipeline consistent Expanding portfolio
Regional TrendsAmericas softness, EMEA mixed, APAC China pressure Americas down; EMEA improving; APAC mixed; FX favorable Americas weaker; EMEA better
Capital AllocationOngoing buybacks/dividends $28.1M returned in Q3; dividend raised; ~4.5% FY share count reduction expected More aggressive buybacks

Management Commentary

  • CEO: “We generated 2% year‑over‑year order growth, expanded gross margins by 30 bps despite tariff‑driven inflationary headwinds, and prudently managed S&A expenses to grow adjusted EBITDA margins to 16.4%” .
  • CFO on legal contingency: “We recorded an additional legal contingency expense of $5.3M… $2.9M enhancement of damages and $2.4M in additional pre‑judgment interest… we continue to disagree with the verdict and are actively preparing for the appeals process” .
  • CEO on ERP: “Successful go‑live in APAC… stabilizing Americas’ Q4 deployment and preparing for EMEA go‑live in Q1 2026… position us to deploy AI capabilities moving forward” .
  • CEO on Z50 Citadel: “Unlocks ~$400M TAM in outdoor sweeping… early conversions faster than expected… $250,000 per machine” .

Q&A Highlights

  • Orders trajectory and Q4 setup: Management needs ~$318M Q4 sales to hit midpoint; adjusted for last year’s backlog drawdown baseline ~$311M, implying ~2.5% growth required—viewed as achievable given YTD order growth and seasonality .
  • ERP timeline: APAC live; North America in Q4; EMEA planned Q1 2026, with stabilization efforts underway .
  • North America industrial softness: Manufacturing/warehousing customers deferring capex amid tariff impacts starting to hit P&Ls; assumption of stabilization, no further deterioration in Q4 embedded in outlook .
  • Share repurchases: Expect roughly 4.5% reduction in FY share count (~840k shares), retaining flexibility to adjust program .
  • Competitive dynamics under tariffs: No material shift observed; wary of forward stocking effects, focus remains on value proposition rather than tariff‑driven advantage .

Estimates Context

  • Q3 2025 results modestly missed consensus: revenue $303.3M vs $306.0M*, adjusted EPS $1.46 vs $1.50*, adjusted EBITDA $49.8M vs $50.35M* .
  • FY 2025 consensus: revenue ~$1.232B*, primary EPS ~$5.77*, EBITDA ~$180M*—management reaffirmed guidance ranges but highlighted a lower organic decline range and EBITDA bias to lower end .
  • Likely estimate adjustments: modest downward revisions to FY organic sales and EBITDA within guided ranges; margin trajectory supported by pricing/S&A but mix and tariffs temper upside .

Values marked with * were retrieved from S&P Global.

Key Takeaways for Investors

  • Narrative remains constructive on profitability: pricing and S&A control driving margin expansion despite softer equipment volumes; expect sequential margin improvement into Q4 .
  • Demand headwinds are contained to North American industrial; service and consumables resilience plus EMEA momentum mitigate topline pressure .
  • FY guidance intact with tighter organic decline range and EBITDA at lower end—risk skew from tariffs and mix; watch Q4 execution against ~$318M sales need .
  • Capital returns accelerating: dividend raised 5.1%, robust buybacks (~4.5% share reduction) provide EPS support amidst macro noise .
  • Product pipeline is a differentiator: T360 expands mid‑tier, Z50 opens new TAM, AMR scaling with Gen‑3 autonomy and Clean 360 model—a medium‑term growth driver .
  • Legal contingency is a known non‑GAAP item; does not impact ability to sell products, appeal underway—monitor resolution/timing .
  • Tactical focus: price realization, supply chain adjustments to offset tariffs, careful monitoring of industrial demand and FX contributions to organic performance .