Tennant Company Inc. Posts Strong Earnings Despite Sales Drop

Tennant Company on Thursday morning posted second-quarter earnings results. The cleaning product manufacturer's sales came in below expectations while profit was well above Wall Street's $0.68-per-share target:

Expected is the average forecast of the 3 analysts who cover Tennant's stock. Source: Yahoo! Finance.

That revenue number is down 1.7 percent compared to the prior-year quarter.

New products driving growthAs it did in the first quarter, the North American region led all of Tennant's global markets over the last three months. Organic sales rose by 7.5% there and were lifted by strong demand in the U.S. for new products such as Tennant's modular T12 and T17 rider scrubbers aimed at industrial customers.

A Tennant T12 scrubber in action. Source: Tennant.

However, weakness outside the U.S. hurt results. Sales slipped by 2% across Europe, the Middle East, and Africa. And the Asia Pacific region slumped 8% -- a 15% gain in the Chinese market wasn't enough to offset major weakness in Australia.

Overall, organic sales rose by 4% below the prior quarter's 6% bounce but within management's target of between 2% and 7% organic sales growth for the full year. "We continue to anticipate organic sales gains and improved profitability for the full year, despite ongoing global economic uncertainty and foreign currency headwinds," CEO Chris Killingstad said in a press release.

Scrubber. Source: Tennant.

Operating profit weighed in at $23 million, or 10.5% of sales. While that was a slight decrease from the prior year's 10.6% margin, it's a result that management is likely proud of.

After all, the company has ramped up its innovation pace by launching 33 new products so far this year compared to about 20 new products in each of the last three fiscal years. It's good news for the business that profitability is holding steady despite all the manufacturing, sales, and distribution changes necessitated by that record launch pace.

Outlook for the yearKillingstad and his executive team downgraded their 2015 sales estimate while leaving the profitably target in place. Revenue is now expected to be roughly $835 million in 2015, down from the prior $840 million prediction. However, that change is entirely due to foreign currency swings and not any deterioration in demand. Management still expects to post between 5% and 9% organic sales growth for the full year.

Profits should ring in at $2.55 per share, or just below Wall Street's $2.59-per-share forecast. Tennant is standing by its long-term goals of achieving $1 billion in annual revenue by 2017 while improving operating margin to 12% or greater. "We are continuing to invest in our growth agenda, and we remain on track to deliver gains in organic sales and operating profit margin in 2015," Killingstad said.

The article Tennant Company Inc. Posts Strong Earnings Despite Sales Drop originally appeared on Fool.com.

Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool recommends Tennant Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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