Tennant Company Reports Operating Results (10-Q)
Tennant Company is a Minneapolis-based company that specializes in the design manufacture and sale of non-residential floor maintenance equipment and related products. The Company acquired the business and assets of Castex Industries Inc. a privately owned manufacturer of commercial floor maintenance equipment. Products consisting mainly of motorized cleaning equipment and related products including floor cleaning and preservation products are sold through a direct sales organization and independent distributors. Tennant Company has a market cap of $513.5 million; its shares were traded at around $27.55 with a P/E ratio of 42.4 and P/S ratio of 0.7. The dividend yield of Tennant Company stocks is 1.8%. Tennant Company had an annual average earning growth of 0.6% over the past 10 years. Highlight of Business Operations:Net Earnings for the second quarter of 2009 were $3.0 million, or $0.16 per diluted share compared to Net Earnings of $8.3 million, or $0.44 per diluted share, in the second quarter of 2008. Net Earnings during the second quarter were unfavorably impacted by the ongoing global recession that resulted in lower net sales volume across all geographies and unfavorable direct foreign currency exchange impacts, somewhat offset by lower commodity prices, deferred discretionary spending, and savings from our workforce reductions.
Net Loss for the first six months of 2009 was $38.7 million, or a $2.10 loss per diluted share compared to Net Earnings of $13.5 million, or $0.72 per diluted share, in the first six months of 2008. The Net Loss in the first six months of 2009 was primarily due to the non-cash pretax goodwill impairment charge of $43.4 million, or a $2.32 loss per diluted share, taken during the first quarter of 2009 as well as a significant decline in Net Sales due to ongoing unfavorable global economic conditions. Gross margins declined by 120 basis points which was better than expected as a result of benefits from commodity price deflation, cost reductions, flexible production management and workforce reductions. These benefits were not enough to offset the unfavorable impact of lower production volume through our manufacturing facilities. Selling and Administrative Expense was $21.4 million lower in the first six months of 2009 as compared to the same period last year as a result of benefits from our workforce reduction program, reductions in volume-related expenses, and a decrease in discretionary spending to align expenses with the lower sales volume.
The workforce reduction program was announced during the fourth quarter of 2008 to resize our worldwide employee base by approximately 8%, or about 240 people. A pretax workforce reduction charge totaling $14.6 million, or $0.65 per diluted share, was recognized in the fourth quarter of 2008 as a result of this program. The workforce reduction was accomplished primarily through the elimination of salaried positions across the organization. This measure is estimated to achieve savings of at least $15 million in 2009 and approximately $20 million in 2010. Additionally, early retirements, elimination of contracted positions and attrition accounted for some of the eliminated positions and contributed to these savings. The pretax charge consisted primarily of severance and outplacement services and was included within Selling and Administrative Expense in the 2008 Consolidated Statement of Earnings. In the first quarter of 2009, the severance accrual was revised to reflect actual experience resulting in a benefit of $1.3 million which was included within Selling and Administrative Expense in the 2009 first quarter results of operations.
Consolidated Net Sales for the second quarter of 2009 totaled $148.6 million, a 23.2% decline compared to consolidated Net Sales of $193.6 million in the second quarter of 2008. Consolidated Net Sales for the six months ended June 30, 2009 totaled $277.2 million, a 23.5% decline compared to consolidated Net Sales of $362.2 million during the first six months of 2008.
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