TNC Q1 Earnings Call: Tariff Uncertainty and Product Mix Weigh on Results, Guidance Maintained

Industrial cleaning equipment manufacturer Tennant Company fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 6.8% year on year to $290 million. The company’s full-year revenue guidance of $1.23 billion at the midpoint came in 1% below analysts’ estimates. Its non-GAAP profit of $1.12 per share was 14.1% below analysts’ consensus estimates.

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StockStory’s Take

Tennant’s Q1 results were shaped by a mix of external and internal dynamics, as management highlighted ongoing macroeconomic pressures and a return to normal seasonal patterns after an unusually strong prior-year quarter. CEO Dave Huml noted that the business lapped a significant $50 million backlog reduction, which had previously benefited margins and volumes, while also dealing with a heavier sales mix toward strategic customers with lower pricing. As Huml explained, "Our first quarter results reflect a return to typical seasonal patterns and product mix, lapping a previous record high first quarter in the prior year."

Looking ahead, management reaffirmed full-year revenue and profit guidance, despite persistent tariff and economic headwinds. The team emphasized strong order momentum and new initiatives to offset rising costs, including price increases and supply chain adjustments. Huml acknowledged that higher tariffs and shifting customer demand introduce significant uncertainty, but maintained, "We believe we are positioned to deliver full year results within our 2025 guidance range."

Key Insights from Management’s Remarks

Tennant’s leadership focused on the factors driving revenue declines and margin pressure, while also outlining operational strategies to adapt to a volatile macro environment and shifting customer mix.

• Impact of Backlog Reduction: The company lapped a large $50 million backlog reduction in the first quarter of last year, which created a difficult comparison and contributed to lower sales and margins in Q1 2025.
• Shift in Customer Mix: Q1 saw a concentration of shipments to major strategic retail customers such as Walmart and Home Depot, who receive lower pricing due to their purchasing volume, further pressuring margins compared to the prior year’s industrial sales mix.
• Regional Performance Divergence: EMEA (Europe, Middle East, Africa) benefited from a recent Eastern Europe acquisition and pricing initiatives, offsetting sluggish demand in France and Germany, while APAC (Asia-Pacific) continued to face demand declines, especially in China and Australia.
• Tariff and Cost Mitigation Efforts: Management discussed a $40 million estimated tariff impact for 2025, with a cross-functional team pursuing mitigation through price increases (7–10% in North America) and supplier diversification. These moves are intended to protect margins while navigating ongoing trade tensions.
• Growth in Automation and New Offerings: Sales of Autonomous Mobile Robots (AMR) grew 30% over the prior year. The launch of the Clean 360 subscription program aims to further lower barriers for AMR adoption, pairing equipment, software, and service in a single monthly price to drive customer uptake and long-term revenue.

Drivers of Future Performance

Management’s outlook for the remainder of the year centers on stabilizing margins through cost mitigation and strategic pricing, while leveraging product innovation and automation to sustain order growth amid ongoing economic uncertainty.

• Tariff and Inflation Headwinds: Leadership expects tariffs and inflation to remain significant risks, but plans to offset these through price increases, supply chain actions, and cost controls. The effectiveness of these efforts will be critical for margin recovery.
• Product Innovation and Automation: New offerings in robotics, particularly the X4 ROVR and upcoming X6 ROVR, are expected to support growth. The Clean 360 subscription model could accelerate adoption of automated solutions, diversifying revenue streams.
• Regional and Channel Execution: Management believes that continued investment in go-to-market initiatives, particularly in EMEA and North America, will be necessary to sustain order momentum and navigate uneven demand across regions.

Top Analyst Questions

• Steve Ferazani (Sidoti): Asked how Tennant expects to achieve full-year margin guidance despite three straight quarters of declining EBITDA margins and ongoing inflation. CEO Dave Huml pointed to lapping last year’s backlog, improving mix, and tariff mitigation efforts through pricing and sourcing.
• Steve Ferazani (Sidoti): Pressed for details on how quickly announced price hikes might affect demand and order flow. Huml responded that it is too early to assess, as Q2 typically brings seasonal uplift, but the company is monitoring customer reactions closely.
• Aaron Reed (Northcoast Research): Asked if Tennant’s results reflect normal seasonality or underlying business volatility. Huml explained that both seasonality and large strategic customer orders create quarter-to-quarter variability, but core demand remains stable.
• Aaron Reed (Northcoast Research): Inquired about the motivation and potential impact of the Clean 360 AMR subscription program. Huml said it was developed in response to customer feedback about high upfront costs and sees potential for the model to accelerate AMR adoption.
• Aaron Reed (Northcoast Research): Followed up on whether Clean 360 could materially increase AMR sales beyond prior projections. Huml expressed optimism, noting early customer interest and bookings, but said adoption trends will be tracked before updating forecasts.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be monitoring (1) Tennant’s ability to execute planned price increases and supply chain adjustments to offset tariff-related cost pressures, (2) the impact of new product launches—including the X6 ROVR and Clean 360 subscription model—on automation revenue and customer adoption, and (3) sustained order growth and backlog normalization across key regions. Additionally, ongoing developments in global trade policy and customer demand trends will be key variables to watch.

Tennant currently trades at a forward P/E ratio of 12.4×. At this valuation, is it a buy or sell post earnings? The answer lies in our free research report.

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