Tennant(US:TNC)2021-11-02 16:39Financial Data and Key Metrics Changes - For Q3 2021, Tennant reported net sales of $272 million, an increase of 3.9% year-over-year, with organic sales growth of 4.7% [24][25] - Net income for the third quarter was $21.5 million, or $1.14 per diluted share, compared to $11.7 million, or $0.63 per diluted share in the prior year [32] - Adjusted EBITDA increased to $36 million, representing 13.2% of sales, compared to $32.6 million, or 12.4% of sales in Q3 of the previous year [33] Business Line Data and Key Metrics Changes - Sales in the Americas decreased by 0.6% year-over-year, with a negative divestiture impact of 3.1% and organic growth of 2% [26] - EMEA sales increased by 15.1%, or 14% organically, reflecting growth across all countries and product categories [27] - APAC sales decreased by 0.4%, or 2.9% organically, impacted by pandemic-related lockdowns in some markets [28] Market Data and Key Metrics Changes - North America faced the most significant supply chain and labor challenges, affecting overall sales performance [25][26] - Strong customer demand in Brazil and Mexico contributed to sales growth in Latin America [26] - The APAC region experienced strong results for parts and consumables, particularly in Australia, despite supply chain disruptions [29] Company Strategy and Development Direction - The company is focusing on local-for-local manufacturing and sourcing to mitigate supply chain disruptions and freight costs [12][13] - Investments are being made to enhance production efficiency, including new tooling and production capabilities in local markets [14][15] - The enterprise strategy includes a long-term move toward platform design to increase sourcing flexibility and adapt to available parts [16] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing global supply chain disruptions and labor constraints but expressed confidence in long-term growth and operational efficiency improvements [10][11] - The company expects macro headwinds to persist into 2022 but remains committed to meeting customer needs and executing its enterprise strategy [18] - Management highlighted the importance of innovation for profitable growth and the introduction of new products to meet evolving customer needs [19][20] Other Important Information - Tennant's adjusted effective tax rate for Q3 was 3.8%, down from 11.3% in the previous year, primarily due to a tax benefit from asset basis adjustments in Italy [34] - The company ended the quarter with $140.6 million in cash and cash equivalents, with a net leverage of 0.93 times adjusted EBITDA [36] - A 9% increase in the quarterly cash dividend was announced, marking the 50th consecutive year of dividend increases [37][38] Q&A Session Summary Question: Is there evidence of pre-buying by customers due to supply chain challenges? - Management noted that while there are instances of customers buying ahead, the majority of orders are driven by current demand rather than pre-buying [48] Question: How do supply chain challenges impact competitive positioning in the U.S. and Europe? - Management indicated that the ability to respond to supply chain challenges is more dependent on product platforming and local supply chains than on geographic headquarters [50][51] Question: What led to the change in EBITDA guidance? - The decision to lower guidance was based on the ongoing supply chain challenges and the trend observed over the past months [56][57] Question: How is SG&A expected to change in Q4? - SG&A is expected to return to a normal run rate of about $85 million per quarter, with no significant benefits anticipated as seen in Q3 [60] Question: How does the company view its capital allocation priorities? - The company remains focused on investing in growth, managing leverage, and returning excess cash to shareholders through dividends and share repurchases [64][66]