Tennant's Full-Year 2024 Earnings: EPS Misses Expectations, but Margin Expansion Offsets the Blow

Tennant Company (NYSE: TNC) reported its full-year 2024 earnings results, with earnings per share (EPS) missing analyst expectations by 4.4%. Despite the miss, the company's full-year adjusted EBITDA margin expanded to 16.2%, driven by strong sales growth and increased operating leverage. Let's dive into the details and explore what this means for Tennant's future.

Tennant's full-year 2024 EPS of $4.38 marked a 24.9% decrease from the previous year's EPS of $5.83. This decline can be attributed to several factors, including:

1. Backlog reduction: Tennant anticipated a decrease in organic sales on a constant currency basis between 1% to 4% in 2025, primarily due to the year-over-year impact of backlog reduction. This reduction in backlog led to a decrease in sales, which in turn affected EPS.
2. Inflationary pressure and elevated freight costs: The gross profit margin declined due to inflationary pressure on materials and elevated freight costs. This decrease in gross profit margin negatively impacted EPS.
3. Weaker market conditions in certain regions: The company experienced volume declines in the EMEA and APAC regions, which contributed to the miss in EPS expectations. For instance, in APAC, volume declines in China and Australia were primarily due to market saturation and reduced demand, respectively.
4. Increased expenses: Higher expenses, such as those related to strategic investments in ERP modernization and inventory positioning, also contributed to the miss in EPS expectations.

Despite the EPS miss, Tennant's full-year adjusted EBITDA margin expanded to 16.2%, up from 15.5% in 2023. This margin expansion was driven by strong sales growth and increased operating leverage. The company's focus on cost management and increased operating efficiencies helped offset the impact of the EPS miss.

Looking ahead, Tennant expects organic net sales to decline between 1% to 4% in 2025, primarily due to the year-over-year impact of backlog reduction. However, the company anticipates that through prudent cost management and increased operating efficiencies, it will deliver year-over-year margin expansion.

Tennant's new product launches, such as the X6 ROVR autonomous scrubber, are crucial for driving organic sales growth and maintaining the company's competitive edge in the market. By continuing to invest in research and development and launching new products, Tennant can drive organic sales growth and maintain its long-term success.

In conclusion, Tennant's full-year 2024 earnings miss is a mixed bag of news for investors. While EPS declined, the company's margin expansion demonstrates its ability to manage costs and improve operating efficiency. Tennant must focus on prudent cost management and increased operating efficiencies to deliver year-over-year margin expansion and maintain its competitive position in the market. As always, investors should stay informed and monitor Tennant's progress closely to make informed decisions about their investments.