TENNANT CO. $62 (New York symbol TNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 18.4 million; Market cap: $1.1 billion; Price-to-sales ratio: 1.6; Dividend yield: 1.2%; TSINetwork Rating: Average; www.tennantco.com) makes industrial floor-cleaning equipment, including scrubbers, sweepers and polishers. It also manufactures cleaning gear for garages, stadiums, parking lots and city streets.
The company continues to enjoy strong demand for floor cleaners that use its ec-H2O technology, which uses electricity to make tap water act like a detergent. That eliminates the need for soaps and lowers the machine’s operating costs.
However, municipal governments, particularly in Europe, are spending less on cleaning equipment. As a result, Tennant’s sales rose just 0.4% in the three months ended June 30, 2013, to $200.2 million from $199.5 million a year earlier. If you exclude the negative impact of foreign exchange rates and contributions from acquisitions, sales would have risen 0.9%.
Earnings gained 4.3%, to $14.3 million from $13.7 million. Due to fewer shares outstanding, earnings per share increased 7.0%, to $0.76 from $0.71.
Tennant’s research costs rose 12.8% in the latest quarter, to $7.8 million, or 3.9% of its sales. Thanks to this spending, the company plans to launch 25 new products in 2013.
The stock has gained 40% in the past year, which is why it trades at a high 26.6 times Tennant’s likely 2013 earnings of $2.33 a share. But that’s still an acceptable p/e ratio in light of the company’s unique cleaning technology. The $0.72 dividend yields 1.2%.
Tennant is a buy.
