TNC Q2 Deep Dive: Orders Strengthen Amid Revenue Miss and Persistent Global Headwinds

Industrial cleaning equipment manufacturer Tennant Company missed Wall Street’s revenue expectations in Q2 CY2025, with sales falling 3.7% year on year to $318.6 million. The company’s full-year revenue guidance of $1.23 billion at the midpoint came in 1.5% below analysts’ estimates. Its non-GAAP profit of $1.49 per share was 8.6% below analysts’ consensus estimates.

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StockStory’s Take

Tennant’s second quarter results triggered a negative market reaction, as both revenue and non-GAAP profit fell short of Wall Street’s expectations. Management attributed the year-over-year sales decline to tough comparisons, particularly as the prior-year quarter benefited from a significant backlog reduction in North America of higher-margin industrial equipment. CEO Dave Huml emphasized that despite the challenging comparison, underlying business activity remained solid, referencing a fifth consecutive quarter of order growth and robust demand in the Americas driven by new product launches and continued investments in sales and service. Huml also acknowledged ongoing pockets of weakness in international markets, especially in Europe and Asia-Pacific, noting, “We continue to see pockets of weakness in our international markets.”

Looking ahead, Tennant’s reaffirmed guidance for the full year is underpinned by expectations of sustained order momentum in North America, further price realization actions, and targeted margin expansion. Management highlighted a pipeline of new products, including the recent launch of the Z50 Citadel outdoor sweeper, and ongoing cost management initiatives as key levers. However, Huml cautioned that macroeconomic uncertainty and tariff-related pressures are likely to persist through year-end, stating, “We are closely monitoring market demand and taking proactive steps to limit potential trade war impacts on our P&L.” The company is focused on balancing pricing actions and productivity improvements to offset these headwinds and deliver on its financial objectives.

Key Insights from Management’s Remarks

Management attributed Q2’s underperformance to tough prior-year comparisons, while highlighting order growth and product innovation as ongoing strengths.

• Backlog comparison impact: The prior-year quarter was boosted by a $26 million reduction in backlog, largely consisting of higher-margin industrial machines, making this quarter’s sales decline more pronounced despite underlying order growth.

• Order momentum in Americas: North America delivered double-digit order growth, attributed to strategic investments in sales and service as well as the introduction of new products like the X4 ROVR, reinforcing Tennant’s leadership in industrial cleaning equipment.

• International softness: While the Americas showed resilience, both Europe, Middle East, and Africa (EMEA) and Asia-Pacific (APAC) regions faced volume declines. Management cited competitive market dynamics, particularly from lower-priced Chinese imports, and macroeconomic pressures in Germany and the Middle East as key contributors.

• Product mix and margin pressure: Product mix normalization and ongoing inflationary cost pressures weighed on gross margin, which was further impacted by lapping a prior period that had a higher concentration of direct industrial sales.

• AMR and product innovation: Autonomous Mobile Robots (AMR) represented 6% of sales, with cumulative deployments exceeding 10,000 units globally. The launch of the Z50 Citadel Outdoor Sweeper marked Tennant’s entry into the industrial outdoor sweeping market, broadening its addressable customer base and supporting long-term growth ambitions.

Drivers of Future Performance

Tennant’s outlook depends on sustained order growth, pricing strategies to offset tariffs, and the successful launch of new products.

• Tariff and cost management: Management expects tariff-related cost inflation to persist, estimating a full-year impact of around $20 million. The company plans to offset these pressures through ongoing pricing adjustments and procurement initiatives, but recognizes that further price increases may be necessary if trade tensions escalate.

• Product pipeline and innovation: Tennant aims to drive incremental growth from recent product launches—particularly the Z50 Citadel outdoor sweeper and expanded AMR lineup. Management believes new offerings will open up additional markets, especially within industrial and municipal sectors, and expects innovation to contribute 150 to 200 basis points of annual growth over the long term.

• Regional execution and market risk: While order momentum is strong in North America, the company faces heightened risk in EMEA and APAC due to competitive pricing and economic uncertainty. Management is deploying a playbook to stabilize performance in challenged markets, with a focus on France, the U.K., and growth initiatives in Eastern Europe. Persistent demand softness in China and the Middle East, however, remains a key risk to realizing full-year targets.

Catalysts in Upcoming Quarters

In coming quarters, the StockStory team will be watching (1) whether order growth in North America sustains its current trajectory, (2) the company’s ability to mitigate tariff-related costs through pricing and supply chain initiatives, and (3) progress in stabilizing EMEA and APAC performance amid ongoing competitive and macroeconomic pressures. Execution on new product launches and successful adoption of AMR solutions will also be key indicators of Tennant’s ability to achieve its full-year objectives.

Tennant currently trades at $80.73, down from $82.56 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free).

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