10-K: Tennant Co. 2025 Annual Report: Sales Dip Amid ERP Rollout

Tennant Company reports a 6.5% net sales decrease in 2025 to $1.20 billion, impacted by North American volume declines and ERP implementation disruptions, despite strategic investments in robotics and acquisitions.

Summary

• Consolidated net sales decreased by 6.5% to $1,203.5 million in 2025, down from $1,286.7 million in 2024.
• Organic sales declined by 7.3%, primarily due to volume reductions in North America, influenced by a significant backlog-reduction benefit in the prior year and disruptions from the new ERP system implementation.
• Gross profit margin decreased by 250 basis points to 40.2% in 2025 from 42.7% in 2024, attributed to shifts in volume and mix, ERP transition impacts, and higher material costs.
• Operating income fell to $68.3 million in 2025 from $114.3 million in 2024, representing a 40.2% decrease.
• Net income decreased by 47.7% to $43.8 million in 2025 from $83.7 million in 2024.
• Diluted earnings per share (EPS) was $2.36 in 2025, a decrease from $4.38 in 2024.
• Americas net sales decreased by 10.9% to $792.0 million, mainly due to North American volume declines and ERP transition disruptions.
• Europe, Middle East, and Africa (EMEA) net sales increased by 5.1% to $334.6 million, benefiting from favorable foreign currency exchange and price realization.
• Asia Pacific (APAC) net sales decreased by 3.5% to $76.9 million, reflecting pricing actions and softer underlying demand in China and Southeast Asia.
• The company implemented a new ERP system in North America in November 2025, which caused disruptions in order management, fulfillment, and production scheduling, with some impacts extending into early 2026.
• Tennant acquired Reinigungstechnik 4 You GmbH (R4Y) on September 1, 2025, for $3.6 million, expanding its footprint in the EMEA region.
• The annual cash dividend payout increased for the 54th consecutive year to $1.195 per share in 2025.
• Repurchased 1,108,998 shares of common stock for $87.7 million during 2025.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this as a challenging year marked by significant operational setbacks from the ERP implementation and a notable decline in profitability. While strategic investments and dividend consistency are positive, the immediate financial performance and ongoing inefficiencies warrant caution.

Positives

• Maintained a strong commitment to innovation and research and development, with R&D expense remaining at 3.4% of net sales.
• Successfully completed the strategic acquisition of Reinigungstechnik 4 You GmbH (R4Y) in EMEA, enhancing market presence.
• Increased the annual cash dividend for the 54th consecutive year to $1.195 per share in 2025, demonstrating consistent shareholder returns.
• Achieved a net favorable impact from foreign currency exchange of approximately 0.7% on consolidated net sales, primarily due to the strengthening of the Euro relative to the U.S. dollar.
• Implemented targeted pricing actions to help offset tariff-related cost increases and other inflationary pressures.
• Maintained effective internal control over financial reporting as of December 31, 2025, as affirmed by management and external auditors.
• Demonstrated gender equitable pay in the United States, with the most recent assessment finding that the mean total income for females was 99.4% of the mean total income for males.

Negatives

• Consolidated net sales decreased by 6.5% to $1,203.5 million in 2025 compared to $1,286.7 million in 2024.
• Organic sales experienced a 7.3% decline, primarily due to volume reductions in North America.
• Gross profit margin decreased by 250 basis points, falling to 40.2% in 2025 from 42.7% in 2024.
• Operating income significantly decreased by 40.2% from $114.3 million in 2024 to $68.3 million in 2025.
• Net income nearly halved, dropping from $83.7 million in 2024 to $43.8 million in 2025.
• Diluted EPS decreased by 46.1% from $4.38 in 2024 to $2.36 in 2025.
• The ERP system implementation in North America caused significant disruptions in order management, fulfillment, and production scheduling in November and December 2025, with impacts extending into early 2026.
• Incurred additional labor and support costs to stabilize the new ERP system.
• Experienced a net foreign currency transaction loss of $1.7 million in 2025, a reversal from a $0.1 million gain in 2024.
• The effective tax rate increased to 24.3% in 2025 from 20.1% in 2024, partly due to the absence of a prior-year benefit related to deferred tax liability reductions.
• Net cash provided by operating activities decreased to $65.0 million in 2025 from $89.7 million in 2024, driven by lower operating performance and increased working capital consumption.
• Incurred an incremental accrued expense and corresponding liability of $6.0 million in 2025 due to a post-trial ruling enhancing damages in an intellectual property dispute, bringing total damages and interest to approximately $20.2 million.

Risks

• Potential for financial difficulties if the United States or other global economies experience an additional or continued long-term economic downturn, decreasing demand for products and negatively affecting sales growth.
• Adverse effects from changes in U.S. or foreign trade policies, including the imposition of new, increased, or retaliatory tariffs, which may increase costs, disrupt supply chains, and reduce demand.
• Negative impact on business, results of operations, and financial condition from adverse global economic conditions and geopolitical issues, such as armed conflicts (e.g., Ukraine, Middle East), rising trade protectionism, and political instability.
• Significant compliance costs and reputational and legal risks due to the complex system of commercial, tax, compliance, and trade regulations globally, including anti-corruption laws.
• Adverse impact on net sales and earnings from changes in foreign currency exchange rates, making products more difficult to afford for international distributors and end users.
• Inability to take advantage of product pricing due to the competitive marketplace and increased price sensitivity, potentially leading to lower sales, increased price discounting, and loss of market share.
• Competitive risks associated with developing innovative products and technologies, including the inability to expand rapidly, customers ceasing to pay for innovation, and challenges to intellectual property.
• Disruption in the availability, quality, or increases in the cost of raw materials and components, or labor required to manufacture products, negatively impacting operating results or financial condition.
• Exposure to product liability claims and product quality issues that could adversely affect operating results or financial condition, including potential recalls and increased warranty expenses.
• Adverse effects on the ability to effectively operate if unable to attract and retain key personnel and other highly skilled employees, provide development opportunities, and create effective succession planning strategies.
• Inability to develop or manage strategic planning and growth processes or related operational plans, impairing the ability to achieve future performance expectations.
• Complications with the design or implementation of the new Enterprise Resource Planning (ERP) system, potentially leading to significant expenses, operational inefficiencies, disruptions to supply chains and customer experience, and challenges in delivering improved technology solutions.
• Risks to information technology (IT) infrastructure, such as access and security threats (cybersecurity incidents), which could result in data misappropriation, business operation disruption, financial loss, and reputational damage.
• Inability to conduct business if a significant business interruption occurs in IT systems, manufacturing plants, or distribution facilities for a prolonged period.
• Increased business disruption and financial penalties if unable to manage the health and safety of the global workforce effectively, especially in response to new health crises.
• Inability to successfully integrate acquired businesses to achieve operational efficiencies, including synergistic and other benefits, and potential for unanticipated liabilities associated with acquired entities.
• Inadequate funding or insufficient innovation of new technologies, potentially resulting in an inability to develop and commercialize new products and services, leading to decreased revenues and loss of market share.
• Risks related to business transformation and strategic initiatives, including employee resistance, retention challenges, and resource constraints, which could result in operational disruptions or failure to realize anticipated benefits.

Future Outlook

The company anticipates that the macroeconomic and demand environment in 2026 will generally mirror conditions experienced in 2025, with tariff-related cost increases and inflationary input costs remaining significant. While targeted pricing and cost-out initiatives are in place, their timing and magnitude of benefits may vary. Operational inefficiencies and elevated support needs from the North America ERP implementation are expected to continue into the second quarter of 2026, with a two-week manufacturing shutdown in early January for physical inventory weighing on first-quarter sales and costs. Operating margins are projected to improve gradually through 2026 as ERP stabilization progresses and the cumulative benefits of strategic actions are realized, with first-quarter margins expected to be consistent with Q4 2025 levels before improving. The company also plans continued investment in strategic priorities like robotics and autonomous solutions for long-term growth.

Management Comments

• We continue to invest in developing innovative products and technologies at levels necessary to propel our technology, innovative leadership position and drive growth.
• We believe our current resources are sufficient to meet our working capital requirements for our current business for at least the next 12 months and thereafter for the foreseeable future.
• Although core workflows have improved since the initial deployment and December revenue recovered from November levels, we incurred additional labor and support costs to stabilize the system. Certain impacts have continued into 2026 as we refine processes and enhance system performance.
• The Company expects the macroeconomic and demand environment in 2026 to generally reflect the conditions experienced during 2025.
• Operating margins are expected to improve through 2026 as ERP stabilization advances and as the cumulative benefits of pricing actions, cost-management measures, and supply-chain initiatives are realized.

Industry Context

StockSavvy.ai notes that Tennant Company operates in a competitive global market for floor maintenance and cleaning equipment, facing both large multinational manufacturers and regional players. The industry is increasingly focused on innovation, connectivity, automation, and sustainability, with a growing emphasis on robotic cleaning solutions. Tennant's continued investment in R&D and expansion of its robotics portfolio aligns with these broader industry trends, aiming to differentiate itself through high-quality, innovative products and an extensive service network. The macroeconomic headwinds, including inflation and trade policy changes, are common challenges across the manufacturing sector, impacting input costs and demand.

Comparison to Industry Standards

• The company believes it is a leading global manufacturer of floor maintenance and cleaning equipment, based on validated third-party sources and sponsored market studies, though specific global market share data is limited.
• Customer purchasing decisions in the industry are influenced by product performance, innovation, connectivity, automation, total cost of ownership, and the breadth of sales, service, and distribution support, which Tennant addresses through its diverse range of high-quality, innovative products and extensive sales/service network.
• StockSavvy.ai notes that without specific competitor financial data or market share figures, a direct quantitative comparison to industry standards is not feasible based solely on this filing. However, the company's long history of dividend increases (54 consecutive years) suggests a strong, stable business model, which is a benchmark of financial health and shareholder commitment often seen in mature industrial companies like Illinois Tool Works (ITW) or 3M (MMM), though their specific product lines differ. Tennant's focus on robotics and sustainable cleaning technologies positions it to compete with emerging tech-focused players in the cleaning automation space, such as those leveraging AI and IoT for facility management.

Management Changes

Corporate Governance

Legal Proceedings

• On November 25, 2024, a jury ruled against Tennant Company in an intellectual property damages dispute with Oxygenator Water Technologies, Inc. (OWT), awarding $9.8 million in compensatory damages plus $4.7 million in prejudgment interest.
• On September 17, 2025, the Court issued a post-trial ruling enhancing damages by 30%, resulting in total damages and interest of approximately $20.2 million, including $9.8 million in compensatory damages, $2.9 million in enhanced damages, and $7.4 million in prejudgment interest.
• The company recorded an incremental accrued expense and corresponding liability of $6.0 million for the year ended December 31, 2025, related to the enhanced damages.
• Both Tennant Company and OWT have appealed certain of the Court's decisions.
• To stay execution of the judgment pending appeal, the company obtained a supersedeas bond in the amount of $20.3 million, without posting cash collateral.
• The ruling does not impact the company's ability to sell its products and is not expected to affect its long-term business objectives.

Stakeholder Impact

• Shareholders are impacted by the significant decrease in net income and diluted EPS, but also benefit from the company's continued dividend increases and share repurchase program. Potential for future share price volatility exists due to ongoing ERP issues and legal proceedings.
• Employees experienced workforce realignment as part of global reorganization efforts, leading to severance-related costs. The company emphasizes attraction, retention, and development of talent, offering competitive total rewards and promoting diversity, equity, and inclusion.
• Customers were affected by disruptions from the ERP system implementation, including issues with order management, fulfillment, and production scheduling, leading to slower transaction processing and prolonged delays. Future improvements are expected post-ERP stabilization.
• Suppliers are influenced by global macroeconomic conditions, trade policies, and tariffs, which impact input costs and supply chain dynamics. The company aims to mitigate these risks through diversified supplier relationships and longer-term arrangements.
• Creditors face an increased debt-to-capital ratio (31.2% in 2025 vs. 24.3% in 2024), but the company was in compliance with financial covenants as of December 31, 2025, and believes its liquidity is sufficient to meet short-term and long-term cash requirements.

Next Steps

• Stabilize, optimize, and integrate the new ERP system, with core workflows improving and refinement continuing into 2026.
• Address ongoing operational inefficiencies and elevated support needs related to the ERP system, expected to persist into Q2 2026.
• Manage the impact of a two-week manufacturing shutdown in early January 2026 for physical inventory, which will affect Q1 sales and costs.
• Realize cumulative benefits of pricing actions, cost management measures, and supply chain initiatives to improve operating margins through 2026.
• Continue to invest in strategic priorities supporting long-term growth and competitiveness, including the ongoing expansion of its robotics portfolio and autonomous solutions.
• Monitor developments and evaluate the effect of the U.S. Supreme Court ruling on tariffs for future reporting periods.
• Vigorously defend its position through appeal in the Oxygenator Water Techs intellectual property dispute.
• Evaluate the effect of new FASB accounting guidance (ASU 2024-03, ASU 2025-01, ASU 2025-09, ASU 2025-11, ASU 2025-12) on consolidated financial statements and related disclosures.

Key Dates

Recommendation

The company experienced a challenging year with significant declines in key financial metrics and operational disruptions from its ERP system rollout. While management has a clear plan for ERP stabilization and continues strategic investments in innovation and acquisitions, the near-term outlook includes persistent inefficiencies and margin pressure. The ongoing legal dispute adds further uncertainty. A 'Hold' recommendation is appropriate as investors should monitor the successful resolution of ERP issues and the impact of the legal appeal before considering further investment, while existing shareholders might hold given the long-term strategic initiatives and consistent dividend growth.

Keywords

Tennant Company, TNC, Annual Report, Cleaning Equipment, Floor Maintenance, Industrial Cleaning, Commercial Cleaning, Robotics, Autonomous Cleaning, ERP System, Financial Results, Net Sales, Gross Profit, Operating Income, Net Income, EPS, Dividends, Share Repurchase, Acquisitions, Corporate Governance, Risk Factors, Cybersecurity, Supply Chain, Trade Policy, Foreign Currency, Human Capital, Sustainability