On August 5, Tennant Company (NYSE:TNC) reported second-quarter results that pulled in two different directions at once. Orders climbed 6.6% year over year to $339.5 million, building backlog to $127 million, and robotics sales jumped 37% to roughly $31 million. Yet net income fell 62.4% to $7.6 million, and Adjusted EBITDA dropped 30.8% to $35.3 million. For a company betting heavily on autonomous cleaning machines, the quarter raised an uncomfortable question: is the growth outrunning the company's ability to turn it into profit?
Underlying demand for Tennant's floor-cleaning equipment looks healthy. Orders grew across most regions during the quarter, and the $127 million backlog suggests customers are waiting in line rather than walking away. Robotics is the more interesting thread. Autonomous mobile robot sales rose 37% year over year to approximately $31 million, part of the company's push toward a target of $250 million in AMR revenue by 2028. Tennant backed that ambition with spending, too, putting $12.5 million into research and development during the quarter, up from $9.8 million a year earlier, with much of the increase tied to robotics and autonomous solutions.
Management also raised its full-year net sales guidance to a range of $1.270 billion to $1.310 billion, pointing to the order book, backlog, and robotics momentum as the basis for that confidence. Geographically, the strength was concentrated in one region. The Americas, which covers North America and Latin America, posted organic sales growth of 1.4% in the quarter, helped by realized pricing gains and ongoing strength in Latin America. That regional resilience, paired with a robotics segment still scaling toward a far larger revenue target, is the clearest evidence that Tennant's core business hasn't lost its footing, even as the profit numbers tell a rockier story.
The profit side of the ledger looked much rougher. Gross margin fell to 39.5%, a 260 basis point decline, as residual costs tied to the company's ERP rollout, supply constraints, and higher freight and tariff-driven material costs weighed on North America, while EMEA absorbed competitive price concessions and an unfavorable sales mix. Adjusted EBITDA fell 30.8% to $35.3 million, with the margin rate dropping 510 basis points to 10.9%. Selling and administrative expense rose $5.8 million to $99.5 million, driven by unfavorable currency, higher people costs, and technology spending, pushing that expense to 30.7% of sales versus 29.4% a year earlier.
Two regions outside the Americas struggled with volume. EMEA organic sales declined 2.8%, hurt by weaker equipment volumes in parts of southern Europe and the Benelux area, along with softer export demand linked to geopolitical strain in the Middle East, and APAC organic sales fell 10.6% on softer demand and distributor overstock. Operating cash flow slipped too, generating just $5.0 million in the quarter, a $17.5 million decrease from a year earlier, as working capital tightened around higher receivables and inventory tied to the ERP transition. Management responded by lowering full-year Adjusted EBITDA guidance to a range of $155 million to $170 million, an acknowledgment that margin recovery is taking longer than originally planned.
Hedge fund ownership in Tennant ticked up to 21 funds last quarter, from 20 the quarter before. That is a mild increase, not a rush, but it points the right way. Short interest tells a tougher story, with 11.75% of the float sold short. That level signals a real bear camp positioned against the stock. The stock's forward price-to-earnings ratio sits at 12.15, as of September 11, a multiple that prices in little near-term margin recovery.
Tennant's second quarter was really two reports in one. The order book, backlog, and robotics business all point to demand that hasn't gone anywhere, and management believes in that story enough to raise full-year sales guidance. But the lowered Adjusted EBITDA outlook shows profitability is proving harder to fix than expected, with ERP-related costs and EMEA pressure still working through the business. For the growth case to matter, those cost pressures need to ease in the back half of the year.
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