Tennant Co reported a decline in profitability for the second quarter of fiscal year 2026, with adjusted EBITDA falling to $35.3 million as operational costs and margin pressures outweighed modest revenue growth.

The company’s net sales rose 1.7% year over year to $324 million, driven by strong order momentum and a 37% increase in robotics revenue. However, adjusted EBITDA contracted significantly from $51 million in the prior-year period, reflecting a margin compression of 510 basis points to 10.9%. The shortfall was attributed primarily to gross margin challenges in EMEA and North America, alongside higher-than-expected operating expenses related to ERP implementation delays.

Regional Performance and Revenue Drivers

Revenue performance varied across regions, with the Americas showing resilience despite supply chain constraints. North America sales remained essentially flat at -0.2%, as robust pricing realization was offset by lower volumes due to parts shortages. In contrast, Latin America delivered strong organic growth of 21%, supported by strategic accounts in Brazil and Mexico. EMEA sales declined 2.8%, pressured by competitive pricing and volume softness, while APAC saw a 10.6% drop amid cautious capital spending.

The robotics division emerged as a key growth engine, with autonomous mobile robot (AMR) sales reaching $31 million in the quarter. This segment is projected to accelerate further, with full-year robotics revenue guidance set between $130 million and $145 million. Service and other sales, including autonomy subscriptions, grew 19.2%, aided by new enterprise agreements.

Margin Pressure and Operational Challenges

Gross margin stood at 39.5%, down 260 basis points year over year but up 140 basis points sequentially. The decline was driven by increased discounting in EMEA, freight and material cost inflation linked to geopolitical conflicts, and manufacturing deleverage. In North America, ERP-related inefficiencies continued to impact production output and fulfillment, leading to elevated backlog levels.

Adjusted SG&A expense increased to $94.3 million, or 29.1% of net sales, compared to 27.3% in the prior year. The rise reflects higher software licensing fees, inflationary costs, and continued investment in robotics capabilities. R&D expense also climbed to $12.5 million, or 3.9% of sales, as the company accelerates its product innovation roadmap.

What the Numbers Show

A divergence between order strength and revenue conversion highlights execution bottlenecks. Orders grew 6.6% year over year to $339 million, and backlog increased by $18 million during the quarter. However, net sales grew only 1.7%, indicating that parts shortages and production constraints prevented the company from converting demand into shipments efficiently. This gap suggests that future revenue acceleration depends heavily on resolving supply chain issues rather than demand generation.

Updated Guidance

Management revised its full-year outlook, raising net sales expectations while lowering profitability targets. The new guidance reflects stronger order momentum and robotics contribution but accounts for slower realization of ERP efficiencies and persistent cost headwinds.

The company expects gross margins to remain flat in Q3 before improving to approximately 41% in Q4 as ERP optimizations take hold and parts availability stabilizes.

Tennant Company slashed its full-year 2026 GAAP earnings per share (EPS) guidance to a range of $2.15–$2.80, falling short of the $3.70 analyst consensus estimate. This downward revision follows a second-quarter performance where adjusted diluted EPS of $0.83 missed expectations by 37.6%, signaling persistent profitability challenges for the industrial cleaning equipment manufacturer.

The company previously guided for GAAP EPS between $4.05 and $4.65 for fiscal year 2026. The significant reduction reflects ongoing operational inefficiencies, including ERP-related recovery costs in North America and competitive pricing pressures in Europe, the Middle East, and Africa (EMEA). Despite the earnings miss, Tennant raised its full-year net sales outlook to $1.27 billion–$1.31 billion, indicating that top-line demand remains resilient even as margins compress.

Key Financial Highlights

Tennant’s second-quarter results underscored the divergence between revenue stability and profitability erosion. Net sales reached $324.0 million, a 1.7% increase year-over-year, but net income plummeted 62.4% to $7.6 million. Adjusted EBITDA margin contracted by 510 basis points to 10.9%, down from 16.0% in the prior-year period.

Updated Full-Year 2026 Guidance

Tennant provided updated guidance for the full fiscal year 2026, highlighting the stark contrast between its GAAP and adjusted earnings expectations. While adjusted diluted EPS guidance was set at $3.80–$4.45, the GAAP EPS range of $2.15–$2.80 reveals the substantial impact of non-recurring costs and structural adjustments on bottom-line results.

Regional Performance and Headwinds

Organic sales declined 0.5% in the second quarter, driven by volume constraints in North America and softer demand in APAC. The Americas region saw a 1.4% organic increase, supported by price realization, while EMEA and APAC experienced declines of 2.8% and 10.6%, respectively. Dave Huml, Tennant President and Chief Executive Officer, noted that margin recovery progressed more slowly than expected due to these regional disparities and fulfillment constraints.

What the Numbers Show

The widening gap between raised sales guidance and sharply lowered GAAP EPS guidance highlights significant margin compression risks. While order momentum remains strong, with robotics sales increasing 37% year-over-year, the company faces immediate pressure from ERP implementation costs and competitive pricing. The drop in GAAP EPS guidance to below $3.00 suggests that operational inefficiencies are currently outweighing top-line gains, requiring sustained cost management actions to restore profitability trajectories.