Tennant Declares Pricing Of $300M Senior Notes Offering

Machinery company Tennant Company (NYSE:TNC) recently announced that it has priced its previously offered $300 million of principal amount of 5.625% senior notes due May 1, 2025. The company noted that the issuance will be guaranteed by two of its subsidiaries, Tennant Coatings, Inc., and Tennant Sales and Service Company.

Over the last one month, Tennant Company’s shares lost roughly 4.16%, wider than the decline of 2.6% recorded by the Zacks categorized Machinery General Industrial industry.

As disclosed, the senior notes have been offered only to qualified institutional buyers and non- U.S. investors, following the guidelines of Rule 144A and Regulation S under the Securities Act, respectively.

Tennant Company intends to use the net proceeds from the issuance to refinance a term loan that was taken for financing the company’s acquisition of Italy-based IP Cleaning S.p.A. and its subsidiaries (IPC Group) from Ambienta, a private equity fund, on Apr 6. Also, the proceeds will be used for paying certain fees and expenses.

Subject to customary closing conditions, the offering will likely be completed on Apr 18.

Though such debt issuances satisfy liquidity needs, we believe it makes the company more levered. Exiting fourth-quarter 2016, Tennant had long-term debt of approximately $32.7 million, representing 54.5% growth over the year-ago quarter. If unchecked, higher debt levels will increase the company’s financial obligations and subsequently hurt its profitability.

The company is expected to release the first-quarter 2017 results on Apr 24 before the market opens. The Zacks Consensus Estimate for the stock is 25 cents for the first quarter, $2.63 for 2017 and $2.79 for 2018.

Zacks Rank & Stocks to Consider

Tennant Company currently has a market capitalization of $1.2 billion and carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the machinery industry include DXP Enterprises, Inc. (NASDAQ:DXPE) , Altra Industrial Motion Corporation (NASDAQ:AIMC) and Graco Inc. (NYSE:GGG) . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

DXP Enterprises’ financial performance was impressive, with an average positive earnings surprise of 50.37% for the last four quarters. Also, earnings estimates for 2017 and 2018 were revised upward over the last 60 days.

Altra Industrial Motion reported better-than-expected results in the last four quarters, with an average positive earnings surprise of 12.49%. Also, its earnings estimates for 2017 and 2018 improved in the last 60 days.

Graco reported better-than-expected results in the last quarter, with a positive earnings surprise of 17.65%. Also, bottom-line expectations for 2017 and 2018 improved over the past 60 days.

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