Tennant Company (TNC) Q2 2026: Robotics Revenue Jumps 37% as ERP and Margin Recovery Lags
Tennant Company’s Q2 revealed robust robotics-driven order growth and a rising backlog, but persistent ERP-related inefficiencies and regional margin compression forced a guidance reset. Despite strong demand signals and rapid automation adoption, cost headwinds and delayed operational gains will weigh on profitability through year-end. Investors face a business in transition, with robotics scaling fast but execution and cost discipline still catching up.
Summary
- Robotics Acceleration: Robotics revenue surged, validating Tennant’s automation pivot and fueling backlog expansion.
- Margin and ERP Setbacks: ERP optimization delays and EMEA price pressure outweighed volume gains, driving a guidance cut.
- Execution Watchpoint: Profit recovery now hinges on supply chain fixes and realization of delayed ERP benefits.
Business Overview
Tennant Company manufactures and sells floor cleaning equipment, parts, consumables, and autonomous mobile robots (AMRs) for commercial and industrial customers worldwide. Revenue streams include equipment sales, aftermarket parts and consumables, and service and other (including autonomy subscriptions). Robotics and automation are now positioned as core growth engines, while legacy equipment and parts remain foundational but increasingly pressured by cost and competition.
Performance Analysis
Q2 results highlight a business at an inflection point. Net sales grew modestly, with strength in robotics and North American industrial orders offset by volume declines in EMEA and APAC. Order momentum remained strong, with orders up 6.6% YoY and backlog reaching $127 million, reflecting robust demand but also ongoing fulfillment constraints.
Profitability, however, deteriorated sharply. Gross margin fell year-over-year, pressured by ERP-driven operational inefficiencies in North America, cost inflation (notably freight and tariffs linked to the Middle East conflict), and aggressive discounting in EMEA. Operating expenses rose due to higher software costs, continued robotics investment, and delayed ERP efficiency gains. Cash flow from operations rebounded sequentially but remains negative year-to-date, with elevated receivables and inventory tied to the ERP transition and supply chain bottlenecks.
- Robotics Outperformance: Robotics revenue reached $31 million, up 37% YoY, and is set to more than double for the full year, underpinned by new product launches and large-scale deployments.
- Regional Divergence: North America saw flat sales due to parts shortages, while Latin America posted strong growth and EMEA/APAC volumes declined amid competitive and macro headwinds.
- Margin Compression: Gross margin declined 260 basis points YoY, with ERP and regional cost pressures outweighing price realization.
Management responded by raising the sales outlook but lowering profit guidance, acknowledging that cost and execution challenges will persist into the second half. The revised plan now assumes a slower ERP recovery trajectory and sustained investment in robotics.
Executive Commentary
"I'd characterize our second quarter performance as one of strong underlying demand coupled with gross margin and adjusted EBITDA that improved sequentially from the first quarter. However, those margin improvements fell short of our expectations. The quarter reflected demand strength and continued progress against our long-term growth strategy, particularly in robotics, while also highlighting execution and cost challenges that we are actively addressing."
Dave Huml, President and CEO
"The year-over-year decline was primarily driven by cost inflation associated with tariffs and the Middle East conflict, which was only partially offset by pricing actions. It also reflected ERP-related operational inefficiencies that continued to pressure gross margins along with higher S&A and R&D investment."
Fay West, Senior Vice President and CFO
Strategic Positioning
1. Robotics as the Growth Engine
Robotics is now Tennant’s primary growth lever, with revenue expected to reach $130–145 million in 2026, up from $58 million in the first half. The dedicated TNC Robotics Venture, with 120 specialized employees, is accelerating product innovation and go-to-market, aiming for 10 new product launches over two years and targeting 250 million in robotics revenue by 2028. Robotics’ average selling price is three times that of conventional machines, and the category is growing five times faster than traditional floor care.
2. ERP Modernization: Delayed Payback
The ERP system, a digital backbone for order management and fulfillment, has stabilized but optimization is lagging, especially in North America. Manual workarounds and data issues continue to disrupt supply chain and production, delaying expected cost savings and efficiency gains. The EMEA ERP rollout is now deferred past 2026, with recovery in North America targeted for the first half of 2027.
3. Regional Margin and Competitive Pressures
EMEA margins were squeezed by aggressive discounting, cost inflation, and lower volumes. An influx of low-cost Asian competitors in entry-level equipment and robotics is intensifying price pressure, especially among price-sensitive customers and building service contractors. Management is responding with pricing discipline and targeted product launches but expects continued headwinds.
4. Capital Allocation Discipline
Cash generation and leverage management remain top priorities as profitability lags. Capital deployment is being balanced between continued robotics investment, ERP recovery spending, and shareholder returns. With leverage at the upper end of the target range, further buybacks or M&A are likely to be restrained until EBITDA recovers.
5. Service and Recurring Revenue Expansion
Service and other sales, including autonomy subscriptions, grew 19.2% and now represent a growing share of revenue. The shift to recurring revenue models, supported by enterprise license agreements and a growing installed base, provides greater visibility and margin opportunity over time.
Key Considerations
Tennant’s Q2 underscores a business in active transformation, navigating the tension between rapid robotics growth and operational drag from legacy systems and regional market realities.
Key Considerations:
- Backlog Conversion Watch: Order and backlog strength must translate into revenue as supply chain and ERP disruptions are resolved.
- Profitability Recovery Pace: Margin improvement now depends on ERP optimization and cost controls, but the path is slower than originally guided.
- Robotics Execution Risk: The robotics business is scaling fast, but requires ongoing R&D, commercial investment, and competitive differentiation to sustain momentum.
- Regional Competitive Dynamics: EMEA and APAC remain pressured by macro softness and aggressive new entrants, limiting pricing power and volume recovery.
- Leadership Transition: The announced CFO retirement adds uncertainty to financial stewardship during a critical period of transformation.
Risks
Key risks center on ERP recovery delays, which could further disrupt supply chain and margin improvement if not resolved by early 2027. Competitive intensity, especially from low-cost Asian entrants in EMEA and robotics, threatens pricing and share. Macroeconomic softness in APAC and EMEA could prolong volume headwinds. Sustained negative cash flow and elevated leverage may constrain capital allocation flexibility. Finally, the CFO transition introduces potential execution risk in financial management and capital planning.
Forward Outlook
For Q3, Tennant expects:
- Gross margin to remain flat sequentially at approximately 39.5%, with improvement not expected until Q4.
- Robotics revenue ramping as new products ship and backlog converts.
For full-year 2026, management raised net sales guidance to $1.27–1.31 billion (5.5–9% growth) but lowered adjusted EBITDA to $155–170 million (12.2–13% margin).
- Full-year robotics revenue guided to $130–145 million, more than doubling YoY.
Management cited order momentum, backlog, robotics launches, and improved North American supply chain as revenue drivers, but expects continued cost headwinds, EMEA/APAC volume pressure, and gradual ERP benefit realization to limit margin upside.
- ERP-related costs and investment in robotics will persist through year-end.
- EMEA pricing actions and supply chain recovery are key levers for H2 margin improvement.
Takeaways
Tennant’s robotics pivot is delivering on growth, but operational and margin recovery are lagging original expectations as ERP and cost headwinds persist.
- Robotics Traction: Automation is now the clear growth engine, with strong customer adoption, a robust innovation pipeline, and expanding recurring revenue streams.
- Margin and Execution Drag: ERP delays, supply chain bottlenecks, and regional price competition are weighing on profitability and cash flow, forcing a more cautious outlook.
- Investor Focus: Watch for tangible margin recovery, backlog conversion, and further robotics wins as signals of execution against the revised plan.
Conclusion
Tennant’s Q2 2026 call confirms the company’s robotics-led transformation is gaining momentum, but underscores the operational and financial risks of transition. The business is positioned for top-line growth, but investors should expect a measured, gradual recovery in profitability as ERP and cost challenges play out.
Industry Read-Through
Tennant’s experience reflects broader industrial automation trends: customers are moving from pilot to scale in robotics, and labor cost pressures are accelerating automation adoption. However, ERP modernization remains a persistent challenge for legacy manufacturers, often resulting in delayed cost savings and unexpected operational drag. The influx of low-cost Asian competitors in both traditional and robotic equipment is reshaping competitive dynamics, especially in EMEA, and signals margin pressure for established players. For peers and adjacent sectors, successful transformation now requires balancing digital and automation investment with disciplined execution and cost management, as growth alone does not guarantee margin or cash flow stability during periods of operational change.