The Toro Company Reports Record Results for the First-Quarter of Fiscal 2023
BLOOMINGTON, Minn.–The Toro Company (NYSE: TTC) today reported results for its fiscal first-quarter ended February 3, 2023. “We started fiscal 2023 with great momentum, and achieved record results for the first quarter,” said Richard M. Olson, chairman and chief executive officer. “We delivered top-line growth in both segments as demand for our innovative products remained strong, especially in key professional markets. Our dedicated team executed with their hallmark discipline, while keeping a sharp focus on serving our customers. This discipline, along with an improved supply chain, drove manufacturing efficiencies and profitability gains across the enterprise.”
FIRST-QUARTER FISCAL 2023 FINANCIAL HIGHLIGHTS
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FIRST-QUARTER FISCAL 2023 SEGMENT RESULTS
- Professional segment net sales for the first quarter were $880.7 million, up 30.9% from $672.9 million in the same period last year. The increase was driven by higher shipments of products broadly across the segment, net price realization, and incremental revenue from the first quarter fiscal 2022 acquisition of the Intimidator Group.
- Professional segment earnings for the first quarter were $144.1 million, up 54.5% from $93.3 million in the same period last year, and, when expressed as a percentage of net sales, 16.4%, up from 13.9% in the prior-year period. The increase was primarily due to net price realization, net sales leverage, and productivity improvements, partially offset by higher material, freight, and manufacturing costs, and the addition of the Intimidator Group at a lower initial margin than the segment average.
- Residential segment net sales for the first quarter were $264.6 million, up 3.6% from $255.4 million in the same period last year. The increase was primarily driven by net price realization and higher shipments of zero turn riding mowers, partially offset by lower shipments of snow products.
- Residential segment earnings for the first quarter were $37.8 million, up 19.1% from $31.8 million in the same period last year, and when expressed as a percentage of net sales, 14.3%, up from 12.4% in the prior-year period. The increase was largely driven by net price realization and productivity improvements, partially offset by higher material, freight, and manufacturing costs, and higher SG&A expense.
Gross margin for the first quarter was 34.5%, compared with 32.2% for the same prior-year period. The increase in gross margin was primarily due to net price realization and productivity improvements, partially offset by higher material, freight, and manufacturing costs, as well as the addition of the Intimidator Group at a lower initial gross margin than the company average.
SG&A expense as a percentage of net sales for the first quarter was 22.6%, compared with 22.4% in the prior-year period. The increase was due to higher warranty costs in certain of our professional segment businesses, partially offset by net sales leverage.
Operating earnings as a percentage of net sales were 11.9% for the first quarter, compared with 9.8% in the same prior-year period. *Adjusted operating earnings as a percentage of net sales for the first quarter were 11.9%, compared with 9.9% in the same prior-year period.
Interest expense was $14.1 million for the first quarter, up $7.1 million. The increase was driven by incremental borrowing to fund the Intimidator Group acquisition, and higher average interest rates.
The reported effective tax rate for the first quarter was 18.6% compared with 20.2% in fiscal 2022, primarily driven by higher tax benefits recorded as excess tax deductions for stock compensation in the current-year period. The *adjusted effective tax rate for the first quarter was 21.4% compared with 20.9% in fiscal 2022.
“Our momentum continues to be supported by the exceptional demand and substantial order backlog for products in key professional end markets, as well as the expected benefits from our pricing and productivity initiatives,” concluded Olson. “Importantly, we anticipate continued improvements in the supply chain, which combined with our operational execution, position us to increase product availability and enhance profitability. In addition, we expect to benefit from our innovative product lineup, extensive service and support networks, and well-established market leadership, bolstered by the essential nature and regular replacement cycles of our products.
“Our team continues to operate with agility and resiliency, mindful of the current macroeconomic environment and guided by our enterprise strategic priorities of accelerating profitable growth, driving productivity and operational excellence, and empowering people. We are prioritizing investments in transformational technologies that can be leveraged across our broad portfolio, to promote the acceleration of new product development and capitalize on long-term growth opportunities. These investments, along with our trusted brands and outstanding team of employees and channel partners, are expected to strengthen our market leadership now and into the future, and drive value for all stakeholders.”
For fiscal 2023, management continues to expect net sales growth in the range of 7% to 10% and *adjusted diluted EPS in the range of $4.70 to $4.90. The estimated *adjusted diluted EPS range excludes the tax benefits recorded as excess tax deductions for stock compensation. The company’s guidance is based on current visibility in this evolving and dynamic macro environment, and reflects expectations for strong demand across key professional markets, normalized seasonal demand patterns for residential and landscape contractor solutions, and continued operational execution. This guidance also assumes steady supply chain improvement throughout the year, with a return to a more typical distribution of quarterly sales.
*Non-GAAP financial measure. Please refer to the “Use of Non-GAAP Financial Information” for details regarding these measures, as well as the tables provided for a reconciliation of historical non-GAAP financial measures to the most comparable GAAP measures.
LIVE CONFERENCE CALL
March 9, 2023 at 10:00 a.m. CST
The Toro Company will conduct its earnings call and webcast for investors beginning at 10:00 a.m. CST on March 9, 2023. The webcast will be available at www.thetorocompany.com/invest. Webcast participants will need to complete a brief registration form and should allocate extra time before the webcast begins to register and, if necessary, install audio software.
About The Toro Company
The Toro Company (NYSE: TTC) is a leading worldwide provider of innovative solutions for the outdoor environment including turf and landscape maintenance, snow and ice management, underground utility construction, rental and specialty construction, and irrigation and outdoor lighting solutions. With net sales of $4.5 billion in fiscal 2022, The Toro Company’s global presence extends to more than 125 countries through a family of brands that includes Toro, Ditch Witch, Exmark, Spartan Mowers, BOSS Snowplow, Ventrac, American Augers, Trencor, Pope, Subsite Electronics, HammerHead, Radius HDD, Perrot, Hayter, Unique Lighting Systems, Irritrol, and Lawn-Boy. Through constant innovation and caring relationships built on trust and integrity, The Toro Company and its family of brands have built a legacy of excellence by helping customers work on golf courses, sports fields, construction sites, public green spaces, commercial and residential properties and agricultural operations. For more information, visit www.thetorocompany.com.
Use of Non-GAAP Financial Information
This press release and our related earnings call reference certain non-GAAP financial measures, which are not calculated or presented in accordance with U.S. GAAP, as information supplemental and in addition to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP. The non-GAAP financial measures included within this press release and our related earnings call that are utilized as measures of our operating performance consist of gross profit, gross margin, operating earnings, earnings before income taxes, net earnings, diluted EPS, and the effective tax rate, each as adjusted. The non-GAAP financial measures included within this press release and our related earnings call that are utilized as measures of our liquidity consist of free cash flow and free cash flow conversion percentage.
The Toro Company uses these non-GAAP financial measures in making operating decisions and assessing liquidity because it believes these non-GAAP financial measures provide meaningful supplemental information regarding core operational performance and cash flows, as a measure of the company’s liquidity, and provide the company with a better understanding of how to allocate resources to both ongoing and prospective business initiatives. Additionally, these non-GAAP financial measures facilitate the company’s internal comparisons for both historical operating results and competitors’ operating results by factoring out potential differences caused by charges and benefits not related to its regular, ongoing business, including, without limitation, certain non-cash, large, and/or unpredictable charges and benefits; acquisitions and dispositions; legal judgments, settlements, or other matters; and tax positions. The company believes that these non-GAAP financial measures, when considered in conjunction with the financial measures prepared in accordance with U.S. GAAP, provide investors with useful supplemental financial information to better understand its core operational performance and cash flows.
Reconciliations of historical non-GAAP financial measures to the most comparable U.S. GAAP financial measures are included in the financial tables contained in this press release. These non-GAAP financial measures, however, should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the U.S. GAAP financial measures included within this press release and the company’s related earnings call. These non-GAAP financial measures may differ from similar measures used by other companies.
The Toro Company does not provide a quantitative reconciliation of the company’s projected range for adjusted diluted EPS for fiscal 2023 to diluted EPS, which is the most directly comparable GAAP measure, in reliance on the unreasonable efforts exception provided under Item 10(e)(1)(i)(B) of Regulation S-K. The company’s adjusted diluted EPS guidance for fiscal 2023 excludes certain items that are inherently uncertain and difficult to predict, including certain non-cash, large and/or unpredictable charges and benefits; acquisitions and dispositions; legal judgments, settlements, or other matters; and tax positions. Due to the uncertainty of the amount or timing of these future excluded items, management does not forecast them for internal use and therefore cannot create a quantitative adjusted diluted EPS for fiscal 2023 to diluted EPS reconciliation without unreasonable efforts. A quantitative reconciliation of adjusted diluted EPS for fiscal 2023 to diluted EPS would imply a degree of precision and certainty as to these future items that does not exist and could be confusing to investors. From a qualitative perspective, it is anticipated that the differences between adjusted diluted EPS for fiscal 2023 to diluted EPS will consist of items similar to those described in the financial tables later in this release, including, for example and without limitation, certain non-cash, large, and/or unpredictable charges and benefits; acquisitions and dispositions; legal judgments, settlements, or other matters; and tax positions. The timing and amount of any of these excluded items could significantly impact the company’s diluted EPS for a particular period.
This news release contains forward-looking statements, which are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management’s current assumptions and expectations of future events, and often can be identified by words such as “expect,” “strive,” “looking ahead,” “outlook,” “guidance,” “forecast,” “goal,” “optimistic,” “encourage,” “anticipate,” “continue,” “plan,” “estimate,” “project,” “target,” “improve,” “believe,” “become,” “should,” “could,” “will,” “would,” “possible,” “promise,” “may,” “likely,” “intend,” “can,” “seek,” “pursue,” “potential,” “pro forma,” variations of such words or the negative thereof, and similar expressions or future dates. Forward-looking statements involve risks and uncertainties that could cause actual events and results to differ materially from those projected or implied. Forward-looking statements in this release include the company’s fiscal 2023 financial guidance, and expectations for strong demand across key professional markets, normalized seasonal demand patterns for residential and landscape contractor solutions and continued operational execution, as well as supply chain improvement throughout the year, with a return to a more typical distribution of quarterly sales. Particular risks and uncertainties that may affect the company’s operating results or financial position include: adverse worldwide economic conditions, including inflationary pressures; disruption at or in proximity to its facilities or in its manufacturing or other operations, or those in its distribution channel customers, mass retailers or home centers where its products are sold, or suppliers; fluctuations in the cost and availability of commodities, components, parts, and accessories, including steel, engines, hydraulics and resins; COVID-19 related factors, risks and challenges; the effect of abnormal weather patterns; the effect of natural disasters, social unrest, war and global pandemics; the level of growth or contraction in its key markets; customer, government and municipal revenue, budget, spending levels and cash conservation efforts; loss of any substantial customer; inventory adjustments or changes in purchasing patterns by customers; the company’s ability to develop and achieve market acceptance for new products; increased competition; the risks attendant to international relations, operations and markets; foreign currency exchange rate fluctuations; financial viability of and/or relationships with the company’s distribution channel partners; risks associated with acquisitions and dispositions, including the company’s acquisition of Intimidator Group; impairment of goodwill or other intangible assets; impacts of any restructuring activities; management of alliances or joint ventures, including Red Iron Acceptance, LLC; impact of laws, regulations and standards, consumer product safety, accounting, taxation, trade, tariffs and/or antidumping and countervailing duties petitions, healthcare, and environmental, health and safety matters; unforeseen product quality problems; loss of or changes in executive management or key employees; the occurrence of litigation or claims, including those involving intellectual property or product liability matters; impact of increased scrutiny on its environmental, social, and governance practices; and other risks and uncertainties described in the company’s most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q and other filings with the Securities and Exchange Commission. The company makes no commitment to revise or update any forward-looking statements in order to reflect events or circumstances occurring or existing after the date any forward-looking statement is made.
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