The Toro Company Reports Second Quarter Results

BLOOMINGTON, Minn.–The Toro Company (NYSE: TTC) today reported net earnings of $115.6 million, or $1.07 per share, on a net sales increase of 9.9 percent to $962.0 million for its second quarter ended May 3, 2019. In the comparable fiscal 2018 period, the company delivered net earnings of $131.3 million, or $1.21 per share, on net sales of $875.3 million. Adjusted 2019 second quarter net earnings were $126.0 million, or $1.17 per share, compared to adjusted net earnings of $130.3 million, or $1.20 per share in the comparable 2018 period, a decrease of 2.5 percent.

For the first six months, Toro reported net earnings of $175.1 million, or $1.62 per share, on a net sales increase of 9.9 percent to $1,565.0 million. For the first six months, adjusted net earnings were $182.7 million, or $1.69 per share, compared to adjusted net earnings of $182.4 million, or $1.68 per share, in the comparable 2018 period, an increase of 0.6 percent. Please see the tables for a reconciliation of financial measures calculated and reported in accordance with GAAP, as well as adjusted non-GAAP financial measures.

“The first half of 2019 has been dynamic for The Toro Company,” said Richard M. Olson, Toro’s chairman and chief executive officer. “We continue to be excited about the transformational acquisition of Charles Machine Works, while managing through unfavorable weather conditions in key regions. Poor spring weather, particularly in April, across much of the United States and Australia not only negatively impacted demand for spring turf products, but it also caused disruption in our supply chain and shipping capabilities. However, despite these headwinds, we have finished the first half of the year with solid revenue growth,” said Olson.

“We are very pleased with the initial integration of our largest acquisition, Charles Machine Works, and we are encouraged by the synergy opportunities we are already executing on and expect to achieve over time. The residential business also enjoyed positive revenue momentum in both the quarter and year-to-date results. We continue to gain market share in key categories and expect profitability in the residential business to improve later in the fiscal year, as commodity costs moderate and as we see the anticipated benefits of productivity improvements.”

“Looking ahead, warmer spring and summer weather should arrive soon to help spur turf equipment sales. We are also encouraged by the prospect of a good snow preseason sell-in later in the fiscal year, positive integration momentum, as well as synergy and margin improvement opportunities associated with the acquisition of Charles Machine Works. Further, we are excited about our innovative new product introductions as we head into our key selling season and we believe we are well positioned to build on our strategic initiatives as we enter the second half of the fiscal year.”

In the third quarter, we expect adjusted net earnings per share of about $0.70 to $0.75. For the full-year, we are providing new adjusted net earnings per share guidance of about $2.90 to $3.00 and new revenue guidance of about $3.2 billion. These estimates are inclusive of Charles Machine Works and assume a return to normalized weather patterns for the remainder of the fiscal year.

SEGMENT RESULTS

Professional

  • Professional segment net sales for the second quarter were $723.5 million, up 9.6 percent from $660.4 million last year. For the first six months, professional segment net sales were $1,178.5 million, up 10.8 percent from the comparable 2018 period. For both periods, the addition of Charles Machine Works, as well as growth in our landscape contractor, BOSS® snow and ice management and rental and specialty construction businesses contributed to the results. Somewhat offsetting the growth for both periods were lower shipments of domestic golf and grounds equipment and irrigation product, due to delays caused by supplier issues and poor spring weather.
  • Professional segment earnings for the second quarter were $150.1 million, down 9.0 percent from $165.0 million in the same period last year. Professional segment earnings for the first six months were $238.1 million, down 1.2 percent from $240.9 million compared to the same period last year. The segment earnings for both periods include purchase accounting adjustments related to the acquisition of Charles Machine Works.

Residential

  • Residential segment net sales for the second quarter were $232.1 million, up 9.4 percent from $212.2 million last year. For the first six months, residential segment net sales were $377.3 million, up 6.4 percent from $354.7 million last year. For both periods, the increases were primarily due to strong demand for domestic walk power and zero-turn riding mowers and increased shipments of snow throwers.
  • Residential segment earnings for the second quarter were $22.0 million, down 16.2 percent from $26.3 million in the comparable period last year. Residential segment earnings for the first six months were $35.1 million, down 16.5 percent from $42.0 million in the same period last year. The decreases in both periods were largely due to the unfavorable impacts of tariff and trade related cost increases.

OPERATING RESULTS

Reported gross margin as a percent of sales for the second quarter was 33.4 percent, a decrease of 360 basis points compared to the prior year. Adjusted gross margin as a percent of sales for the second quarter was 34.4 percent, a decrease of 260 basis points compared to last year. For the first six months, reported gross margin as a percent of sales was 34.3 percent, a decrease of 280 basis points over the prior year. Adjusted gross margin as a percent of sales for the first six months was 34.9 percent, a decrease of 220 basis points compared to last year. For both periods, increased inflation and tariff-related costs, product mix and continued supply chain challenges contributed to the decline, partially offset by pricing and productivity improvements.

Selling, general and administrative (SG&A) expense as a percent of sales for the second quarter was 19.1 percent, an increase of 160 basis points from the same period last year. For the first six months, SG&A expense as a percent of sales was 21.0 percent, an increase of 60 basis points. For both periods, acquisition integration and transaction costs contributed to the increases compared to the respective periods last year.

Second quarter reported operating earnings as a percent of sales were 14.3 percent, a decrease of 520 basis points compared to 19.5 percent in the same period last year. Adjusted operating earnings for the second quarter were 16.4 percent, a decrease of 310 basis points compared to 19.5 percent last year. For the first six months, reported operating earnings as a percent of sales were 13.3 percent, a decrease of 340 basis points compared to 16.7 percent last year. For the first six months, adjusted operating earnings as a percent of sales were 14.7 percent compared to 16.7 percent, a decrease of 200 basis points compared to the prior year.

The effective tax rate for the second quarter was 15.8 percent, compared to 22.4 percent for the second quarter of last year. The adjusted tax rate for the second quarter was 19.9 percent, compared to 23.0 percent last year. For the first six months, the reported tax rate was 15.5 percent, down from 34.7 percent in the comparable period. The adjusted tax rate for the first six months was 20.2 percent, compared to 22.6 percent for the same period last year. With the addition of Charles Machine Works, the company now expects its full- year effective tax rate to be about 20.5 percent.

Accounts receivable at the end of the first quarter were $428.6 million, up 30.0 percent from last year. Net inventories were $611.3 million, up 54.8 percent from last year. Trade payables were $391.7 million, up 28.9 percent from the comparable period last year. These increases were largely due to the acquisition of Charles Machine Works.

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 sales of $2.6 billion in fiscal 2018, The Toro Company’s global presence extends to more than 125 countries through a family of brands that includes Toro, Ditch Witch, Exmark, BOSS Snowplow, American Augers, Subsite Electronics, HammerHead, Trencor, Unique Lighting Systems, Irritrol, Hayter, Pope, Lawn-Boy, MTI Equipment and Radius HDD. 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 care for golf courses, sports fields, construction sites, public green spaces, commercial and residential properties and agricultural operations. For more information, visit www.thetorocompany.com.

LIVE CONFERENCE CALL
May 23, 2019 at 10:00 a.m. CDT
www.thetorocompany.com/invest

The Toro Company will conduct its earnings call and webcast for investors beginning at 10:00 a.m. CDT on May 23, 2019. The webcast will be available at www.streetevents.com or 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, download and install audio software.

Use of Non-GAAP Financial Information
This press release and our related earnings call contain certain non-GAAP financial measures, consisting of adjusted gross profit, operating earnings before income taxes, operating earnings, net earnings, net earnings per diluted share and effective tax rate, as measures of our operating performance. Management believes these measures may be useful in performing meaningful comparisons of past and present operating results, to understand the performance of its ongoing operations and how management views the business. Reconciliations of adjusted non-GAAP measures to reported GAAP measures are included in the financial tables contained in this press release. These measures, however, should not be construed as an alternative to any other measure of performance determined in accordance with GAAP.

The Toro Company does not attempt to provide reconciliations of forward-looking non-GAAP EPS guidance to projected GAAP EPS guidance because the combined impact and timing of recognition of these potential charges or gains is inherently uncertain and difficult to predict and is unavailable without unreasonable efforts. In addition, we believe such reconciliations would imply a degree of precision and certainty that could be confusing to investors. Such items could have a substantial impact on GAAP measures of financial performance.

Forward-Looking Statements
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,” “anticipate,” “continue,” “plan,” “estimate,” “project,” “believe,” “should,” “could,” “will,” “would,” “possible,” “may,” “likely,” “intend,” “can,” “seek,” “potential,” “pro forma,” or the negative thereof or similar expressions. Forward-looking statements involve risks and uncertainties that could cause actual events and results to differ materially from those projected or implied. Particular risks and uncertainties that may affect our operating results or financial position include: worldwide economic conditions, including slow or negative growth rates in global and domestic economies and weakened consumer confidence; disruption at our manufacturing or distribution facilities, including drug cartel-related violence affecting our maquiladora operations in Juarez, Mexico; fluctuations in the cost and availability of raw materials and components, including steel, engines, hydraulics and resins; the impact of abnormal weather patterns, including unfavorable weather conditions exacerbated by global climate change or otherwise; the impact of natural disasters and global pandemics; the level of growth or contraction in our key markets; government and municipal revenue, budget and spending levels; dependence on The Home Depot as a customer for our residential business; elimination of shelf space for our products at dealers or retailers; inventory adjustments or changes in purchasing patterns by our customers; our ability to develop and achieve market acceptance for new products; increased competition; the risks attendant to international relations, operations and markets, including political, economic and/or social instability and conflict, tax and trade policies in the U.S. and other countries in which we manufacture or sell our products, and implications of the United Kingdom’s process for exiting the European Union; foreign currency exchange rate fluctuations; our relationships with our distribution channel partners, including the financial viability of our distributors and dealers; risks associated with acquisitions, including those related to our recent acquisition of Charles Machine Works, such as delays or failure by us in achieving the net sales, earnings and any cost or revenue synergies expected from the acquisition, delays and challenges in integrating the businesses, business disruptions due to the acquisition, impacts as a result of purchase accounting adjustments and unanticipated liabilities or exposures for which we have not been indemnified or may not recover; management of our alliances or joint ventures, including Red Iron Acceptance, LLC; the costs and effects of enactment of, changes in and compliance with laws, regulations and standards, including those relating to consumer product safety, accounting, taxation, trade and tariffs, 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; and other risks and uncertainties described in our most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q, and other filings with the Securities and Exchange Commission. We make 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.


Courtesy of -(BUSINESS WIRE)-


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