BLOOMINGTON, Minn.–The Toro Company (NYSE: TTC) today reported results for its fiscal fourth-quarter ended October 31, 2022. “We delivered record top and bottom line results in the quarter and for fiscal 2022, with full-year net sales exceeding four billion dollars for the first time in company history,” said Richard M. Olson, chairman and chief executive officer. “Demand for our innovative products remained strong throughout the year, especially in key professional markets. Our employees and channel partners collaborated to achieve outstanding results in what remained a very dynamic operating environment. Most importantly, we continued to advance our strategic priorities with a focus on driving value now and into the future for all stakeholders.
“In the fourth quarter, professional segment demand was broad-based. Our biggest constraint remained our ability to fulfill the heightened backlog of orders given the current supply chain environment. For the residential segment, retail demand continued to normalize, reflecting more typical seasonal trends and weather patterns. Notably, this demand normalization is building off the higher base we have established over the past few years with our refreshed product line-up, expanded channel, and enhanced brand marketing.”
|FOURTH-QUARTER FISCAL 2022 FINANCIAL HIGHLIGHTS|
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|FULL-YEAR FISCAL 2022 FINANCIAL HIGHLIGHTS|
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“We have started fiscal 2023 with great momentum, supported by substantial order backlogs for products in key professional end markets and expected benefits from our pricing and productivity initiatives,” continued Olson. “We believe we are in a strong position to capitalize on growth opportunities with our innovative product line-up, trusted brands, and our extensive distribution and service networks. While we acknowledge the heightened level of macroeconomic uncertainty, we expect to benefit from our well-established market leadership, along with the essential nature and regular replacement of our products.
“We have confidence in our ability to navigate the headwinds in today’s macro environment. We will remain agile and flexible, guided by our enterprise strategic priorities of accelerating profitable growth, driving productivity and operational excellence, and empowering people. With this focus, we are prioritizing investments in the key technology areas of alternative power, smart-connected, and autonomous solutions for long-term sustainable growth, with the intent to leverage these investments across our extensive portfolio.”
For fiscal 2023, management expects 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.
FOURTH-QUARTER FISCAL 2022 SEGMENT RESULTS
- Professional segment net sales for the fourth quarter were $944.7 million, up 29.0% from $732.5 million in the same period last year. The increase was driven primarily by net price realization, incremental revenue from the Intimidator Group acquisition in the first quarter of fiscal 2022, and higher shipments of zero-turn mowers, golf and grounds equipment, and snow and ice management solutions.
- Full-year fiscal 2022 professional segment net sales were $3.43 billion, up 17.1% from $2.93 billion last year. The increase was primarily due to net price realization and the Intimidator Group acquisition.
- Professional segment earnings for the fourth quarter were $159.2 million, up 57.5% from $101.0 million in the same period last year, and, when expressed as a percentage of net sales, 16.8%, up from 13.8% 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.
- Full-year fiscal 2022 professional segment earnings were $584.0 million, up 15.1% compared with $507.3 million in the prior fiscal year, and when expressed as a percentage of net sales, 17.0%, down slightly from 17.3% last year. The decrease was primarily driven by higher material, freight, and manufacturing costs, and the addition of the Intimidator Group at a lower initial margin than the segment average, partially offset by net price realization and productivity improvements.
- Residential segment net sales for the fourth quarter were $223.5 million, down 0.8% from $225.2 million in the same period last year. The decrease was primarily driven by lower sales of walk-power and zero-turn riding mowers and portable-power products, largely offset by net price realization and increased shipments of snow products.
- Full-year fiscal 2022 residential segment net sales were $1.07 billion, up 5.8% from $1.01 billion last year. The increase was primarily due to net price realization and increased shipments of zero-turn riding mowers and snow products, partially offset by lower sales of walk-power mowers and portable-power products.
- Residential segment earnings for the fourth quarter were $17.5 million, up 47.6% from $11.9 million in the same period last year, and when expressed as a percentage of net sales, 7.8%, up from 5.3% in the prior-year period. The increase was largely driven by net price realization, productivity improvements, and favorable product mix, partially offset by higher material, freight, and manufacturing costs.
- Full-year fiscal 2022 residential segment earnings were $112.7 million, down 7.2% from $121.5 million in the prior fiscal year, and when expressed as a percentage of net sales, 10.5%, down from 12.0% last year. The decrease was mainly attributable to higher material, freight, and manufacturing costs, partially offset by net price realization and productivity improvements.
Gross margin for the fourth quarter was 34.0%, compared with 30.1% for the same prior-year period. The increase in gross margin was primarily due to net price realization, productivity improvements, and favorable mix, 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.
For fiscal 2022, gross margin was 33.3%, compared to 33.8% for fiscal 2021. *Adjusted gross margin for fiscal 2022 was 33.4%, compared with 33.8% in fiscal 2021. The decreases in reported and *adjusted gross margin were primarily due to higher material, freight, and manufacturing costs, and the Intimidator Group acquisition, partially offset by net price realization and productivity improvements.
SG&A expense as a percentage of net sales for the fourth quarter was 21.2%, compared with 22.4% in the prior-year period. The improvement was primarily due to net sales leverage and lower incentive costs.
For fiscal 2022, SG&A expense as a percentage of net sales was 20.5%, compared with 20.7% for fiscal 2021. The improvement was mainly due to net sales leverage, partially offset by net favorable fiscal 2021 legal settlements which did not reoccur in fiscal 2022.
Operating earnings as a percentage of net sales were 12.8% for the fourth quarter, compared with 7.7% in the same prior-year period. For fiscal 2022, operating earnings as a percentage of net sales were 12.8%, compared with 13.1% in fiscal 2021. *Adjusted operating earnings as a percentage of net sales for fiscal 2022 were 12.8%, unchanged on a year-over-year basis.
Interest expense was up $4.5 million for the fourth quarter to $11.5 million, and up $7.1 million for the full year to $35.7 million. The increases were driven by incremental borrowing to fund the Intimidator Group acquisition, and higher average interest rates.
The reported effective tax rate for the fourth quarter and full year were 17.9% and 19.8%, respectively, compared with 13.3% and 18.0% in fiscal 2021. The *adjusted effective tax rate for the fourth quarter and full year were 18.5% and 20.2%, respectively, compared with 13.9% and 19.6% in fiscal 2021. The increases were primarily due to less favorable one-time adjustments in the current-year periods. The reported effective tax rate increases were also driven by lower tax benefits recorded as excess tax deductions for stock compensation in the current-year periods.
*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
December 21, 2022 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 December 21, 2022. 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 2022 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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