Group 1 - The Toro Company (NYSE:TTC) is recognized as one of the 14 Best Mid Cap Dividend Aristocrat Stocks to buy currently [1] - Baird raised its price target for Toro to $86 from $84, citing improved free cash flow outlook following the company's Q4 results [2] - Toro completed the acquisition of Tornado Infrastructure Equipment Ltd. for C$279 million, financed through debt [3][5] Group 2 - The acquisition of Tornado enhances Toro's construction equipment portfolio, particularly in vacuum excavation, aligning with rising demand in this sector [4] - Toro anticipates the acquisition to be slightly accretive to adjusted EPS in the first year, with expected annual run-rate cost synergies of about $3 million over the next three years [5] - Toro operates as a global provider of outdoor environment solutions, including turf maintenance, snow equipment, and underground utility construction [6]

Market Performance - US stocks gained over 8% in Q3 2025, as measured by the Russell 3000 Index, with small-cap stocks rising more than 12% [1] - Large-cap stocks increased by about 8%, while mid-cap stocks saw a gain of 5% [1] Investment Strategy Performance - Diamond Hill Mid Cap Strategy underperformed the Russell Midcap Index in Q3 2025, returning 4.49% net compared to 5.33% for the Index [1] Company Focus: The Toro Company - The Toro Company (NYSE:TTC) had a one-month return of 13.21% but lost 0.74% of its value over the last 52 weeks [2] - As of December 30, 2025, The Toro Company stock closed at $79.51 per share, with a market capitalization of $7.78 billion [2] Investment Positioning - The Toro Company was among several new positions initiated in Q3 2025, reflecting the belief that its price does not reflect its long-term growth outlook [3] - The company is not listed among the 30 most popular stocks among hedge funds, with 29 hedge fund portfolios holding it at the end of Q3, down from 36 in the previous quarter [4]

Core Viewpoint - The Toro Company is showing signs of a potential market recovery, with a bullish outlook for 2026 despite challenges faced in 2025 [2][5]. Group 1: Market Performance - The Toro Company's stock chart indicates that its bear market is over, with a baby bull market forming and gaining traction [2]. - There is clear support at long-term lows, suggesting a strengthening market commitment and an imminent breakout [2][4]. - The stock is attempting to establish a base after a difficult period, with indications that selling pressure is easing [3]. Group 2: Financial Performance - In 2025, the company experienced revenue contraction due to weakness in the consumer segment, but strength in the Pro segment and cost-saving efforts helped offset this [5]. - The AMP strategy has resulted in a 220 basis-point improvement in adjusted gross margin, with adjusted EPS exceeding consensus by over 450 basis points [5]. - Free cash flow reached a record high, and cost savings are expected to continue into the next fiscal year [5]. Group 3: Future Guidance - The Toro Company anticipates a modest single-digit revenue gain in 2026, with an increased earnings forecast that exceeds prior levels [6]. - The new guidance includes a 25% increase to the AMP savings target, expected to be realized by the end of fiscal year 2026 [6]. - The outlook for capital returns has improved, indicating a positive trajectory for investors [6]. Group 4: Capital Returns - The company's dividend yield is approximately 2% as of the end of 2025, deemed safe at 35% of the earnings forecast, with a history of annual distribution increases over 22 years [7]. - The cash flow and balance sheet support share buybacks, which reduced the share count by 4.4% in FY2025 and are expected to continue in FY2026 [7].

Core Insights - Toro reported a quarterly EPS of $0.91, exceeding analysts' expectations of $0.86 by $0.05, with revenue of $1.07 billion, surpassing the consensus estimate of $1.05 billion [2] - The company announced a quarterly dividend of $0.39 per share, increasing from the previous $0.38, resulting in an annualized dividend of $1.56 and a yield of 2.0% [3][4] - Institutional investors hold 87.95% of Toro's stock, with significant increases in positions from firms like AQR Capital Management and American Century Companies [5] Financial Performance - Toro's revenue for the quarter decreased by 0.9% compared to the same quarter last year, with a net margin of 7.01% and a return on equity of 28.90% [2] - The company has set its FY 2026 EPS guidance at 4.350-4.50, with analysts expecting an average EPS of 4.41 for the current fiscal year [2] Stock Performance - Toro's shares opened at $78.88, with a market capitalization of $7.72 billion, a P/E ratio of 24.88, and a beta of 0.84 [1] - The stock has a 52-week range of $62.34 to $87.46, with a quick ratio of 0.86 and a current ratio of 1.87 [1] Analyst Ratings - Toro has received mixed ratings from analysts, with three buy ratings, four hold ratings, and one sell rating, and a consensus price target of $92.20 [6] - Recent analyst actions include a downgrade from Zacks Research and price target adjustments from DA Davidson and Northland Securities [6] Options Trading Activity - There was a notable increase in options trading, with 1,176 put options purchased, representing a 1,709% increase compared to typical volumes [7] Company Overview - Toro specializes in outdoor equipment for residential, commercial, and professional markets, including lawn mowers, utility vehicles, and irrigation systems [8] - Founded in 1914 and headquartered in Bloomington, Minnesota, Toro has a long history of innovation in the grounds-care industry [9]

Core Insights - The Toro Company (TTC) has experienced a decline in share price since the last coverage, which was around $75 two months ago [1] Company Summary - The article discusses the recent performance of The Toro Company, particularly following its Q3 earnings report [1] - The share price of TTC has continued to decline, indicating potential challenges for the company [1] Analyst Background - The author has a master's degree in Analytics and a bachelor's degree in Accounting, with over 10 years of experience in the investment arena [1]

Group 1 - The article does not contain relevant content regarding company or industry insights [1]

Cost Management and Efficiency - The company aims to achieve annualized cost savings of over $125 million by fiscal 2027 through its "Amplifying Maximum Productivity" initiative[176]. - The company utilizes Lean methods in its manufacturing processes to streamline operations and reduce waste[41]. - The company utilizes DFM/A principles throughout the product development process to optimize product quality and reduce costs[42]. - Key cost exposures include commodities like steel, aluminum, and petroleum-based resins, which are subject to market price fluctuations and can impact manufacturing costs[44]. Environmental Commitment - The company is committed to increasing battery and hybrid product sales and reducing greenhouse gas emissions over time[176]. - The company is subject to California's AB 1346, which mandates that most new sales of small off-road engines must be zero-emission starting January 1, 2024[167]. - The business is subject to numerous environmental regulations, including emissions standards and waste disposal laws[85]. Product Quality and Innovation - The company emphasizes innovation and quality in its products, investing in new product development and improvements[38]. - The company faces significant risks associated with product quality issues and product liability claims, which could adversely affect its reputation and financial condition[171]. - The production system employs methodologies such as Kanban and build-to-order to align production with customer demand, resulting in improved service levels[43]. Market and Competition - The company faces competition from both larger and smaller firms across various markets, making precise market share estimation challenging[66]. - The order backlog represents unfulfilled customer orders and is an indicator of business conditions, though it does not directly predict future net sales[65]. Distribution and Sales - The company has a diverse distribution network with over 150 distributors and operates in more than 125 countries, reducing long-term dependency on any single customer[56]. - The company has agreements with third-party financing companies to provide alternative financing options to end-customers globally[63]. - Seasonal shipment volumes are highest in the fiscal second quarter, with retail demand peaking in the fiscal third quarter, impacting accounts receivable and working capital[51]. Employee Engagement and Development - The average number of employees during fiscal 2025 was 9,791, with a total of 9,227 employees as of October 31, 2025[72]. - Approximately 9.4% of employees were represented by a union under collective bargaining agreements, with agreements set to expire between March 2026 and October 2028[73]. - The company provides mandatory safety training each month to empower employees with knowledge and tools for safe choices[74]. - Employee engagement surveys are conducted to enhance the employee experience and promote retention[75]. - The company offers a wide range of professional development opportunities, including apprenticeships, job training, and leadership development programs[76]. - Health and wellness programs include 24/7 access to licensed physicians and on-site nurses at some manufacturing sites[77]. - The company conducts regular compensation market benchmarking to provide competitive pay and benefits[79]. Community and Social Responsibility - Community involvement includes employee volunteerism and donations, enhancing outdoor spaces and supporting local organizations[80]. - The company is committed to upholding human rights and prohibits all forms of child and forced labor[83]. Legal and Regulatory Compliance - The company is subject to extensive laws and regulations, which may increase compliance costs and affect its operating results[164]. - Compliance with existing laws and regulations has not historically impacted capital expenditures or earnings materially[87]. - The company monitors patent and trademark registrations to minimize infringement risks and is involved in patent litigation from time to time[48][49]. Company Background - The Toro Company was incorporated in 1935 and reincorporated in Delaware in 1983[88]. - The company files reports and other information with the SEC, which can be accessed on their website[89].

Financial Data and Key Metrics Changes - The company reported fourth-quarter consolidated net sales of $1.07 billion, a decrease of 0.9% from the previous year, primarily due to lower shipments and prior-year divestitures, partially offset by net price realization [13][14] - For the full year, total consolidated net sales were $4.51 billion, essentially in line with fiscal 2024 net sales, adjusting for the impact of divestitures [13][14] - Adjusted diluted earnings per share for the fourth quarter were $0.91, compared to $0.95 in the prior year, reflecting higher expenses related to restored employee incentives [15] - Full-year adjusted earnings per diluted share were $4.20, slightly up from $4.17 in fiscal 2024 [15] Business Line Data and Key Metrics Changes - Professional segment net sales in the fourth quarter were $910 million, virtually equal to last year's performance, with earnings margin at 19.2%, up 60 basis points year-over-year [11][12] - Residential segment fourth-quarter net sales were $147 million, down 5.1% from the prior year, but exceeded expectations due to net price realization and higher shipments of snow products [12][13] - For the full year, professional segment net sales rose 1.9% to $3.62 billion, while residential segment net sales were $858.4 million, down 14% from the prior year [12][13] Market Data and Key Metrics Changes - The company noted sustained momentum in the underground construction business and better-than-anticipated growth in snow and ice management [4][5] - The acquisition of Tornado Infrastructure Technologies is expected to enhance the company's position in the underground construction market, driven by new infrastructure installation projects [7][16] Company Strategy and Development Direction - The company is focused on leveraging its diverse portfolio and driving operational excellence, with a commitment to investing in technology and innovation [4][7] - The AMP program aims to achieve $125 million in cost savings by the end of 2026, up from the original target of at least $100 million [8][19] - The company is strategically investing in growth markets, particularly in golf, grounds, and underground construction, to strengthen its competitive position [22][24] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the macroeconomic environment, noting potential pressures from inflation and interest rates but also highlighting strong demand in key markets [17][21] - For fiscal 2026, the company expects total net sales to rise 2%-5%, with professional segment sales anticipated to grow mid-single digits and residential segment sales expected to decline low to mid-single digits [17][18] Other Important Information - The company achieved record free cash flow of $578 million for the year, resulting in a free cash flow conversion rate of 146% [4][15] - The company returned $441 million to shareholders through dividends and share repurchases, demonstrating confidence in its cash generation capabilities [15][19] Q&A Session Summary Question: Guidance on sales growth and volume expectations - Management indicated that a portion of the sales growth is attributed to the Tornado acquisition, with continued strength expected in the professional segment, particularly in underground construction [33][34] Question: Improvement expectations in residential segment - Management expects some recovery in the residential segment, driven by productivity improvements and favorable snow conditions, despite ongoing homeowner caution [37][39] Question: Details on the AMP program and savings - The company raised its AMP savings target to $125 million, with savings expected to come from supply-based improvements and operational efficiency, without needing increased volume [40][41] Question: Raw material cost expectations for 2026 - Management anticipates some inflation in raw material costs early in the year, settling mid-year, and has built these expectations into their guidance [44] Question: Channel inventories and backlog status - Management reported improved channel inventories and a $400 million year-over-year improvement in backlog, indicating strong demand across various segments [51][52]

Financial Data and Key Metrics Changes - The company reported consolidated net sales of $1.07 billion for Q4, a decrease of 0.9% from the previous year, primarily due to lower shipments and prior-year divestitures, partially offset by net price realization [21] - For the full year, total consolidated net sales were $4.5 billion, down 1.6% from fiscal 2024, largely due to strategic divestitures [7] - Adjusted diluted earnings per share for Q4 were $0.91, compared to $0.95 in the prior year, reflecting higher expenses related to employee incentive compensation [23] - Full-year adjusted earnings per diluted share were $4.20, slightly up from $4.17 in fiscal 2024 [24] Business Line Data and Key Metrics Changes - Professional segment net sales for Q4 were $910 million, virtually unchanged from the previous year, with earnings margin at 19.2%, up 60 basis points year-over-year [17] - Residential segment net sales for Q4 were $147 million, down 5.1% from the prior year, but exceeded expectations due to net price realization [20] - Full-year professional segment net sales rose 1.9% to $3.62 billion, with earnings margin improving to 19.4% from 18% in fiscal 2024 [19] Market Data and Key Metrics Changes - The company is focusing on key growth markets, particularly in golf, grounds, and underground specialty construction, anticipating a multi-year growth trajectory [8] - The acquisition of Tornado Infrastructure Equipment is expected to enhance the company's position in the underground construction market [9] Company Strategy and Development Direction - The company aims to enhance customer productivity through investments in technology and innovation, with a focus on operational excellence and cost savings [5][10] - The AMP program has been expanded, with a new savings target of $125 million by the end of 2026, up from the previous target of $100 million [11] - The company is committed to maintaining strong profit margins and market competitiveness through productivity improvements and selective price increases [10] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the macroeconomic environment, noting potential pressures from inflation and interest rates on consumer confidence [29] - For fiscal 2026, the company expects total net sales to rise by 2%-5%, with professional segment sales anticipated to grow mid-single digits and residential segment sales expected to decline low to mid-single digits [30] - The company is confident in its ability to navigate cost pressures while continuing to invest in innovation [31] Other Important Information - The company achieved record free cash flow of $578 million for the year, with a conversion rate of 146% [12] - A quarterly dividend increase from $0.38 to $0.39 was announced, along with a share repurchase authorization of up to six million shares [34] Q&A Session Summary Question: Guidance on sales growth and volume expectations - Management acknowledged that a portion of the sales growth is attributed to the Tornado acquisition and indicated continued strength in the professional segment, particularly in underground construction [52][54] Question: Improvement expectations in residential segment - Management expects some recovery in the residential segment, influenced by macroeconomic factors and potential restocking in the channel [57][60] Question: Details on the AMP program and additional savings - Management confirmed that the additional $25 million in savings is achievable through ongoing operational efficiency initiatives without needing volume growth [61][62] Question: Raw material cost expectations for 2026 - Management anticipates some inflation in raw material costs early in the year, with expectations of stabilization by mid-year [66] Question: Channel inventory status - Management reported that channel inventories are in good shape, with improved lead times contributing to customer confidence [73][80] Question: Margin guidance for professional segment - Management indicated that while some benefits from the AMP program will continue, the addition of Tornado may not be fully accretive to operating margin in the first year [81][82]

Financial Data and Key Metrics Changes - The company reported fourth-quarter consolidated net sales of $1.07 billion, a decrease of 0.9% from the previous year, primarily due to lower shipments and prior-year divestitures, partially offset by net price realization [14] - For the full year, total consolidated net sales were $4.51 billion, essentially in line with fiscal 2024 net sales, adjusting for the impact of divestitures [14] - Adjusted diluted earnings per share for the fourth quarter were $0.91, compared to $0.95 in the prior year, reflecting higher expenses related to restored employee incentives [15][16] - Full-year adjusted earnings per diluted share were $4.20, slightly up from $4.17 in fiscal 2024 [16] Business Line Data and Key Metrics Changes - Professional segment net sales in the fourth quarter were $910 million, virtually equal to last year's performance, with earnings margin at 19.2%, up 60 basis points year-over-year [11][12] - Residential segment fourth-quarter net sales were $147 million, down 5.1% from the prior year, but exceeded expectations due to net price realization and higher shipments of snow products [12][13] - For the full year, residential segment net sales were $858.4 million, down 14% from the prior year, with earnings margin at 4.2% [14] Market Data and Key Metrics Changes - The company experienced sustained momentum in the underground construction business and better-than-anticipated growth in snow and ice management [5] - The acquisition of Tornado Infrastructure Technologies is expected to enhance the company's position in the underground construction market, driven by new infrastructure installation projects [6][25] Company Strategy and Development Direction - The company is focused on leveraging its diverse portfolio, driving operational excellence, and investing in technology and innovation to enhance customer productivity [4][10] - The AMP program aims to achieve $125 million in annualized run-rate cost savings by the end of 2026, up from the original target of at least $100 million [8][19] - The company is strategically investing in growth markets such as golf, grounds, and underground construction, while maintaining a disciplined approach to capital deployment [17][28] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the macroeconomic environment, including inflation and interest rates, which may pressure consumer confidence [18] - For fiscal 2026, the company expects total net sales to rise by 2%-5%, with professional segment sales expected to grow mid-single digits and residential segment sales expected to decline low to mid-single digits [18][19] - The company anticipates an improvement in total adjusted gross margin in 2026, reflecting its ability to navigate cost pressures while investing in innovation [19] Other Important Information - The company returned $441 million to shareholders through dividends and share repurchases in fiscal 2025, demonstrating confidence in its cash generation capabilities [16][21] - The leverage ratio remains healthy at 1.3 times, providing financial flexibility for strategic investments [17] Q&A Session Summary Question: Guidance on sales growth and volume expectations - Management indicated that a portion of the sales growth is attributed to the Tornado acquisition, with continued strength expected in the professional segment, particularly in underground construction and golf [30][31] Question: Residential segment outlook - The residential segment is expected to see a decline in the first quarter but may improve in subsequent quarters due to factors like snow and channel restocking [32][33] Question: AMP program and savings targets - The company raised its AMP savings target to $125 million, with savings expected to come from operational efficiency and supply chain improvements [34][35] Question: Raw material costs for 2026 - Management expects some inflation in raw material costs early in the year, settling mid-year [37] Question: Channel inventories and backlog status - The company reported a $400 million improvement in backlog year-over-year, indicating strong demand across various segments [38][39]