Core Insights - The Toro Company has a strong market position with significant total returns of 4,930% since 2000, outperforming the S&P 500's 560% [1] - Recent sales have declined by 1% and net income by 10% over the last two years, leading to a 30% drop in stock price, resulting in a favorable valuation and a 10-year high dividend yield of 1.7% [2][12] - The company is well-positioned for future growth due to its essential products and diverse market segments [4] Market Segments - **Landscape and Grounds (37% of sales)**: This segment is currently under pressure due to economic conditions, but is nearing a rebound with inventory levels returning to normal [6] - **Underground and Specialty Construction (23% of sales)**: This segment is experiencing growth driven by megatrends such as broadband expansion and infrastructure upgrades, with a book-to-bill ratio over 1 indicating strong demand [8][9] - **Golf (17% of sales)**: Toro holds a 50% market share in this segment, providing steady revenue through leasing agreements and serving prestigious golf courses [10] - **Residential (19% of sales)**: Growth in this segment is accelerating due to a partnership with Lowe's, although it remains sensitive to economic conditions [11] Financial Performance - Toro has maintained strong profitability with net profit and free cash flow margins averaging 9% over the last decade, allowing for funding of acquisitions and dividends [12] - The current dividend yield of 1.7% is sustainable with a payout ratio of only 37%, and has grown at a 16% annual rate since 2014 [14] - The price-to-sales (P/S) ratio of 1.9 is approximately 20% below its 10-year average, indicating a favorable valuation [14] Future Outlook - Management aims to achieve $100 million in annual cost savings by 2027, positioning the company as a strong rebound candidate for investors [15]

Financial Data and Key Metrics Changes - The company reported a nearly 7% increase in net sales to $1.16 billion for Q3 2024, compared to the previous year [6][12] - Adjusted diluted earnings per share rose by 24% to $1.18, up from $0.95 last year [9][12] - Free cash flow improved significantly, totaling $270.5 million year-to-date, an increase of over $200 million compared to last year [18][19] Business Line Data and Key Metrics Changes - The Residential segment saw a 53% increase in net sales to $267.5 million, driven by higher shipments to the mass channel [6][14] - The Professional segment's net sales were $880.9 million, down 1.7% year-over-year, primarily due to lower shipments of snow and ice management products [12][13] - Residential segment earnings increased to $32.6 million, up from $3.8 million last year, reflecting improved productivity and net price realization [14] Market Data and Key Metrics Changes - The company noted elevated order backlogs in both the underground construction and golf and grounds businesses, despite a decrease in backlog compared to the previous year [22][38] - The overall order backlog improved from $1.97 billion at the end of fiscal 2023, although it remains higher than normal [22] Company Strategy and Development Direction - The company is focused on driving productivity and operational excellence through its AMP initiative, aiming for at least $100 million in annualized savings by fiscal 2027 [10][58] - Strategic adjustments included the sale of its Australia-based pulp products business and rebranding efforts to leverage the Spartan brand [11] - The company plans to invest $115 million in capital expenditures during fiscal 2024 to support new product investments and advanced manufacturing technologies [20] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism for future growth, citing strong demand in the underground construction and golf markets, while acknowledging macroeconomic uncertainties [26][45] - The company expects to continue normalizing field inventories and anticipates a return to more typical demand patterns in the coming fiscal year [22][30] Other Important Information - The effective tax rate for Q3 was reported at 17.3%, a significant decrease from 47.6% a year ago, primarily due to a favorable geographic mix of earnings [16] - The company has maintained a strong balance sheet with a leverage ratio within its target of 1x to 2x on a gross basis [19] Q&A Session Summary Question: Context on backlog and order intake - Management indicated that while backlog has decreased year-over-year and sequentially, strong order intake continues to keep backlog elevated, particularly in golf and underground construction [38][39] Question: Inventory management and macro caution - Management confirmed they are 80% of the way to normalizing dealer field inventory levels, with caution observed primarily from homeowners on larger ticket items [41][43] Question: Future sales growth expectations - Management expressed cautious optimism for next year's sales growth, driven by strong demand in golf and underground markets, while acknowledging macroeconomic uncertainties [45] Question: Change in tax rate implications - The change in tax rate was attributed to a favorable geographic mix of earnings and a transfer pricing study, not a significant change in international business performance [47][48] Question: Opportunities in golf projects - Management confirmed that the 500 significant golf projects worldwide involve both equipment and irrigation upgrades, indicating strong growth potential [50][51] Question: M&A market outlook - Management remains open to M&A opportunities, particularly in technology, while maintaining a disciplined approach to capital allocation [52][53] Question: Impact of July's slowdown on August performance - Management noted that August showed a bit more normalization, but caution from homeowners persisted, influencing guidance for the rest of the year [55][56]

Financial Performance - Consolidated net sales for Q3 fiscal 2024 were $1,156.9 million, a 6.9% increase from $1,081.8 million in Q3 fiscal 2023[106]. - Professional segment net sales for Q3 fiscal 2024 were $880.9 million, a decrease of 1.7% compared to $896.3 million in Q3 fiscal 2023[106]. - Residential segment net sales for Q3 fiscal 2024 were $267.5 million, an increase of 52.6% compared to $175.3 million in Q3 fiscal 2023[106]. - Net earnings for Q3 fiscal 2024 were $119.3 million, or $1.14 per diluted share, compared to a net loss of $15.0 million, or $0.14 per diluted share, in Q3 fiscal 2023[106]. - Adjusted net earnings for Q3 fiscal 2024 were $123.7 million, or $1.18 per diluted share, compared to $99.4 million, or $0.95 per diluted share, in Q3 fiscal 2023[106]. - Gross profit for Q3 fiscal 2024 was $402.8 million, an 8.2% increase from $372.4 million in Q3 fiscal 2023, with a gross margin of 34.8%[109]. - SG&A expense increased by $14.5 million, or 6.0%, for Q3 fiscal 2024 compared to Q3 fiscal 2023[110]. - International net sales decreased by $16.8 million in Q3 fiscal 2024, primarily due to lower shipments of both Residential and Professional segment products[108]. Shareholder Returns - The company returned $221.8 million to shareholders through dividends and share repurchases in the first nine months of fiscal 2024[106]. - A cash dividend of $0.36 per share was approved for Q3 fiscal 2024, representing a 5.9% increase from $0.34 per share in Q3 fiscal 2023[135]. - During the first nine months of fiscal 2024, the company repurchased 1,178,074 shares, with 5,771,417 shares remaining available for repurchase[136]. - The company expects to continue paying quarterly cash dividends and repurchasing shares throughout the remainder of fiscal 2024[135][136]. Debt and Liquidity - As of August 2, 2024, available liquidity was $818.4 million, consisting of cash and cash equivalents of $221.1 million and availability under the revolving credit facility of $597.3 million[132]. - As of August 2, 2024, total long-term debt is $991.9 million, a decrease from $1,061.3 million on August 4, 2023[133]. - The company has a $600 million revolving credit facility with $597.3 million of unutilized availability as of August 2, 2024[133]. - The company is in compliance with all debt covenants and requirements of its credit agreements as of August 2, 2024[133]. Operational Efficiency - The company announced the AMP initiative, aiming for annualized cost savings of at least $100 million by fiscal 2027[104]. - The company launched a significant productivity initiative named AMP in the first quarter of fiscal 2024, which is expected to enhance operational efficiency[143]. - Non-GAAP financial measures are used to assess liquidity and operational performance, providing supplemental information to U.S. GAAP measures[138]. Tax and Earnings - The effective tax rate for Q3 fiscal 2024 was 17.3%, a significant decrease from 47.6% in Q3 fiscal 2023, primarily due to prior year tax impacts and a favorable geographic mix of earnings[115]. - Adjusted net earnings for Q3 fiscal 2024 increased by 24.2% per diluted share to $123.7 million, or $1.18 per diluted share, compared to $99.4 million, or $0.95 per diluted share, in Q3 fiscal 2023[116]. Market Risks - The company is exposed to market risks from foreign currency exchange rates, interest rates, and commodity costs, which could affect earnings and cash flows[147]. - The company is exposed to commodity cost changes, particularly in steel, aluminum, petroleum, and natural gas-based resins, which are critical for manufacturing[152]. - The company may increase product prices to offset changes in the cost of commodities, components, parts, and accessories[154]. - The company faces potential declines in gross margins if commodity and component costs increase without effective pricing strategies[154]. Receivables and Cash Flow - Accounts receivable increased by $141.6 million, or 36.2%, as of the end of Q3 fiscal 2024 compared to Q3 fiscal 2023[127]. - Net cash provided by operating activities for the first nine months of fiscal 2024 was $329.8 million, up from $154.7 million in the same period of fiscal 2023[129]. - The net amount of receivables financed for dealers under the arrangement with Red Iron decreased from $2,160.8 million in August 2023 to $1,882.3 million in August 2024[137]. - The total amount of net receivables outstanding under the arrangement with HCFC and other institutions increased from $187.2 million in August 2023 to $228.5 million in August 2024[137]. - The company is contingently liable to repurchase up to $30.2 million of inventory related to receivables under inventory repurchase agreements as of August 2, 2024[137]. Interest Rate and Currency Management - The company has a gross fixed-rate long-term debt of $524.2 million and gross variable rate debt of $470.0 million as of August 2, 2024[151]. - The company does not use interest rate swaps to mitigate interest rate fluctuations, indicating a conservative approach to interest rate risk[151]. - The average contracted rate for foreign currency exchange contracts as of August 2, 2024, indicates ongoing management of currency risk through derivative instruments[149]. - The average contracted rate for buying U.S. dollars and selling Australian dollars is 0.6632, with a notional amount of $92.4 million[150]. - The average contracted rate for buying U.S. dollars and selling Euros is 1.1074, with a notional amount of $177.1 million[150].

Financial Performance - Third-quarter net sales reached $1.16 billion, a 6.9% increase from $1.08 billion in the same period of fiscal 2023[1]. - Reported diluted EPS for the third quarter was $1.14, up from $(0.14) in the same period last year, while adjusted diluted EPS was $1.18, a 24.2% increase from $0.95[1][5]. - The professional segment net sales were $880.9 million, down 1.7% from $896.3 million, primarily due to lower shipments of snow and ice management products[6]. - The residential segment net sales increased by 52.6% to $267.5 million, driven by higher shipments to the mass channel[7]. - Gross margin for the third quarter was 34.8%, up from 34.4% in the same prior-year period, attributed to productivity improvements and net price realization[8]. - Operating earnings for the three months ended August 2, 2024, were $148.1 million, a recovery from an operating loss of $19.1 million in the same period last year[17]. - Net earnings for the nine months ended August 2, 2024, were $329.0 million, compared to $259.4 million for the same period last year, representing an increase of 27.0%[17]. - Adjusted net earnings for the nine months ended August 2, 2024, were $337.5 million, down from $369.4 million for the same period in 2023[21]. Cash Flow and Investments - Net cash provided by operating activities for the nine months ended August 2, 2024, was $329.8 million, significantly higher than $154.7 million for the same period in 2023[20]. - Net cash used in investing activities decreased to $43.4 million for the nine months ended August 2, 2024, from $119.2 million in the same period of 2023[20]. - Net cash used in financing activities increased to $260.5 million for the nine months ended August 2, 2024, compared to $82.4 million for the same period in 2023[20]. - Free cash flow for the nine months ended August 2, 2024, was $270.5 million, significantly up from $56.1 million for the same period in 2023[25]. - The company reported a free cash flow conversion percentage of 82.2% for the nine months ended August 2, 2024, a substantial increase from 21.6% in the prior year[25]. - Purchases of property, plant, and equipment were $59.3 million in August 2024, down from $98.6 million in August 2023[25]. Future Outlook - The company expects total net sales growth of about 1% for fiscal 2024, with adjusted diluted EPS guidance revised to a range of $4.15 to $4.20[4]. - The company remains optimistic about fiscal 2025 and beyond, focusing on agility, productivity, and leveraging its innovative product portfolio[4]. - The company anticipates at least $100 million in annualized run rate savings by fiscal 2027 from its multi-year productivity initiative named AMP[3]. - The company anticipates continued demand trends and has provided fiscal 2024 financial guidance, although specific figures were not disclosed in the provided content[16]. Tax and Inventory Management - The effective tax rate for the third quarter was reported at 17.3%, a decrease from 47.6% in the same prior-year period[9]. - The effective tax rate for the nine months ended August 2, 2024, was 17.3%, compared to 47.6% for the same period in 2023[21]. - Significant progress was made in reducing dealer field inventories of lawn care products, with expectations to exit the fiscal year in a better position than last year[3]. Segment Performance - Net sales for the three months ended August 2, 2024, were $1,156.9 million, an increase from $1,081.8 million for the same period last year, representing a growth of 6.9%[17]. - Gross profit for the nine months ended August 2, 2024, was $1,200.3 million, compared to $1,248.0 million for the same period last year, indicating a decrease of 3.8%[17]. - The gross margin for the three months ended August 2, 2024, improved to 34.8% from 34.4% in the same period last year[17]. - The Professional segment net sales for the three months ended August 2, 2024, were $880.9 million, a decrease of 1.6% from $896.3 million in the prior year[18]. - The Residential segment net sales increased significantly to $267.5 million for the three months ended August 2, 2024, compared to $175.3 million for the same period last year, reflecting a growth of 52.6%[18]. Impairment and Charges - Non-cash impairment charges recorded in the third quarter of fiscal 2023 amounted to $151.3 million, impacting the operating segment related to the Intimidator Group[22]. - The company launched the "Amplifying Maximum Productivity" (AMP) initiative in the first quarter of fiscal 2024, which includes significant third-party consulting costs and other related expenses[22].

Financial Data and Key Metrics Changes - The company reported consolidated net sales of $1.35 billion for the second quarter, an increase of 26% year-over-year, driven by strong performance in the residential segment [25][27] - Adjusted diluted earnings per share (EPS) were $1.40, down from $1.58 in the same quarter last year, primarily due to segment mix and higher material costs [27][95] - Operating earnings as a percentage of net sales were 13.9%, compared to 16.3% in the same period last year, reflecting increased costs and changes in product mix [28][69] Business Segment Data and Key Metrics Changes - Residential segment net sales reached $335.6 million, up 26.3% year-over-year, with earnings increasing to $36.1 million, representing a margin of 10.8% [5][97] - Professional segment net sales were just over $1 million, down 5.9% year-over-year, primarily due to lower shipments of zero-turn mowers, partially offset by higher shipments in underground and specialty construction [62][97] - The company expects both professional and residential segment earnings margins to be higher than last year, with a slight improvement in professional segment margins [8] Market Data and Key Metrics Changes - The underground construction market is expected to see strong demand driven by infrastructure needs, with the company positioned as a market leader [11][32] - Golf tourism is projected to exceed 12 million travelers in 2024, about 20% above historical averages, indicating a positive outlook for the golf and grounds segment [10] - The company anticipates a reduction in preseason sell-in demand for snow and ice management products due to elevated field inventories from the previous season [33] Company Strategy and Development Direction - The company is focused on driving shareholder value through strategic investments, with plans to allocate $125 million in capital expenditures for new product investments and advanced manufacturing technologies [7][73] - The company is prioritizing investments in technology areas such as alternative power and smart connected solutions to enhance product development and competitive advantages [12][61] - The company aims to achieve $100 million in annualized savings by fiscal 2027 through its productivity initiative, AMP, while reinvesting up to 50% of those savings into innovation [26][115] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to deliver growth in fiscal 2024, supported by strong fundamentals and market leadership [73][76] - The supply chain has largely returned to normal, enabling increased output to meet elevated order backlogs [73][102] - Management noted that retail activity for the 2024 spring season is off to a good start, with expectations for demand driven by regular replacement needs [74][75] Other Important Information - The company ended the quarter with a strong balance sheet, maintaining a gross debt-to-EBITDA leverage ratio within the target range of 1 to 2 times [7] - Accounts receivable increased by 34.9% year-over-year, primarily due to increased shipments to the mass channel [98] - The effective tax rate for the quarter was reported at 19.2%, down from 20.6% a year ago, reflecting a more favorable geographic mix of earnings [63] Q&A Session Summary Question: Will next fiscal year show organic total sales growth? - Management indicated that there is confidence in continued growth into next year, supported by demand and order profiles [106] Question: What is the expected timing for normalizing elevated field inventories? - Management expects to normalize field inventories throughout the year, particularly in the second and third quarters [122] Question: How is the productivity initiative progressing? - The AMP initiative is off to a great start, with expectations of achieving $100 million in annual savings by 2027 [115] Question: What is the outlook for the golf industry segments? - Management noted positive trends across private, semi-private, and public courses, with sustained spending in the golf industry [131] Question: What needs to occur to turn around the zero-turn mowers segment? - Management acknowledged that addressing elevated inventories and improving sell-through rates are critical for this segment [131]

0.7% NET SALES GROWTH | --- | --- | |----------------------------------------------------|-------| | | | | Decrease was primarily due to product mix given | | | exceptional residential segment growth and higher | | | material and manufacturing costs, partially offset | | | by productivity improvements | | 6 * Non-GAAP Measures: refer to the Appendix of this presentation for additional information and reconciliation YTD Free Cash Flow Up Nearly $100M Order Backlog Remains Elevated; Making Progress Amplifying ...

FORM 10-Q ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended May 3, 2024 Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period from to Commission File Number: 1-8649 THE TORO COMPANY (Exact name of registrant as specified in its charter) State or Other Jurisdiction of Incorporation or Org ...

"We executed well in the second quarter, delivering results aligned with our expectations and achieving record net sales," said Richard M. Olson, chairman and chief executive officer. "We realized exceptional growth in our residential segment due to our strong mass channel, successful new product introductions, and better weather conditions compared to last year. Our quarterly results also reflect growth in our professional segment's underground and specialty construction, and golf and grounds businesses. F ...

Financial Data and Key Metrics Changes - Professional segment earnings for the first quarter were $112.8 million, down from $144.1 million last year, with earnings as a percentage of net sales at 14.9%, compared to 16.4% last year [2] - Interest expense for the quarter was $16.2 million, up $2.1 million from last year, primarily due to higher average interest rates and outstanding borrowings [3] - Consolidated net sales for the quarter were just over $1 billion, a decrease of 12.8% compared to last year, with adjusted diluted EPS at $0.64, down from $0.98 [95] Business Line Data and Key Metrics Changes - Professional segment net sales for the first quarter were $756.5 million, down 14.1% year-over-year, primarily due to lower shipments of zero-turn mowers and snow products [39] - Residential segment net sales for the first quarter were $240.1 million, down 9.3% compared to last year, driven by lower shipments of snow products and zero-turn mowers [83] - Adjusted gross margin for the quarter was 34.4%, slightly down from 34.5% in the same period last year, primarily due to unfavorable product mix within the residential segment [96] Market Data and Key Metrics Changes - The company expects continued strength in demand for underground and specialty construction products, supported by private and public spending addressing global issues [88] - For golf, the company anticipates sustained demand driven by new golfers and rounds played, with U.S. rounds played at the highest ever [17] - The company expects retail demand for landscape contractors to remain steady, with some price sensitivity, while homeowner demand is expected to stabilize in spring [18] Company Strategy and Development Direction - The company plans to fund $125 million in capital expenditures for new product investments and advanced manufacturing technologies [4] - The AMP initiative aims to deliver at least $100 million of annualized savings by fiscal 2027, focusing on productivity and operational excellence [10][16] - The company is committed to sustainability and innovation, developing products that drive productivity and reduce environmental impact [94] Management's Comments on Operating Environment and Future Outlook - Management is closely monitoring business and consumer confidence, spending patterns, and macroeconomic factors such as inflation and geopolitical events [7] - The company reaffirms its full-year fiscal 2024 net sales and adjusted diluted EPS guidance, expecting low single-digit total company net sales growth [42] - Management expressed confidence in the ability to drive long-term growth through strategic investments and maintaining a strong balance sheet [11][41] Other Important Information - Accounts receivables were $489.1 million, up 29.6% from a year ago, primarily due to timing of shipments [13] - Inventory was $1.18 billion, up 4% compared to last year, driven by higher finished goods balances [13] - Free cash flow in the quarter was a $111.3 million use of cash, primarily due to aligning production and inventory levels to demand [97] Q&A Session Summary Question: Clarification on DSOs and share repurchase activity - Management confirmed that DSOs were up due to initial sell-in to Lowe's and noted no share repurchase activity in the quarter, focusing on paying down the revolver first [23][52] Question: Outlook for the second half of the year - Management expressed confidence in the second half, expecting improved field inventory and increased output to address backlog [25] Question: Update on order patterns and cancellations - Management reported no significant order cancellations and noted healthy order growth, with slight progress in reducing backlog [104][130] Question: Insights on the underground business and market demand - Management highlighted strong market demand for underground and specialty construction, driven by significant funding for broadband and infrastructure projects [110][136] Question: Working capital trends and inventory management - Management expects to see working capital improvement throughout the year, with a focus on reducing inventory levels [146]

| --- | --- | --- | |--------------------------|-------|-------| | | | | | | | | | | | | | | | | | | | | | | | | | THE TORO | | | | COMPANY | | | | Q1 2024 EARNINGS RELEASE | | | | March 7, 2024 | | | | | | | | | | | The Toro Company: 4 Q1 2024 EARNINGS RELEASE THE TORO COMPANY Q1 2024 Key Messages 2 Our multi-year productivity initiative, "AMP," is off to a great start and we are on track to deliver more than $100 million in annualized cost savings by fiscal 2027 Decrease was primarily due to lower shipmen ...