The Toro pany(TTC) - 2025 Q3 - Quarterly Results

Executive Summary Q3 Fiscal Year 2025 Performance Overview The Toro Company exceeded adjusted earnings expectations in Q3 FY2025, driven by strong Professional Segment performance with 6% growth and 250 basis points of margin expansion, despite Residential Segment headwinds, with the AMP productivity plan contributing to cost savings - Adjusted earnings exceeded expectations, primarily driven by the strong performance of the Professional Segment, which achieved 6% growth and 250 basis points of margin expansion[2] - Underground construction, golf, and grounds businesses were key drivers of net sales and profitability this quarter[3] - The AMP productivity plan is progressing well, projected to achieve at least $100 million in run-rate savings by 2027[3] Key Financial Highlights (Q3) Q3 FY2025 net sales decreased by 2% year-over-year to $1.13 billion, partly due to last year's non-core asset divestiture, with reported diluted EPS at $0.54 including a non-cash impairment charge related to the Spartan business, while adjusted diluted EPS grew 5% to $1.24, as Professional Segment profit growth offset Residential Segment declines Q3 Fiscal Year 2025 Key Financial Data | Metric | Q3 FY2025 | Q3 FY2024 | YOY Change | | :----- | :--------------- | :--------------- | :------- | | Net Sales | $1.13 billion | $1.16 billion | (2)% | | Reported Diluted EPS | $0.54 | $1.14 | (53)% | | Adjusted Diluted EPS | $1.24 | $1.18 | 5% | - Reported diluted EPS includes a non-cash impairment charge of ($0.62) per share (pre-tax ($81) million) reflecting the impact on the Spartan business due to soft homeowner demand and slower-than-expected market recovery[3] - The company continues to drive free cash flow improvement through favorable net working capital in the third quarter[3] Outlook & Fiscal Year 2025 Guidance Fiscal Year 2025 Guidance Management anticipates total company net sales and adjusted diluted EPS for FY2025 to be at the lower end of previous guidance: net sales flat to down 3%, and adjusted diluted EPS of approximately $4.15, with the AMP plan currently saving $75 million annually, targeting at least $100 million by 2027 Fiscal Year 2025 Company Guidance | Metric | FY2025 Guidance | | :----- | :----------- | | Net Sales | Flat to down 3% | | Adjusted Diluted EPS | Approx. $4.15 | - This guidance is based on current visibility, including anticipated tariff impacts, and is at the lower end of the previously provided range[5] - The AMP plan currently saves $75 million annually, targeting at least $100 million by 2027, contributing to earnings growth without revenue expansion[4] Factors Influencing Outlook The FY2025 guidance reflects macroeconomic factors leading to increased homeowner and channel caution and lower volumes; continued strong demand and stable supply in underground construction, golf, and grounds businesses; and weather patterns consistent with historical averages for the remainder of the year - Macroeconomic factors are leading to decreased sales volumes and increased caution among homeowners and channels[6] - Continued strong demand and stable supply are observed in the underground construction, golf, and grounds businesses[6] - Weather patterns for the remainder of the year are expected to be consistent with historical averages[6] Third-Quarter Fiscal Year 2025 Operating Results Q3 Fiscal Year 2025 Consolidated Operating Metrics | Metric | Q3 FY2025 | Q3 FY2024 | Change (bps) | | :----- | :--------------- | :--------------- | :----------- | | Gross Margin | 33.7% | 34.8% | (110) | | Adjusted Gross Margin | 34.4% | 35.4% | (100) | | SG&A as a % of Net Sales | 20.8% | 22.0% | (120) | | Operating Earnings as a % of Net Sales | 5.7% | 12.8% | (710) | | Adjusted Operating Earnings as a % of Net Sales | 13.6% | 13.7% | (10) | Consolidated Operating Performance Q3 FY2025 gross margin and adjusted gross margin decreased year-over-year, primarily impacted by lower net sales, higher material and manufacturing costs, and inventory valuation adjustments, partially offset by productivity improvements and net price realization, while SG&A as a percentage of net sales improved, and operating earnings and adjusted operating earnings margins varied Gross Margin and Operating Earnings Q3 FY2025 gross margin decreased by 110 basis points to 33.7% (adjusted 34.4%), primarily due to lower sales volumes, increased material and manufacturing costs, and inventory valuation adjustments, partially offset by productivity improvements and net price realization, while SG&A as a percentage of net sales improved from 22.0% to 20.8% year-over-year, mainly driven by cost savings and reduced marketing expenses Gross Margin and SG&A Changes | Metric | Q3 FY2025 | Q3 FY2024 | Change (bps) | | :----- | :--------------- | :--------------- | :----------- | | Gross Margin | 33.7% | 34.8% | (110) | | Adjusted Gross Margin | 34.4% | 35.4% | (100) | | SG&A as a % of Net Sales | 20.8% | 22.0% | (120) | - Gross margin decline was primarily due to lower net sales, higher material and manufacturing costs, and inventory valuation adjustments, partially offset by productivity improvements, net price realization, and product mix optimization[9] - SG&A improvement was mainly driven by cost savings initiatives and reduced marketing expenses, partially offset by lower net sales[10] Interest Expense and Effective Tax Rate Q3 interest expense slightly increased to $15.1 million, primarily due to higher average outstanding borrowings despite a lower average interest rate, while the reported effective tax rate significantly decreased to 7.4%, mainly influenced by the non-cash impairment charge and a more favorable geographic earnings mix, with the adjusted effective tax rate at 17.3% Interest Expense and Effective Tax Rate Changes | Metric | Q3 FY2025 | Q3 FY2024 | Change | | :----- | :--------------- | :--------------- | :----- | | Interest Expense | $15.1 million | $14.5 million | +$0.6 million | | Reported Effective Tax Rate | 7.4% | 17.3% | (990) bps | | Adjusted Effective Tax Rate | 17.3% | 18.0% | (70) bps | - The decrease in reported effective tax rate was primarily due to the impact of the non-cash impairment charge and a more favorable geographic earnings mix[12] Segment Performance The Professional Segment achieved strong growth in both net sales and earnings, primarily driven by increased shipments of underground construction and golf and grounds products, while the Residential Segment experienced significant declines in both net sales and earnings due to soft homeowner demand Professional Segment Professional Segment net sales grew 5.7% to $930.8 million, primarily driven by increased shipments of underground construction and golf and grounds products and net price realization, with segment earnings increasing to $198.5 million, representing 21.3% of net sales, up from 18.8% last year, benefiting from productivity improvements, net price realization, sales leverage, and cost savings Professional Segment Performance | Metric | Q3 FY2025 | Q3 FY2024 | YOY Change | | :----- | :--------------- | :--------------- | :------- | | Net Sales | $930.8 million | $880.9 million | 5.7% | | Segment Earnings | $198.5 million | $165.7 million | 19.8% | | Earnings as a % of Net Sales | 21.3% | 18.8% | +250 bps | - Net sales growth was primarily driven by increased shipments of underground construction and golf and grounds products and net price realization, partially offset by last year's divested businesses[14] - Profitability improvement was mainly due to productivity enhancements, net price realization, net sales leverage, cost savings initiatives, and reduced marketing expenses, partially offset by higher material and manufacturing costs[14] Residential Segment Residential Segment net sales decreased by 27.9% to $192.8 million, primarily due to lower homeowner demand leading to reduced shipments across the segment, with segment earnings significantly declining to $3.7 million, representing 1.9% of net sales, down from 12.2% last year, mainly impacted by lower sales volumes, higher material and manufacturing costs, inventory valuation adjustments, and increased sales promotions and incentives Residential Segment Performance | Metric | Q3 FY2025 | Q3 FY2024 | YOY Change | | :----- | :--------------- | :--------------- | :------- | | Net Sales | $192.8 million | $267.5 million | (27.9)% | | Segment Earnings | $3.7 million | $32.6 million | (88.7)% | | Earnings as a % of Net Sales | 1.9% | 12.2% | (1030) bps | - Net sales decline was primarily due to decreased homeowner demand leading to reduced shipments across the segment[14] - Profitability decline was mainly driven by lower net sales, higher material and manufacturing costs, inventory valuation adjustments, and increased sales promotions and incentives, partially offset by productivity improvements and cost savings initiatives[14] Financial Statements Condensed Consolidated Statements of Earnings The condensed consolidated statements of earnings show a significant decrease in net earnings for both the three and nine-month periods ended August 1, 2025, primarily due to reduced net sales and the impact of non-cash impairment charges, with diluted EPS also declining substantially Condensed Consolidated Statements of Earnings Summary | Metric | Three Months Ended August 1, 2025 | Three Months Ended August 2, 2024 | Nine Months Ended August 1, 2025 | Nine Months Ended August 2, 2024 | | :----- | :--------------------- | :--------------------- | :-------------------- | :-------------------- | | Net Sales | $1,131.3 million | $1,156.9 million | $3,444.2 million | $3,507.8 million | | Gross Profit | $381.8 million | $402.8 million | $1,154.1 million | $1,200.3 million | | Operating Earnings | $64.8 million | $148.1 million | $317.4 million | $424.3 million | | Net Earnings | $53.5 million | $119.3 million | $243.1 million | $329.0 million | | Diluted EPS | $0.54 | $1.14 | $2.42 | $3.14 | - A non-cash impairment charge of $81.1 million was recorded for both the three and nine-month periods ended August 1, 2025[25] Condensed Consolidated Balance Sheets As of August 1, 2025, total company assets were $3.5198 billion, a decrease from $3.7314 billion on August 2, 2024, with key changes including reductions in accounts receivable, inventory, and other intangible assets, while goodwill remained stable, and total shareholders' equity also decreased Condensed Consolidated Balance Sheets Summary | Asset/Liability | August 1, 2025 | August 2, 2024 | October 31, 2024 | | :-------------- | :---------- | :---------- | :----------- | | Total Assets | $3,519.8 million | $3,731.4 million | $3,582.8 million | | Cash and Cash Equivalents | $201.0 million | $221.1 million | $199.5 million | | Inventories, Net | $1,036.2 million | $1,082.0 million | $1,038.9 million | | Other Intangible Assets, Net | $398.6 million | $512.4 million | $498.7 million | | Total Current Liabilities | $955.9 million | $984.4 million | $976.0 million | | Long-Term Debt, Less Current Portion | $1,012.2 million | $966.6 million | $911.8 million | | Total Shareholders' Equity | $1,411.1 million | $1,636.4 million | $1,551.9 million | Condensed Consolidated Statements of Cash Flows For the nine-month period ended August 1, 2025, net cash provided by operating activities increased to $348.9 million from $329.8 million in the prior year, while net cash used in investing and financing activities both increased, primarily due to higher common stock repurchases and debt repayments Condensed Consolidated Statements of Cash Flows Summary | Cash Flow Activity | Nine Months Ended August 1, 2025 | Nine Months Ended August 2, 2024 | | :----------------- | :--------------------- | :--------------------- | | Net Cash Provided by Operating Activities | $348.9 million | $329.8 million | | Net Cash Used in Investing Activities | ($50.7) million | ($43.4) million | | Net Cash Used in Financing Activities | ($298.1) million | ($260.5) million | | Net Increase in Cash and Cash Equivalents | $1.5 million | $28.0 million | | Cash and Cash Equivalents at End of Period | $201.0 million | $221.1 million | - Common stock repurchases significantly increased to $290 million during the current nine-month period, compared to $109.2 million in the prior year period[31] Non-GAAP Financial Measures Reconciliation Reconciliation of Non-GAAP Performance Measures The company provides reconciliation tables for various non-GAAP performance measures, including adjusted gross profit, operating earnings, net earnings, and diluted EPS, calculated by adjusting for productivity initiatives and non-cash impairment charges, demonstrating that adjusted performance is higher than reported GAAP figures Non-GAAP Performance Measures Reconciliation Summary (Three Months Ended August 1, 2025) | Metric | GAAP Reported | Adjustments (Productivity + Impairment) | Adjusted Non-GAAP | | :-------------------------------------- | :------- | :--------------------------------------- | :----------- | | Gross Profit | $381.8 million | $7.2 million (Productivity) | $389.0 million | | Operating Earnings | $64.8 million | $8.1 million (Productivity) + $81.1 million (Impairment) | $154.0 million | | Net Earnings | $53.5 million | $7.7 million (Productivity, after-tax) + $61.4 million (Impairment, after-tax) - $0.1 million (Share-based compensation tax impact) | $122.5 million | | Diluted EPS | $0.54 | $0.08 (Productivity, after-tax) + $0.62 (Impairment, after-tax) + $0.00 (Share-based compensation tax impact) | $1.24 | - A non-cash impairment charge of $81.1 million (pre-tax) had a significant impact on reported GAAP earnings[33] Reconciliation of Non-GAAP Liquidity Measures For the nine-month period ended August 1, 2025, free cash flow increased to $291.9 million from $270.5 million in the prior year, with the free cash flow conversion rate improving from 82.2% to 90.0%, indicating enhanced ability to convert adjusted net earnings into cash Non-GAAP Liquidity Measures Reconciliation Summary (Nine Months Ended) | Metric | August 1, 2025 | August 2, 2024 | | :------------------------- | :---------- | :---------- | | Net Cash Provided by Operating Activities | $348.9 million | $329.8 million | | Less: Purchases of Property, Plant and Equipment, Net of Insurance Claim Proceeds | $57.0 million | $59.3 million | | Free Cash Flow | $291.9 million | $270.5 million | | Net Earnings, Excluding Non-Cash Impairment Charge | $324.2 million | $329.0 million | | Free Cash Flow Conversion Rate | 90.0% | 82.2% | Non-GAAP Adjustments Footnotes This section details the rationale for non-GAAP adjustments, including the 'Amplify Productivity' (AMP) initiative, non-cash impairment charges related to the Spartan trademark, and the tax impact of share-based compensation - AMP initiative expenses primarily include severance and termination benefits, facility exit costs, AMP dedicated personnel compensation, third-party consulting fees, and product line exit costs, which are considered unusual, non-recurring operating expenses[35] - At the end of Q3 FY2025, the company recorded a non-cash impairment charge related to the Spartan trademark[35] - The tax impact of share-based compensation refers to discrete tax benefits recorded as excess tax deductions for share-based compensation, which amounts may be unpredictable[35] Corporate Information & Disclosures About The Toro Company The Toro Company is a leading global provider of outdoor environment solutions, with $4.6 billion in net sales for FY2024, operating in over 125 countries through its brands, offering solutions for turf and landscape maintenance, snow and ice management, underground utility construction, rental and specialty construction, and irrigation and outdoor lighting - The company is a leading global provider of outdoor environment solutions, covering turf and landscape maintenance, snow and ice management, underground utility construction, rental and specialty construction, and irrigation and outdoor lighting solutions[16] - FY2024 net sales were $4.6 billion, operating in over 125 countries through brands like Toro, Ditch Witch, Exmark, and Spartan[16] Use of Non-GAAP Financial Information (Methodology) This section explains the company's use of non-GAAP financial measures to supplement GAAP information, providing insights into core operating performance and cash flow, utilized for internal decision-making, liquidity assessment, and facilitating comparisons by excluding non-recurring or unpredictable expenses and gains, with no quantitative reconciliation provided for FY2025 adjusted diluted EPS guidance due to inherent uncertainties and unpredictability of certain excluded items - Non-GAAP financial measures, such as adjusted gross profit, operating earnings, diluted EPS, and free cash flow, supplement GAAP information, providing useful insights into core operating performance and cash flow[17][18] - These measures aid in operational decision-making, liquidity assessment, and internal and competitor performance comparisons by excluding non-cash, significant, and/or unpredictable expenses and gains unrelated to regular, ongoing business[18] - The company does not provide a quantitative reconciliation for its FY2025 adjusted diluted EPS guidance, citing the unreasonable efforts exception under Regulation S-K Item 10(e)(1)(i)(B), as certain excluded items are inherently uncertain and difficult to predict[20][21] Forward-Looking Statements This press release contains forward-looking statements based on management's current assumptions and expectations of future events, subject to risks and uncertainties that could cause actual events and results to differ materially from projections, and the company undertakes no obligation to revise or update any forward-looking statements - Forward-looking statements are based on management's current assumptions and expectations but involve risks and uncertainties that could cause actual events and results to differ materially from projections[22] - Specific risks and uncertainties include adverse global economic conditions (including inflationary pressures and high interest rates), weather impacts, customer spending levels, commodity cost fluctuations, manufacturing or operational disruptions, acquisition and disposition risks (including potential future impairment charges for the Spartan trademark), the impact of the AMP initiative, geopolitical factors, and changes in government policies and regulations[22] Live Conference Call Details The Toro Company will host an earnings conference call and webcast on September 4, 2025, at 10:00 AM CT, with webcast participants required to complete a brief registration form - The earnings conference call and webcast are scheduled for September 4, 2025, at 10:00 AM CT[15] - The webcast will be available at www.thetorocompany.com/invest, requiring participants to complete a registration[15]