The Toro pany(US:TTC)2021-03-04 16:55PART I. FINANCIAL INFORMATION Financial Statements The company presents its unaudited condensed consolidated financial statements for the first quarter of fiscal 2021 Condensed Consolidated Statements of Earnings (Unaudited) Q1 2021 vs Q1 2020 Earnings Summary (in thousands) | Metric | Three Months Ended Jan 29, 2021 | Three Months Ended Jan 31, 2020 | | :--- | :--- | :--- | | Net sales | $872,986 | $767,483 | | Gross profit | $315,036 | $288,088 | | Operating earnings | $141,465 | $91,129 | | Net earnings | $111,281 | $70,091 | | Diluted EPS | $1.02 | $0.65 | Condensed Consolidated Balance Sheets (Unaudited) Balance Sheet Summary (in thousands) | Metric | Jan 29, 2021 | Oct 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $433,394 | $479,892 | | Inventories, net | $675,307 | $652,433 | | Total current assets | $1,456,743 | $1,427,648 | | Total assets | $2,875,138 | $2,853,228 | | Total current liabilities | $819,541 | $855,797 | | Long-term debt, less current portion | $691,356 | $691,250 | | Total stockholders' equity | $1,179,722 | $1,114,828 | Condensed Consolidated Statements of Cash Flows (Unaudited) Q1 2021 vs Q1 2020 Cash Flow Summary (in thousands) | Metric | Three Months Ended Jan 29, 2021 | Three Months Ended Jan 31, 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $95,025 | $(23,299) | | Net cash used in investing activities | $(2,086) | $(11,796) | | Net cash used in financing activities | $(142,989) | $(7,507) | | Net decrease in cash and cash equivalents | $(46,498) | $(42,914) | Notes to Condensed Consolidated Financial Statements (Unaudited) The notes detail accounting policies, business combinations, segment data, and a significant litigation settlement - On March 2, 2020, the company acquired Venture Products, Inc for a total consideration of $163.2 million, resulting in $61.2 million in goodwill303132 - In January 2021, the company received a $33.65 million settlement from Briggs & Stratton Corporation related to a patent infringement lawsuit6869 - The company uses forward currency contracts to hedge foreign currency risk, with a notional amount of $259.9 million in outstanding contracts as of January 29, 2021767884 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management analyzes Q1 2021 performance, highlighting a 13.7% sales increase driven by both segments Company Overview The company operates through Professional and Residential segments, noting COVID-19 impacts and the Venture Products acquisition - The company's operations are classified into two reportable segments: Professional and Residential102 - The COVID-19 pandemic has had a material impact, causing manufacturing cost pressures and inefficiencies, though operations have continued as an essential business105107 - The acquisition of Venture Products on March 2, 2020, broadened and strengthened the Professional segment's product offerings and dealer network104 Results of Operations Q1 net sales grew 13.7% to $873.0 million, though gross margin declined to 36.1% due to cost pressures Q1 2021 vs Q1 2020 Results of Operations | Metric | Q1 2021 | Q1 2020 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $873.0M | $767.5M | +13.7% | | Gross Profit | $315.0M | $288.1M | +9.4% | | Gross Margin | 36.1% | 37.5% | -140 bps | | Operating Earnings | 16.2% of sales | 11.9% of sales | +430 bps | | Net Earnings | $111.3M | $70.1M | +58.8% | | Diluted EPS | $1.02 | $0.65 | +56.9% | - The decrease in gross margin was primarily due to manufacturing cost pressures and unfavorable product mix, partially offset by productivity initiatives and net price realization120 - SG&A expense decreased as a percentage of sales due to leveraging higher sales volumes, a favorable net legal settlement with Briggs & Stratton, and reduced travel and marketing costs122 Business Segments Both Professional and Residential segments reported strong sales growth of 9.3% and 31.3%, respectively Segment Net Sales (Q1 2021 vs Q1 2020) (in thousands) | Segment | Q1 2021 Net Sales | Q1 2020 Net Sales | % Change | | :--- | :--- | :--- | :--- | | Professional | $650,223 | $594,721 | +9.3% | | Residential | $217,700 | $165,848 | +31.3% | Segment Earnings (Q1 2021 vs Q1 2020) (in thousands) | Segment | Q1 2021 Earnings | Q1 2020 Earnings | % Change | | :--- | :--- | :--- | :--- | | Professional | $116,816 | $102,474 | +14.0% | | Residential | $32,108 | $21,566 | +48.9% | Financial Position, Liquidity, and Capital Resources The company maintained a strong liquidity position, improved operating cash flow, and returned capital to shareholders - Cash provided by operating activities increased to $95.0 million from a use of $23.3 million in the prior year, driven by higher net earnings and lower cash used for inventory138 - Inventory levels decreased by $63.7 million (8.6%) compared to the prior year due to strong product demand137 - The company repaid the remaining $90.0 million outstanding on its $190.0 million term loan during the quarter153 - The company resumed share repurchases, buying back 332,878 shares, and paid a cash dividend of $0.2625 per share, a 5.0% increase161162 Non-GAAP Financial Measures The company provides a reconciliation of GAAP to non-GAAP measures, adjusting for litigation and tax impacts GAAP to Non-GAAP Reconciliation Summary (Q1 2021) | Metric | GAAP | Adjustments | Non-GAAP | | :--- | :--- | :--- | :--- | | Net Earnings | $111.3M | $(18.0M) | $93.2M | | Diluted EPS | $1.02 | $(0.17) | $0.85 | Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks from foreign currency, interest rates, and commodity costs - The company is exposed to foreign currency risk, primarily with the Euro, Australian dollar, Canadian dollar, and British pound, and uses derivative instruments to hedge these exposures184185 - As of January 29, 2021, the company had $280.0 million of gross LIBOR-based borrowings, exposing it to interest rate fluctuations187 - The company faces commodity cost risk for key materials and anticipates that the average cost of commodities will be higher for the remainder of fiscal 2021 compared to fiscal 2020189190 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of the quarter-end - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the quarter192 - The company is in the process of integrating internal controls for the Venture Products acquisition, which was excluded from the current assessment and is expected to be included by October 31, 2021193 PART II. OTHER INFORMATION Legal Proceedings The company references Note 15 for details on material legal proceedings, including a significant settlement - The company refers to Note 15 for a description of its material legal proceedings, including the settlement of the Briggs & Stratton patent infringement case197 Risk Factors No material changes to risk factors were reported since the last Annual Report on Form 10-K - There has been no material change in the company's risk factors since its last Annual Report on Form 10-K198 Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 332,878 shares of its common stock during the first quarter of fiscal 2021 Share Repurchases in Q1 2021 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Nov 1 - Dec 4, 2020 | — | $— | | Dec 5 - Jan 1, 2021 | 204,033 | $94.16 | | Jan 2 - Jan 29, 2021 | 130,012 | $94.27 | | Total | 334,045 | $94.20 | - As of January 29, 2021, 6,709,378 shares remained available for repurchase under the company's Board-authorized program199 Exhibits This section lists filed exhibits, including CEO/CFO certifications and Inline XBRL financial statements - The report includes certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002200