The Toro pany(US:TTC)2021-09-02 13:07PART I. FINANCIAL INFORMATION Item 1. Financial Statements The unaudited financial statements show significant year-over-year growth in net sales and net earnings for the nine months ended July 30, 2021 Condensed Consolidated Statements of Earnings Highlights (Nine Months Ended) | Metric | Nine Months Ended July 30, 2021 | Nine Months Ended July 31, 2020 | YoY Change | | :--- | :--- | :--- | :--- | | Net sales | $2,998,929 thousand | $2,537,853 thousand | +18.2% | | Gross profit | $1,049,106 thousand | $889,379 thousand | +18.0% | | Operating earnings | $444,120 thousand | $332,876 thousand | +33.4% | | Net earnings | $349,772 thousand | $257,505 thousand | +35.8% | | Diluted EPS | $3.21 | $2.37 | +35.4% | Condensed Consolidated Balance Sheet Highlights | Metric | July 30, 2021 | July 31, 2020 | | :--- | :--- | :--- | | Total current assets | $1,545,789 thousand | $1,384,246 thousand | | Total assets | $2,968,049 thousand | $2,813,863 thousand | | Total current liabilities | $958,440 thousand | $797,112 thousand | | Long-term debt, less current portion | $587,345 thousand | $782,036 thousand | | Total stockholders' equity | $1,237,178 thousand | $1,054,032 thousand | Condensed Consolidated Statements of Cash Flows Highlights (Nine Months Ended) | Metric | Nine Months Ended July 30, 2021 | Nine Months Ended July 31, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $477,135 thousand | $305,876 thousand | | Net cash used in investing activities | ($70,691) thousand | ($184,648) thousand | | Net cash (used in) provided by financing activities | ($351,169) thousand | $119,154 thousand | Notes to Condensed Consolidated Financial Statements The notes detail key asset acquisitions, a significant litigation settlement, debt reduction, and disaggregated revenue performance - The company completed the acquisition of Turflynx, Lda and Left Hand Robotics, Inc to support the development of alternative power, smart-connected, and autonomous products34 - In January 2021, the company received a $33.65 million settlement from Briggs & Stratton Corporation related to a long-standing patent infringement lawsuit7273 - During the first nine months of fiscal 2021, the company prepaid a total of $100.0 million on its term loans, reducing total long-term debt44 Segment Net Sales (Nine Months Ended July 30, 2021) | Segment | Net Sales (in thousands) | | :--- | :--- | | Professional | $2,197,058 | | Residential | $784,852 | | Other | $17,019 | | Total | $2,998,929 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong revenue growth to robust demand, while noting flat gross margins due to inflation and supply chain disruptions Company Overview The company's strategy focuses on growth and productivity amid ongoing supply chain challenges and strong post-pandemic demand - The company's strategic priorities are accelerating growth, driving productivity and operational excellence, and empowering people, under its "Sustainability Endures" strategy104 - COVID-19 continues to impact operations, with greater supply chain disruptions in Q3 2021 limiting product availability and the ability to meet customer demand109110112 - Demand has strongly rebounded in the Professional segment and remains robust in the Residential segment, driven by homeowner investments113 Results of Operations Consolidated net sales grew significantly due to strong demand and price increases, with net earnings boosted by higher volume and a legal settlement - Gross margin for the nine-month period was flat YoY at 35.0%, as price realization and productivity improvements offset higher commodity and freight costs126 - SG&A expense as a percentage of sales decreased by 170 basis points for the nine-month period, due to expense leverage and a favorable legal settlement130 Net Sales Growth by Segment (Q3 2021 vs Q3 2020) | Segment | Q3 2021 Net Sales | YoY Growth | | :--- | :--- | :--- | | Professional | $718.5 million | +15.2% | | Residential | $252.1 million | +23.0% | | Total | $976.8 million | +16.2% | Business Segments Both Professional and Residential segments reported strong double-digit sales growth, with improved earnings margins - Professional segment growth was driven by strong demand for landscape contractor zero-turn mowers and increased shipments of golf and irrigation products143 - Residential segment growth was driven by strong retail demand for mowers, snow throwers, and new 60V battery-powered products147 Segment Performance (Nine Months Ended July 30, 2021) | Segment | Net Sales | YoY Change | Segment Earnings | YoY Change | Earnings as % of Sales | | :--- | :--- | :--- | :--- | :--- | :--- | | Professional | $2,197.1M | +16.9% | $406.3M | +26.0% | 18.5% | | Residential | $784.9M | +24.0% | $109.6M | +25.7% | 14.0% | Financial Position The company maintains a strong financial position with increased operating cash flow and significant liquidity despite working capital challenges - Working capital was impacted by supply chain challenges, with inventory up 1.4% YoY and accounts payable increased 53.1% due to normalized spending and payment timing154 - Cash from operations for the first nine months increased to $477.1 million from $305.9 million in the prior year, driven by higher net earnings155 - As of July 30, 2021, the company had available liquidity of $1.13 billion, consisting of cash and availability under its revolving credit facility160 - During the first nine months of fiscal 2021, the company repurchased 1,733,477 shares of its common stock165 Item 3. Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks from foreign currency, interest rates, and commodity costs, which are expected to remain high - The company actively manages foreign currency exchange rate risk by using derivative instruments to hedge forecasted sales and purchases192193 - As of July 30, 2021, the company had $270.0 million of gross LIBOR-based borrowings, exposing it to interest rate fluctuations195 - The company faces significant commodity cost risk and anticipates that component costs will be significantly higher in the remainder of fiscal 2021199 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with integration of a recent acquisition's controls underway - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period201 - The company is currently integrating the internal controls for the Venture Products acquisition and expects to complete it by the end of fiscal 2021202 PART II. OTHER INFORMATION Item 1. Legal Proceedings The report refers to Note 15 of the financial statements for details on material legal proceedings, including a recent settlement - The company refers to Note 15, "Contingencies," in the financial statements for a description of its material legal proceedings206 Item 1A. Risk Factors No material changes to the company's risk factors have occurred since the last Annual Report on Form 10-K - The company states that there has been no material change in its risk factors since its last Annual Report on Form 10-K207 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased over 660,000 shares in the third quarter, with over 5.3 million shares remaining under its buyback program - As of July 30, 2021, 5,308,779 shares remained available for repurchase under the company's authorized stock repurchase program208 Share Repurchases in Q3 2021 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | May 1 - June 4, 2021 | — | $— | | June 5 - July 2, 2021 | 659,982 | $106.06 | | July 3 - July 30, 2021 | 836 | $111.06 | | Total Q3 | 660,818 | $106.07 | Item 6. Exhibits This section lists all exhibits filed with the report, including required CEO and CFO certifications and XBRL data