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The Toro Company Reports Record 2012 Third Quarter Results
  • Third quarter sales increase to $504 million; Year-to-date sales growth nearly 7 percent
  • Net earnings per share for the quarter up 22 percent to a record $0.67
  • Company now expects EPS for the year to be about $2.10, up 14 percent from last year

BLOOMINGTON, Minn.--(BUSINESS WIRE)--Aug. 23, 2012-- The Toro Company (NYSE: TTC) today reported net earnings of $40.5 million, or $0.67 per share, on a net sales increase of 0.6 percent to $504.1 million for its fiscal third quarter ended August 3, 2012. In the comparable fiscal 2011 period, the company delivered net earnings of $35.1 million, or $0.55 per share, on net sales of $501 million.

For the first nine months, Toro reported net earnings of $129.3 million, or $2.13 per share, on a net sales increase of 6.8 percent to $1,619.4 million. In the comparable fiscal 2011 period, the company posted net earnings of $112.6 million, or $1.76 per share, on net sales of $1,515.9 million.

Earnings per share figures for all periods reported have been adjusted to reflect the effects of a 2-for-1 stock split effective June 29, 2012.

“In May, we anticipated a slowdown in the second half of our fiscal year due to a more challenging economic environment and the impact the early start to spring had on the business. What we didn’t predict was the worst drought in over 50 years,” said Michael J. Hoffman, Toro’s chairman and chief executive officer. “We were still able to deliver favorable third quarter results in comparison to last year, but the combined impact of economic and weather conditions resulted in additional slowing of retail momentum and an increase in field inventory.”

“Despite the recent drought conditions, there continues to be many positives in our businesses. Our market positions remain strong, benefitting from a strong portfolio of new products. Year-to-date retail continues to be ahead of last year for many of our businesses including golf and micro irrigation. Even walk power mower sales are ahead of last year. And our internal focus on quality, cost and productivity helped deliver improved operating performance.”

“Given the effects of recent weather conditions, the ongoing economic struggles in Europe, and the desire to right size field inventory levels, we are adjusting our fourth quarter guidance as we prepare the company for a successful 2013.”

The company now expects revenue growth for fiscal 2012 to be about 4 to 5 percent and net earnings to be about $2.10 per share, which continues to include the $0.08 negative earnings per share impact for investments related to the Astec and Stone product-line acquisitions.

SEGMENT RESULTS

Professional

  • Professional segment net sales for the third quarter totaled $361.1 million, up 4.4 percent from the prior year period. Sales of landscape maintenance equipment increased on the strength of new products and continued demand in markets not impacted by drought. Domestic sales of golf equipment and irrigation were up on new products and continued golf industry confidence. Micro irrigation sales increased domestically as demand continues for better solutions for agricultural irrigation. Recent acquisitions - including Astec Underground, Stone Construction Equipment and Unique Lighting Systems - also contributed to sales. International economic issues and unfavorable currency exchange negatively impacted the sales of all professional businesses. For the first nine months, professional segment net sales were $1,100.9 million, up 7.7 percent from the comparable fiscal 2011 period
  • Professional segment earnings for the third quarter totaled $70.5 million, up 9.6 percent from the prior year period. For the first nine months, professional segment earnings were $211.3 million, up 12.5 percent from the comparable fiscal 2011 period.

Residential

  • Residential segment net sales for the third quarter totaled $135.9 million, down 7.9 percent from the prior year period. As expected, snow blower sales were lower for the quarter due to anticipated soft preseason demand. Shipments of walk power mowers were up slightly for the quarter, while sales of residential riding products were down. Sales of Toro’s new string and hedge trimmers also contributed incrementally to the quarter. For the first nine months, residential segment net sales were $505.4 million, up 5.2 percent from the comparable fiscal 2011 period.
  • Residential segment earnings for the third quarter totaled $10 million, up 116.6 percent from our fiscal 2011 third quarter, when a pre-tax charge of $4.5 million to account for one-time costs associated with a rework issue affecting a large number of walk power mowers resulted in a decline in earnings. For the first nine months, residential segment earnings were $51.2 million, up 20.3 percent from the comparable fiscal 2011 period.

OPERATING RESULTS

Gross margin for the quarter improved 180 basis points to 35.3 percent due to realized pricing offsetting higher materials costs, a stronger professional/residential mix, and the absence of last year’s walk power mower rework impact. For the first nine months, gross margin was up 40 basis points to 34.6 percent.

Selling, general and administrative (SG&A) expense as a percent of sales increased 60 basis points for the third quarter to 23.2 percent. For the first nine months, SG&A expense improved 50 basis points as a percent of sales to 22.1 percent.

Operating earnings as a percent of sales increased 120 basis points to 12.1 percent for the third quarter, and was up 90 basis points to 12.5 percent for the year to date.

Interest expense for the third quarter was $4.2 million, down 2.2 percent compared to the prior year period. For the first nine months, interest expense totaled $12.8 million, up 1.5 percent from the same period last year.

The effective tax rate for the third quarter was 31.8 percent compared with 32.9 percent in the same period last year. Year to date, the tax rate increased to 33.3 percent from 32.8 percent due to the expiration of the Federal Research and Engineering Tax Credit.

Accounts receivable at the end of the third quarter totaled $197 million, down 1 percent from the prior year period, on a sales increase of nearly 1 percent. Net inventories were $234.8 million, up 1 percent from last year’s third quarter. Trade payables were $124.2 million, down 2 percent compared with last year.

About The Toro Company
The Toro Company is a leading worldwide provider of turf and landscape maintenance equipment, and irrigation solutions, to help customers care for golf courses, sports fields, public green spaces, commercial and residential properties, and agricultural fields.

LIVE CONFERENCE CALL
August 23, 10:00 a.m. CDT
www.thetorocompany.com/invest

The Toro Company will conduct its earnings call and webcast for investors beginning at 10:00 a.m. CDT on August 23, 2012. The webcast will be available at www.streetevents.com or at www.thetorocompany.com/invest. Webcast participants will need to complete a brief registration form and should allocate extra time before the webcast begins to register and, if necessary, download and install audio software.

Safe Harbor
Statements made in this news release, which are forward-looking, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected or implied. These uncertainties include factors that affect all businesses operating in a global market as well as matters specific to Toro. Particular risks and uncertainties that may affect the company’s operating results or overall financial position at the present include: slow or negative growth rates in global and domestic economies, resulting in rising or persistent unemployment and weakened consumer confidence; the threat of terrorist acts and war, which may result in contraction of the U.S. and worldwide economies; drug cartel-related violence, which may disrupt our production activities and maquiladora operations based in Juarez, Mexico; fluctuations in the cost and availability of raw materials and components, including steel, engines, hydraulics, resins and other commodities and components; fluctuating fuel and other costs of transportation; the impact of abnormal weather patterns, natural disasters and global pandemics; the level of growth or contraction in our key markets; government and municipal revenue, budget and spending levels, which may negatively impact our grounds maintenance equipment business in the event of reduced tax revenues and tighter government budgets; dependence on The Home Depot as a customer for the residential segment; elimination of shelf space for our products at retailers; inventory adjustments or changes in purchasing patterns by our customers; market acceptance of existing and new products; increased competition; our ability to achieve the revenue growth, operating earnings and employee engagement goals of our multi-year employee initiative called “Destination 2014”; our increased dependence on international sales and the risks attendant to international operations and markets, including political, economic and/or social instability in the countries in which we manufacture or sell our products resulting in contraction or disruption of such markets; credit availability and terms, interest rates and currency movements including, in particular, our exposure to foreign currency risk; our relationships with our distribution channel partners, including the financial viability of distributors and dealers; our ability to successfully achieve our plans for and integrate acquisitions and manage alliances or joint ventures, including Red Iron Acceptance, LLC; the costs and effects of changes in tax, fiscal, government and other regulatory policies, including rules relating to environmental, health and safety matters, and Tier 4 emissions requirements; unforeseen product quality or other problems in the development, production and usage of new and existing products; loss of or changes in executive management or key employees; ability of management to manage around unplanned events; our reliance on our intellectual property rights and the absence of infringement of the intellectual property rights of others; and the occurrence of litigation or claims. In addition to the factors set forth in this paragraph, market, economic, financial, competitive, legislative, governmental, weather, production and other factors identified in Toro's quarterly and annual reports filed with the Securities and Exchange Commission, could affect the forward-looking statements in this press release. Toro undertakes no obligation to update forward-looking statements made in this release to reflect events or circumstances after the date of this release.

 
THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings (Unaudited)
(Dollars and shares in thousands, except per-share data)
 
    Three Months Ended     Nine Months Ended
August 3,     July 29, August 3,     July 29,
2012 2011 2012 2011
Net sales $ 504,076 $ 501,045 $ 1,619,396 $ 1,515,858
Gross profit 178,122 167,661 560,195 517,860
Gross profit percent 35.3 % 33.5 % 34.6 % 34.2 %
Selling, general, and administrative expense   117,137     112,937     358,689     342,580  
Operating earnings 60,985 54,724 201,506 175,280
Interest expense (4,198 ) (4,294 ) (12,791 ) (12,596 )
Other income, net   2,681     1,861     5,231     4,560  
Earnings before income taxes 59,468 52,291 193,946 167,244
Provision for income taxes   18,919     17,200     64,656     54,621  
Net earnings $ 40,549   $ 35,091   $ 129,290   $ 112,623  
 
Basic net earnings per share $ 0.69   $ 0.56   $ 2.17   $ 1.79  
 
Diluted net earnings per share $ 0.67   $ 0.55   $ 2.13   $ 1.76  
 
Weighted average number of shares of common
stock outstanding – Basic 59,045 62,353 59,642 62,982
 
Weighted average number of shares of common
stock outstanding – Diluted 60,336 63,479 60,829 64,125
 

Shares and per share data have been adjusted for all periods presented to reflect a two-for-one stock split effective June 29, 2012.

 
Segment Data (Unaudited)
(Dollars in thousands)
 
    Three Months Ended     Nine Months Ended

 

August 3,     July 29, August 3,     July 29,

Segment Net Sales

2012 2011 2012 2011
Professional $ 361,120 $ 345,972 $ 1,100,899 $ 1,022,536
Residential 135,894 147,479 505,399 480,404
Other   7,062     7,594     13,098     12,918  
Total * $ 504,076   $ 501,045   $ 1,619,396   $ 1,515,858  
 
* Includes international sales of $ 133,120 $ 146,678 $ 479,790 $ 487,325
 
Three Months Ended Nine Months Ended

 

August 3, July 29, August 3, July 29,

Segment Earnings (Loss) Before Income Taxes

2012 2011 2012 2011
Professional $ 70,537 $ 64,344 $ 211,329 $ 187,869
Residential 10,048 4,638 51,174 42,545
Other   (21,117 )   (16,691 )   (68,557 )   (63,170 )
Total $ 59,468   $ 52,291   $ 193,946   $ 167,244  
 
 
THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
 
    August 3,     July 29,
2012 2011

ASSETS

Cash and cash equivalents $ 143,058 $ 118,113
Receivables, net 197,023 199,012
Inventories, net 234,790 232,362
Prepaid expenses and other current assets 24,436 20,256
Deferred income taxes   62,368   59,908
Total current assets   661,675   629,651
 
Property, plant, and equipment, net 177,723 187,648
Deferred income taxes 76 965
Goodwill and other assets, net   147,054   149,283
Total assets $ 986,528 $ 967,547
 

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current portion of long-term debt $ 1,858 $ 2,728
Short-term debt 53
Accounts payable 124,168 126,688
Accrued liabilities   278,797   268,200
Total current liabilities   404,823   397,669
 
 
Long-term debt, less current portion 223,467 225,162
Deferred revenue 11,289 10,776
Deferred income taxes 1,380
Other long-term liabilities 7,822 7,560
Stockholders’ equity   337,747   326,380
Total liabilities and stockholders’ equity $ 986,528 $ 967,547
 
 
THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
 
    Nine Months Ended
August 3,     July 29,
2012 2011
Cash flows from operating activities:
Net earnings $ 129,290 $ 112,623
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Noncash income from affiliates (4,521 ) (4,433 )
Provision for depreciation, amortization, and impairment losses 37,929 34,251
Stock-based compensation expense 7,465 6,094
Increase in deferred income taxes (443 ) (930 )
Other (117 ) (653 )
Changes in operating assets and liabilities, net of effect of acquisitions:
Receivables, net (51,640 ) (53,335 )
Inventories, net (6,428 ) (33,975 )
Prepaid expenses and other assets (6,114 ) (8,994 )
Accounts payable, accrued liabilities, deferred revenue, and other long-term liabilities  

59,986

   

21,190

 
Net cash provided by operating activities   165,407     71,838  
 
Cash flows from investing activities:
Purchases of property, plant, and equipment, net (28,158 ) (43,269 )
Proceeds from asset disposals 114 109
Distributions from finance affiliate, net 1,777 959
Acquisitions, net of cash acquired   (9,663 )   (14,060 )
Net cash used in investing activities   (35,930 )   (56,261 )
 
Cash flows from financing activities:
Decrease in short-term debt (922 ) (776 )
Repayments of long-term debt (1,892 ) (1,134 )
Excess tax benefits from stock-based awards 8,080 2,444
Proceeds from exercise of stock options 17,337 12,309
Purchases of Toro common stock (67,354 ) (71,216 )
Dividends paid on Toro common stock   (19,748 )   (18,894 )
Net cash used in financing activities   (64,499 )   (77,267 )
 
Effect of exchange rates on cash   (2,806 )   2,437  
 
Net increase (decrease) in cash and cash equivalents 62,172 (59,253 )
Cash and cash equivalents as of the beginning of the period   80,886     177,366  
 
Cash and cash equivalents as of the end of the period $ 143,058   $ 118,113  
 

Source: The Toro Company

The Toro Company
Investor Relations
Kurt Svendsen, 952-887-8630
Managing Director, Corporate Communications and Investor Relations
kurt.svendsen@toro.com
or
Media Relations
Branden Happel, 952-887-8930
Senior Manager, Public Relations
branden.happel@toro.com

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