• Residential segment sales up on higher retail demand for walk power mowers and
riding products
• Company posts net earnings per share of $0.54
• Working capital further strengthened as inventories reduced to lowest level in more than a decade
• Improved asset management continues to drive strong operating cash flow
BLOOMINGTON, Minn.-- Aug. 20, 2009-- The Toro Company (NYSE: TTC) today reported net earnings of $19.8 million, or $0.54 per share, on net sales of $394.9 million for its fiscal third quarter ended July 31, 2009. In the comparable fiscal 2008 period, the company posted net earnings of $38.2 million, or $0.99 per share, on net sales of $492.6 million.
For the fiscal year to date, Toro reported net earnings of $63.4 million, or $1.73 per share, on net sales of $1,234.9 million. In the comparable fiscal 2008 period, the company posted net earnings of $119.6 million, or $3.06 per share, on net sales of $1,536.9 million.
“Despite a persistently difficult economic environment, we’ve been able to offset some of the impact through aggressive and disciplined actions,” said Michael J. Hoffman, Toro’s chairman and chief executive officer. “We are focused on driving retail demand and have improved our market share in many product categories.
Additionally, we are continuing to realign our cost structure and execute against our working capital initiative, which has resulted in significant reductions in inventory for both Toro and our channel partners. While we cannot insulate ourselves from the broad economic downturn, we believe these actions put us in a better position when our industry starts heading in the right direction.”
To provide additional resources to support strategic growth, the company recently announced the creation of Red Iron Acceptance, LLC, a new joint venture with an indirect subsidiary of TCF Financial Corporation (NYSE:TCB). This new commercial finance entity will provide floor plan and open account financing for the company’s U.S. and select Canadian channel partners. For Toro, the venture will help improve working capital and free up cash to deliver increased value to shareholders.
SEGMENT RESULTS
Professional
• Professional segment net sales for the fiscal 2009 third quarter totaled $260.9 million, down 27.3 percent from the comparable fiscal 2008 period. Sales declined across most product categories as the equipment replacement cycle extends. Worldwide demand for golf maintenance equipment remains particularly weak in an extremely tough environment. And, while market conditions dampened demand for commercial and landscape contractor equipment, the new Toro® GrandStand™ stand-on mower continues to gain ground on the competition. For the first nine months, professional segment net sales declined 26.7 percent to $800.6 million.
• Professional segment earnings for the fiscal 2009 third quarter were $39.4 million, down 44.6 percent from last year’s third quarter. For the first nine months, professional segment earnings totaled $126.4 million, down 42.4 percent compared with the prior year period.
Residential
• Residential segment net sales for the fiscal 2009 third quarter totaled $126.2 million, up 1.2 percent from the comparable fiscal 2008 period. Strength in walk power mowers and riding products were somewhat offset by lower shipments of snowthrower products that are anticipated to occur later due to timing of a new offering. Specific to walk power mowers the company has increased market share, primarily the result of expanded retail placement and a wider range of price points to better meet the needs of customers. For the first nine months, residential segment net sales declined 1.6 percent to $416.8 million.
• Residential segment earnings for the fiscal 2009 third quarter were $10.7 million, up $7.3 million from last year’s third quarter. For the first nine months, residential segment earnings totaled $32.1 million, up 15.0 percent from the prior year period.
REVIEW OF OPERATIONS
Gross margin for the fiscal 2009 third quarter was 33.9 percent compared with 35.3 percent in the comparable fiscal 2008 period. For the first nine months of fiscal 2009, gross margin was 33.5 percent, compared with 35.8 percent in the same period of fiscal 2008. For the quarter and year to date, the decline in gross margin was primarily due to the impact of production cuts to adjust for reduced demand and unfavorable product mix.
Selling, general and administrative (SG&A) expenses for the fiscal 2009 third quarter declined $16.7 million, or 15.1 percent, but increased to 23.9 percent of net sales from 22.5 percent in last year’s third quarter. For the first nine months of fiscal 2009, SG&A expenses were down $52.0 million, or 14.7 percent, but increased to 24.4 percent of net sales from 23 percent in the comparable fiscal 2008 period.
Other expense for the fiscal 2009 third quarter was $4.0 million compared with $0.4 million in the prior year period. The increase was mainly due to one-time expenses for several legal matters, somewhat offset by higher foreign currency gains.
Interest expense for the fiscal 2009 third quarter was $4.4 million compared with $4.6 million in the prior year’s third quarter. For the first nine months of fiscal 2009, interest expense totaled $13.2 million compared with $14.9 million in the comparable fiscal 2008 period. The decline in interest expense reflects lower borrowing rates and reduced levels of average debt outstanding.
The effective tax rate for the fiscal 2009 third quarter was 36.6 percent compared with 34.2 percent in the comparable fiscal 2008 period. The tax rate increase was mainly the result of a one-time valuation allowance related to a foreign subsidiary.
Accounts receivable at the end of the fiscal 2009 third quarter totaled $269.9 million, down 26.1 percent, on a sales decline of 19.8 percent. Net inventories in the fiscal 2009 third quarter declined by $51.2 million, or 24.2 percent, from the comparable 2008 period.
The company’s solid cash flow enabled it to return value to shareholders through dividend payments and share repurchases. During the fiscal 2009 third quarter, the company repurchased 1.6 million common shares and, as previously announced, received authorization in July to repurchase an additional 5 million common shares.
BUSINESS OUTLOOK
“We will manage the business with the expectation of no significant improvement in our end markets in the near future,” said Hoffman. “While we continue to carefully manage costs, we will also maintain our focus on driving market share improvements by bringing innovation to our customers. We will also invest in new initiatives that enable future growth when our markets recover.”
The company continues to expect fiscal 2009 revenues to decline about 18 percent from fiscal 2008. However, due to one-time charges of $0.15 per share in the fiscal 2009 third quarter to account for workforce adjustments, valuation allowance for taxes, and expenses for several legal matters, the company now expects net earnings per share for fiscal 2009 to be approximately $1.53 to $1.63.
The Toro Company is a leading worldwide provider of outdoor maintenance equipment and beautification products to help customers care for golf courses, sports fields, public green spaces, commercial and residential properties, and agricultural fields.
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