BLOOMINGTON, Minn., May 20, 2010 --The Toro Company today reported net earnings of $45.7 million, or $1.34 per share, on net sales of $562.8 million for its fiscal second quarter ended April 30, 2010. In the comparable fiscal 2009 period, the company reported net earnings of $36.9 million, or $1.00 per share, on net sales of $499.9 million.
For the fiscal year to date, Toro reported net earnings of $56.6 million, or $1.65 per share, on net sales of $894.2 million. In the first half of fiscal 2009, the company posted net earnings of $43.6 million, or $1.18 per share, on net sales of $840 million. The company's net earnings for the same period last year were reduced by $2.1 million, or $0.04 per share on an after-tax basis, to account for workforce adjustments.
"In 2009 we fought through a difficult economic environment with a focus on what we could control to emerge even stronger when our markets started to improve," said Michael J. Hoffman, Toro's chairman and chief executive officer. "In this early stage of the recovery, we are extremely pleased with the strong performance of our residential business and the rebound in our professional businesses. Increased end-user demand, gross margin improvement and a leaner cost structure are now driving solid improvements to our profitability.
Additionally, we achieved a major goal set in January 2007 to drive our 12-month average net working capital as a percent of sales down 'into the teens.' At the end of the second quarter, our 12-month average net working capital was 19 percent of sales. I'm proud of our dedicated team of employees for achieving this transformational goal sooner than expected, and we are confident our discipline in this area will continue."
SEGMENT RESULTS
Professional
Professional segment net sales for the fiscal 2010 second quarter totaled $349.6 million, up 12.6 percent compared with the same period last year. Shipments of landscape contractor products saw significant gains from strong customer acceptance for zero-turn riding mowers and stand-on machines. Worldwide shipments for golf maintenance equipment increased on renewed demand as the golf market begins to recover. And, in the area of precision irrigation, worldwide sales for micro irrigation products continued to strengthen as growers focus on improving crop yields and saving water resources. For the year to date, professional segment net sales were $562.4 million, up 4.2 percent from the first half of fiscal 2009.
Professional segment earnings for the fiscal 2010 second quarter totaled $67.6 million, up $10.7 million from the same period last year. For the year to date, professional segment earnings were $93.4 million, up $6.4 million from the first half of fiscal 2009.
Residential
Residential segment net sales for the fiscal 2010 second quarter totaled $210.1 million, an increase of 14.5 percent compared with the same period last year. Favorable spring weather and additional product placement at dealers and key retailers drove higher shipments for zero-turn riding mowers. Additionally, sales of Toro(R) walk power mowers were up, including initial orders for the new Toro eCycler(TM) cordless electric mower. Shipments of snow products also increased due to strong snowfalls that extended into the second quarter. For the year to date, residential segment net sales were $326.9 million, up 12.5 percent from the first half of fiscal 2009.
Residential segment earnings for the fiscal 2010 second quarter totaled $25.1 million, up $8.5 million from the same period last year. For the fiscal year to date, residential segment earnings were $38.5 million, up $17.1 million from the first half of fiscal 2009.
REVIEW OF OPERATIONS
Gross margin for the fiscal 2010 second quarter improved to 33.3 percent from 32.3 percent in last year's second quarter. For the first half of fiscal 2010, gross margin improved to 34.0 percent compared with 33.3 percent in the first half of fiscal 2009. The margin improvement in both periods resulted primarily from reduced commodity costs, lower manufacturing variances and cost reduction initiatives, partially offset by higher freight expense.
Selling, general and administrative (SG&A) expenses for the fiscal 2010 second quarter totaled $115.3 million, up 12.8 percent from last year's second quarter, but were flat as a percent of sales with the previous year at 20.5 percent. For the year to date, SG&A expenses were $211.9 million, up 2.5 percent from the same period last year; however, expenses decreased to 23.7 percent of net sales compared with 24.6 percent in the first half of fiscal 2009. The decline reflects the company's leaner cost structure and continued spending discipline, somewhat offset by higher employee incentive expense.
Interest expense for the fiscal 2010 second quarter was $4.3 million compared with $4.4 million in the prior year's second quarter. For the year to date, interest expense totaled $8.5 million compared with $8.8 million in the first half of fiscal 2009.
The effective tax rate for the fiscal 2010 second quarter was 33.6 percent compared with 34.2 percent in last year's second quarter.
Accounts receivable at the end of the fiscal 2010 second quarter totaled $260.8 million, down $147 million from last year's second quarter, on a sales increase of 12.6 percent. The decline resulted primarily from the sale of certain floor plan and open account inventory receivables to the Red Iron Acceptance joint venture formed in August 2009. Net inventories in the second quarter were $174.4 million, down $41.4 million from the same period last year. Trade payables were $171.3 million, up $72.7 million from last year's second quarter due to the company's supply chain initiative and increased production over last year when inventories were being reduced.
As a result of higher earnings and working capital improvements, the company's cash flow from operations generated cash of $80.8 million in the first half of fiscal 2010, compared with a use of cash of $72.9 million in the same period last year. During the first half of fiscal 2010, the company repurchased $54.1 million of company stock.
BUSINESS OUTLOOK
"As the first half performance shows, our businesses are benefiting from the renewed strength in our markets," said Hoffman. "We are especially encouraged with our growth prospects as momentum starts to build and we realize the benefits of staying the course on engineering and other investments during fiscal 2009. As a result, the company's many innovative new products are capturing the attention of customers looking to maintain beautiful landscapes, increase productivity, and save valuable water resources. Our talented team of employees and business partners has accomplished a great deal so far in 2010, and I'm confident we will build on these achievements to further strengthen and grow our business."
Based on Toro's financial performance through the first half of fiscal 2010, and as previously announced on May 10, the company expects earnings for fiscal 2010 to be about $2.40 per share on a revenue increase of approximately 7 percent.
Non-GAAP Financial Measure
The company's long-term asset management goal was to reduce average net working capital as a percent of net sales below 20 percent, or "into the teens." The company defines net working capital as accounts receivable plus inventory less trade payables. In fiscal 2009, Toro's average net working capital as a percentage of net sales was 26.2 percent.
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