Sales grow 16.2 percent led by strong performance across all Professional businesses
Company delivers net earnings per share of $1.01, up 87 percent from prior year period
Increased profitability and lower net working capital drives record 9-month operating cash flow
BLOOMINGTON, Minn., Aug 19, 2010 -- The Toro Company today reported net earnings of $33.4 million, or $1.01 per share, on net sales of $458.9 million for its fiscal third quarter ended July 30, 2010. In the comparable fiscal 2009 period, the company reported net earnings of $19.8 million, or $0.54 per share, on net sales of $394.9 million.
For the fiscal year to date, Toro reported net earnings of $90 million, or $2.66 per share, on net sales of $1,353.1 million. In the comparable fiscal 2009 period, the company reported net earnings of $63.4 million, or $1.73 per share, on net sales $1,234.9 million.
"Even with concerns expressed by many economists of a slower recovery, we experienced strong end-user demand during our summer selling season," said Michael J. Hoffman, Toro's chairman and chief executive officer. "Positive momentum for our innovative new products, particularly within our Professional markets, enabled us to deliver better-than-expected revenue and profit growth. Additionally, our ongoing focus on asset management resulted in a further reduction of average net working capital which, along with improved earnings, contributed to record operating cash flow for the nine month period."
SEGMENT RESULTS
Professional
Professional segment net sales for the fiscal 2010 third quarter totaled $317.9 million, up 21.8 percent compared with the same period last year. Worldwide orders for golf equipment and irrigation systems were strong as customers increased their capital equipment spending. Shipments for landscape maintenance equipment and residential and commercial irrigation products were up, driven by continued momentum for new products. For the year to date, professional segment net sales were $880.3 million, up 9.9 percent compared with the first nine months of fiscal 2009.
Professional segment earnings for the fiscal 2010 third quarter totaled $62.7 million, up $23.2 million from the same period last year. For the year to date, professional segment earnings were $156.1 million, up $29.7 million compared with the first nine months of fiscal 2009.
Residential
Residential segment net sales for the fiscal 2010 third quarter totaled $135.8 million, an increase of 7.6 percent compared with the same period last year. Sales benefited from strong customer acceptance for the Toro(R) TimeCutter(R) and TITAN(R) zero-turn mowers. For the year to date, residential segment net sales were $462.6 million, up 11 percent compared with the first nine months of fiscal 2009.
Residential segment earnings for the fiscal 2010 third quarter totaled $10.7 million, roughly flat with the same period last year. For the fiscal year to date, residential segment earnings were $49.2 million, up $17.1 million compared with the first nine months of fiscal 2009.
REVIEW OF OPERATIONS
Gross margin for the fiscal 2010 third quarter improved to 35.2 percent from 33.9 percent in last year's third quarter. For the fiscal year to date, gross margin improved to 34.4 percent compared with 33.5 percent in the first nine months of fiscal 2009. For both periods, the margin improvement resulted primarily from favorable product mix and lower manufacturing variances.
Selling, general and administrative (SG&A) expense for the fiscal 2010 third quarter totaled $107.8 million, up 14.5 percent from last year's third quarter, but declined as a percent of sales to 23.5 percent from 23.9 percent. For the year to date, SG&A expense was $319.7 million, up 6.2 percent from the same period last year; but decreased as a percent of sales to 23.6 percent compared with 24.4 percent. In both periods, SG&A expense was up primarily due to higher employee incentive expense related to improved financial and operating performance. However, SG&A as a percent of sales declined in both periods, reflecting the company's leaner cost structure and continued spending discipline.
Other income for the fiscal 2010 third quarter was $2.4 million, up $6.4 million from the same period last year. The increase was due to expenses incurred last year for several legal matters and income this year from our investment in Red Iron Acceptance, the company's channel financing joint venture.
Interest expense for the fiscal 2010 third quarter was $4.2 million compared with $4.4 million in last year's third quarter. For the year to date, interest expense totaled $12.8 million compared with $13.2 million in the first nine months of fiscal 2009.
The effective tax rate for the fiscal 2010 third quarter was 35.7 percent compared with 36.6 percent in last year's third quarter.
Accounts receivable at the end of the fiscal 2010 third quarter totaled $170.1 million, down $99.8 million from last year's third quarter, on a sales increase of 16.2 percent. The reduction in accounts receivable was attributable to Red Iron Acceptance. Net inventories in the third quarter were $177.2 million, up $16.6 million from the same period last year. Trade payables were $118 million, up $49.7 million from last year's third quarter.
At the end of the third quarter, the company's 12-month average net working capital as a percent of sales was 15.4 percent compared with 27 percent a year ago, reflecting a continued focus on inventory, accounts receivable and trade payables management.
Resulting from improved earnings and working capital benefits, the company's cash flow from operations for the first nine months totaled $157.4 million compared with $119 million in the same period last year. For the year to date, the company repurchased $135.3 million of company stock.
BUSINESS OUTLOOK
"We are encouraged by the recovery of our markets and the increased demand for our products," said Hoffman. "As we finish the fiscal year, we will stay focused on driving end-user demand and closely managing inventory levels. In fiscal 2011, our customers can expect us to once again bring forward a number of innovative new products to help them create and maintain beautiful landscapes, precisely irrigate turf and crops, and improve their productivity."
The company now expects earnings for fiscal 2010 to be about $2.70 per share on a revenue increase of approximately 10 to 11 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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