The Toro Company Reports Fiscal 2013 Third Quarter Results

•       Third quarter sales increase to $510 million and net earnings per share increase to $0.68
•       Quarterly results strengthened by improved market conditions and increased demand for residential and landscape contractor products
•      Company raises full-year earnings outlook on the strength of margin improvement

BLOOMINGTON, MN -- Aug. 22, 2013-- The Toro Company today reported net earnings of $40.1 million, or $0.68 per share, on a net sales increase of 1.2 percent to $509.9 million for its fiscal third quarter ended August 2, 2013. In the comparable fiscal 2012 period, the company delivered net earnings of $40.5 million, or $0.67 per share, on net sales of $504.1 million.

For the first nine months, Toro reported net earnings of $149.9 million, or $2.53 per share, on a net sales increase of 2.4 percent to $1,659.1 million. In the comparable fiscal 2012 period, the company posted net earnings of $129.3 million, or $2.13 per share, on net sales of $1,619.4 million.

“For the quarter, our results were strengthened by a summer growing season with favorable temperatures and precipitation levels as compared to last year’s severe drought conditions,” said Michael J. Hoffman, Toro’s chairman and chief executive officer. “The more desirable weather helped us drive retail sales across most of our businesses and, in particular, our residential business. 

In addition to realizing sales delayed in the prior quarter by adverse spring weather conditions, our residential business benefited from increased demand for our new and innovative products, including our Timecutter® zero turn radius riding products and our recently introduced line of lithium-ion battery-powered string and hedge trimmers.”

“As anticipated, the Tier 4 diesel engine transition—which caused a significant portion of our professional sales to be accelerated into our first quarter from later quarters as we’ve historically seen—continued to impact the quarterly results for our professional business. Year-to-date our results are solid and our business fundamentals remain sound. 

Our golf and landscape contractor businesses are benefitting from innovative and high performing equipment offerings valued by our end-user customers, we continue to grow our micro irrigation business around the world, and we realized additional sales from increased customer demand for our rental products and newly introduced Toro-branded underground and construction products.”

“Looking ahead, although we are always mindful of the challenges that Mother Nature can create for us, as well as continuing expectations for slow worldwide economic growth, we remain cautiously optimistic about the remainder of our year. We expect favorable sales comparisons to last year’s fourth quarter when limited prior season snowfall in North America and Europe significantly affected demand for our snow thrower products.

Turning to field inventory, despite elevated positions held through the second quarter due to the planned execution of the Tier 4 transition and the resulting impact of the poor spring weather conditions, we believe that recent retail efforts have reduced field inventories across our product lines and at these improved levels we are well positioned for the future. Lastly, we expect that momentum from our productivity efforts and favorable commodity trends, somewhat offset by product mix, should drive additional earnings gains. As a result, today we are refining our full-year revenue outlook and increasing our earnings expectations.”

The company now expects revenue growth for fiscal 2013 to be about 4 percent and net earnings to be about 2.55 per share, or an increase of about 19 percent over fiscal 2012.

SEGMENT RESULTS

Professional

Professional segment net sales for the third quarter totaled $343.9 million, down 4.8 percent from the prior year period. The quarterly sales decrease primarily was attributable to the Tier 4 diesel engine transition and related acceleration of a significant portion of our professional sales into our first quarter from later quarters as historically experienced. Offsetting the decrease, shipments of landscape contractor equipment benefited from increased demand for our zero turn radius products driven by more favorable weather conditions this quarter compared to the drought conditions last year, as well as newly introduced product offerings.

Rental and construction equipment sales were up on increased product demand. Global micro irrigation sales increased on continued demand for more efficient irrigation solutions for agriculture. For the first nine months, professional segment net sales were $1,169.4 million, up 6.2 percent from the comparable fiscal 2012 period.

Professional segment earnings for the third quarter totaled $60.5 million, down 14.2 percent from the prior year period. For the first nine months, professional segment earnings were $233.5 million, up 10.5 percent from the comparable fiscal 2012 period.

Residential

Residential segment net sales for the third quarter totaled $155.5 million, up 14.4 percent from the prior year period. Favorable temperatures and precipitation levels in the quarter led to sales increases across all summer product categories, including riding products, walk power mowers and handheld trimmer and blower products. For the first nine months, residential segment net sales were $477.8 million, down 5.5 percent from the comparable fiscal 2012 period. The year-to-date sales results largely were attributable to the unusually mild 2012/2013 winter season and the late start to spring.

Residential segment earnings for the third quarter totaled $15.1 million, up 50 percent from the prior year period. For the first nine months, residential segment earnings were $51.9 million, up 1.4 percent from the comparable fiscal 2012 period.

OPERATING RESULTS

Gross margin for the third quarter was 34.9 percent, down 40 basis points from the comparable fiscal 2012 period, primarily due to product mix but offset by favorable commodity costs, productivity gains and realized pricing. For the first nine months, gross margin was up 130 basis points to 35.9 percent.

Selling, general and administrative (SG&A) expense as a percent of sales increased 20 basis points for the third quarter to 23.4 percent. For the first nine months, SG&A expense increased 40 basis points as a percent of sales to 22.5 percent.

For both periods, the increase in SG&A as a percent of sales was the result of higher warehousing expense, increased engineering spending and incremental costs from acquisitions, offset by lower warranty expense.

Operating earnings as a percent of sales decreased 60 basis points to 11.5 percent for the third quarter, but was up 90 basis points to 13.4 percent for the year to date.

The effective tax rate for the third quarter was 30.5 percent compared with 31.8 percent in the same period last year. For the year to date comparison, the tax rate decreased to 31.0 percent from 33.3 percent. The decrease in both periods was primarily the result of the reenactment of the Federal Research and Engineering Tax Credit.

Accounts receivable at the end of the third quarter totaled $202.1 million, up 2.6 percent from the prior year period. Net inventories were $258.9 million, up 10.3 percent from the end of last year’s third quarter. Trade payables were $124.2 million, the approximate equivalent of last year.

About The Toro Company

The Toro Company (NYSE: TTC) is a leading worldwide provider of innovative turf, landscape, rental and construction equipment, and irrigation and outdoor lighting solutions. With sales of more than $1.9 billion in fiscal 2012, Toro’s global presence extends to more than 90 countries through strong relationships built on integrity and trust, constant innovation and a commitment to helping customers enrich the beauty, productivity and sustainability of the land. Since 1914, the company has built a tradition of excellence around a number of strong brands to help customers care for golf courses, sports fields, public green spaces, commercial and residential properties and agricultural fields.