For these speculators and anyone clinging to memories of a once-booming stock market, a company best known for its lawn mowers is likely to provoke a stifled yawn.
But an investment in boring Toro has done better than most.
The Bloomington-based firm that got its start building tractor engines has been one of the best-performing Minnesota stocks of the last decade, beating out the likes of Best Buy, Target, Wells Fargo and 3M. Toro has treated its long-term investors to annual returns averaging almost 18 percent since September 2001, significantly outpacing gains chalked up by General Electric, Procter & Gamble, the S&P 500 and most other major indexes.
That a 96-year-old manufacturing company could leave some of the mostly widely held and closely followed stocks in the dust should be a comfort to anyone who doubts the long-term competitiveness of America's factories.
Yes, American manufacturers can compete without having to shift most of the work to foreign factories. The secret to being able to do so may lie in the sustained commitment Toro has made to acquiring and developing new technologies that help make their customers more productive.
Toro may be a decidedly Old Economy company but, more than a decade ago, management concluded that adopting a New Economy mind-set was the only way to revive its moribund stock price.
Among other things, this has meant a succession of progressively more aggressive profit and revenue goals, better processes to manage inventory and working capital and an accelerated new product cycle, which was supported by a significant boost in research and development spending, from 2.7 percent of annual revenue to 3.2 percent. In recent years, it has been as high as 3.4 percent of sales, or more than $50 million.
Adopting these more stringent objectives "really marked the transformation in our performance," said Michael Hoffman, a 34-year Toro veteran who became its CEO in 2005.
Toro initially scrutinized its costs, particularly its manufacturing operations, with the goal of becoming leaner and more efficient. Not that anybody would mistake Toro for a company that was fat and happy. The corporate headquarters has been at its current location since 1962.
Today, Toro employs about the same number of people as it did in 2001, even though sales are about 30 percent higher. How has Toro managed this? Not by shifting all the work abroad. As Toro's international sales have grown, so too have the number of foreign factories, including the latest in Romania. But Toro still makes things in Minnesota, Wisconsin, California and Texas, and 19 percent of its workforce is unionized, down only slightly in the past decade.
The recession forced Toro to make painful cuts across the company, including offering early retirement buyouts and instituting layoffs that reduced headcount by almost 15 percent. But it didn't close any factories, and it resisted the temptation to slash R&D spending.
"It would have been really easy to reduce our spending from 3.2 percent to 2.5 percent and take back those dollars," Hoffman said.
But that would have hurt new product development at precisely the time Toro's customers were looking for equipment, such as zero-turn radius and stand-on mowers, that would allow them to do their jobs better.
That commitment to new product development has paid off in big ways. The company's goal is to get about 35 percent of revenue from new products released in the previous three years. During the last three years, it's hovered near 50 percent.
Some of the things the company's researchers are working on now include advanced sensor technologies for its water irrigation systems, and alternative energy fuel cell products for its mowers.
"These are not if questions, but when questions," Hoffman said.
Twenty years ago, almost 60 percent of Toro's revenue came from sales of lawnmowers and snowmobiles to residential customers. Now, more than 60 percent of sales are to commercial customers, including landscapers and golf courses. This shift helped Toro weather the housing downturn better than it would have otherwise.
Toro also has an expanding presence designing and manufacturing drip tape and drip lines that provide farmers with more efficient and targeted irrigation. The $2 billion precision irrigation market is growing fast because of water scarcity issues, the cost and availability of agricultural land and the need to boost crop yields.
A year ago Toro set new performance goals for the years leading up to its centennial, in 2014. They include $100 million in sales from existing operations every year, and operating earnings that exceed 12 percentof revenue.
Despite the slowing economy, Toro is on track to achieve those goals and restore revenue to pre-recession levels for the year ending next month.
Boring indeed.
