· Quarterly sales increased 17 percent; sales for the year grew 11 percent to $1.7 billion with double-digit growth in both Professional and Residential segments
· Net earnings per share for the full year increased 61 percent to $2.79
· Average net working capital as a percentage of sales driven down to 14 percent as a result of company initiative
· Increased quarterly cash dividend to $0.20 per share and authorized the repurchase of 3 million additional shares, as announced last week
· Company to develop new manufacturing plant in Eastern Europe to serve growing demands for precision irrigation in agriculture
BLOOMINGTON, Minn. -- December 7 -- The Toro Company today reported net earnings of $93.2 million, or $2.79 per share, on net sales of $1,690.4 million for its fiscal year ended October 31, 2010. In the fiscal 2009, the company delivered net earnings of $62.8 million, or $1.73 per share, on net sales of $1,523.4 million.
For the fourth quarter, Toro reported net earnings of $3.2 million, or $0.10 per share, on net sales of $337.3 million. In the comparable fiscal 2009 period, the company reported a net loss of $0.5 million, or $0.02 per share, on net sales $288.6 million.
"For Toro, it was a year marked by many successes and a return to change in the right direction," said Michael J. Hoffman, Toro's chairman and chief executive officer. "Investments we made during the downturn, along with renewed strength in our end markets, particularly worldwide golf and landscape contractor, have our revenues and profits growing once again. New product innovation was a key contributor to our growth, helping increase penetration in key categories. I am very appreciative of our team's performance and what they collectively achieved this year.
"I am also pleased to announce that we are moving forward with a new manufacturing plant in Eastern Europe to serve increasing demands for precision irrigation in agriculture in that region. The move will put Toro closer to this growing market as micro irrigation becomes both a larger part of our business and of irrigated agriculture around the world due to its more efficient use of water."
On another positive note, the company reached its strategic goal of driving 12-month average net working capital as a percentage of sales down "into the teens" in the second quarter, and made measurable progress throughout the year finishing just under 14 percent at fiscal year end. This marks an improvement of more than 50 percent from when the initiative was announced in early 2007 and Toro had roughly 30 percent of sales tied up in working capital. The company expects working capital levels to continue in the mid-teens.
SEGMENT RESULTS
Professional
· Professional segment net sales for fiscal 2010 totaled $1,085.5 million, up 12.4 percent from last year. Sales across all professional businesses increased for both the quarter and the year. Worldwide orders for golf equipment and precision irrigation systems accelerated due to increased capital spending, new golf projects in Asia, and the successful introduction of several product innovations.
· Overall shipments for landscape maintenance equipment saw solid growth on acceptance for new products, while both micro and residential and commercial irrigation sales were higher due to increased global demand for precision irrigation solutions. For the fourth quarter, professional segment net sales were $205.2 million, up 24.1 percent compared with the same period last year.
· Professional segment earnings for fiscal 2010 totaled $173.8 million, up $46.1 million from last year. For the fourth quarter, professional segment earnings were $17.7 million, up $16.5 million compared with the same period last year.
Residential
· Residential segment net sales for fiscal 2010 totaled $589.7 million, up 10.7 percent from last year. Riding products posted strong gains fueled by expanded placement for Toro's competitively priced TimeCutter(R) zero-turn mowers and continued strong demand for TITAN(R) zero-turn mowers.
· Snow shipments were higher, benefiting from lean field inventory levels entering the season and positive customer acceptance for Toro's new redesigned line of snow throwers. For the fourth quarter, residential segment net sales were $127.1 million, up 9.6 percent compared with the same period last year.
· Residential segment earnings for fiscal 2010 totaled $58 million, up $11.6 million from last year. For the fourth quarter, residential segment earnings were $8.8 million, down $5.5 million compared with the same period last year.
REVIEW OF OPERATIONS
Gross margin for fiscal 2010 improved 60 basis points to 34.1 percent compared to last year, driven mostly by favorable product mix and lower manufacturing costs. For the fourth quarter, gross margin decreased 100 basis points to 32.9 percent compared with the same period last year. The decline for the quarter was primarily due to higher commodity costs.
Selling, general and administrative (SG&A) expense for fiscal 2010 was up $29.3 million, or 7.4 percent from last year, but declined as a percent of sales to 25.1 percent from 26 percent. For the fourth quarter, SG and A expense increased $10.6 million, or 11.2 percent from the same period last year, but decreased as a percent of sales to 31.3 percent compared with 32.9 percent. In both periods, SG and A expense was up primarily due to higher employee incentive expense related to the company's significantly improved financial performance.
Other income for fiscal 2010 was $7.1 million, up $8.9 million from last year. The increase was due to expenses incurred last year for several legal matters and income this year from the investment in Red Iron Acceptance, the company's channel financing joint venture.
Interest expense for fiscal 2010 was $17.1 million, down 2.6 percent compared with last year. For the fourth quarter, interest expense was even with the same period last year at $4.4 million.
The effective tax rate for fiscal 2010 was 34 percent compared with 34.4 percent last year. The slight decrease was primarily the result of a valuation allowance last year related to foreign subsidiaries.
Accounts receivable at the end of fiscal 2010 totaled $142.9 million, down slightly from last year on a sales increase of 11 percent. Net inventories for the year were $194.4 million, up 10.3 percent from last year. Trade payables were $125.1 million, up 37.4 percent from last year, driven by the implementation of a new supply chain finance initiative.
Resulting from strong earnings growth and working capital benefits, the company's cash flow from operations for the year totaled $193.5 million compared with $251.5 million last year. With a focus on returning value to shareholders, the company reported last week that its board of directors raised its regular quarterly cash dividend to $0.20 per share from its previous quarterly dividend rate of $0.18 per share. The board also authorized the repurchase of 3 million shares of common stock, in addition to the 1.3 million shares remaining under the prior authorization. For the year, the company repurchased $136 million of company stock.
BUSINESS OUTLOOK
"We are encouraged with the improving health of our business and prospects for the future," said Hoffman.
"Our extensive lineup of innovative new products and enduring focus on the customer have our strong brands competitively positioned to capitalize on the recovery in our markets. We expect growth to come from a number of areas including international new golf development, the residential shift to zero-turn mowers, and continued momentum for precision irrigation solutions and landscape contractor equipment."
The company currently expects fiscal 2011 net earnings to be about $3.20 per share on a revenue increase of about 5 percent. For its seasonally smaller fiscal first quarter, the company expects to report net earnings of about $0.40 per share.
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.
About The Toro Company
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.
