Recovering From a Wicked Winter's Wreckage

March 30 -- After a season of record snowfalls and lengthy cold spells in many parts of the country, homeowners are finding their houses and landscapes unusually battered. Blizzards, wind and errant snowplows have conspired to make this spring one of long recovery, leading to an early sales uptick for the yard and home-repair industry.

"Many people will see the worst lawn this spring and summer in the history of their lives," says Jackson Madnick, founder of Wayland, Mass.- based Pearl's Premium Inc., which packages and sells its own grass-seed blend. Looking at ornamental-plant damage over the past 15 years, this winter ranks in the "top five," says Doug Erickson, an arborist with Bedford Hills, N.Y.-based landscape service SavATree.

Even with snow still falling this past week in parts of the Northeast and Midwest, consumers already are gearing up for spring cleaning. Preliminary 2011 orders of gasoline-powered outdoor power tools have been very strong, according to the Outdoor Power Equipment Institute, a trade organization, spurred partly by homeowner landscape repair.

Makers of handheld battery and plug-in outdoor tools, including Black and Decker and Neuton, say spring sales are up 10% to 20% on items such as chain saws, wood splitters and pole saws for trimming damaged limbs. Home Depot Inc. cites "high single-digit" percentage sales gains of roof-repair materials from this time last year.

Kathleen Hassinger and Brandon Halbert in Wynnewood, Pa., are among those whose home sustained multiple winter wounds. Ice dams damaged their 100-year-old home's slate roof and left new gutters "twisted like a piece of tinfoil," says Ms. Hassinger. Snow sliding off the roof broke branches on shrubs while gutter runoff wore bare spots into the lawn. Ms. Hassinger says they'll be spending about $1,000 for roof and gutter repair, and she's rethinking placement of plants and downspouts for next year.

Before regular spring fertilizing and thatch removal, watch out for snow mold, a fungal disease appearing in circular patches of pink, gray or white hues. It takes hold after extended periods of snow cover, sometimes on grass left unmowed or buried under leaves before winter set in.

"The first thing I'd do is rake up any matted leaves and any patches of grass that have a bleached-out look and are stuck together," says Ashton Ritchie, lawn and horticultural expert and spokesman for Scotts Miracle-Gro Inc. "You want to break that up to expose the crown of the grass plant to sunlight." The first mow, he adds, shouldn't be a "scalp" job but rather set the mower no more than one notch lower than regular mowing height. Turf suffering the double whammy of last summer's drought followed by heavy snow may require the laying of new grass seed on top of existing grass—known as over-seeding, says Mr. Madnick of Pearl's Premium. "Many lawns may be weakened and susceptible to bugs, mold and other problems."

At Andrew Gadaleta's home in Elkins Park, Pa., 1,500 square feet of lawn were wiped out by drainage from melting snow. He's using Snow Joe LLC's "Tiller Joe" electric garden tiller to rework topsoil with compost and reseed the area. Sales of the company's tillers are up 33% so far this year.

Calls for help with bent, broken or misshapen plants are already pouring in to Arlington, Mass., landscape designer Laura Kuhn. "The snow came so early and there was so much that people couldn't make it out to shake the snow off the plant and are calling me guiltily," she says. Frequent plowing wrecked shrubs and grass near driveways too.

First step: triage. Ms. Kuhn recommends pruning broken limbs flush to the branch's collar as soon as possible. If limbs are cracked or twisted, they might be salvaged using small hardware such as a carriage bolt to draw them back together, says Mr. Erickson of SavATree.

For shrubs like boxwoods misshapen from the weight of ice and snow, he advises temporarily tying plants together with twine or rope made from jute fiber, or propping them up for the season with the crotch of another fallen branch. Those are victims to what gardeners call girdling, when winter-starved animals chew off a ring of bark where the plant peeks above the snow, may require replacement.

Be patient with plants like rhododendrons with brown leaves, Ms. Kuhn says. "Don't start hacking. Wait to see if buds will break in a few weeks."

Piling several inches of compost, topsoil, mulch or straw around plants can help stabilize their soil from melting runoff, says Susan Murphy, a landscape designer in Weston, WI.

Think about next winter now. Record where snow gets piled from shoveling and reevaluate if plants are in the right spot. 

Broken limbs, fallen trees and moisture make a feast for invasive pests such as termites and carpenter ants.

"They haven't had a lot of food to eat and as it gets warmer, they will have a tenacious appetite," says Bob Young, a manager with pest service Terminix International Co.

Minimizing wetness and woody material such as mulch and leaves around a home's foundation can help. Mr. Young advises routing gutter downspouts far from the home and keeping them clean. As for felled trees and branches—"those are evil," he adds. Remove or mulch debris and keep it away from the house. Signs of termite activity include dead winged insects and mud tubes running up foundation walls.

It was a banner year for ice dams, which typically build along roof eaves in periods of extended cold, causing leaks and other damage.

Not only is the resulting moisture inside a roof or wall "like putting gravy on meat" for carpenter ants and termites, Mr. Young says, it can lead to longer-term woes like mold.

Replacing wet drywall and insulation is top priority. Also, fix broken gutters and shingles.

"You're going to see gutters where exceptionally heavy snow storms separated them" from the house, says David Dail, Home Depot's merchandising vice president for building materials.

"A leaky roof is pretty much something you've got to deal with," he says.

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Toro SEC Form 10-Q for Fiscal 3rd Quarter and Year-to-Date 2010 - Excerpts

Acquisitions and Divestiture

On April 30, 2010, the company completed the purchase of certain assets and assumed certain liabilities from USPraxis, Inc., a manufacturer of stump grinders, wood chippers, and log splitters for rental centers and landscape professionals. The addition of these products broadens and strengthens the company’s equipment solutions for the rental and landscape markets. The estimated purchase price was $2.5 million, which included a cash payment, the issuance of a long-term note, and an estimated earnout consideration.

On December 1, 2009, during the first quarter of fiscal 2010, the company’s wholly owned domestic distribution company completed the acquisition of certain assets and the assumption of certain liabilities of one of the company’s independent Midwestern-based distribution companies. During the first quarter of fiscal 2009, the company completed the sale of a portion of the operations of its company-owned distributorship.

These acquisitions and divestiture were immaterial based on the company’s consolidated financial condition and results of operations.

Investment in Joint Venture

On August 12, 2009, the company and TCF Inventory Finance, Inc. (TCFIF), a subsidiary of TCF National Bank, established a joint venture in the form of a Delaware limited liability company named Red Iron Acceptance, LLC (Red Iron) to provide inventory financing, including floor plan and open account receivable financing, to distributors and dealers of the company’s products in the U.S. and to select distributors of the company’s products in Canada.

The initial term of the joint venture will continue until October 31, 2014, subject to unlimited automatic two-year extensions thereafter. Either the company or TCFIF may elect not to extend the initial term or any subsequent term by giving one-year notice to the other party of its intention not to extend the term. Red Iron began financing floor plan receivables during the company’s fourth quarter of fiscal 2009.

The company sells to Red Iron certain inventory receivables, including floor plan and open account receivables, from distributors and dealers of the company’s products, at a purchase price equal to the face value of the receivables. As the company sells receivables to Red Iron, the company derecognizes non-recourse receivables from its books upon receipt of cash from Red Iron for receivables sold. During the first quarter of fiscal 2010, the company sold to Red Iron open account receivables for customers whose floor plan receivables were sold to Red Iron during the fourth quarter of fiscal 2009, as well as for customers whose floor plan receivables were previously financed by a third party financing company, in the aggregate amount of $18.1 million.

The company owns 45 percent of Red Iron and TCFIF owns 55 percent of Red Iron. The company accounts for its investment in Red Iron under the equity method of accounting. The company and TCFIF each contributed a specified amount of the estimated cash required to enable Red Iron to purchase the company’s inventory financing receivables and to provide financial support for Red Iron’s inventory financing programs. Red Iron borrows the remaining requisite estimated cash utilizing a $450 million secured revolving credit facility established under a credit agreement between Red Iron and TCFIF.

The company’s total investment in Red Iron as of July 30, 2010 was $10.6 million. The company has not guaranteed the outstanding indebtedness of Red Iron. The company has agreed to repurchase products repossessed by Red Iron, up to a maximum aggregate amount of $7.5 million in a calendar year. In addition, the company provided recourse to Red Iron for certain outstanding receivables, which amounted to $0.7 million as of July 30, 2010.

Red Iron purchased $627.0 million of receivables from the company during the first nine months of fiscal 2010, which includes the initial purchase of open accounts receivable in the aggregate amount of $18.1 million. As of July 30, 2010, Red Iron’s total assets were $212.5 million and total liabilities were $189.0 million. Red Iron’s net income from operations since inception through July 30, 2010 was $3.2 million.

RESULTS OF OPERATIONS

Overview

Our results for the third quarter of fiscal 2010 were strong with a net sales growth rate of 16.2 percent and a net earnings growth rate of 69.0 percent compared to the third quarter of fiscal 2009. Year-to-date net earnings increased 42.0 percent in fiscal 2010 compared to the same period in the last fiscal year on a year-to-date sales growth rate of 9.6 percent.

Shipments of most professional segment products were up primarily as the result of improved economic conditions, better availability for our products in the third quarter of fiscal 2010 compared to the second quarter of fiscal 2010, the successful introduction of new products, and customers who aligned their orders closer to retail demand, all of which resulted in increased demand for our products.

Residential segment net sales also increased due to continued strong demand resulting from customer acceptance of and additional product placement for zero turn riding products, as well as favorable weather conditions. In addition, shipments of snow thrower products were up for the year-to-date period of fiscal 2010 compared to the same period in the prior fiscal year due to increased demand from heavy snow falls during the winter season of 2009-2010 and the timing of the introduction of our new redesigned offering of snow thrower products that shipped to customers in the first quarter of fiscal 2010.

Net earnings as a percentage of net sales rose to 7.3 percent and 6.7 percent in the third quarter and year-to-date periods of fiscal 2010, respectively, compared to 5.0 percent and 5.1 percent in the third quarter and year-to-date periods of fiscal 2009, respectively. Higher gross margins, leveraging of selling, general, and administrative (SG&A) expenses, and a lower effective tax rate also contributed to the earnings improvement.

We continued to focus on reducing working capital and improving asset management. As a result of our efforts, we maintained our goal to reduce average net working capital (accounts receivable plus inventory less trade payables) as a percentage of net sales at a level below 20 percent, or “in the teens.” Our average net working capital as a percentage of net sales for the twelve months ended July 30, 2010 was 15.4 percent.

The impact of our efforts to reduce working capital resulted in a significant improvement of our cash flows from operating activities for the first nine months of fiscal 2010 compared to the first nine months of fiscal 2009. We continued to return value to our shareholders with our stock repurchase program, in which we repurchased $135.3 million of our stock for the nine months ended July 30, 2010.

We also paid a cash dividend of $0.18 per share during the third quarter of fiscal 2010, which was an increase of 20 percent over our cash dividend of $0.15 per share for the third quarter of fiscal 2009.

We are generally optimistic that the positive momentum from our third quarter should continue through the remainder of fiscal 2010. Based on our financial results for the first nine months of our fiscal 2010, we expect that we will achieve our goal of five percent profit after tax as a percentage of net sales for fiscal 2010 included in our one-year initiative, “5 in One: Back on Course,” which was intended to guide us through this year of anticipated recovery with an even stronger focus on the customer.

We believe we have taken the necessary proactive measures through our continued focus on asset management, reductions to our cost structure, and our commitment to product innovation, to position us well in the future if our markets continue to improve. We will continue to keep a cautionary eye on the global economies and pace and degree of recovery, retail demand, field inventory levels, commodity prices, weather, competitive actions, and other factors identified below under the heading “Forward-Looking Information,” which could cause our actual results to differ from our outlook.

Gross Profit

As a percentage of net sales, gross profit for the third quarter of fiscal 2010 increased to 35.2 percent compared to 33.9 percent in the third quarter of fiscal 2009. Gross profit as a percent of net sales for the year-to-date period of fiscal 2010 also increased to 34.4 percent compared to 33.5 percent for year-to-date period of fiscal 2009. These improvements were due to the following factors: (i) increased sales of our higher-margin products; (ii) lower manufacturing costs from increased plant utilization due to increased demand for our products; and (iii) resulting effects from cost reduction efforts implemented in fiscal 2009. Somewhat offsetting those positive factors was an increase in freight expense primarily attributable to higher fuel prices.

Professional

Net Sales. Worldwide net sales for the professional segment in the third quarter and year-to-date periods of fiscal 2010 increased 21.8 percent and 9.9 percent, respectively, compared to the same periods in the last fiscal year. Shipments of most professional segment products were up primarily as a result of improved economic conditions, better availability of our products in the third quarter of fiscal 2010 compared to the second quarter of fiscal 2010, the successful introduction of new products, and customers who aligned their orders closer to retail demand, all of which contributed to increased demand.

Sales for golf equipment and irrigation systems were also strong as a result of increased capital spending from golf course customers, resulting in higher demand for our products. Professional segment field inventory levels continue to decline and were down as of the end of the third quarter of fiscal 2010 compared to the end of the third quarter of fiscal 2009.

Net sales of micro-irrigation products were up for the year-to-date comparison due to our investments in additional manufacturing capacity that increased production of our water conserving products to meet the growing worldwide market demand.

Operating Earnings. Operating earnings for the professional segment in the third quarter and year-to-date periods of fiscal 2010 increased 58.9 percent and 23.5 percent, respectively, compared to the same periods in the last fiscal year. Expressed as a percentage of net sales, professional segment operating margin increased to 19.7 percent compared to 15.1 percent in the third quarter of fiscal 2009, and fiscal 2010 year-to-date professional segment operating margin also increased to 17.7 percent compared to 15.8 percent from the same period in the last fiscal year.

These profit improvements were primarily attributable to higher gross margins due to the same factors discussed previously in the Gross Profit section. In addition, a decline in SG&A expense as a percentage of net sales also contributed to the operating earnings improvement, which was due mainly to leveraging SG&A costs over higher sales volumes.

Residential

Net Sales. Worldwide net sales for the residential segment in the third quarter and year-to-date periods of fiscal 2010 increased 7.6 percent and 11.0 percent, respectively, compared to the same periods in the last fiscal year. These sales increases were due mainly to continued strong demand, resulting in part, from additional product placement for riding products, favorable weather conditions, and the introduction of our new cordless electric walk power mower, all of which contributed to an increase in demand for our residential products.

In addition, shipments of snow thrower products were up for the year-to-date period of fiscal 2010 compared to the same period in the prior fiscal year due to increased demand from heavy snow falls during the winter season of 2009-2010 and the timing of the introduction of our new redesigned offering of snow thrower products that shipped to customers in the first quarter of fiscal 2010.

Net sales of Pope irrigation products sold in Australia also increased for the year-to-date period of fiscal 2010 compared to the year-to-date period of fiscal 2009 due to additional product placement. Residential segment field inventory levels were down as of the end of the third quarter of fiscal 2010 compared to the end of the third quarter of fiscal 2009.

Operating Earnings. Operating earnings for the residential segment in the third quarter of fiscal 2010 were slightly down by 0.5 percent compared to the third quarter of fiscal 2009. Expressed as a percentage of net sales, residential segment operating margin decreased to 7.8 percent compared to 8.5 percent in the third quarter of fiscal 2009 due to higher SG&A expense mainly from increased marketing and warehousing expenses, somewhat offset by higher gross margins.

Operating earnings for the residential segment for the year-to-date period of fiscal 2010 increased 53.1 percent compared to the same period in the prior fiscal year. Expressed as a percentage of net sales, residential segment operating margin increased to 10.6 percent compared to 7.7 percent in the year-to-date period of fiscal 2009 due to higher gross margins primarily from increased sales volumes of higher-margin products and the resulting effects of cost reduction efforts implemented in fiscal 2009, somewhat offset by higher freight expense and an increase in SG&A expense.

Other

Net Sales. Net sales for the other segment include sales from our wholly owned domestic distribution company less sales from the professional and residential segments to that distribution company. In fiscal 2009, “Other” also included elimination of the professional and residential segments’ floor plan interest costs from Toro Credit Company (TCC), our wholly owned financing company.

With the establishment of Red Iron, net sales for the “Other” segment no longer includes corporate financing activities, including the elimination of floor plan costs from TCC, which results in lower net sales for the other segment.

Net sales for the “Other” segment were down for the third quarter and year-to-date periods of fiscal 2010 compared to the same periods in the last fiscal year by $2.5 million, or 32.6 percent, and $7.3 million, or 41.7 percent, respectively, as a result of the elimination of TCC floor plan interest costs, as well as lower net sales at our wholly owned distributorship.

Operating Losses. Operating losses for the other segment were up for the third quarter and year-to-date periods of fiscal 2010 by $2.4 million, or 12.6 percent, and $6.9 million, or 11.4 percent, respectively, compared to the same periods in the last fiscal year. These loss increases were primarily attributable to an increase in employee incentive compensation expense due to improved financial performance in fiscal 2010, as compared to fiscal 2009, and the elimination of TCC floor plan interest costs, as described above.

Somewhat offsetting those factors was a decline in expenses incurred last year for several legal matters that were not duplicated in fiscal 2010, income from our investment in Red Iron, overall reduced spending from our leaner cost structure as a result of actions we implemented in fiscal 2009, as well as elimination of costs incurred in fiscal 2009 for workforce adjustments.

Toro Profits Increase 70% As Demand Rebounds

Minneapolis – St. Paul – August 19 --Renewed demand from golf courses and landscape businesses sparked robust third-quarter sales and earnings gains at Toro Co. that left Wall Street estimates in the dust. The Bloomington-based maker of outdoor maintenance equipment also raised its estimates for the year by more than 12 percent.

Toro reported Thursday a 16 percent increase in revenue to $458.9 million for the quarter ended July 30. Earnings rose almost 70 percent to $33.4 million, or $1.01 a share. Analysts had estimated earnings per share of 78 cents on revenue of $429.9 million.

The company boosted its earnings forecast for fiscal 2010 from $2.40 a share to $2.70 a share. That would compare with $1.73 a share for 2009.

The stock traded as high as $55 a share Thursday before closing at $51.65 a share, up just 12 cents on unusually high volume of about 655,400 shares.

In a research note, James Lucas, an analyst at Janney Capital Markets, said, "While Toro has done the right things internally, and the top line has rebounded, we believe the shares are fairly valued." He said he is keeping his neutral rating on the stock and his 12-month target price of $54 a share.

In a conference call with analysts, CEO Michael Hoffman said, "We remain mindful of the sluggish nature of the recovery." Even so, he noted, Toro is seeing increased sales from pent-up demand in the professional segment, while new products are a key driver in the residential business unit.

The professional segment, which accounts for about 70 percent of total sales, had double-digit sales gains in all product categories during the quarter. Sales growth in the residential products segment was more modest at close to 8 percent.

One performance benchmark at Toro is to have at least 35 percent of overall sales come from products introduced in the current year and previous two years. Hoffman said the company is exceeding that goal, with nearly 50 percent of sales coming from newer products.