The Toro Company Reports 2011 Third Quarter Results

• Quarterly sales up 9 percent to a record $501 million
• Worldwide shipments of golf equipment increase on strength of new products
• Net earnings per share for the quarter up 10 percent to $1.11
• Company reaffirms full-year guidance

BLOOMINGTON, Minn. (August 18, 2011) — The Toro Company today reported net earnings of $35.1 million, or $1.11 per share, on net sales of $501 million for its fiscal third quarter ended July 29, 2011. The company's third quarter earnings were reduced by $0.09 per share to account for a product rework expense. In the comparable fiscal 2010 period, the company reported net earnings of $33.4 million, or $1.01 per share, on net sales of $ 458.9 million.

For the first nine months, Toro reported net earnings of $112.6 million, or $3.51 per share, on net sales of $1,515.9 million. In the comparable fiscal 2010 period, the company posted net earnings of $90 million, or $2.66 per share, on net  sales of $1,353.1 million.

"We delivered record sales over what was a good third quarter last year," said Michael J. Hoffman, Toro's chairman and chief executive officer. "Unfortunately, weather around the country slowed sales in our residential and landscape contractor businesses, and a disappointing walk power mower rework issue negatively impacted earnings for the quarter.

Even so, demand for golf and grounds equipment around the world remained strong, and adoption of our micro irrigation solutions continued to grow, which helped drive strong quarterly results."

SEGMENT RESULTS

PROFESSIONAL

Professional segment net sales for the third quarter totaled $346 million, up 8.8 percent from the prior year period. Worldwide shipments of golf equipment led segment growth on increased demand and strength of new products, such as Toro's Multi Pro® 5800 sprayer and Reelmaster® 7000 fairway mower.

Micro irrigation products saw solid gains on a worldwide basis driven by added production capacity and growing acceptance for drip technologies, including Toro's patented Aqua-Traxx® premium drip tape. Slower sales for landscape maintenance equipment resulting from significant drought in key markets offset some of the gains. For the first nine months, professional segment net sales were $1,022.5 million, up 16.2 percent from the comparable fiscal 2010 period.

Professional segment earnings for the third quarter totaled $64.3 million, up slightly from $62.7 million in the prior year period.

For the first nine months, professional segment earnings were $187.9 million, up from $156.1 million in the comparable fiscal 2010 period.

RESIDENTIAL

Residential segment net sales for the third quarter totaled $147.5 million, up 8.6 from the prior year period. Worldwide orders for snow products were up significantly for the quarter on strong preseason demand due to last year's healthy snowfalls that depleted field inventory levels. Somewhat offsetting these gains were lower sales of walk power mowers and riding products.

For the first nine months, residential segment net sales were $480.4 million, up 3.8 percent from the comparable fiscal 2010 period.

Residential segment earnings for the third quarter totaled $4.6 million, down from $10.7 million in the prior year period. The earnings decline was mainly the result of a pre-tax charge of $4.5 million to account for one-time costs associated with a rework issue affecting a large number of walk power mowers. For the first nine months, residential segment earnings were $42.5 million, down from $49.2 million in the comparable fiscal 2010 period.

OPERATING RESULTS

Gross margin for the third quarter declined 170 basis points from the same period last year to 33.5 percent. The margin decline was mostly due to the mower rework issue, increased commodity costs and higher freight expense.

For the first nine months, margins were down 20 basis points from the comparable fiscal 2010 period to 34.2 percent.

Selling, general and administrative (SG&A) expense as a percent of sales for the third quarter was down 90 basis points to 22.6 percent, and for the first nine months decreased 100 basis points to 22.6 percent. The decline in SG&A as a percent of sales for both periods reflects further leveraging of costs over improved sales volumes.

Operating earnings as a percent of sales decreased 80 basis points to 10.9 percent for the third quarter, but increased 80 basis points to 11.6 percent for the first nine months.

Interest expense for the third quarter was $4.3 million, up slightly from prior year period. For the first nine months, interest expense totaled $12.6 million, down slightly percent from the same period last year.

The effective tax rate for the third quarter was 32.9 percent compared with 35.7 percent in the same period last year. For the first nine months, the tax rate declined to 32.7 percent from 34.4 percent last year, primarily the result of the retroactive extension of the Federal Research and Engineering Tax Credit.

Accounts receivable at the end of the third quarter totaled $199 million, up 17 percent from the prior year period, on a sales increase of 9 percent. Net inventories were $232.4 million, up 31 percent from the comparable fiscal 2010 period. Trade payables were $126.7 million, up 7.4 percent compared with last year.

OUTLOOK

"Even with the external challenges of weather and the economy, along with the rework issue, we posted very solid results for the first nine months and remain committed to our revenue and EPS guidance for the year," said Hoffman.

"Increased economic concern certainly isn't welcome news, but we remain encouraged about our end markets, competitive position, and innovation levels as we finish up our fiscal year. The summer selling season is winding down and we are positioned well for the upcoming snow season with a strong lineup and expanded placement."

The company continues to expect net earnings for fiscal 2011 to be about $3.60 per share on a revenue increase of about 10 to 12 percent.

ABOUT THE TORO COMPANY

The Toro Company is a leading worldwide provider of turf and landscape maintenance equipment, and precision irrigation systems, to help customers care for golf courses, sports fields, public green spaces, commercial and residential properties, and agricultural fields.

Walbro Adding Capacity in Michigan and Thailand for Non-Automotive Gas Tanks

TUCSON, ARIZ. – August 15 -- Walbro Engine Management is adding production capacity in North America and Asia to blow mold multi-layer fuel tanks for non-automotive customers who must meet new emissions standards.

The Tucson, Ariz.-based company added a third blow molding machine at its Cass City, Mich., plant earlier this year, and will bring in a fourth machine during the fourth quarter of this year, the company said in an Aug. 12 news release.

In addition, it is building a new blow molding plant in Chonburi, Thailand, for customers in the Asia-Pacific region. The plant will launch production by the end of this year with one line and is designed for expansions as needed, with capacity for multiple machines.

Walbro began making six-layer plastic tanks in 2007, and turned out its one millionth tank in 2010. It expects to make 1 million tanks in 2011 alone and double that capacity in 2012 on its way to making 3 million tanks in 2013.

The company was once the small engine division of Walbro Corp., which was purchased by TI Automotive in 1999. TI later spun off the smell engine group in a sale to Sun Capital Partners Inc. in 2007, and the private financial group established Walbro Engine Management as an independent firm.

The U.S. Environmental Protection Agency and some state air quality boards are requiring improved emission controls from non-automotive gasoline-powered engines such as those on recreational equipment and lawn mowers. Walbro’s multi-layer tanks meet those standards, which is driving demand for its products, said Chris Quick, global fuel systems director for Walbro.

Walbro also makes complete tank systems with fuel pumps, filtration, valves and hoses along with carburetors, ignition systems and other small engine parts.

Home Depot Catches Up on Internet Sales

Every once in a while there is an interesting article on Home Depot or Lowe’s that deserves your attention or is quite interesting.  This is one of those stories.

NEW YORK — August 14 -- At Home Depot lnc.’s about 2,000 U.S. stores, signs point shoppers to look online for more options, buy anytime at their convenience and get free shipping on Internet purchases of gas grills or lawn mowers.

As of this month, when shoppers find their local store on its website, they see new information including whether the store provides key cutting or tool rental. They also see the store manager’s name, as well as the in-store layout. Item searches yield how many items are in stock at the nearest stores.

“We know we were behind folks like Amazon.com,” said Hal Lawton, Home Depot’s president of online. “We’ve put a stake in the ground. We want to catch up and then get ahead. We certainly are not going to lose share.”

Like other retailers, the world’s largest home-improvement retailer says it’s expanding in the online channel aggressively and targeting it as a major growth opportunity.

Home Depot has made its biggest e-commerce investment over the past two years since it started Internet sales in 2001. An important part of the company’s $370 million in planned annual IT spending over the next three to four years will be online, including mobile, the company said, declining to elaborate.

Its own research shows 40% of all home-improvement projects begin online. So far this year, 45% of the 9.5 million consumers who visited the Home Depot website on average in any given week said their next step was a trip to a Home Depot store, which translates to about 225 customers a day per location.

Catching up

Initiatives this year include continuing its first major website makeover in 10 years. It also wants to let Web orders be picked up in stores by Labor Day, a service already touted by retailers from Wal-Mart Stores Inc.  to rival Lowe’s Cos.

On the mobile front, Home Depot introduced apps for Windows and Android platforms and also updated the one for the iPhone.

What’s more, it’s digitizing its special-order catalogs — an area Home Depot says has the potential to generate additional $1 billion in sales if it can match the competition’s share of the special order market.

As of this month, when shoppers find their local store on its website, they see new information including whether the store provides key cutting or tool rental. They also see the store manager’s name, as well as the in-store layout. Item searches yield how many items are in stock at the nearest stores.

“We know we were behind folks like Amazon.com,” said Hal Lawton, Home Depot’s (NYSE:HD) president of online. “We’ve put a stake in the ground. We want to catch up and then get ahead. We certainly are not going to lose share.”

Beyond generating additional sales, the company also wants to use the Internet as a marketing medium to help build customer loyalty and feed store sales. To encourage store employees to sell things online, about three years ago Home Depot began to credit e-commerce sales and profits to individual stores, instead of counting them as separate.

While Wall Street analysts have lauded the changes, they said Home Depot still has a lot of work to do. Competition is getting more fierce with online retailers such as Amazon.com Inc. (NASDAQ:AMZN) encroaching upon its turf by selling things like ladders.

“Consumers start their research online,” said BMO Capital Markets analyst Wayne Hood. “It’s important for them to engage the consumers in that effort. But … if the core business doesn’t improve, the Internet isn’t going to move the needle for them.”

For instance, Hood added the company could move to regional pricing instead of having standard pricing nationally both online and in stores.

The online channel represents a small percentage of about $70 billion in estimated sales for the Atlanta-based company. Lawton said the company won’t start to disclose the channel’s size until it crosses the $1 billion mark. (At smaller rival Lowe’s, e-commerce accounted for less than 1% of fiscal 2010 sales.)

Nevertheless, industry-wide online sales this year are forecast to rise 12% to $197 billion, according to Forrester Research. That represents 9% of the total U.S. retail market, with the percentage expected to increase to 11% of the total in 2015, Forrester says.

E-commerce for the home-improvement sector “is an underleveraged opportunity,” said Craig Johnson of consultancy Customer Growth Partners. “A lot of people think of Home Depot as a place you go on a Saturday, or when you do window treatment or carpeting. They can do a better job online for things like branded power tools and replenishable items. Why not get them delivered on a regular basis?”

The company is adding 3,000 to 5,000 units to its online offerings each week after having more than doubled the count to 210,000 in the past two years. Each store stocks an average of 30,000 units.

To bolster bigger-ticket spending, shoppers can now schedule appointments with kitchen designers online and communicate changes with them directly to shorten and simplify an order process that could previously take about 90 days and as many as 14 store visits, Lawton said.

Last October, it launched a how-to online forum, where 25 employees were given Flip video cameras and editing training to spend a dedicated portion of their time on project and buying guides and also answering customer questions.

“There are interesting opportunities that the Internet opens for us,” Chief Executive Frank Blake told MarketWatch. “It’s a way to extend our aisle. It’s an efficient way for us to communicate the [product] knowledge. It plays a lot of different roles.”

Briggs International Sales Strong, North America Slowed by Weather

August 12 -- Briggs and Stratton Corp. (Milwaukee, WI, U.S.) consolidated net sales were up 4.0% to $2.1 billion in its fiscal year 2011, ending July 3, 2011, although fourth quarter sales were down 1.7% from the fourth quarter of the previous year to $605.2 million. Adjusted consolidated net income for fiscal 2011 was $63.2 million, up 14.4% from fiscal 2010.

"Sales growth in our international markets continued through the fourth quarter of fiscal 2011," said Todd J. Teske, chairman, president, and CEO of Briggs and Stratton. "This diversification of our customer base helped us deliver 14.4% growth in adjusted consolidated net income in a year that the North American consumer lawn and garden market has declined double-digits."

Briggs and Stratton operates as a supplier of engines to outdoor power equipment OEMs (Engines segment) and as an outdoor power equipment OEM itself (Power Products segment). The products segment sells under brand names Briggs and Stratton, Brute, Craftsman, Ferris, John Deere, Murray, Simplicity, Snapper, and Victa.

The company's Engines segment suffered along with the North American outdoor power equipment industry, with sales slowed by unfavorable weather during the lawn and garden selling season. The segment showed fiscal full-year 2011 income of $120.4 million, up from $83.5 million in fiscal 2010.

Power Products Segment net sales for fiscal 2011 were $879.0 million, up $35.3 million or 4.2% from 4Q 2010, due mostly to stronger Australian and European sales.

www.appliancemagazine.com

"A Sputtering Motor"

August 13 -- Small-engine and outdoor power-equipment maker Briggs and Stratton reversed an $18 million profit last year into a nearly identical loss this time around, as its engines segment suffered from a 13% drop in shipment volumes.

A hefty goodwill write-down also hurt numbers. Industry-wide, sales in the lawn and garden market dropped by double-digit rates over the full year, reflecting the tough environment that mass-merchandise retailers like Home Depot and Lowe's have endured from the horrible housing market.

Briggs and Stratton sells about half of all the engines it makes to three companies -- Husqvarna, MTD, and Deere.  Some analysts expect the market for lawn and garden equipment to rebound based on a housing recovery.

The Freedonia Group expects the segment to grow almost 6% annually through 2015, but I have a hard time seeing that, considering housing's current malaise.

Some housing experts don't expect the industry to recover until 2015, so expecting power equipment to grow into that market is difficult to imagine.

With almost a third of CAPS members rating the engine maker to underperform the market, it seems they're not too enthusiastic, either.

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