- Professional businesses deliver strong
results driving quarterly and year-to-date performance
- Reported quarterly EPS of $1.21;
adjusted quarterly EPS of $1.20, up 22.4 percent over comparable
2017 period adjusted EPS of $0.98
- Second quarter net sales increase 0.3
percent to $875.3 million
The Toro Company (NYSE: TTC) today reported net earnings of
$131.3 million, or $1.21 per share, on a net sales increase of 0.3
percent to $875.3 million for its second quarter ended May 4, 2018.
Adjusted 2018 second quarter net earnings were $130.3 million, or
$1.20 per share, compared to adjusted net earnings of $109.4
million, or $0.98 per share in the comparable 2017 period, an
increase of 22.4 percent.
For the first six months, Toro reported net earnings of $153.9
million, or $1.41 per share, on a net sales increase of 2.5 percent
to $1,423.5 million. Due to the one-time impacts of U.S. tax reform
as reported in the first quarter of fiscal 2018, the first six
months reported net earnings were lower than the comparable 2017
reported net earnings of $165.5 million or $1.48 per share, on net
sales of $1,388.6 million. For the first six months, adjusted net
earnings were $182.4 million, or $1.68 per share, compared to
adjusted net earnings of $149.5 million, or $1.34 per share, in the
comparable 2017 period, an increase of 25.4 percent. Please see the
tables and information below for a reconciliation of non-GAAP
adjusted net earnings and adjusted diluted earnings per share to
the comparable GAAP measures.
Second quarter operating earnings as a percent of sales were
19.5 percent, an improvement of 120 basis points compared to 18.3
percent in the same period last year. Operating earnings as a
percent of sales for the first six months was 16.7 percent, an
improvement of 90 basis points compared to the same period last
year.
The reported tax rate for the second quarter was 22.4 percent
compared to 23.9 percent last year. The adjusted tax rate for the
second quarter was 23.0 percent compared to the adjusted tax rate
of 30.9 percent in the same period last year. For the quarter, the
adjusted tax rate excludes the benefit of the excess tax deduction
for share-based compensation. For the first six months, the
reported tax rate was 34.7 percent, up from 24.1 percent in the
same period last year. The adjusted tax rate was 22.6 percent, down
from 31.4 percent for the comparable period. The adjusted rates
were significantly impacted by the enactment of U.S. tax reform as
reported in the first quarter of fiscal 2018. The unfavorable
impact of one-time charges associated with the provisional
re-measurement of deferred tax assets and liabilities, and
provisional calculation of the deemed repatriation tax, were
partially offset by the benefit resulting from the reduction in the
federal corporate tax rate. The company continues to estimate that
its full fiscal year adjusted 2018 effective income tax rate will
be about 23 percent.
“We are pleased to deliver another record quarter, despite
challenging spring conditions and inflationary headwinds,” said
Richard M. Olson, Toro’s chairman and chief executive officer. “Our
professional segment benefitted from balanced growth across
multiple businesses as our channel partners prepared for the turf
season. New products like our diesel-powered zero-turn mowers in
the landscape contractor business and our largest compact utility
loader in the rental and specialty construction businesses,
bolstered that positive momentum. Golf and grounds also performed
well due to increased demand for rotary mowers and the continued
strength of our large reel mowers,” said Olson. “We are also
excited about our latest acquisition, L.T. Rich Products, which
adds innovative stand-on application and snow removal equipment to
our portfolio.”
“Our residential segment was not immune to the challenges
experienced industry-wide, caused by a slow start to spring in
North America and Europe. The coldest April temperatures in 20
years negatively affected sales of our walk power and zero-turn
riding mowers in the quarter. We are, however, encouraged by the
weather patterns in May and we are hopeful that they will continue
for the balance of our peak turf season.”
“With the second half of the fiscal year still ahead of us, May
retail activity is trending favorably for turf products and the
late season snow helped set the stage for a good pre-season sell-in
later in the fiscal year. We are encouraged by the global economic
landscape and the optimism expressed by channel partners across our
businesses. We are well positioned to meet customer needs through
continued innovation, strong operational execution and continued
focus fueling our productivity efforts, as our Vision 2020 employee
initiatives gain traction. As always, we will work to prudently
manage through the current inflationary environment.”
The company now expects revenue growth for fiscal 2018 to be
about 4 percent, and adjusted net earnings per share to be about
$2.66 to $2.71 for the year. For the third quarter, the company
expects adjusted net earnings per share to be about $0.64 to $0.67.
These adjusted estimates exclude the one-time charges associated
with U.S. tax reform and the benefit of the excess tax deduction
for share-based compensation.
SEGMENT RESULTS
Professional
- Professional segment net sales for the
second quarter were $660.4 million, up 8.1 percent from $610.9
million last year. Balanced growth across our professional
portfolio drove the positive results for the quarter. Momentum in
our landscape contractor businesses was driven by strong sales of
the new diesel-powered zero-turn mowers as the channel prepares for
the selling season ahead. The golf and grounds businesses also
performed well due to increased sales of rotary and large reel
units. For the first six months, professional segment net sales
were $1,064.0 million, up 8.3 percent from the comparable 2017
period. Demand for large reel golf and grounds equipment and our
landscape contractor zero-turn mowers contributed to the
results.
- Professional segment earnings for the
second quarter were $165.0 million, up 10.7 percent from $149.0
million in the same period last year. Professional segment earnings
for the first six months were $240.9 million, up 10.9 percent from
$217.2 million compared to the same period last year.
Residential
- Residential segment net sales for the
second quarter were $212.2 million, down 17.8 percent from $258.1
million last year. A cold and delayed start to spring resulted in
weakened channel demand for our walk power and zero-turn riding
mowers for the quarter. This was a significant contrast to prior
year performance where we saw early, favorable spring weather. For
the first six months, residential segment net sales were $354.7
million, down 11.0 percent from $398.5 million last year. Below
average snowfall early in the season and a poor start to spring
negatively impacted sales of our residential turf and snow thrower
products.
- Residential segment earnings for the
second quarter were $26.3 million, down 24.9 percent from $35.0
million in the comparable period last year. Residential segment
earnings for the first six months were $42.0 million, down 18.6
percent from $51.6 million in the same period last year.
OPERATING RESULTS
Gross margin as a percent of sales for the second quarter was
37.0 percent, an increase of 80 basis points compared to last year.
For the first six months, gross margin as a percent of sales was
37.1 percent, an increase of 40 basis points. For both periods,
favorable foreign currency and the positive impact of segment mix
were partially offset by increased commodity costs.
Selling, general and administrative (SG&A) expense as a
percent of sales for the second quarter was 17.5 percent, a
decrease of 40 basis points from the same period last year. For the
first six months, SG&A expense as a percent of sales was 20.4
percent, a decrease of 50 basis points. The decrease for both
periods was primarily due to prudent expense management and lower
incentive expense, offset in part by increased investment in our
key strategic initiatives, including higher engineering spend on
new product development.
Accounts receivable at the end of the second quarter were $329.6
million, up 0.3 percent from last year. Net inventories were $394.8
million, up 15.6 percent from last year. This increase was mainly
due to higher levels of turf equipment resulting from the delayed
start to spring. Trade payables were $303.9 million, up 11.1
percent from the comparable period last year.
About The Toro CompanyThe Toro Company (NYSE: TTC) is a
leading worldwide provider of innovative solutions for the outdoor
environment including turf maintenance, snow and ice management,
landscape, rental and specialty construction equipment, and
irrigation and outdoor lighting solutions. With sales of $2.5
billion in fiscal 2017, Toro’s global presence extends to more than
125 countries. Through constant innovation and caring
relationships built on trust and integrity, Toro and its family of
brands have built a legacy of excellence by helping customers care
for golf courses, sports fields, public green spaces, commercial
and residential properties and agricultural operations. For
more information, visit www.thetorocompany.com.
LIVE CONFERENCE CALLMay 24, 2018 at 10:00 a.m.
CDTwww.thetorocompany.com/invest
The Toro Company will conduct its earnings call and webcast for
investors beginning at 10:00 a.m. CDT on May 24, 2018. The webcast
will be available at www.streetevents.com or at www.thetorocompany.com/invest. Webcast
participants will need to complete a brief registration form and
should allocate extra time before the webcast begins to register
and, if necessary, download and install audio software.
Use of Non-GAAP Financial InformationThis press release
and our related earnings call contain certain non-GAAP financial
measures, consisting of “adjusted" effective tax rate, net earnings
and net earnings per diluted share as measures of our operating
performance. Management believes these measures may be useful in
performing meaningful comparisons of past and present operating
results, to understand the performance of its ongoing operations
and how management views the business. Reconciliations of adjusted
non-GAAP measures to reported GAAP measures are included in the
financial tables contained in this press release. These measures,
however, should not be construed as an alternative to any other
measure of performance determined in accordance with GAAP.
The Toro Company does not attempt to provide reconciliations of
forward-looking non-GAAP EPS guidance to projected GAAP EPS
guidance because the combined impact and timing of recognition of
these potential charges or gains is inherently uncertain and
difficult to predict and is unavailable without unreasonable
efforts. In addition, we believe such reconciliations would imply a
degree of precision and certainty that could be confusing to
investors. Such items could have a substantial impact on GAAP
measures of financial performance.
Forward-Looking StatementsThis news release contains
forward-looking statements, which are being made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. These forward-looking statements are based on
management’s current assumptions and expectations of future events,
and often can be identified by words such as “expect,” “strive,”
“looking ahead,” “outlook,” “guidance,” “forecast,” “goal,”
“optimistic,” “anticipate,” “continue,” “plan,” “estimate,”
“project,” “believe,” “should,” “could,” “will,” “would,”
“possible,” “may,” “likely,” “intend,” “can,” “seek,” “potential,”
“pro forma,” or the negative thereof or similar expressions.
Forward-looking statements involve risks and uncertainties that
could cause actual events and results to differ materially from
those projected or implied. Particular risks and uncertainties that
may affect our operating results or financial position include:
worldwide economic conditions, including slow or negative growth
rates in global and domestic economies and weakened consumer
confidence; disruption at our manufacturing or distribution
facilities, including drug cartel-related violence affecting our
maquiladora operations in Juarez, Mexico; fluctuations in the cost
and availability of raw materials and components, including steel,
aluminum, engines, hydraulics and resins; the impact of abnormal
weather patterns, including unfavorable weather conditions
exacerbated by global climate change or otherwise; the impact of
natural disasters and global pandemics; the level of growth or
contraction in our key markets; government and municipal revenue,
budget and spending levels; dependence on The Home Depot as a
customer for our residential business; elimination of shelf space
for our products at dealers or retailers; inventory adjustments or
changes in purchasing patterns by our customers; our ability to
develop and achieve market acceptance for new products; increased
competition; the risks attendant to international relations,
operations and markets, including political, economic and/or social
instability and conflict, tax and trade policies in the U.S. and
other countries in which we manufacture or sell our products, and
implications of the United Kingdom’s process for exiting the
European Union; foreign currency exchange rate fluctuations; our
relationships with our distribution channel partners, including the
financial viability of our distributors and dealers; risks
associated with acquisitions; management of our alliances or joint
ventures, including Red Iron Acceptance, LLC; the costs and effects
of enactment of, changes in, and compliance with laws, regulations
and standards, including those relating to consumer product safety,
accounting, taxation, trade and tariffs, healthcare, and
environmental, health and safety matters; unforeseen product
quality problems; loss of or changes in executive management or key
employees; the occurrence of litigation or claims, including those
involving intellectual property or product liability matters; and
other risks and uncertainties described in our most recent annual
report on Form 10-K, subsequent quarterly reports on Form 10-Q, and
other filings with the Securities and Exchange Commission. We make
no commitment to revise or update any forward-looking statements in
order to reflect events or circumstances occurring or existing
after the date any forward-looking statement is made.
THE TORO COMPANY AND SUBSIDIARIES Condensed
Consolidated Statements of Earnings (Unaudited) (Dollars and
shares in thousands, except per-share data)
Three Months Ended
Six Months Ended May 4, May
5, May 4, May 5,
2018 2017
2018 2017 Net sales $ 875,280 $ 872,767
$ 1,423,526 $ 1,388,606 Gross profit 324,056 316,314 528,295
509,794 Gross profit percentage 37.0 % 36.2 % 37.1 % 36.7 %
Selling, general and administrative expense
153,783 157,018
291,100 289,928 Operating
earnings 170,273 159,296 237,195 219,866 Interest expense (4,720 )
(4,676 ) (9,538 ) (9,559 ) Other income, net
3,613 3,701
7,894 7,567 Earnings before
income taxes 169,166 158,321 235,551 217,874 Provision for income
taxes 37,877
37,846 81,658
52,409 Net earnings $ 131,289
$ 120,475 $ 153,893
$ 165,465 Basic net earnings per share
of common stock $ 1.23 $ 1.11
$ 1.44 $ 1.53
Diluted net earnings per share of common stock
$ 1.21 $ 1.08 $ 1.41
$ 1.48 Weighted-average number
of shares of common stock outstanding — Basic 106,423 108,203
106,830 108,419 Weighted-average number of shares of common
stock outstanding — Diluted 108,835
111,138 109,353
111,451
Segment
Data (Unaudited) (Dollars in thousands)
Three Months Ended
Six Months Ended May 4, May
5, May 4, May 5, Segment Net
Sales 2018 2017
2018 2017 Professional $
660,373 $ 610,896 $ 1,064,042 $ 982,705 Residential 212,169 258,134
354,676 398,524 Other 2,738
3,737 4,808
7,377 Total net sales* $ 875,280
$ 872,767 $ 1,423,526
$ 1,388,606
*Includes international net sales of: $ 207,079
$ 201,641 $ 353,869
$ 332,883
Three Months Ended Six Months Ended
May 4, May 5, May 4, May 5, Segment
Earnings (Loss) 2018
2017 2018 2017
Professional $ 164,979 $ 149,011 $ 240,891 $ 217,177 Residential
26,304 35,047 42,017 51,605 Other (22,117 )
(25,737 ) (47,357 )
(50,908 ) Total segment earnings
$ 169,166 $ 158,321 $
235,551 $ 217,874
THE
TORO COMPANY AND SUBSIDIARIES Condensed Consolidated Balance
Sheets (Unaudited) (Dollars in thousands)
May 4, May 5,
2018 2017
ASSETS
Cash and cash equivalents $ 206,100 $ 265,191 Receivables, net
329,570 328,524 Inventories, net 394,801 341,576 Prepaid expenses
and other current assets 47,758
41,272 Total current assets 978,229
976,563 Property, plant and equipment,
net 245,348 224,277 Deferred income taxes 42,994 57,117 Goodwill
and other assets, net 369,176
340,801 Total assets $ 1,635,747
$ 1,598,758
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Current portion of long-term debt $ 13,000 $ 23,105 Short-term debt
— 832 Accounts payable 303,911 273,600 Accrued liabilities
335,496 324,878 Total current
liabilities 652,407
622,415 Long-term debt, less current portion 299,302 311,957
Deferred revenue 24,672 24,948 Deferred income taxes 1,770 — Other
long-term liabilities 34,269
31,667 Total stockholders’ equity
623,327 607,771 Total liabilities and
stockholders’ equity $ 1,635,747 $
1,598,758
THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
Six Months Ended May 4, May 5,
2018 2017 Cash
flows from operating activities: Net earnings $ 153,893 $ 165,465
Adjustments to reconcile net earnings to net cash provided by
operating activities: Non-cash income from finance affiliate (5,370
) (4,686 ) Contributions to finance affiliate, net (2,959 ) (2,708
) Provision for depreciation and amortization 30,141 34,548
Stock-based compensation expense 5,565 6,629 Deferred income taxes
21,121 136 Other (40 ) — Changes in operating assets and
liabilities, net of effect of acquisitions: Receivables, net
(143,947 ) (164,495 ) Inventories, net (62,575 ) (30,100 ) Prepaid
expenses and other assets (8,402 ) (9,709 ) Accounts payable,
accrued liabilities, deferred revenue and other long-term
liabilities 151,007
172,643 Net cash provided by operating activities
138,434 167,723
Cash flows from investing activities: Purchases of
property, plant and equipment (35,365 ) (22,273 ) Purchase of
noncontrolling interest (333 ) — Acquisitions, net of cash acquired
(31,202 ) (24,181 ) Net
cash used in investing activities (66,900 )
(46,454 ) Cash flows from financing
activities: Increase in short-term debt, net — 832 Payments on
long-term debt (20,239 ) (15,930 ) Proceeds from exercise of stock
options 5,778 8,222 Payments of withholding taxes for stock awards
(3,212 ) (2,723 ) Purchases of Toro common stock (116,490 ) (82,239
) Dividends paid on Toro common stock (42,679
) (37,936 ) Net cash used in financing
activities (176,842 )
(129,774 ) Effect of exchange rates on cash and cash
equivalents 1,152
141 Net decrease in cash and cash equivalents
(104,156 ) (8,364 ) Cash and
cash equivalents as of the beginning of the fiscal period
310,256 273,555
Cash and cash equivalents as of the end of the fiscal period
$ 206,100 $ 265,191
THE TORO COMPANY AND
SUBSIDIARIESReconciliation of Non-GAAP Financial Measures
(Unaudited)(Dollars in thousands, except per-share
data)
The company has provided non-GAAP financial measures, which are
not calculated or presented in accordance with accounting
principles generally accepted in the United States ("GAAP"), as
information supplemental and in addition to the most directly
comparable financial measures presented in the accompanying press
release that are calculated and presented in accordance with GAAP.
Such non-GAAP financial measures should not be considered superior
to, as a substitute for, or as an alternative to, and should be
considered in conjunction with, the GAAP financial measures
presented in the press release. The non-GAAP financial measures in
the accompanying press release may differ from similar measures
used by other companies.
The following tables provide reconciliations of financial
measures calculated and reported in accordance with GAAP as well as
adjusted non-GAAP financial measures presented in the accompanying
press release for the three and six month periods ended May 4,
2018 and May 5, 2017. The company believes these measures may
be useful in performing meaningful comparisons of past and present
operating results, to understand the performance of its ongoing
operations, and how management views the business. The following is
a reconciliation of our net earnings, diluted earnings per share
("EPS"), and effective tax rate to our adjusted net earnings,
adjusted diluted EPS, and adjusted effective tax rate:
Net Earnings Diluted EPS
Effective Tax Rate May 4, May 5,
May 4, May 5, May 4,
May 5, Three Months Ended
2018 2017 2018
2017 2018
2017 As Reported - GAAP $ 131,289 $ 120,475 $ 1.21 $ 1.08
22.4 % 23.9 % Impacts of tax reform1: Net deferred tax asset
revaluation2 — — — — — % — % Deemed repatriation tax3 — — — — — % —
% Benefit of the excess tax deduction for share-based compensation4
(1,037 ) (11,059 )
(0.01 ) (0.10 )
0.6 % 7.0 % As Adjusted - Non-GAAP $
130,252 $ 109,416 $ 1.20
$ 0.98 23.0 %
30.9 %
Net Earnings
Diluted EPS Effective Tax
Rate May 4, May 5, May 4, May 5,
May 4, May 5, Six Months Ended
2018 2017 2018
2017 2018
2017 As Reported - GAAP $ 153,893 $ 165,465 $ 1.41 $ 1.48
34.7 % 24.1 % Impacts of tax reform1: Net deferred tax asset
revaluation2 20,513 — 0.19 — (8.7 )% — % Deemed repatriation tax3
12,600 — 0.12 — (5.3 )% — % Benefit of the excess tax deduction for
share-based compensation4 (4,613 )
(15,927 ) (0.04 )
(0.14 ) 1.9 % 7.3 % As Adjusted
- Non-GAAP $ 182,393 $ 149,538
$ 1.68 $ 1.34
22.6 % 31.4 %
1
The actual impact of the U.S. tax reform may differ from our
estimates, due to, among other things, changes in interpretations
and assumptions we have made, guidance that may be issued, and
changes in our structure or business model.
2
Signed into law on December 22, 2017, the
Tax Cuts and Jobs Act ("Tax Act"), reduced the U.S. federal
corporate tax rate from 35.0 percent to 21.0 percent, effective
January 1, 2018, resulting in a blended U.S. federal statutory tax
rate for the company of 23.3 percent for the fiscal year ended
October 31, 2018. This reduction in rate requires the
re-measurement of the company's net deferred taxes as of the date
of enactment which resulted in a non-cash charge of $20.5 million
during the six month period ended May 4, 2018. No deferred tax
remeasurement charges were recorded in the second quarter of fiscal
2018.
3
The Tax Act imposed a one-time deemed
repatriation tax on the company's historical undistributed earnings
and profits of foreign affiliates which resulted in a one-time
charge of $12.6 million during the six month period ended
May 4, 2018, payable over eight years. No repatriation tax
charges were recorded in the second quarter of fiscal 2018.
4
In the first quarter of fiscal 2017, the
company adopted Accounting Standards Update No. 2016-09,
Stock-based Compensation: Improvements to Employee Share-based
Payment Accounting, which requires that any excess tax deduction
for share-based compensation be immediately recorded within income
tax expense. The company recorded discrete tax benefits of $1.0
million and $4.6 million as excess tax deductions for share-based
compensation during the three and six months ended May 4,
2018, respectively. The Tax Act reduced the U.S. federal corporate
tax rate, which reduced the tax benefit related to share-based
compensation by $0.5 million and $2.0 million for the for the three
and six month periods ended May 4, 2018, respectively.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180524005252/en/
The Toro CompanyInvestor RelationsHeather Hille,
952-887-8923Director, Investor Relationsheather.hille@toro.comorMedia
RelationsBranden Happel, 952-887-8930Senior Manager, Public
Relationsbranden.happel@toro.com
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