Charles Machine Works and Residential Segment
Key Drivers of Strong Q1 Performance
- Net sales increased 27.3% compared to the same prior-year
period
- Reported diluted EPS up 18.2%, and *adjusted diluted EPS up
20.8%, compared to the same prior-year period
- Maintains full-year adjusted EPS guidance range of $3.33 to
$3.40 per diluted share, which includes the recently completed
Venture Products acquisition
The Toro Company (NYSE: TTC) today reported results for its
first quarter ended January 31, 2020.
“Fiscal 2020 is off to a solid start, fueled by revenue growth
and gross margin expansion in the quarter that builds on similar
results last year,” said Richard M. Olson, chairman and chief
executive officer. “The integration of Charles Machine Works is
progressing ahead of our original expectations as we approach the
first anniversary of the acquisition, and we are on track to
achieve our synergy goals. Among the many key initiatives that we
expect will contribute to our fiscal year, we are excited about
expanding our residential product reach through our new placement
with the Tractor Supply Company. In fact, we believe all our
channel partners will benefit from the refreshed products, branding
and marketing. Finally, we announced the closing of the acquisition
of Venture Products earlier this week. We welcome the Venture
Products team and the well-regarded Ventrac® product line to The
Toro Company.”
First Quarter Fiscal 2020 Financial Highlights
- Net sales of $767.5 million, up 27.3% compared with $603.0
million in the first quarter of fiscal 2019.
- Net earnings of $70.1 million, up 17.7% compared with $59.5
million in the first quarter of fiscal 2019; *Adjusted net earnings
of $69.7 million, up 22.9% compared with $56.7 million in the same
prior-year period.
- Reported EPS of $0.65 per diluted share, up 18.2% compared with
$0.55 per diluted share in the first quarter of fiscal 2019;
*Adjusted EPS of $0.64 per diluted share, up 20.8% compared with
$0.53 per diluted share in the same prior-year period.
*Please see the tables provided for a reconciliation of adjusted
non-GAAP net earnings and adjusted non-GAAP diluted earnings per
share to the comparable GAAP measures.
Second Quarter and Fiscal Year 2020 Outlook
“In addition to anticipated healthy demand for our core products
in the golf, grounds, contractor and construction markets, there is
considerable pre-season excitement for the new products we
displayed at recent industry trade shows,” continued Olson. “The
all-electric e-Dingo™ compact utility loader, Greensmaster®
eTriFlex™ and 60V Flex-Force™ steel deck walk power mower enhance
our lithium-ion battery-powered offerings and demonstrate our
commitment to alternative energy solutions. At the Golf Industry
Show, we showcased smart-connected and autonomous-enabled product
concepts focused on helping customers be more productive.”
“We are realizing productivity and synergy gains from the
Charles Machine Works acquisition and seeing some benefit from the
current commodity cost environment. This translated into higher
gross margin in the first quarter and we expect to see full year
gross margin expansion,” continued Olson.
The company is maintaining its fiscal 2020 guidance, including
net sales of about $3.6 billion and adjusted EPS of $3.33 to $3.40
per diluted share. For the second quarter, the company expects
adjusted EPS of $1.28 to $1.33 per diluted share. Full year and
second quarter 2020 guidance includes the benefit of Venture
Products and nominal disruptions from coronavirus. Guidance
excludes the benefit of the excess tax deduction for share-based
compensation and acquisition and integration-related costs.
“While we are optimistic about the year, there are several
factors beyond our control that may affect our performance, such as
unfavorable weather conditions and more significant disruptions
from coronavirus. As always, we will concentrate on controlling
what we can control, while being prepared to respond to those
factors that we cannot, and continuing to focus on our key
strategic priorities of accelerating profitable growth, driving
productivity and operational excellence, and empowering our
people,” concluded Olson.
SEGMENT RESULTS
Professional
- Professional segment net sales for the first quarter increased
30.7% to $594.7 million from $455.0 million in the same period last
year. The addition of Charles Machine Works, improved net price
realization, and strong early-season order activity for snow and
ice management products were the primary drivers of the net sales
growth, which was somewhat offset by lower shipments of landscape
contractor zero-turn riding mowers as the company managed field
inventory in advance of the key selling season.
- Professional segment earnings for the first quarter increased
16.5% to $102.5 million from $88.0 million in the same period last
year, largely a result of the acquisition of Charles Machine
Works.
Residential
- Residential segment net sales for the first quarter increased
14.3% to $165.8 million from $145.2 million in the same period last
year, primarily driven by shipments of zero turn riding mowers to
our new mass retail channel outlet.
- Residential segment earnings for the first quarter increased
65% to $21.6 million from $13.1 million in the same period last
year, primarily due to favorable sales mix, productivity and
synergy initiatives, lower commodity and tariff costs, and
reductions in freight cost.
OPERATING RESULTS
Gross margin for the first quarter was 37.5% compared with 35.8%
for the same prior-year period, an increase of 170 basis points.
Adjusted gross margin for the first quarter was 37.6% compared with
35.8% for the first quarter of fiscal 2019. The increase in gross
margin and adjusted gross margin for the first quarter of fiscal
2020 was primarily driven by productivity and synergy initiatives,
improved net price realization, lower freight costs, and lower
commodity and tariff costs.
Selling, general and administrative (SG&A) expense as a
percent of sales for the first quarter increased 140 basis points
to 25.6% from 24.2% in the same year-ago period, reflecting higher
costs due to the addition of Charles Machine Works and increased
indirect sales and marketing expense.
Operating earnings as a percent of net sales were 11.9% for the
first quarter, compared with 11.6% for the same period last year.
Adjusted operating earnings as a percent of net sales were 12.1% in
the quarter, compared with 11.9% in the same period last year.
Interest expense in the first quarter was $8.2 million compared
with $4.7 million in the same prior-year period as a result of
incremental borrowings to fund the purchase of Charles Machine
Works.
The effective tax rate for the first quarter was 18.6%, compared
with 15.0% for the first quarter of fiscal 2019, driven by a lower
tax benefit related to the excess tax deduction for share-based
compensation. The adjusted effective tax rate for the first quarter
was 21.0%, compared with 20.9% for the first quarter of fiscal
2019.
Working capital at the end of the first quarter was up,
primarily driven by the addition of Charles Machine Works. Also
contributing to higher working capital were increased residential
segment inventory to support the expanded mass retail channel,
various new product introductions, and higher landscape contractor
finished goods as the company managed field inventory ahead of the
key spring selling season. Accounts receivable at the end of the
first quarter were $321.2 million, up 42.4% from last year. Net
inventories were $739.0 million, up 77.4% from last year. Accounts
payable were $348.0 million, up 23.6% from the comparable period
last year.
LIVE CONFERENCE CALL March 5, 2020 at 10:00 a.m.
CST www.thetorocompany.com/invest
The Toro Company will conduct its earnings call and webcast for
investors beginning at approximately 10:00 a.m. CST on March 5,
2020. The webcast will be available 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, install
audio software.
About The Toro Company
The Toro Company (NYSE: TTC) is a leading worldwide provider of
innovative solutions for the outdoor environment including turf and
landscape maintenance, snow and ice management, underground utility
construction, rental and specialty construction, and irrigation and
outdoor lighting solutions. With sales of $3.1 billion in fiscal
2019, The Toro Company’s global presence extends to more than 125
countries through a family of brands that includes Toro, Ditch
Witch, Exmark, BOSS Snowplow, Ventrac, American Augers, Subsite
Electronics, HammerHead, Trencor, Unique Lighting Systems,
Irritrol, Hayter, Pope, Lawn-Boy and Radius HDD. Through constant
innovation and caring relationships built on trust and integrity,
The Toro Company and its family of brands have built a legacy of
excellence by helping customers care for golf courses, sports
fields, construction sites, public green spaces, commercial and
residential properties and agricultural operations. For more
information, visit www.thetorocompany.com.
Use of Non-GAAP Financial Information
This press release and our related earnings call references
certain adjusted non-GAAP financial measures and metrics, which are
not calculated or presented in accordance with U.S. GAAP, as
information supplemental and in addition to the most directly
comparable financial measures and metrics calculated and presented
in accordance with U.S. GAAP. The adjusted non-GAAP financial
measures and metrics included within this press release and our
related earnings call consist of gross profit, gross margin,
operating earnings, operating earnings before income taxes, net
earnings, net earnings per diluted share, and the effective tax
rate, each as adjusted, as measures and metrics of our operating
performance.
The Toro Company uses these adjusted non-GAAP financial measures
and metrics in making operating decisions because we believe these
adjusted non-GAAP financial measures and metrics provide meaningful
supplemental information regarding core operational performance and
provide us with a better understanding of how to allocate resources
to both ongoing and prospective business initiatives. Additionally,
these adjusted non-GAAP financial measures and metrics facilitate
our internal comparisons to both our historical operating results
and our competitors' operating results by factoring out potential
differences caused by charges not related to our regular ongoing
business, including, without limitation, non-cash charges, certain
large and unpredictable charges, acquisitions and dispositions,
legal settlements, and tax positions. Further, we believe that
these adjusted non-GAAP financial measures and metrics, when
considered in conjunction with the financial measures prepared in
accordance with U.S. GAAP, provide investors with useful
supplemental financial information to better understand our core
operational performance.
Reconciliations of historical adjusted non-GAAP financial
measures and metrics to the most comparable U.S. GAAP financial
measures and metrics are included in the financial tables contained
in this press release. These adjusted non-GAAP financial measures
and metrics, however, should not be considered superior to, as a
substitute for, or as an alternative to, and should be considered
in conjunction with, the U.S. GAAP financial measures and metrics
included within this press release and our related earnings call.
These adjusted non-GAAP financial measures and metrics may differ
from similar measures used by other companies.
The Toro Company cannot provide quantitative reconciliations of
forward-looking adjusted non-GAAP diluted EPS guidance to projected
U.S. GAAP diluted EPS guidance or the adjusted non-GAAP effective
tax rate guidance to projected U.S. GAAP effective tax rate
guidance without unreasonable effort because the combined effect
and timing of recognition of potential charges or gains is
inherently uncertain and difficult to predict. In addition, since
any adjustments could have a substantial effect on U.S. GAAP
measures of financial performance, such quantitative
reconciliations would imply a degree of precision and certainty
that could be confusing to investors.
Forward-Looking Statements
This 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 commodities,
components, parts, and accessories, including steel, engines,
hydraulics and resins; the effect of abnormal weather patterns,
including unfavorable weather conditions exacerbated by global
climate change or otherwise; the effect of natural disasters and
global pandemics; the level of growth or contraction in our key
markets; customer, government and municipal revenue, budget and
spending levels; loss of any substantial customer, including mass
retailers and home centers 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, or trade regulation
and/or industry activity; 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, including those
related to our recent acquisitions of Charles Machine Works and
Venture Products, Inc., such as delays or failure by us in
achieving the net sales, earnings and cost or revenue synergies
expected from acquisitions, delays and challenges in integrating
the businesses, business disruptions due to acquisitions, impacts
as a result of purchase accounting adjustments and unanticipated
liabilities or exposures for which we have not been indemnified or
may not recover; impairment of goodwill or other intangible assets;
delays or failures in implementing, and unanticipated charges, as a
result of, restructuring activities; 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
January 31, 2020
February 1, 2019
Net sales
$
767,483
$
602,956
Gross profit
288,088
215,617
Gross margin
37.5
%
35.8
%
Selling, general and administrative
expense
196,959
145,563
Operating earnings
91,129
70,054
Interest expense
(8,156
)
(4,742
)
Other income, net
3,166
4,708
Earnings before income taxes
86,139
70,020
Provision for income taxes
16,048
10,480
Net earnings
$
70,091
$
59,540
Basic net earnings per share of common
stock
$
0.65
$
0.56
Diluted net earnings per share of common
stock
$
0.65
$
0.55
Weighted-average number of shares of
common stock outstanding — Basic
107,423
106,258
Weighted-average number of shares of
common stock outstanding — Diluted
108,655
107,781
Segment Data (Unaudited)
(Dollars in thousands)
Three Months Ended
Segment Net Sales
January 31, 2020
February 1, 2019
Professional
$
594,721
$
455,006
Residential
165,848
145,158
Other
6,914
2,792
Total net sales*
$
767,483
$
602,956
*Includes international net sales of:
$
175,835
$
141,545
Three Months Ended
Segment Earnings (Loss)
January 31, 2020
February 1, 2019
Professional
$
102,474
$
87,978
Residential
21,566
13,072
Other
(37,901
)
(31,030
)
Total segment earnings
$
86,139
$
70,020
THE TORO COMPANY AND
SUBSIDIARIES Condensed Consolidated Balance Sheets
(Unaudited) (Dollars in thousands)
January 31, 2020
February 1, 2019
October 31, 2019
ASSETS
Cash and cash equivalents
$
108,914
$
249,965
$
151,828
Receivables, net
321,192
225,528
268,768
Inventories, net
738,960
416,650
651,663
Prepaid expenses and other current
assets
51,442
41,789
50,632
Total current assets
1,220,508
933,932
1,122,891
Property, plant, and equipment, net
431,253
279,270
437,317
Goodwill
362,136
227,091
362,253
Other intangible assets, net
347,643
104,017
352,374
Right-of-use assets
73,137
—
—
Investment in finance affiliate
25,455
25,430
24,147
Deferred income taxes
6,161
39,589
6,251
Other assets
25,316
13,485
25,314
Total assets
$
2,491,609
$
1,622,814
$
2,330,547
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current portion of long-term debt
$
113,903
$
—
$
79,914
Accounts payable
348,003
281,526
319,230
Accrued liabilities
348,027
283,452
357,826
Short-term lease liabilities
14,374
—
—
Total current liabilities
824,307
564,978
756,970
Long-term debt, less current portion
601,016
312,551
620,899
Long-term lease liabilities
62,015
—
—
Deferred income taxes
50,676
1,410
50,579
Other long-term liabilities
41,545
49,478
42,521
Stockholders’ equity:
Preferred stock, par value $1.00 per
share, authorized 1,000,000 voting and 850,000 non-voting shares,
none issued and outstanding
—
—
—
Common stock, par value $1.00 per share,
authorized 175,000,000 shares; issued and outstanding 106,977,274
shares as of January 31, 2020, 105,746,538 shares as of February 1,
2019, and 106,742,082 shares as of October 31, 2019
106,977
105,747
106,742
Retained earnings
837,194
613,165
784,885
Accumulated other comprehensive loss
(32,121
)
(24,515
)
(32,049
)
Total stockholders’ equity
912,050
694,397
859,578
Total liabilities and stockholders’
equity
$
2,491,609
$
1,622,814
$
2,330,547
THE TORO COMPANY AND
SUBSIDIARIES Condensed Consolidated Statements of Cash Flows
(Unaudited) (Dollars in thousands)
Three Months Ended
January 31, 2020
February 1, 2019
Cash flows from operating activities:
Net earnings
$
70,091
$
59,540
Adjustments to reconcile net earnings to
net cash (used in) provided by operating activities:
Non-cash income from finance affiliate
(1,751
)
(2,429
)
Distributions from (contributions to)
finance affiliate, net
442
(459
)
Depreciation of property, plant and
equipment
18,089
13,670
Amortization of other intangible
assets
4,714
1,913
Fair value step-up adjustment to acquired
inventory
470
—
Stock-based compensation expense
3,960
3,924
Deferred income taxes
141
(1,225
)
Other
175
—
Changes in operating assets and
liabilities, net of effect of acquisitions:
Receivables, net
(53,044
)
(31,331
)
Inventories, net
(88,557
)
(52,380
)
Prepaid expenses and other assets
237
8,119
Accounts payable, accrued liabilities,
deferred revenue and other liabilities
21,734
26,643
Net cash (used in) provided by operating
activities
(23,299
)
25,985
Cash flows from investing activities:
Purchases of property, plant and
equipment
(11,821
)
(14,180
)
Proceeds from asset disposals
25
3
Investment in unconsolidated entities
—
(150
)
Acquisitions, net of cash acquired
—
(12,498
)
Net cash used in investing activities
(11,796
)
(26,825
)
Cash flows from financing activities:
Borrowings under debt arrangements
82,025
—
Repayments under debt arrangements
(68,025
)
—
Proceeds from exercise of stock
options
6,710
7,569
Payments of withholding taxes for stock
awards
(1,361
)
(1,872
)
Purchases of Toro common stock
—
(20,043
)
Dividends paid on Toro common stock
(26,856
)
(23,923
)
Net cash used in financing activities
(7,507
)
(38,269
)
Effect of exchange rates on cash and cash
equivalents
(312
)
(50
)
Net decrease in cash and cash
equivalents
(42,914
)
(39,159
)
Cash and cash equivalents as of the
beginning of the fiscal period
151,828
289,124
Cash and cash equivalents as of the end of
the fiscal period
$
108,914
$
249,965
THE TORO COMPANY AND SUBSIDIARIES
Reconciliation of Adjusted Non-GAAP Financial Measures and Metrics
(Unaudited) (Dollars in thousands, except per-share data)
The company has provided adjusted non-GAAP financial measures
and metrics, which are not calculated or presented in accordance
with accounting principles generally accepted in the United States
("U.S. GAAP"), as information supplemental and in addition to the
most directly comparable financial measures and metrics presented
in the accompanying press release that are calculated and presented
in accordance with U.S. GAAP. The company uses these adjusted
non-GAAP financial measures and metrics in making operating
decisions because the company believes these adjusted non-GAAP
financial measures and metrics provide meaningful supplemental
information regarding the company's core operational performance
and provide the company with a better understanding of how to
allocate resources to both ongoing and prospective business
initiatives. Additionally, these adjusted non-GAAP financial
measures and metrics facilitate management's internal comparisons
to both the company's historical operating results and to the
company's competitors' operating results by factoring out potential
differences caused by charges not related to the company's regular,
ongoing business, including, without limitation, non-cash charges,
certain large and unpredictable charges, acquisitions and
dispositions, legal settlements, and tax positions.
Further, the company believes that such adjusted non-GAAP
financial measures and metrics, when considered in conjunction with
the company's financial measures and metrics prepared in accordance
with U.S. GAAP, provide investors with useful supplemental
financial information to better understand the company's core
operational performance. Such adjusted non-GAAP financial measures
and metrics should not be considered superior to, as a substitute
for, or as an alternative to, and should be considered in
conjunction with, the most directly comparable U.S. GAAP financial
measures and metrics presented in the accompanying press release.
The adjusted non-GAAP financial measures and metrics presented in
the accompanying press release may differ from similar measures and
metrics used by other companies.
The following table provides a reconciliation of financial
measures and metrics calculated and reported in accordance with
U.S. GAAP to the most directly comparable adjusted non-GAAP
financial measures and metrics included within the accompanying
press release for the three month periods ended January 31, 2020
and February 1, 2019:
Three Months Ended
January 31, 2020
February 1, 2019
Gross profit
$
288,088
$
215,617
Acquisition-related costs1
470
—
Adjusted non-GAAP gross profit
$
288,558
$
215,617
Gross margin
37.5
%
35.8
%
Acquisition-related costs1
0.1
%
—
%
Adjusted non-GAAP gross margin
37.6
%
35.8
%
Operating earnings
$
91,129
$
70,054
Acquisition-related costs1
2,018
1,647
Adjusted non-GAAP operating earnings
$
93,147
$
71,701
Earnings before income taxes
$
86,139
$
70,020
Acquisition-related costs1
2,018
1,647
Adjusted non-GAAP earnings before income
taxes
$
88,157
$
71,667
Net earnings
$
70,091
$
59,540
Acquisition-related costs1
1,633
1,510
Tax impact of share-based
compensation2
(2,035
)
(4,361
)
Adjusted non-GAAP net earnings
$
69,689
$
56,689
Diluted EPS
$
0.65
$
0.55
Acquisition-related costs1
0.01
0.02
Tax impact of share-based
compensation2
(0.02
)
(0.04
)
Adjusted non-GAAP diluted EPS
$
0.64
$
0.53
Three Months Ended
January 31, 2020
February 1, 2019
Effective tax rate
18.6
%
15.0
%
Acquisition-related costs1
—
%
(0.3
)%
Tax impact of share-based
compensation2
2.4
%
6.2
%
Adjusted non-GAAP effective tax rate
21.0
%
20.9
%
1 During the first quarter of fiscal 2020, the company entered
into an Agreement and Plan of Merger to acquire Venture Products
Inc. ("Venture Products), a privately-held Ohio corporation and the
manufacturer of Ventrac-branded products, and an agreement to
purchase the real property used by Venture Products ("Purchase
Agreement"). On March 2, 2020, subsequent to the end of the first
quarter of fiscal 2020, pursuant to the Agreement and Plan of
Merger and the Purchase Agreement, the company completed the
acquisition of Venture Products. During the second quarter of
fiscal 2019, the company acquired The Charles Machine Works, Inc.
("CMW"). Acquisition-related costs for the three month period ended
January 31, 2020 represent costs incurred related to the company's
acquisition of VPI, as well as integration costs and charges
incurred for the take-down of the inventory fair value step-up
amount resulting from purchase accounting adjustments related to
the company's acquisition of CMW. Additionally, the company elected
to recast acquisition-related costs for the three month period
ended February 1, 2019 to conform to the current period
presentation and as a result, acquisition-related costs were
restated to be inclusive of the costs incurred related to the
company's acquisition of CMW for the three month period ended
February 1, 2019.
2 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. These amounts
represent the discrete tax benefits recorded as excess tax
deductions for share-based compensation during the three month
periods ended January 31, 2020 and February 1, 2019.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200305005117/en/
Investor Relations Nicholas Rhoads Managing Director,
Investor Relations (952) 887-8865, nicholas.rhoads@toro.com
Media Relations Branden Happel Senior Manager, Public
Relations (952) 887-8930, branden.happel@toro.com
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