Acquisitions and Residential Segment Growth
Partially Offset COVID-19 Related Impacts
- Net sales of $929.4 million, down 3.4% year-over-year, driven
by COVID-19 impacts
- Reported diluted EPS of $0.91, and *adjusted EPS of $0.92
- Residential segment up 12.9% on mass retail strength and strong
retail demand
- Strong liquidity position of approximately $800 million
The Toro Company (NYSE: TTC) today reported results for its
second quarter ended May 1, 2020.
“It has been inspiring to see The Toro Company’s values in
action during this challenging time,” said Richard M. Olson,
chairman and chief executive officer. “Everyone pulled together to
maintain the team’s safety, supply our customers with essential
products and services, and help our communities in the COVID-19
fight.”
“Retail demand in the second quarter started strong and
continued favorably until mid-March when the full effects of the
pandemic were realized in North America,” continued Olson. “The
direct impact of government orders and the general weakening of
customer confidence reduced demand in key professional markets.
Residential segment sales were strong throughout the quarter driven
by new products, an expanded channel, a strong start to spring and
consumer behavior in favor of home and garden improvement during
stay at home orders.”
“In May, the residential segment momentum continued—driven by
the same factors, while the professional segment saw a significant
step down in some markets as customers reduced capital budgets and
deferred new purchases,” added Olson. “While we can’t fully
determine the level of customer spending that will return in fiscal
2020, we are taking every opportunity to support our customers with
products and parts along with financing and other tools.”
SECOND-QUARTER AND YEAR-TO-DATE FISCAL
2020 FINANCIAL HIGHLIGHTS
- Net sales of $929.4 million down 3.4% compared with $962.0
million in the second quarter of fiscal 2019; Year-to-date fiscal
2020 net sales were $1.70 billion, up 8.4% compared with $1.56
billion in the same prior year period.
- Net earnings of $98.4 million, down 14.8% compared with $115.6
million in the second quarter of fiscal 2019; *Adjusted net
earnings of $100.2 million, down 20.5% compared with $126.0 million
in the second quarter of fiscal 2019. Year-to-date fiscal 2020 net
earnings of $168.5 million, down 3.8% compared with $175.1 million
in the same prior year period; *Adjusted net earnings of $169.8
million, down 7.0% compared with $182.7 million in the first six
months of fiscal 2019.
- Reported EPS of $0.91 per diluted share, down 15.0% compared
with $1.07 per diluted share in the second quarter of fiscal 2019;
*Adjusted EPS of $0.92 per diluted share, down 21.4% compared with
$1.17 per diluted share in the second quarter of fiscal 2019.
Year-to-date fiscal 2020 reported EPS of $1.55 per diluted share,
down 4.3% compared with $1.62 per diluted share in the same prior
year period; *Adjusted EPS of $1.56 per diluted share, down 7.7%
compared with $1.69 per diluted share in the first six months of
fiscal 2019.
*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.
RESPONSE TO COVID-19
People & Plant Operations
The Toro Company implemented safeguards in its facilities to
protect team members, including working from home directives,
increased frequency of cleaning and disinfecting facilities, social
distancing practices and other measures consistent with specific
regulatory requirements and health authority guidance. Many
governments classified the company’s operations as an essential
business for support of critical underground infrastructure, growth
of food and enablement of safe outdoor spaces. The company
suspended operations temporarily at certain facilities during the
past two months in response to government orders or lower customer
demand. All of the company’s facilities are currently open with
some operating at reduced capacity.
Balance Sheet and Liquidity
The Toro Company continues to have a strong balance sheet and
capital position with no significant debt maturities until April
2022. The company believes it is in a solid financial position with
sufficient liquidity to navigate the current business environment.
As of May 1, 2020, the company had liquidity of approximately $800
million, including cash and cash equivalents of $200 million and
unutilized availability under its revolving credit facility of
approximately $600 million.
Capital Prioritization
The company took additional measures in the quarter to further
increase financial flexibility and liquidity, including reducing
discretionary spending and capital expenditures. For the remainder
of fiscal 2020 the company reduced annual base salaries across the
company and eliminated merit-based salary increases and
discretionary retirement plan contributions.
The company will continue to strategically invest in its
business for the long-term, including new product development and
innovation. It expects to continue to prioritize debt repayment to
maintain leverage targets, curtail share repurchases for the year,
and consider strategically compelling acquisitions.
On May 19th, the company’s Board of Directors declared a regular
quarterly cash dividend of $0.25 per share and the company
anticipates its strong financial position will continue to support
the dividend.
OUTLOOK
On March 30, 2020 the company withdrew its guidance given the
uncertainties involved with the COVID-19 pandemic. The Toro Company
will not be providing detailed financial quarterly or full-year
guidance until visibility into market conditions has improved.
The company believes current market trends will continue
throughout the fiscal year, including customer budget constraints
and cash preservation and a preference for repairs and deferrals
over new equipment purchases in the professional segment, as well
as higher demand in the residential segment. At this point, based
on current information regarding the global economic outlook, the
company expects the most pronounced year-over-year sales and EPS
percentage declines in the third quarter of fiscal 2020. The
company also expects negative year-over-year fourth quarter sales
and EPS growth. Factors that could impact these expectations and
assumptions include:
- The company’s ability to continue operations and/or adjust our
production schedules due to governmental actions that have been,
and continue to be, taken in response to the COVID-19
pandemic,
- Supplier risk and the company’s ability to obtain commodities,
components, parts and accessories in a timely manner and at
anticipated costs,
- Prolonged periods of economic stress which may affect customer
liquidity and could impede customer buying patterns, and
- Other risks and uncertainties described in the company’s most
recent annual report on Form 10-K, subsequent quarterly reports on
Form 10-Q or current reports on Form 8-K, and other filings with
the Securities and Exchange Commission.
“We anticipate an easing of the COVID-19 pressures as we head
into fiscal 2021, and are optimistic about our strength as a
company and our ability to drive long-term growth through
innovation and superior customer service. Our portfolio reflects
customer and product diversity, scale, and a foundation of
essential global operations. We will continue to concentrate on
controlling what we can control, while being prepared to respond to
those that we cannot, and focusing 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 second quarter were
$661.1 million, down 8.6% compared with $723.5 million in the same
period last year with the decrease primarily due to reduced retail
demand as a result of COVID-19 related impacts. The net sales
decrease was partially offset by incremental sales from the Charles
Machine Works and Venture Products acquisitions. For the first six
months of fiscal 2020, professional segment net sales were $1.26
billion, up 6.6% compared with $1.18 billion in the same period
last year. The net sales increase was primarily driven by
incremental sales from the Charles Machine Works and Venture
Products acquisitions, partially offset by reduced retail demand as
a result of COVID-19.
- Professional segment earnings for the second quarter were
$106.3 million, down 29.2% compared with $150.1 million in the same
period last year, and when expressed as a percentage of net sales,
decreased 460 basis points to 16.1% from 20.7%. This decrease was
primarily due to unfavorable manufacturing variance, higher
marketing, engineering and administrative costs as a result of the
acquisitions of Charles Machine Works and Venture Products, higher
warranty expense and unfavorable product mix. This was partially
offset by favorable net price realization, productivity and synergy
gains, lower commodity and tariff costs and decreased incentive
compensation expense. For the first six months of fiscal 2020,
professional segment earnings were $208.7 million, down 12.3%
compared with $238.1 million in the same period last year, and when
expressed as a percentage of net sales, decreased 360 basis points
to 16.6% from 20.2%. This decrease was primarily due to unfavorable
manufacturing variance, higher marketing, engineering and
administrative costs as a result of the acquisitions of Charles
Machine Works and Venture Products and unfavorable product mix.
This was partially offset by productivity and synergy gains,
favorable net price realization and lower commodity and tariff
costs.
Residential
- Residential segment net sales for the second quarter were
$262.0 million, up 12.9% compared with $232.1 million in the same
period last year. For the first six months of fiscal 2020,
residential segment net sales were $427.8 million, up 13.4%
compared with $377.3 million in the same period last year. For both
periods, the net sales increase was primarily due to incremental
shipments of zero turn riding and walk power mowers to the
company’s expanded mass retail channel and strong retail
demand.
- Residential segment earnings for the second quarter were $37.1
million, up 68.5% compared with $22.0 million in the same period
last year, and when expressed as a percentage of net sales,
increased 470 basis points to 14.2% from 9.5%. For the first six
months of fiscal 2020, residential segment earnings were $58.7
million, up 67.2% compared with $35.1 million in the same period
last year, and when expressed as a percentage of net sales,
increased 440 basis points to 13.7% from 9.3%. For both periods,
this increase was primarily due to productivity and synergy gains,
lower commodity and tariff costs, reduction in freight costs and
SG&A leverage. This increase was partially offset by
unfavorable manufacturing variance and higher warranty
expense.
OPERATING RESULTS
Gross margin for the second quarter was 33.0%, down 40 basis
points compared with 33.4% for the same prior year period. The
decrease in gross margin was primarily driven by unfavorable
manufacturing variance and unfavorable product mix due to higher
sales of residential segment products. This decrease was partially
offset by productivity and synergy gains, favorable net price
realization within our professional segment and lower commodity and
tariff costs. *Adjusted gross margin for the second quarter was
33.4%, down 100 basis points compared with 34.4% for the same prior
year period. For the first six months of fiscal 2020, gross margin
was 35.1%, up 80 basis points compared with 34.3% for the same
prior year period. The increase in gross margin was primarily
driven by productivity and synergy gains, favorable net price
realization within our professional segment and lower commodity and
tariff costs. This increase was partially offset by unfavorable
manufacturing variance and unfavorable product mix due to higher
sales of residential segment products. *Adjusted gross margin for
the first six months was 35.3%, up 40 basis points compared with
34.9% for the same prior year period.
Selling, general and administrative (SG&A) expense as a
percentage of sales for the second quarter increased 40 basis
points to 19.5% as compared with 19.1% in the prior year period.
For the first six months of fiscal 2020, SG&A expense as a
percentage of sales was 22.3%, up 130 basis points compared with
21.0% in the prior year period. For both periods, SG&A expense
as a percentage of sales increased primarily due to incremental
marketing and engineering costs as a result of the professional
segment acquisitions and higher warranty expense, partially offset
by decreased incentive compensation costs and lower transaction and
integration costs.
Operating earnings as a percentage of net sales decreased 80
basis points to 13.5% for the second quarter. *Adjusted operating
earnings as a percentage of net sales decreased 240 basis points to
14.0%. For the first six months of fiscal 2020, operating earnings
as a percentage of net sales were 12.8% compared with 13.3% in the
year-ago period. *Adjusted operating earnings as a percentage of
net sales for the first six months of fiscal 2020 were 13.1%
compared with 14.7% in the year-ago period.
Interest expense increased $2.0 million and $5.4 million for the
second quarter and year-to-date periods of fiscal 2020 compared to
the year-ago periods. These increases were due to higher debt
outstanding related to professional segment acquisitions.
The effective tax rate for the second quarter was 18.9% compared
with 15.8% for the second 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 second
quarter was 20.0% compared with 19.9% for the second quarter of
fiscal 2019. For the first six months of fiscal 2020, the effective
tax rate was 18.8% compared with 15.5% for the year-ago period. The
*adjusted effective tax rate for the first six-month period of
fiscal 2020 was 20.4% versus 20.2% in the prior-year period.
Working capital at the end of the second quarter was up compared
to prior year, primarily driven by higher inventories and lower
accounts payable. Inventory was up driven by higher finished goods
in our professional segment due to COVID-19 related sales
reductions, increased raw materials and work in process inventories
as a result of production downtime, and incremental inventories
from Venture Products. Accounts receivable were down as a result of
lower professional segment sales driven by reduced demand due to
COVID-19, partially offset by incremental residential segment sales
to expanded mass retail channel and additional receivables from
Venture Products. Accounts payable were down as a result of
decreased purchases of commodities, components, parts and
accessories which was partially offset by incremental Venture
Products payables.
*Please see the tables provided for a reconciliation of adjusted
non-GAAP gross margin, adjusted non-GAAP operating earnings and
adjusted non-GAAP effective tax rate to the comparable GAAP
measures.
LIVE CONFERENCE CALL June 4, 2020 at 10:00 a.m. CDT
www.thetorocompany.com/invest
The Toro Company will conduct its earnings call and webcast for
investors beginning at approximately 10:00 a.m. CDT on June 4,
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 non-GAAP financial measures, 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
calculated and presented in accordance with U.S. GAAP. The non-GAAP
financial measures 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 of our operating
performance.
The Toro Company uses these non-GAAP financial measures in
making operating decisions because we believe these non-GAAP
financial measures 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 non-GAAP
financial measures 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 non-GAAP financial
measures, 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 non-GAAP financial measures to the
most comparable U.S. GAAP financial measures are included in the
financial tables contained in this press release. These non-GAAP
financial measures, 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
included within this press release and our related earnings call.
These non-GAAP financial measures may differ from similar measures
used by other companies.
The Toro Company cannot provide quantitative reconciliations of
forward-looking 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 the company’s operating results or
financial position include: COVID-19 related factors, risks and
challenges, including among others, the duration, scope and
severity of COVID-19, its effect on the demand for the company’s
products and services, the ability of dealers, retailers, and other
channel partners that sell the company’s products to remain open,
availability of employees and their ability to conduct work away
from normal working locations and/or under revised protocols, and
the ability to receive commodities, components, parts, and
accessories on a timely basis through its supply chain and at
anticipated costs, and the ability of the company to continue its
production operations; adverse worldwide economic conditions,
including weakened consumer confidence; disruption at or in
proximity to its facilities or in its manufacturing or other
operations, or those in its distribution channel customers, mass
retailers or home centers where its products are sold, or
suppliers; fluctuations in the cost and availability of
commodities, components, parts, and accessories, including steel,
engines, hydraulics and resins; the effect of abnormal weather
patterns; the effect of natural disasters, social unrest, and
global pandemics, including COVID-19; the level of growth or
contraction in its key markets; customer, government and municipal
revenue, budget, spending levels and cash conservation efforts;
loss of any substantial customer; inventory adjustments or changes
in purchasing patterns by customers; the company’s 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, trade regulation
and/or commercial industry trade activity; foreign currency
exchange rate fluctuations; financial viability of and/or
relationships with the company’s distribution channel partners;
risks associated with acquisitions, including those related to the
recent acquisitions of Charles Machine Works and Venture Products,
Inc.; impairment of goodwill or other intangible assets; delays or
failures in implementing, and unanticipated charges, as a result
of, restructuring activities; management of alliances or joint
ventures, including Red Iron Acceptance, LLC; impact of laws,
regulations and standards, including those relating to COVID-19,
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 the company’s most recent annual report on Form 10-K,
subsequent quarterly reports on Form 10-Q or current reports on
Form 8-K, and other filings with the Securities and Exchange
Commission. The company makes 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 1, 2020
May 3, 2019
May 1, 2020
May 3, 2019
Net sales
$
929,398
$
962,036
$
1,696,881
$
1,564,992
Cost of sales
622,681
640,738
1,102,076
1,028,077
Gross profit
306,717
321,298
594,805
536,915
Gross margin
33.0
%
33.4
%
35.1
%
34.3
%
Selling, general and administrative
expense
180,922
183,573
377,881
329,136
Operating earnings
125,795
137,725
216,924
207,779
Interest expense
(8,659
)
(6,694
)
(16,815
)
(11,436
)
Other income, net
4,235
6,149
7,401
10,857
Earnings before income taxes
121,371
137,180
207,510
207,200
Provision for income taxes
22,925
21,610
38,973
32,090
Net earnings
$
98,446
$
115,570
$
168,537
$
175,110
Basic net earnings per share of common
stock
$
0.92
$
1.08
$
1.57
$
1.64
Diluted net earnings per share of common
stock
$
0.91
$
1.07
$
1.55
$
1.62
Weighted-average number of shares of
common stock outstanding — Basic
107,552
106,679
107,487
106,466
Weighted-average number of shares of
common stock outstanding — Diluted
108,500
108,007
108,581
107,909
Segment Data
(Unaudited)
(Dollars in thousands)
Three Months Ended
Six Months Ended
Segment Net Sales
May 1, 2020
May 3, 2019
May 1, 2020
May 3, 2019
Professional
$
661,087
$
723,506
$
1,255,808
$
1,178,512
Residential
261,998
232,147
427,846
377,305
Other
6,313
6,383
13,227
9,175
Total net sales*
$
929,398
$
962,036
$
1,696,881
$
1,564,992
*Includes international net sales of:
$
182,044
$
219,077
$
357,987
$
360,622
Three Months Ended
Six Months Ended
Segment Earnings (Loss)
May 1, 2020
May 3, 2019
May 1, 2020
May 3, 2019
Professional
$
106,259
$
150,119
$
208,733
$
238,097
Residential
37,122
22,030
58,688
35,102
Other
(22,010
)
(34,969
)
(59,911
)
(65,999
)
Total segment earnings
$
121,371
$
137,180
$
207,510
$
207,200
THE TORO COMPANY AND
SUBSIDIARIES
Condensed Consolidated Balance
Sheets (Unaudited)
(Dollars in thousands)
May 1, 2020
May 3, 2019
October 31, 2019
ASSETS
Cash and cash equivalents
$
200,004
$
180,078
$
151,828
Receivables, net
400,444
428,567
268,768
Inventories, net
714,167
611,331
651,663
Prepaid expenses and other current
assets
59,938
50,298
50,632
Total current assets
1,374,553
1,270,274
1,122,891
Property, plant, and equipment, net
453,761
425,381
437,317
Goodwill
426,175
372,343
362,253
Other intangible assets, net
417,886
333,177
352,374
Right-of-use assets
84,091
—
—
Investment in finance affiliate
27,836
30,110
24,147
Deferred income taxes
4,597
4,484
6,251
Other assets
22,576
30,231
25,314
Total assets
$
2,811,475
$
2,466,000
$
2,330,547
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Current portion of long-term debt
$
99,868
$
90,000
$
79,914
Accounts payable
327,354
391,692
319,230
Accrued liabilities
414,499
360,082
357,826
Short-term lease liabilities
14,012
—
—
Total current liabilities
855,733
841,774
756,970
Long-term debt, less current portion
790,908
721,079
620,899
Long-term lease liabilities
72,228
—
—
Deferred income taxes
70,755
50,665
50,579
Other long-term liabilities
36,901
47,205
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 107,110,815
shares as of May 1, 2020, 106,433,714 shares as of May 3, 2019, and
106,742,082 shares as of October 31, 2019
107,111
106,434
106,742
Retained earnings
911,541
723,959
784,885
Accumulated other comprehensive loss
(33,702
)
(25,116
)
(32,049
)
Total stockholders’ equity
984,950
805,277
859,578
Total liabilities and stockholders’
equity
$
2,811,475
$
2,466,000
$
2,330,547
THE TORO COMPANY AND
SUBSIDIARIES
Condensed Consolidated
Statements of Cash Flows (Unaudited)
(Dollars in thousands)
Six Months Ended
May 1, 2020
May 3, 2019
Cash flows from operating activities:
Net earnings
$
168,537
$
175,110
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Non-cash income from finance affiliate
(4,010
)
(5,825
)
Distributions from (contributions to)
finance affiliate, net
322
(1,743
)
Depreciation of property, plant and
equipment
35,951
29,090
Amortization of other intangible
assets
9,618
5,940
Fair value step-up adjustment to acquired
inventory
2,864
8,422
Stock-based compensation expense
5,367
7,025
Deferred income taxes
860
(193
)
Other
374
42
Changes in operating assets and
liabilities, net of the effect of acquisitions:
Receivables, net
(126,639
)
(169,820
)
Inventories, net
(43,095
)
(4,683
)
Prepaid expenses and other assets
(2,870
)
534
Accounts payable, accrued liabilities,
deferred revenue and other liabilities
23,606
120,091
Net cash provided by operating
activities
70,885
163,990
Cash flows from investing activities:
Purchases of property, plant and
equipment
(27,167
)
(33,421
)
Proceeds from asset disposals
46
105
Investment in unconsolidated entities
—
(150
)
Acquisitions, net of cash acquired
(136,431
)
(692,077
)
Net cash used in investing activities
(163,552
)
(725,543
)
Cash flows from financing activities:
Borrowings under debt arrangements
636,025
700,000
Repayments under debt arrangements
(446,025
)
(201,004
)
Proceeds from exercise of stock
options
8,347
24,408
Payments of withholding taxes for stock
awards
(1,482
)
(1,894
)
Purchases of Toro common stock
—
(20,043
)
Dividends paid on Toro common stock
(53,744
)
(47,930
)
Net cash provided by financing
activities
143,121
453,537
Effect of exchange rates on cash and cash
equivalents
(2,278
)
(1,030
)
Net increase (decrease) in cash and cash
equivalents
48,176
(109,046
)
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
$
200,004
$
180,078
THE TORO COMPANY AND SUBSIDIARIES
Reconciliation 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 ("U.S. 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 U.S.
GAAP. The company uses these non-GAAP financial measures in making
operating decisions because the company believes these non-GAAP
financial measures 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 non-GAAP financial measures 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 non-GAAP financial
measures, when considered in conjunction with the company's
financial measures prepared in accordance with U.S. GAAP, provide
investors with useful supplemental financial information to better
understand the company's core operational performance. 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 most directly comparable U.S.
GAAP financial measures presented in the accompanying press
release. The non-GAAP financial measures presented in the
accompanying press release may differ from similar measures used by
other companies.
The following table provides a reconciliation of financial
measures calculated and reported in accordance with U.S. GAAP to
the most directly comparable non-GAAP financial measures included
within the accompanying press release for the three and six month
periods ended May 1, 2020 and May 3, 2019:
Three Months Ended
Six Months Ended
May 1, 2020
May 3, 2019
May 1, 2020
May 3, 2019
Gross profit
$
306,717
$
321,298
$
594,805
$
536,915
Acquisition-related costs1
2,393
9,519
2,863
9,519
Management actions2
857
—
857
—
Non-GAAP gross profit
$
309,967
$
330,817
$
598,525
$
546,434
Gross margin
33.0
%
33.4
%
35.1
%
34.3
%
Acquisition-related costs1
0.3
%
1.0
%
0.1
%
0.6
%
Management actions2
0.1
%
—
%
0.1
%
—
%
Non-GAAP gross margin
33.4
%
34.4
%
35.3
%
34.9
%
Operating earnings
$
125,795
$
137,725
$
216,924
$
207,779
Acquisition-related costs1
3,004
20,107
5,022
21,754
Management actions2
857
—
857
—
Non-GAAP operating earnings
$
129,656
$
157,832
$
222,803
$
229,533
Earnings before income taxes
$
121,371
$
137,180
$
207,510
$
207,200
Acquisition-related costs1
3,004
20,107
5,022
21,754
Management actions2
857
—
857
—
Non-GAAP earnings before income taxes
$
125,232
$
157,287
$
213,389
$
228,954
Net earnings
$
98,446
$
115,570
$
168,537
$
175,110
Acquisition-related costs1
2,365
16,352
3,998
17,862
Management actions2
682
—
682
—
Tax impact of share-based
compensation3
(1,342
)
(5,957
)
(3,377
)
(10,318
)
Non-GAAP net earnings
$
100,151
$
125,965
$
169,840
$
182,654
Three Months Ended
Six Months Ended
May 1, 2020
May 3, 2019
May 1, 2020
May 3, 2019
Diluted EPS
$
0.91
$
1.07
$
1.55
$
1.62
Acquisition-related costs1
0.02
0.15
0.04
0.17
Tax impact of share-based
compensation3
(0.01
)
(0.05
)
(0.03
)
(0.10
)
Non-GAAP diluted EPS
$
0.92
$
1.17
$
1.56
$
1.69
Effective tax rate
18.9
%
15.8
%
18.8
%
15.5
%
Acquisition-related costs1
—
%
(0.2
)%
—
%
(0.3
)%
Tax impact of share-based
compensation3
1.1
%
4.3
%
1.6
%
5.0
%
Non-GAAP effective tax rate
20.0
%
19.9
%
20.4
%
20.2
%
1
On March 2, 2020, the company completed
the acquisition of Venture Products, Inc. ("Venture Products"), a
privately held Ohio corporation. During the second quarter of
fiscal 2019, the company acquired The Charles Machine Works, Inc.
("CMW"). Acquisition-related costs for the three and six month
periods ended May 1, 2020 represent transaction costs incurred for
the acquisition of Venture Products, as well as integration costs
and charges incurred for the take-down of the inventory fair value
step-up amounts resulting from purchase accounting adjustments
related to the acquisitions of Venture Products and CMW.
Acquisition-related costs for the three and six month periods ended
May 3, 2019 represent transaction and integration costs, as well as
charges incurred for the take-down of the inventory fair value
step-up amount and amortization of the backlog intangible asset
resulting from purchase accounting adjustments related to the
acquisition of CMW.
2
During the third quarter of fiscal 2019,
the company announced the wind down of its Toro-branded large
horizontal directional drill and riding trencher product line
("Toro underground wind down"). Management actions represent
inventory write-down charges incurred during the three and six
month periods ended May 1, 2020 for the Toro underground wind
down.
3
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 and six month periods ended May 1, 2020 and May 3,
2019.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200604005111/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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