Residential Segment Retail Demand and
Incremental Venture Products Sales Key Drivers of Performance
- Net sales of $841 million, up 0.3% year over year
- Reported and *adjusted diluted EPS of $0.82
- Residential segment net sales up 38% on strong retail
demand
- Strong liquidity position of nearly $1 billion
The Toro Company (NYSE: TTC) today reported results for its
fiscal third-quarter and year-to-date periods ended July 31,
2020.
“We continued to deliver on our strategic business priorities of
accelerating profitable growth, driving productivity and
operational excellence, and empowering people,” said Richard M.
Olson, chairman and chief executive officer. “We reported top-line
growth in a challenging environment, primarily due to the continued
strength of our residential segment as favorable weather, our new
product lineup and stay-at-home trends drove robust demand in the
mass and dealer channels. Incremental sales from our Venture
Products acquisition also contributed to third-quarter growth.
Additionally, we were encouraged by improved demand for our
professional segment products, driven by greater business
confidence and increased home investments.
“We are deeply grateful for the extraordinary efforts and
resiliency of our entire team, which enabled us to deliver these
results. Our dedicated people continue to live our brand promise
and provide innovative solutions that meet our customers' needs,”
concluded Olson.
THIRD-QUARTER AND YEAR-TO-DATE FISCAL
2020 FINANCIAL HIGHLIGHTS
- Net sales of $841.0 million, up 0.3% from $838.7 million in the
third quarter of fiscal 2019; year-to-date fiscal 2020 net sales
were $2.54 billion, up 5.6% from $2.40 billion in the same
prior-year period.
- Net earnings of $89.0 million, up 46.8% from $60.6 million in
the third quarter of fiscal 2019; *adjusted net earnings of $88.7
million, down 1.2% from $89.8 million in the third quarter of
fiscal 2019.
- Year-to-date fiscal 2020 net earnings of $257.5 million, up
9.2% from $235.7 million in the same prior-year period; *adjusted
net earnings of $258.6 million, down 5.1% from $272.4 million in
the first nine months of fiscal 2019.
- Reported EPS of $0.82 per diluted share, up 46.4% from $0.56
per diluted share in the third quarter of fiscal 2019; *adjusted
EPS of $0.82 per diluted share, down 1.2% from $0.83 per diluted
share in the third quarter of fiscal 2019.
- Year-to-date fiscal 2020 reported EPS of $2.37 per diluted
share, up 8.7% from $2.18 per diluted share in the same prior-year
period; *adjusted EPS of $2.38 per diluted share, down 5.6% from
$2.52 per diluted share in the first nine months of fiscal
2019.
- As of July 31, 2020, the company had ample liquidity of $992
million, including cash and cash equivalents of $394 million and
availability under its revolving credit facility of $598
million.
*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.
OUTLOOK
“Our diverse portfolio of businesses positions us to drive
growth as end markets normalize. We are delivering on our
long-standing principles of innovation, strong customer
relationships, and sustained value creation through disciplined
capital allocation. We are enthusiastic about the future given our
innovation pipeline and the proven ability of the team to adapt and
perform successfully in these dynamic times,” concluded Olson.
The company previously withdrew its financial guidance, which it
is not reinstating at this time. However, based on current
visibility, and with an understanding of the uncertain nature of
the economic environment, it is providing the following assumptions
for the fiscal 2020 fourth quarter. Continued year-over-year growth
in the residential market is expected, but at a more moderate
level. Professional markets should benefit from the gradual return
to more normal buying patterns as customers' confidence in the
economy increases. These positive trends will likely be somewhat
offset by remaining COVID-19 headwinds, such as budget constraints,
the effects of social distancing restrictions and regional
variations in economic recovery. Although precision is difficult in
this environment, if these assumptions hold true, the company
anticipates that fiscal 2020 fourth-quarter adjusted EPS would be
similar to that of its fiscal 2019 fourth quarter, on higher net
sales.
THIRD-QUARTER SEGMENT
RESULTS
Professional Segment
- Professional segment net sales for the third quarter were
$623.6 million, down 7.9% compared with $676.8 million in the same
period last year, primarily due to reduced channel demand as a
result of COVID-19 related impacts, which led to fewer shipments of
golf and grounds equipment, reduced sales of rental, specialty and
underground construction equipment, and fewer shipments of
landscape contractor zero-turn riding mowers. The net sales
decrease was partially offset by incremental sales as a result of
the company’s acquisition of Venture Products. For the first nine
months of fiscal 2020, professional segment net sales were $1.88
billion, up 1.3% from $1.86 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 channel demand as a result of COVID-19,
which led to fewer shipments of landscape contractor zero-turn
riding mowers, fewer shipments of golf and grounds equipment, and
reduced sales of rental, specialty and underground construction
equipment.
- Professional segment earnings for the third quarter were $113.7
million, up 39.3% compared with $81.6 million in the same period
last year, and when expressed as a percentage of net sales,
increased 610 basis points to 18.2% from 12.1%. This increase was
primarily due to lower non-recurring acquisition-related charges as
compared to the prior-year period, favorable net price realization
and lower commodity costs. The increase was partially offset by
unfavorable product mix and COVID-19 related manufacturing
inefficiencies. Year to date, professional segment earnings were
$322.4 million, an increase of 0.8% compared with the same period
in the prior fiscal year. Professional segment earnings as a
percentage of net sales remained a constant 17.2% for both fiscal
periods. The professional segment earnings increase was primarily
driven by lower non-recurring acquisition-related charges as
compared to the prior-year period, favorable net price realization,
and productivity and synergy initiatives. This increase was
partially offset by COVID-19 related manufacturing inefficiencies
and higher SG&A expenses as a result of the Charles Machine
Works and Venture Products acquisitions.
Residential Segment
- Residential segment net sales for the third quarter were $205.0
million, up 38.3% compared with $148.2 million in the same period
last year. The net sales increase was primarily due to strong
retail demand for zero-turn riding and walk power mowers and the
company's expanded mass retail channel. For the first nine months
of fiscal 2020, residential segment net sales were $632.8 million,
up 20.4% compared with $525.5 million in the same period last year.
This increase was mainly driven by incremental shipments as a
result of the company's expanded mass retail channel, and strong
retail demand for zero-turn riding and walk power mowers.
- Residential segment earnings for the third quarter were $28.5
million, up 76.7% compared with $16.2 million in the same period
last year, and when expressed as a percentage of net sales,
increased 300 basis points to 13.9% from 10.9%. For the first nine
months of fiscal 2020, residential segment earnings increased 70.2%
to $87.2 million, and when expressed as a percentage of net sales,
increased 400 basis points to 13.8% from 9.8%. For both periods,
this increase was primarily driven by productivity and synergy
initiatives and SG&A leverage, which was partially offset by
COVID-19 related manufacturing inefficiencies and unfavorable
product mix.
OPERATING RESULTS
Gross margin for the third-quarter was 35.0%, up 330 basis
points compared with 31.7% for the same prior-year period,
primarily driven by the decrease in acquisition-related charges as
compared to the prior-year period, favorable net price realization
in the company's professional segment and productivity and synergy
initiatives. *Adjusted gross margin for the third quarter was
35.2%, down 70 basis points compared with 35.9% for the same
prior-year period. The decrease in adjusted gross margin was
primarily driven by COVID-19 related manufacturing inefficiencies,
unfavorable mix due to higher sales of residential products and
increased inventory reserves in one of the company's professional
segment businesses. This decrease was partially offset by favorable
net price realization in the company’s professional segment, and
productivity and synergy initiatives.
For the first nine months of fiscal 2020, gross margin was
35.0%, up 160 basis points compared with 33.4% for the same
prior-year period. The increase in gross margin was primarily
driven by the decrease in acquisition-related charges as compared
to the prior-year period, productivity and synergy initiatives, and
favorable net price realization in the professional segment. This
increase was partially offset by unfavorable mix due to higher
sales of residential products and COVID-19 related manufacturing
inefficiencies. *Adjusted gross margin for the first nine months
was 35.2%, down 10 basis points compared with 35.3% for the same
prior-year period.
The decrease in adjusted gross margin was primarily driven by
unfavorable mix due to higher sales of residential products and
COVID-19 related manufacturing inefficiencies. This decrease was
partially offset by productivity and synergy initiatives, and
favorable net price realization in the professional segment.
Selling, general and administrative (SG&A) expense as a
percentage of sales for the third quarter decreased 170 basis
points to 21.2% from 22.9% in the prior-year period. The decrease
in SG&A expense as a percentage of sales was primarily due to
lower travel and meeting expenses, acquisition-related costs, and
employee salaries. This was partially offset by increased incentive
compensation expense. For the first nine months of fiscal 2020,
SG&A expense as a percentage of sales was 21.9%, up 20 basis
points from 21.7% in the prior-year period.
Operating earnings as a percentage of net sales increased 500
basis points to 13.8% for the third quarter. *Adjusted operating
earnings as a percentage of net sales increased 50 basis points to
13.9% for the third quarter. For the first nine months of fiscal
2020, operating earnings as a percentage of net sales were 13.1%
compared with 11.7% in the year-ago period. *Adjusted operating
earnings as a percentage of net sales for the first nine months of
fiscal 2020 were 13.4% compared with 14.2% in the year-ago
period.
Interest expense decreased $0.7 million for the third quarter
and increased $4.7 million for the year-to-date period of fiscal
2020, each compared with the year-ago periods.
The effective tax rate for the third quarter was 19.8% compared
with 14.9% for the third 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 third
quarter was 20.9% compared with 18.1% for the third quarter of
fiscal 2019, driven by one-time discrete items. For the first nine
months of fiscal 2020, the effective tax rate was 19.2% compared
with 15.3% for the first nine months of fiscal 2019. The *adjusted
effective tax rate for the first nine months of fiscal 2020 was
20.6% versus 19.5% in the first nine months of fiscal 2019.
Working capital at the end of the third quarter was up compared
with the end of the third-quarter of the prior fiscal year,
primarily driven by an increase in inventory and a reduction in
accounts payable, partially offset by a reduction in accounts
receivable.
*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 September 3, 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 10:00 a.m. CDT on September 3, 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, 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, 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 and adjusted non-GAAP EPS to
projected GAAP EPS 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 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; 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 antidumping and countervailing duties petitions; 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, 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
Nine Months Ended
July 31, 2020
August 2, 2019
July 31, 2020
August 2, 2019
Net sales
$
840,972
$
838,713
$
2,537,853
$
2,403,705
Cost of sales
546,398
572,732
1,648,474
1,600,809
Gross profit
294,574
265,981
889,379
802,896
Gross margin
35.0
%
31.7
%
35.0
%
33.4
%
Selling, general and administrative
expense
178,622
192,037
556,503
521,173
Operating earnings
115,952
73,944
332,876
281,723
Interest expense
(8,304
)
(9,004
)
(25,119
)
(20,440
)
Other income, net
3,345
6,295
10,746
17,152
Earnings before income taxes
110,993
71,235
318,503
278,435
Provision for income taxes
22,025
10,628
60,998
42,718
Net earnings
$
88,968
$
60,607
$
257,505
$
235,717
Basic net earnings per share of common
stock
$
0.83
$
0.57
$
2.39
$
2.21
Diluted net earnings per share of common
stock
$
0.82
$
0.56
$
2.37
$
2.18
Weighted-average number of shares of
common stock outstanding — Basic
107,710
107,005
107,561
106,644
Weighted-average number of shares of
common stock outstanding — Diluted
108,543
108,253
108,569
108,024
Segment Data
(Unaudited)
(Dollars in thousands)
Three Months Ended
Nine Months Ended
Segment Net Sales
July 31, 2020
August 2, 2019
July 31, 2020
August 2, 2019
Professional
$
623,615
$
676,756
$
1,879,423
$
1,855,268
Residential
204,961
148,234
632,807
525,539
Other
12,396
13,723
25,623
22,898
Total net sales*
$
840,972
$
838,713
$
2,537,853
$
2,403,705
*Includes international net sales of:
$
150,014
$
186,710
$
508,001
$
547,332
Three Months Ended
Nine Months Ended
Segment Earnings (Loss)
July 31, 2020
August 2, 2019
July 31, 2020
August 2, 2019
Professional
$
113,652
$
81,592
$
322,385
$
319,689
Residential
28,545
16,151
87,233
51,253
Other
(31,204
)
(26,508
)
(91,115
)
(92,507
)
Total segment earnings
$
110,993
$
71,235
$
318,503
$
278,435
THE TORO COMPANY AND
SUBSIDIARIES
Condensed Consolidated Balance
Sheets (Unaudited)
(Dollars in thousands)
July 31, 2020
August 2, 2019
October 31,
2019
ASSETS
Cash and cash equivalents
$
394,141
$
143,317
$
151,828
Receivables, net
294,672
312,239
268,768
Inventories, net
656,208
620,612
651,663
Prepaid expenses and other current
assets
39,225
54,235
50,632
Total current assets
1,384,246
1,130,403
1,122,891
Property, plant, and equipment, net
457,891
426,415
437,317
Goodwill
424,228
380,503
362,253
Other intangible assets, net
413,270
319,886
352,374
Right-of-use assets
81,634
—
—
Investment in finance affiliate
22,580
25,108
24,147
Deferred income taxes
9,772
3,603
6,251
Other assets
20,242
23,815
25,314
Total assets
$
2,813,863
$
2,309,733
$
2,330,547
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Current portion of long-term debt
$
108,869
$
99,877
$
79,914
Accounts payable
268,747
304,661
319,230
Accrued liabilities
404,314
351,865
357,826
Short-term lease liabilities
15,182
—
—
Total current liabilities
797,112
756,403
756,970
Long-term debt, less current portion
782,036
620,804
620,899
Long-term lease liabilities
69,752
—
—
Deferred income taxes
71,346
46,940
50,579
Other long-term liabilities
39,585
41,764
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 107,264,098
shares as of July 31, 2020, 106,549,344 shares as of August 2,
2019, and 106,742,082 shares as of October 31, 2019
107,264
106,549
106,742
Retained earnings
981,344
763,941
784,885
Accumulated other comprehensive loss
(34,576)
(26,668)
(32,049)
Total stockholders’ equity
1,054,032
843,822
859,578
Total liabilities and stockholders’
equity
$
2,813,863
$
2,309,733
$
2,330,547
THE TORO COMPANY AND
SUBSIDIARIES
Condensed Consolidated
Statements of Cash Flows (Unaudited)
(Dollars in thousands)
Nine Months Ended
July 31, 2020
August 2, 2019
Cash flows from operating activities:
Net earnings
$
257,505
$
235,717
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Non-cash income from finance affiliate
(6,161
)
(9,135
)
Distributions from finance affiliate,
net
7,729
6,569
Depreciation of property, plant and
equipment
55,272
48,770
Amortization of other intangible
assets
14,591
13,633
Fair value step-up adjustment to acquired
inventory
3,951
31,304
Stock-based compensation expense
10,322
10,258
Deferred income taxes
(3,425
)
449
Other
521
4,440
Changes in operating assets and
liabilities, net of the effect of acquisitions:
Receivables, net
(17,687
)
(54,446
)
Inventories, net
18,248
(54,541
)
Prepaid expenses and other assets
7,827
10,734
Accounts payable, accrued liabilities,
deferred revenue and other liabilities
(42,817
)
15,361
Net cash provided by operating
activities
305,876
259,113
Cash flows from investing activities:
Purchases of property, plant and
equipment
(46,627
)
(56,801
)
Proceeds from asset disposals
204
4,636
Investment in unconsolidated entities
—
(150
)
Acquisitions, net of cash acquired
(138,225
)
(691,822
)
Net cash used in investing activities
(184,648
)
(744,137
)
Cash flows from financing activities:
Borrowings under debt arrangements
636,025
900,000
Repayments under debt arrangements
(446,025
)
(491,000
)
Proceeds from exercise of stock
options
11,939
25,482
Payments of withholding taxes for stock
awards
(2,102
)
(2,632
)
Purchases of TTC common stock
—
(20,043
)
Dividends paid on TTC common stock
(80,683
)
(72,009
)
Net cash provided by financing
activities
119,154
339,798
Effect of exchange rates on cash and cash
equivalents
1,931
(581
)
Net increase (decrease) in cash and cash
equivalents
242,313
(145,807
)
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
$
394,141
$
143,317
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 nine month
periods ended July 31, 2020 and August 2, 2019:
Three Months Ended
Nine Months Ended
July 31, 2020
August 2, 2019
July 31, 2020
August 2, 2019
Gross profit
$
294,574
$
265,981
$
889,379
$
802,896
Acquisition-related costs1
1,087
26,172
3,950
35,691
Management actions2
—
9,117
857
9,117
Non-GAAP gross profit
$
295,661
$
301,270
$
894,186
$
847,704
Gross margin
35.0
%
31.7
%
35.0
%
33.4
%
Acquisition-related costs1
0.2
%
3.1
%
0.2
%
1.5
%
Management actions2
—
%
1.1
%
—
%
0.4
%
Non-GAAP gross margin
35.2
%
35.9
%
35.2
%
35.3
%
Operating earnings
$
115,952
$
73,944
$
332,876
$
281,723
Acquisition-related costs1
1,161
29,304
6,183
51,058
Management actions2
—
9,148
857
9,148
Non-GAAP operating earnings
$
117,113
$
112,396
$
339,916
$
341,929
Earnings before income taxes
$
110,993
$
71,235
$
318,503
$
278,435
Acquisition-related costs1
1,161
29,304
6,183
51,058
Management actions2
—
9,148
857
9,148
Non-GAAP earnings before income taxes
$
112,154
$
109,687
$
325,543
$
338,641
Net earnings
$
88,968
$
60,607
$
257,505
$
235,717
Acquisition-related costs1
924
23,953
4,922
41,814
Management actions2
—
7,351
682
7,351
Tax impact of share-based
compensation3
(1,173
)
(1,200
)
(4,550
)
(11,518
)
U.S. Tax Reform4
—
(926
)
—
(926
)
Non-GAAP net earnings
$
88,719
$
89,785
$
258,559
$
272,438
Three Months Ended
Nine Months Ended
July 31, 2020
August 2, 2019
July 31, 2020
August 2, 2019
Diluted EPS
$
0.82
$
0.56
$
2.37
$
2.18
Acquisition-related costs1
0.01
0.22
0.05
0.39
Management actions2
—
0.07
—
0.07
Tax impact of share-based
compensation3
(0.01
)
(0.01
)
(0.04
)
(0.11
)
U.S. Tax Reform4
—
(0.01
)
—
(0.01
)
Non-GAAP diluted EPS
$
0.82
$
0.83
$
2.38
$
2.52
Effective tax rate
19.8
%
14.9
%
19.2
%
15.3
%
Acquisition-related costs1
—
%
(1.4
)%
—
%
(0.7
)%
Management actions2
—
%
1.6
%
—
%
0.5
%
Tax impact of share-based
compensation3
1.1
%
1.7
%
1.4
%
4.1
%
U.S. Tax Reform4
—
%
1.3
%
—
%
0.3
%
Non-GAAP effective tax rate
20.9
%
18.1
%
20.6
%
19.5
%
1
On March 2, 2020, the company completed
the acquisition of Venture Products, Inc. ("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 July 31, 2020 represent 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 acquisition of Venture Products. Acquisition-related
costs for the nine month period ended July 31, 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 nine
month periods ended August 2, 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 for the nine
month period ended July 31, 2020 represent inventory write-down
charges incurred for the Toro underground wind down. No charges
were incurred for the three month period ended July 31, 2020
related to the Toro underground wind down. Management actions for
the three and nine month periods ended August 2, 2019 represent
charges incurred for the write-down of inventory, inventory retail
support activities, and accelerated depreciation on fixed assets
related to 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 nine month periods ended July 31, 2020 and
August 2, 2019.
4
Signed into law on December 22, 2017,
Public Law No. 115-97 ("Tax Act" or "U.S. Tax Reform"), reduced the
U.S. federal corporate tax rate from 35.0 percent to 21.0 percent,
effective January 1, 2018. This reduction in rate required the
re-measurement of the company's net deferred taxes as of the date
of enactment. The Tax Act also imposed a one-time deemed
repatriation tax on the company's historical undistributed earnings
and profits of foreign affiliates. During the three and nine month
periods ended August 2, 2019, the company recorded a tax benefit of
$0.9 million related to a prior year true-up of the Tax Act. The
Tax Act did not impact the company's Results of Operations for the
three and nine month periods ended July 31, 2020.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200903005102/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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