Highlighted by Strong Professional Segment
Performance and Improved Profitability
- Record first-quarter net sales of $1.15 billion, up 23% year
over year
- First-quarter reported diluted EPS of $1.01, up 53% year over
year
- Record first-quarter *adjusted diluted EPS of $0.98, up 49%
year over year
- Reaffirms full-year fiscal 2023 net sales and *adjusted diluted
EPS guidance
The Toro Company (NYSE: TTC) today reported results for its
fiscal first-quarter ended February 3, 2023.
“We started fiscal 2023 with great momentum, and achieved record
results for the first quarter,” said Richard M. Olson, chairman and
chief executive officer. “We delivered top-line growth in both
segments as demand for our innovative products remained strong,
especially in key professional markets. Our dedicated team executed
with their hallmark discipline, while keeping a sharp focus on
serving our customers. This discipline, along with an improved
supply chain, drove manufacturing efficiencies and profitability
gains across the enterprise."
FIRST-QUARTER FISCAL 2023 FINANCIAL
HIGHLIGHTS
Reported
Adjusted*
(dollars in millions, except per share
data)
FY23 Q1
FY22 Q1
% Change
FY23 Q1
FY22 Q1
% Change
Net Sales
$
1,148.8
$
932.7
23
%
$
1,148.8
$
932.7
23
%
Net Earnings
$
106.9
$
69.5
54
%
$
103.6
$
69.7
49
%
Diluted EPS
$
1.01
$
0.66
53
%
$
0.98
$
0.66
49
%
FIRST-QUARTER FISCAL 2023 SEGMENT
RESULTS
Professional Segment
- Professional segment net sales for the first quarter were
$880.7 million, up 30.9% from $672.9 million in the same period
last year. The increase was driven by higher shipments of products
broadly across the segment, net price realization, and incremental
revenue from the first quarter fiscal 2022 acquisition of the
Intimidator Group.
- Professional segment earnings for the first quarter were $144.1
million, up 54.5% from $93.3 million in the same period last year,
and, when expressed as a percentage of net sales, 16.4%, up from
13.9% in the prior-year period. The increase was primarily due to
net price realization, net sales leverage, and productivity
improvements, partially offset by higher material, freight, and
manufacturing costs, and the addition of the Intimidator Group at a
lower initial margin than the segment average.
Residential Segment
- Residential segment net sales for the first quarter were $264.6
million, up 3.6% from $255.4 million in the same period last year.
The increase was primarily driven by net price realization and
higher shipments of zero turn riding mowers, partially offset by
lower shipments of snow products.
- Residential segment earnings for the first quarter were $37.8
million, up 19.1% from $31.8 million in the same period last year,
and when expressed as a percentage of net sales, 14.3%, up from
12.4% in the prior-year period. The increase was largely driven by
net price realization and productivity improvements, partially
offset by higher material, freight, and manufacturing costs, and
higher SG&A expense.
OPERATING RESULTS
Gross margin for the first quarter was 34.5%, compared with
32.2% for the same prior-year period. The increase in gross margin
was primarily due to net price realization and productivity
improvements, partially offset by higher material, freight, and
manufacturing costs, as well as the addition of the Intimidator
Group at a lower initial gross margin than the company average.
SG&A expense as a percentage of net sales for the first
quarter was 22.6%, compared with 22.4% in the prior-year period.
The increase was due to higher warranty costs in certain of our
professional segment businesses, partially offset by net sales
leverage.
Operating earnings as a percentage of net sales were 11.9% for
the first quarter, compared with 9.8% in the same prior-year
period. *Adjusted operating earnings as a percentage of net sales
for the first quarter were 11.9%, compared with 9.9% in the same
prior-year period.
Interest expense was $14.1 million for the first quarter, up
$7.1 million. The increase was driven by incremental borrowing to
fund the Intimidator Group acquisition, and higher average interest
rates.
The reported effective tax rate for the first quarter was 18.6%
compared with 20.2% in fiscal 2022, primarily driven by higher tax
benefits recorded as excess tax deductions for stock compensation
in the current-year period. The *adjusted effective tax rate for
the first quarter was 21.4% compared with 20.9% in fiscal 2022.
OUTLOOK
"Our momentum continues to be supported by the exceptional
demand and substantial order backlog for products in key
professional end markets, as well as the expected benefits from our
pricing and productivity initiatives,” concluded Olson.
“Importantly, we anticipate continued improvements in the supply
chain, which combined with our operational execution, position us
to increase product availability and enhance profitability. In
addition, we expect to benefit from our innovative product lineup,
extensive service and support networks, and well-established market
leadership, bolstered by the essential nature and regular
replacement cycles of our products.
“Our team continues to operate with agility and resiliency,
mindful of the current macroeconomic environment and guided by our
enterprise strategic priorities of accelerating profitable growth,
driving productivity and operational excellence, and empowering
people. We are prioritizing investments in transformational
technologies that can be leveraged across our broad portfolio, to
promote the acceleration of new product development and capitalize
on long-term growth opportunities. These investments, along with
our trusted brands and outstanding team of employees and channel
partners, are expected to strengthen our market leadership now and
into the future, and drive value for all stakeholders.”
For fiscal 2023, management continues to expect net sales growth
in the range of 7% to 10% and *adjusted diluted EPS in the range of
$4.70 to $4.90. The estimated *adjusted diluted EPS range excludes
the tax benefits recorded as excess tax deductions for stock
compensation. The company's guidance is based on current visibility
in this evolving and dynamic macro environment, and reflects
expectations for strong demand across key professional markets,
normalized seasonal demand patterns for residential and landscape
contractor solutions, and continued operational execution. This
guidance also assumes steady supply chain improvement throughout
the year, with a return to a more typical distribution of quarterly
sales.
*Non-GAAP financial measure. Please refer to the “Use of
Non-GAAP Financial Information” for details regarding these
measures, as well as the tables provided for a reconciliation of
historical non-GAAP financial measures to the most comparable GAAP
measures.
LIVE CONFERENCE CALL March 9, 2023 at 10:00 a.m.
CST www.thetorocompany.com/invest
The Toro Company will conduct its earnings call and webcast for
investors beginning at 10:00 a.m. CST on March 9, 2023. 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 net sales of $4.5 billion in
fiscal 2022, The Toro Company’s global presence extends to more
than 125 countries through a family of brands that includes Toro,
Ditch Witch, Exmark, Spartan Mowers, BOSS Snowplow, Ventrac,
American Augers, Trencor, Pope, Subsite Electronics, HammerHead,
Radius HDD, Perrot, Hayter, Unique Lighting Systems, Irritrol, and
Lawn-Boy. 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 work
on 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 reference
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 that are utilized as measures of our
operating performance consist of gross profit, gross margin,
operating earnings, earnings before income taxes, net earnings,
diluted EPS, and the effective tax rate, each as adjusted. The
non-GAAP financial measures included within this press release and
our related earnings call that are utilized as measures of our
liquidity consist of free cash flow and free cash flow conversion
percentage.
The Toro Company uses these non-GAAP financial measures in
making operating decisions and assessing liquidity because it
believes these non-GAAP financial measures provide meaningful
supplemental information regarding core operational performance and
cash flows, as a measure of the company's liquidity, 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 the
company's internal comparisons for both historical operating
results and competitors' operating results by factoring out
potential differences caused by charges and benefits not related to
its regular, ongoing business, including, without limitation,
certain non-cash, large, and/or unpredictable charges and benefits;
acquisitions and dispositions; legal judgments, settlements, or
other matters; and tax positions. The company believes 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 its core operational performance and cash
flows.
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 the company’s related
earnings call. These non-GAAP financial measures may differ from
similar measures used by other companies.
The Toro Company does not provide a quantitative reconciliation
of the company’s projected range for adjusted diluted EPS for
fiscal 2023 to diluted EPS, which is the most directly comparable
GAAP measure, in reliance on the unreasonable efforts exception
provided under Item 10(e)(1)(i)(B) of Regulation S-K. The company’s
adjusted diluted EPS guidance for fiscal 2023 excludes certain
items that are inherently uncertain and difficult to predict,
including certain non-cash, large and/or unpredictable charges and
benefits; acquisitions and dispositions; legal judgments,
settlements, or other matters; and tax positions. Due to the
uncertainty of the amount or timing of these future excluded items,
management does not forecast them for internal use and therefore
cannot create a quantitative adjusted diluted EPS for fiscal 2023
to diluted EPS reconciliation without unreasonable efforts. A
quantitative reconciliation of adjusted diluted EPS for fiscal 2023
to diluted EPS would imply a degree of precision and certainty as
to these future items that does not exist and could be confusing to
investors. From a qualitative perspective, it is anticipated that
the differences between adjusted diluted EPS for fiscal 2023 to
diluted EPS will consist of items similar to those described in the
financial tables later in this release, including, for example and
without limitation, certain non-cash, large, and/or unpredictable
charges and benefits; acquisitions and dispositions; legal
judgments, settlements, or other matters; and tax positions. The
timing and amount of any of these excluded items could
significantly impact the company’s diluted EPS for a particular
period.
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,” “encourage,” “anticipate,”
“continue,” “plan,” “estimate,” “project,” “target,” “improve,”
“believe,” “become,” “should,” “could,” “will,” “would,”
“possible,” “promise,” “may,” “likely,” “intend,” “can,” “seek,”
“pursue,” “potential,” “pro forma,” variations of such words or the
negative thereof, and similar expressions or future dates.
Forward-looking statements involve risks and uncertainties that
could cause actual events and results to differ materially from
those projected or implied. Forward-looking statements in this
release include the company’s fiscal 2023 financial guidance, and
expectations for strong demand across key professional markets,
normalized seasonal demand patterns for residential and landscape
contractor solutions and continued operational execution, as well
as supply chain improvement throughout the year, with a return to a
more typical distribution of quarterly sales. Particular risks and
uncertainties that may affect the company’s operating results or
financial position include: adverse worldwide economic conditions,
including inflationary pressures; 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;
COVID-19 related factors, risks and challenges; the effect of
abnormal weather patterns; the effect of natural disasters, social
unrest, war 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; foreign currency exchange rate
fluctuations; financial viability of and/or relationships with the
company’s distribution channel partners; risks associated with
acquisitions and dispositions, including the company's acquisition
of Intimidator Group; impairment of goodwill or other intangible
assets; impacts of any 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, tariffs and/or antidumping and
countervailing duties petitions, 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; impact of
increased scrutiny on its environmental, social, and governance
practices; 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 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.
(Financial tables follow)
THE TORO COMPANY AND
SUBSIDIARIES
Condensed Consolidated
Statements of Earnings (Unaudited)
(Dollars and shares in
thousands, except per-share data)
Three Months Ended
February 3, 2023
January 28, 2022
Net sales
$
1,148,840
$
932,650
Cost of sales
752,916
632,174
Gross profit
395,924
300,476
Gross margin
34.5
%
32.2
%
Selling, general and administrative
expense
259,497
208,850
Operating earnings
136,427
91,626
Interest expense
(14,124
)
(7,013
)
Other income, net
9,011
2,534
Earnings before income taxes
131,314
87,147
Provision for income taxes
24,454
17,637
Net earnings
$
106,860
$
69,510
Basic net earnings per share of common
stock
$
1.02
$
0.66
Diluted net earnings per share of common
stock
$
1.01
$
0.66
Weighted-average number of shares of
common stock outstanding — Basic
104,501
105,037
Weighted-average number of shares of
common stock outstanding — Diluted
105,577
106,048
Segment Data
(Unaudited)
(Dollars in thousands)
Three Months Ended
Segment net sales
February 3, 2023
January 28, 2022
Professional
$
880,660
$
672,885
Residential
264,615
255,402
Other
3,565
4,363
Total net sales*
$
1,148,840
$
932,650
*Includes international net sales of:
$
245,337
$
194,986
Three Months Ended
Segment earnings (loss) before income
taxes
February 3, 2023
January 28, 2022
Professional
$
144,076
$
93,272
Residential
37,832
31,760
Other
(50,594
)
(37,885
)
Total segment earnings before income
taxes
$
131,314
$
87,147
THE TORO COMPANY AND
SUBSIDIARIES
Condensed Consolidated Balance
Sheets (Unaudited)
(Dollars in thousands)
February 3, 2023
January 28, 2022
October 31, 2022
ASSETS
Cash and cash equivalents
$
174,037
$
192,959
$
188,250
Receivables, net
377,262
366,270
332,713
Inventories, net
1,131,438
832,072
1,051,109
Prepaid expenses and other current
assets
74,957
45,962
103,279
Total current assets
1,757,694
1,437,263
1,675,351
Property, plant, and equipment, net
584,147
507,549
571,661
Goodwill
584,550
576,940
583,297
Other intangible assets, net
577,064
600,797
585,832
Right-of-use assets
74,573
78,306
76,121
Investment in finance affiliate
45,726
24,119
39,349
Deferred income taxes
11,747
3,938
5,310
Other assets
19,445
24,133
19,077
Total assets
$
3,654,946
$
3,253,045
$
3,555,998
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Current portion of long-term debt
$
—
$
100,000
$
—
Accounts payable
475,218
474,483
578,624
Accrued liabilities
496,793
395,739
469,242
Short-term lease liabilities
15,962
15,842
15,747
Total current liabilities
987,973
986,064
1,063,613
Long-term debt, less current portion
1,091,015
991,354
990,768
Long-term lease liabilities
60,680
65,760
63,604
Deferred income taxes
31,444
50,382
44,272
Other long-term liabilities
39,663
39,936
42,040
Stockholders’ equity:
Preferred stock
—
—
—
Common stock
104,283
104,529
103,970
Retained earnings
1,368,493
1,040,634
1,280,856
Accumulated other comprehensive loss
(28,605
)
(25,614
)
(33,125
)
Total stockholders’ equity
1,444,171
1,119,549
1,351,701
Total liabilities and stockholders’
equity
$
3,654,946
$
3,253,045
$
3,555,998
THE TORO COMPANY AND
SUBSIDIARIES
Condensed Consolidated
Statements of Cash Flows (Unaudited)
(Dollars in thousands)
Three Months Ended
February 3, 2023
January 28, 2022
Cash flows from operating activities:
Net earnings
$
106,860
$
69,510
Adjustments to reconcile net earnings to
net cash used in operating activities:
Non-cash income from finance affiliate
(3,809
)
(1,398
)
Contributions to finance affiliate,
net
(2,568
)
(2,050
)
Depreciation of property, plant and
equipment
19,152
18,487
Amortization of other intangible
assets
9,129
6,456
Stock-based compensation expense
5,224
5,225
Other
(5
)
146
Changes in operating assets and
liabilities, net of the effect of acquisitions:
Receivables, net
(42,495
)
(50,599
)
Inventories, net
(76,769
)
(59,171
)
Prepaid expenses and other assets
(1,588
)
(4,187
)
Accounts payable, accrued liabilities, and
other liabilities
(81,980
)
(72,462
)
Net cash used in operating activities
(68,849
)
(90,043
)
Cash flows from investing activities:
Purchases of property, plant and
equipment
(29,329
)
(11,903
)
Proceeds from insurance claim
7,114
—
Business combinations, net of cash
acquired
—
(401,494
)
Proceeds from asset disposals
265
26
Net cash used in investing activities
(21,950
)
(413,371
)
Cash flows from financing activities:
Borrowings under debt arrangements
170,000
400,000
Repayments under debt arrangements
(70,000
)
—
Proceeds from exercise of stock
options
14,029
1,150
Payments of withholding taxes for stock
awards
(2,647
)
(1,381
)
Purchases of TTC common stock
—
(75,000
)
Dividends paid on TTC common stock
(35,516
)
(31,469
)
Other
(1,475
)
—
Net cash provided by financing
activities
74,391
293,300
Effect of exchange rates on cash and cash
equivalents
2,195
(2,539
)
Net decrease in cash and cash
equivalents
(14,213
)
(212,653
)
Cash and cash equivalents as of the
beginning of the fiscal period
188,250
405,612
Cash and cash equivalents as of the end of
the fiscal period
$
174,037
$
192,959
THE TORO COMPANY AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures (Unaudited)
(Dollars in thousands, except per-share data)
The following table provides a reconciliation of the non-GAAP
financial performance measures used in this press release and our
related earnings call to the most directly comparable measures
calculated and reported in accordance with U.S. GAAP for the three
month periods ended February 3, 2023 and January 28, 2022:
Three Months Ended
February 3, 2023
January 28, 2022
Gross profit
$
395,924
$
300,476
Acquisition-related costs1
225
—
Adjusted gross profit
$
396,149
$
300,476
Operating earnings
$
136,427
$
91,626
Acquisition-related costs1
447
1,016
Adjusted operating earnings
$
136,874
$
92,642
Operating earnings margin
11.9
%
9.8
%
Acquisition-related costs1
—
%
0.1
%
Adjusted operating earnings margin
11.9
%
9.9
%
Earnings before income taxes
$
131,314
$
87,147
Acquisition-related costs1
447
1,016
Adjusted earnings before income taxes
$
131,761
$
88,163
Net earnings
$
106,860
$
69,510
Acquisition-related costs1
351
804
Tax impact of stock-based
compensation2
(3,605
)
(620
)
Adjusted net earnings
$
103,606
$
69,694
Diluted EPS
$
1.01
$
0.66
Acquisition-related costs1
—
0.01
Tax impact of stock-based
compensation2
(0.03
)
(0.01
)
Adjusted diluted EPS
$
0.98
$
0.66
Effective tax rate
18.6
%
20.2
%
Tax impact of stock-based
compensation2
2.8
%
0.7
%
Adjusted effective tax rate
21.4
%
20.9
%
1
On January 13, 2022, the company completed
the acquisition of Intimidator. Acquisition-related costs for the
three month period ended February 3, 2023 represent integration
costs. Acquisition-related costs for the three month period ended
January 28, 2022 represent transaction and integration costs
incurred in connection with the acquisition.
2
The accounting standards codification
guidance governing employee stock-based compensation requires that
any excess tax deduction for stock-based compensation be
immediately recorded within income tax expense. Employee
stock-based compensation activity, including the exercise of stock
options, can be unpredictable and can significantly impact our net
earnings, net earnings per diluted share, and effective tax rate.
These amounts represent the discrete tax benefits recorded as
excess tax deductions for stock-based compensation during the three
month periods ended February 3, 2023 and January 28, 2022.
Reconciliation of Non-GAAP Liquidity Measures
The company defines free cash flow as net cash provided by
operating activities less purchases of property, plant and
equipment, net of proceeds from insurance claim. Free cash flow
conversion percentage represents free cash flow as a percentage of
net earnings. The company considers free cash flow and free cash
flow conversion percentage to be non-GAAP liquidity measures that
provide useful information to management and investors about the
company's ability to convert net earnings into cash resources that
can be used to pursue opportunities to enhance shareholder value,
fund ongoing and prospective business initiatives, and strengthen
the company's Consolidated Balance Sheets, after reinvesting in
necessary capital expenditures required to maintain and grow the
company's business.
The following table provides a reconciliation of non-GAAP free
cash flow and free cash flow conversion percentage to net cash
provided by operating activities, which is the most directly
comparable financial measure calculated and reported in accordance
with U.S. GAAP, for the three month periods ended February 3, 2023
and January 28, 2022:
Three Months Ended
(Dollars in thousands)
February 3, 2023
January 28, 2022
Net cash used in operating activities
$
(68,849
)
$
(90,043
)
Less: Purchases of property, plant and
equipment, net of proceeds from insurance claim
22,215
11,903
Free cash flow
(91,064
)
(101,946
)
Net earnings
$
106,860
$
69,510
Free cash flow conversion percentage
(85.2
)%
(146.7
)%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230309005176/en/
Investor Relations Jeremy Steffan Director, Investor
Relations (952) 887-7962, jeremy.steffan@toro.com
Media Relations Heather Hille Managing Director,
Corporate Affairs (952) 887-8923, heather.hille@toro.com
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