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The Toro Company Reports Record First Quarter Results



  The Toro Company Reports Record First Quarter Results

  * First quarter revenues grow 4.9 percent to a record $444.7 million
  * Net earnings per share up over 60 percent to a record $0.53
  * Company raising full-year earnings guidance; well positioned entering key
    selling season
  * Commitment to building micro irrigation global presence continues with
    acquisition in China

Business Wire

BLOOMINGTON, Minn. -- February 21, 2013

The Toro Company (NYSE: TTC) today reported net earnings of $31.4 million, or
$0.53 per share, on a net sales increase of 4.9 percent to $444.7 million for
its fiscal first quarter ended February 1, 2013. In the comparable fiscal 2012
period, the company delivered net earnings of $19.9 million, or $0.33 per
share, on net sales of $423.8 million. The “per share” data for the
comparative periods has been adjusted to reflect a two-for-one stock split
effective June 29, 2012.

“Our record-setting first quarter, driven by particularly strong channel
demand for large turf equipment and the continued growth of micro irrigation
sales, propelled us to a solid start for the year,” said Michael J. Hoffman,
Toro’s chairman and chief executive officer. “Our financial performance
benefitted from both accelerated sales related to pre-Tier 4 product shipments
and early professional end-user demand, along with positive effects of our
productivity initiatives.”

“The optimistic outlook of customers across our businesses is encouraging, as
we prepare for our primary selling season,” said Hoffman. “Barring new
economic headwinds, we anticipate the momentum our golf, landscape contractor
and micro irrigation businesses enjoyed this past quarter will carry into
spring. Our residential business retail potential looks solid as well. Recent
snowfall across our primary snow markets, including the record-breaking
blizzard that struck the Northeast, generated additional revenue for our
contractor customers and is helping clear field inventories, thus boosting
prospects for our autumn pre-season snow sales.”

“Additionally, along with positive market conditions,” Hoffman added, “our
latest professional and residential product innovations, like the Reelmaster®
3550-D (the lightest golf fairway mower on the market), new 30” professional
walk power mowers for landscape contractors and the newly Toro-branded
products from our Astec and Stone Construction acquisitions from 2012, are
helping create further opportunities.”

The Toro Company is also announcing today that it has entered into an
agreement to acquire a Chinese micro-irrigation company, subject to applicable
regulatory approval and other customary closing conditions. Terms of the
transaction were not disclosed. Hoffman commented, “Although small, this
acquisition will help strengthen our presence in China, a critical growth
market, by establishing a micro irrigation base of operations.”

The company continues to expect revenue growth of about 4 to 5 percent for
fiscal 2013. With the expectations that the accelerated margin and earnings
benefit of the Tier 4 transition will moderate through the year, the earnings
expectations are being raised largely to reflect the benefit of tax rate
improvement discussed below. The company now expects fiscal 2013 net earnings
to be about $2.40 to $2.45 per share. For the second quarter the company
expects to report net earnings per share of about $1.20.

SEGMENT RESULTS

Professional

  * Professional segment net sales for the first quarter totaled $329.1
    million, up 16 percent from the same period last year. Domestic shipments
    of large turf equipment were up due to channel demand. The early
    successful launch of products from the Astec and Stone acquisitions, also
    contributed to the professional businesses’ strong quarter. Furthermore,
    increased capacity enabled the company to capitalize on steadily growing
    demand for micro-irrigation systems to meet the ever-growing global food
    requirements. Results in the professional segment were somewhat offset by
    soft international sales activity.
  * Professional segment earnings totaled $60.7 million, up 44.3 percent from
    $42.1 million last year.

Residential

  * Residential segment net sales for the first quarter totaled $120.9
    million, down 12.1 percent from the first quarter last year. The decline
    reflects reduced retail demand for snow products due to unseasonable
    winter weather in North America. However, residential segment results
    benefitted from improved sales of Pope products in Australia.
  * Residential segment earnings for the fiscal 2013 first quarter totaled
    $12.2 million, down 3.6 percent from $12.6 million in the same period last
    year.

OPERATING RESULTS

Gross margin for the fiscal 2013 first quarter increased 270 basis points from
last year to 37.3 percent. The margin growth was primarily the result of
product mix, pricing, and progress on our productivity efforts.

Selling, general and administrative (SG&A) expense as a percent of sales for
the fiscal 2013 first quarter was up 30 basis points to 26.9 percent. The SG&A
increase as a percent of sales reflects incremental costs associated with the
acquisition of Astec and Stone, as well as start-up costs for the new
distribution facility in Iowa.

First quarter operating earnings as a percent of sales were 10.4 percent
compared to 8 percent a year ago.

First quarter interest expense was down 4 percent to $4.2 million due to lower
average debt levels.

The effective tax rate for the quarter was 27.7 percent compared with 33.8
percent last year. The lower tax rate was primarily due to the retroactive
extension of the Federal Research and Engineering Tax Credit.

Accounts receivable at the end of the fiscal 2013 first quarter totaled $180.3
million, up 2.7 percent from the same period last year, on a sales increase of
4.9 percent. Net inventories for the first quarter were $335.7 million, up
23.2 percent. The increase includes product to support the Tier 4 transition,
snow throwers and inventory from the Astec and Stone acquisitions. Trade
payables increased 10.9 percent for the first quarter to $168.3 million.

About The Toro Company
The Toro Company (NYSE: TTC) is a leading worldwide provider of innovative
turf, landscape, rental and construction equipment, and irrigation and outdoor
lighting solutions. With sales of more than $1.9 billion in fiscal 2012,
Toro’s global presence extends to more than 90 countries through strong
relationships built on integrity and trust, constant innovation, and a
commitment to helping customers enrich the beauty, productivity and
sustainability of the land. Since 1914, the company has built a tradition of
excellence around a number of strong brands to help customers care for golf
courses, sports fields, public green spaces, commercial and residential
properties, and agricultural fields. More information is available at
www.toro.com.

LIVE CONFERENCE CALL
February 21, 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 February 21, 2013. The webcast will be
available at www.streetevents.com or at www.thetorocompany.com/invest. Webcast
participants will need to complete a brief registration form and should
allocate extra time before the webcast begins to register and, if necessary,
download and install audio software.

Safe Harbor
Statements made in this news release, which are forward-looking, are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements involve risks and uncertainties
that could cause actual results to differ materially from those projected or
implied. These uncertainties include factors that affect all businesses
operating in a global market as well as matters specific to Toro. Particular
risks and uncertainties that may affect the company’s operating results or
overall financial position at the present include: slow or negative growth
rates in global and domestic economies, resulting in rising or persistent
unemployment and weakened consumer confidence; the threat of terrorist acts
and war, which may result in contraction of the U.S. and worldwide economies;
drug cartel-related violence, which may disrupt our production activities and
maquiladora operations based in Juarez, Mexico; fluctuations in the cost and
availability of raw materials and components, including steel, engines,
hydraulics, resins and other commodities and components; fluctuating fuel and
other costs of transportation; the impact of abnormal weather patterns,
natural disasters and global pandemics; the level of growth or contraction in
our key markets; government and municipal revenue, budget and spending levels,
which may negatively impact our grounds maintenance equipment business in the
event of reduced tax revenues and tighter government budgets; dependence on
The Home Depot as a customer for the residential segment; elimination of shelf
space for our products at retailers; inventory adjustments or changes in
purchasing patterns by our customers; market acceptance of existing and new
products; increased competition; our ability to achieve the revenue growth,
operating earnings and employee engagement goals of our multi-year employee
initiative called “Destination 2014”; our increased dependence on
international sales and the risks attendant to international operations and
markets, including political, economic and/or social instability in the
countries in which we manufacture or sell our products resulting in
contraction or disruption of such markets; credit availability and terms,
interest rates and currency movements including, in particular, our exposure
to foreign currency risk; our relationships with our distribution channel
partners, including the financial viability of distributors and dealers; our
ability to successfully achieve our plans for and integrate acquisitions and
manage alliances or joint ventures, including Red Iron Acceptance, LLC; the
costs and effects of changes in tax, fiscal, government and other regulatory
policies, including rules relating to environmental, health and safety
matters, and Tier 4 emissions requirements; unforeseen product quality or
other problems in the development, production and usage of new and existing
products; loss of or changes in executive management or key employees; ability
of management to manage around unplanned events; our reliance on our
intellectual property rights and the absence of infringement of the
intellectual property rights of others; and the occurrence of litigation or
claims. In addition, factors that could affect completion of the proposed
acquisition of a micro-irrigation business in China including whether and when
the required regulatory approvals will be obtained, and whether and when the
other closing conditions will be satisfied. In addition to the factors set
forth in this paragraph, market, economic, financial, competitive,
legislative, governmental, weather, production and other factors identified in
Toro's quarterly and annual reports filed with the Securities and Exchange
Commission, could affect the forward-looking statements in this press release.
Toro undertakes no obligation to update forward-looking statements made in
this release to reflect events or circumstances after the date of this
release.

 
THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings (Unaudited)
(Dollars and shares in thousands, except per-share data)
                                                
                                                 Three Months Ended
                                                 February 1,     February 3,
                                                 2013            2012
Net sales                                        $ 444,661       $ 423,835
Gross profit                                       165,817         146,651
Gross profit percent                               37.3    %       34.6    %
Selling, general, and administrative expense       119,613         112,630  
Operating earnings                                 46,204          34,021
Interest expense                                   (4,249  )       (4,428  )
Other income, net                                  1,443           493      
Earnings before income taxes                       43,398          30,086
Provision for income taxes                         12,002          10,163   
Net earnings                                     $ 31,396        $ 19,923   
                                                                  
Basic net earnings per share                     $ 0.54          $ 0.33     
                                                                  
Diluted net earnings per share                   $ 0.53          $ 0.33     
                                                                  
Weighted average number of shares of common
                                                   58,480          59,986
stock outstanding – Basic
                                                                  
Weighted average number of shares of common
                                                   59,628          60,947
stock outstanding – Diluted
                                                                  

Shares and per share data have been adjusted for all periods presented to
reflect a two-for-one stock split effective June 29, 2012.

 
Segment Data (Unaudited)
(Dollars in thousands)
                                               
                                                Three Months Ended
                                                February 1,     February 3,
Segment Net Sales                               2013            2012
Professional                                    $ 329,144       $ 283,834
Residential                                       120,947         137,608
Other                                             (5,430  )       2,393    
Total*                                          $ 444,661       $ 423,835  
                                                                           
* Includes international sales of               $ 141,591       $ 149,462
                                                 
                                                Three Months Ended
                                                February 1,     February 3,
Segment Earnings (Loss) Before Income Taxes     2013            2012
Professional                                    $ 60,738        $ 42,091
Residential                                       12,154          12,608
Other                                             (29,494 )       (24,613 )
Total                                           $ 43,398        $ 30,086   
                                                                           

 
THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
                                                              
                                               February 1,     February 3,
                                               2013            2012
ASSETS
Cash and cash equivalents                      $  60,700       $  71,804
Receivables, net                                  180,317         175,498
Inventories, net                                  335,700         272,474
Prepaid expenses and other current assets         25,291          18,796
Deferred income taxes                             63,878          61,900
Total current assets                              665,886         600,472
                                                                
Property, plant, and equipment, net               173,267         188,271
Deferred income taxes                             —               75
Goodwill and other assets, net                    144,990         148,189
Total assets                                   $  984,143      $  937,007
                                                                
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current portion of long-term debt              $  250          $  2,078
Short-term debt                                   —               25,024
Accounts payable                                  168,334         151,836
Accrued liabilities                               258,909         226,370
Total current liabilities                         427,493         405,308
                                                                
Long-term debt, less current portion              223,498         223,685
Deferred revenue                                  10,974          9,997
Deferred income taxes                             2,804           1,368
Other long-term liabilities                       6,531           7,920
Stockholders’ equity                              312,843         288,729
Total liabilities and stockholders’ equity     $  984,143      $  937,007
                                                                   

 
THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
                                                  
                                                   Three Months Ended
                                                   February 1,     February 3,
                                                   2013            2012
Cash flows from operating activities:
Net earnings                                       $ 31,396        $ 19,923
Adjustments to reconcile net earnings to net
cash

used in operating activities:
Noncash income from finance affiliate                (1,353  )       (1,002  )
Provision for depreciation and amortization          13,517          12,960
Stock-based compensation expense                     2,479           2,597
Decrease (increase) in deferred income taxes         335             (486    )
Other                                                (11     )       (21     )
Changes in operating assets and liabilities,
net of effect of acquisitions:
Receivables, net                                     (32,217 )       (27,888 )
Inventories, net                                     (83,794 )       (50,000 )
Prepaid expenses and other assets                    (243    )       (2,118  )
Accounts payable, accrued liabilities,
deferred revenue, and other long-term                46,429          29,723   
liabilities
Net cash used in operating activities                (23,462 )       (16,312 )
                                                                    
Cash flows from investing activities:
Purchases of property, plant, and equipment,         (3,233  )       (13,797 )
net
Proceeds from asset disposals                        13              26
(Contributions to) distributions from finance        (2,484  )       13
affiliate, net
Acquisition, net of cash acquired                    —               (550    )
Net cash used in investing activities                (5,704  )       (14,308 )
                                                                    
Cash flows from financing activities:
(Repayments of) proceeds from short-term debt        (415    )       25,000
Repayments of long-term debt                         (1,578  )       (1,479  )
Excess tax benefits from stock-based awards          3,442           5,071
Proceeds from exercise of stock options              3,602           5,208
Purchases of Toro common stock                       (33,185 )       (4,865  )
Dividends paid on Toro common stock                  (8,198  )       (6,607  )
Net cash (used in) provided by financing             (36,332 )       22,328   
activities
                                                                    
Effect of exchange rates on cash                     342             (790    )
                                                                    
Net decrease in cash and cash equivalents            (65,156 )       (9,082  )
Cash and cash equivalents as of the beginning        125,856         80,886   
of the fiscal period
                                                                    
Cash and cash equivalents as of the end of the     $ 60,700        $ 71,804   
fiscal period
                                                                    

Contact:

The Toro Company
Investor Relations
Kurt Svendsen, 952-887-8630
Managing Director, Corporate Communications and Investor Relations
kurt.svendsen@toro.com
or
Media Relations
Branden Happel, 952-887-8930
Senior Manager, Public Relations
branden.happel@toro.com
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