The Toro Company Reports Fiscal 2013 Third Quarter Results

  The Toro Company Reports Fiscal 2013 Third Quarter Results

  *Third quarter sales increase to $510 million and net earnings per share
    increase to $0.68
  *Quarterly results strengthened by improved market conditions and increased
    demand for residential and landscape contractor products
  *Company raises full-year earnings outlook on the strength of margin
    improvement

Business Wire

BLOOMINGTON, Minn. -- August 22, 2013

The Toro Company (NYSE: TTC) today reported net earnings of $40.1 million, or
$0.68 per share, on a net sales increase of 1.2 percent to $509.9 million for
its fiscal third quarter ended August 2, 2013. In the comparable fiscal 2012
period, the company delivered net earnings of $40.5 million, or $0.67 per
share, on net sales of $504.1 million.

For the first nine months, Toro reported net earnings of $149.9 million, or
$2.53 per share, on a net sales increase of 2.4 percent to $1,659.1 million.
In the comparable fiscal 2012 period, the company posted net earnings of
$129.3 million, or $2.13 per share, on net sales of $1,619.4 million.

“For the quarter, our results were strengthened by a summer growing season
with favorable temperatures and precipitation levels as compared to last
year’s severe drought conditions,” said Michael J. Hoffman, Toro’s chairman
and chief executive officer. “The more desirable weather helped us drive
retail sales across most of our businesses and, in particular, our residential
business. In addition to realizing sales delayed in the prior quarter by
adverse spring weather conditions, our residential business benefited from
increased demand for our new and innovative products, including our
Timecutter® zero turn radius riding products and our recently introduced line
of lithium-ion battery-powered string and hedge trimmers.”

“As anticipated, the Tier 4 diesel engine transition—which caused a
significant portion of our professional sales to be accelerated into our first
quarter from later quarters as we’ve historically seen—continued to impact the
quarterly results for our professional business. Year-to-date our results are
solid and our business fundamentals remain sound. Our golf and landscape
contractor businesses are benefitting from innovative and high performing
equipment offerings valued by our end-user customers, we continue to grow our
micro irrigation business around the world, and we realized additional sales
from increased customer demand for our rental products and newly introduced
Toro-branded underground and construction products.”

“Looking ahead, although we are always mindful of the challenges that Mother
Nature can create for us, as well as continuing expectations for slow
worldwide economic growth, we remain cautiously optimistic about the remainder
of our year. We expect favorable sales comparisons to last year’s fourth
quarter when limited prior season snowfall in North America and Europe
significantly affected demand for our snowthrower products. Turning to field
inventory, despite elevated positions held through the second quarter due to
the planned execution of the Tier 4 transition and the resulting impact of the
poor spring weather conditions, we believe that recent retail efforts have
reduced field inventories across our product lines and at these improved
levels we are well positioned for the future. Lastly, we expect that momentum
from our productivity efforts and favorable commodity trends, somewhat offset
by product mix, should drive additional earnings gains. As a result, today we
are refining our full-year revenue outlook and increasing our earnings
expectations.”

The company now expects revenue growth for fiscal 2013 to be about 4 percent
and net earnings to be about 2.55 per share, or an increase of about 19
percent over fiscal 2012.

SEGMENT RESULTS

Professional

  *Professional segment net sales for the third quarter totaled $343.9
    million, down 4.8 percent from the prior year period. The quarterly sales
    decrease primarily was attributable to the Tier 4 diesel engine transition
    and related acceleration of a significant portion of our professional
    sales into our first quarter from later quarters as historically
    experienced. Offsetting the decrease, shipments of landscape contractor
    equipment benefited from increased demand for our zero turn radius
    products driven by more favorable weather conditions this quarter compared
    to the drought conditions last year, as well as newly introduced product
    offerings. Rental and construction equipment sales were up on increased
    product demand. Global micro irrigation sales increased on continued
    demand for more efficient irrigation solutions for agriculture. For the
    first nine months, professional segment net sales were $1,169.4 million,
    up 6.2 percent from the comparable fiscal 2012 period.
  *Professional segment earnings for the third quarter totaled $60.5 million,
    down 14.2 percent from the prior year period. For the first nine months,
    professional segment earnings were $233.5 million, up 10.5 percent from
    the comparable fiscal 2012 period.

Residential

  *Residential segment net sales for the third quarter totaled $155.5
    million, up 14.4 percent from the prior year period. Favorable
    temperatures and precipitation levels in the quarter led to sales
    increases across all summer product categories, including riding products,
    walk power mowers and handheld trimmer and blower products. For the first
    nine months, residential segment net sales were $477.8 million, down 5.5
    percent from the comparable fiscal 2012 period. The year-to-date sales
    results largely were attributable to the unusually mild 2012/2013 winter
    season and the late start to spring.
  *Residential segment earnings for the third quarter totaled $15.1 million,
    up 50 percent from the prior year period. For the first nine months,
    residential segment earnings were $51.9 million, up 1.4 percent from the
    comparable fiscal 2012 period.

OPERATING RESULTS

Gross margin for the third quarter was 34.9 percent, down 40 basis points from
the comparable fiscal 2012 period, primarily due to product mix but offset by
favorable commodity costs, productivity gains and realized pricing. For the
first nine months, gross margin was up 130 basis points to 35.9 percent.

Selling, general and administrative (SG&A) expense as a percent of sales
increased 20 basis points for the third quarter to 23.4 percent. For the first
nine months, SG&A expense increased 40 basis points as a percent of sales to
22.5 percent. For both periods, the increase in SG&A as a percent of sales was
the result of higher warehousing expense, increased engineering spending and
incremental costs from acquisitions, offset by lower warranty expense.

Operating earnings as a percent of sales decreased 60 basis points to 11.5
percent for the third quarter, but was up 90 basis points to 13.4 percent for
the year to date.

The effective tax rate for the third quarter was 30.5 percent compared with
31.8 percent in the same period last year. For the year to date comparison,
the tax rate decreased to 31.0 percent from 33.3 percent. The decrease in both
periods was primarily the result of the reenactment of the Federal Research
and Engineering Tax Credit.

Accounts receivable at the end of the third quarter totaled $202.1 million, up
2.6 percent from the prior year period. Net inventories were $258.9 million,
up 10.3 percent from the end of last year’s third quarter. Trade payables were
$124.2 million, the approximate equivalent of last year.

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.thetorocompany.com.

LIVE CONFERENCE CALL
August 22, 2013 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 August 22, 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 domestic and global 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              Nine Months Ended
                   August 2,     August 3,       August 2,       August 3,
                   2013            2012            2013              2012
Net sales          $ 509,918       $ 504,076       $ 1,659,065       $ 1,619,396
Gross profit         178,031         178,122         596,149           560,195
Gross profit         34.9    %       35.3    %       35.9      %       34.6      %
percent
Selling,
general, and        119,451       117,137       373,894         358,689   
administrative
expense
Operating            58,580          60,985          222,255           201,506
earnings
Interest             (3,909  )       (4,198  )       (12,307   )       (12,791   )
expense
Other income,       2,982         2,681         7,420           5,231     
net
Earnings
before income        57,653          59,468          217,368           193,946
taxes
Provision for       17,556        18,919        67,473          64,656    
income taxes
Net earnings       $ 40,097       $ 40,549       $ 149,895        $ 129,290   
                                                                     
Basic net
earnings per       $ 0.70         $ 0.69         $ 2.58           $ 2.17      
share
                                                                     
Diluted net
earnings per       $ 0.68         $ 0.67         $ 2.53           $ 2.13      
share
                                                                     
Weighted
average number
of shares of
common               57,653          59,045          58,091            59,642

stock
outstanding –
Basic
                                                                     
Weighted
average number
of shares of
common               58,913          60,336          59,266            60,829

stock
outstanding –
Diluted
                                                                     


Segment Data (Unaudited)
(Dollars in thousands)
                                             
                  Three Months Ended              Nine Months Ended
                 August 2,     August 3,       August 2,       August 3,
Segment Net       2013            2012            2013              2012
Sales
Professional      $ 343,866       $ 361,120       $ 1,169,446       $ 1,100,899
Residential         155,452         135,894         477,789           505,399
Other              10,600        7,062         11,830          13,098    
Total *           $ 509,918      $ 504,076      $ 1,659,065      $ 1,619,396 
                                                                    
* Includes
international     $ 138,855       $ 133,623       $ 492,526         $ 480,471
sales of
                                                  
                  Three Months Ended              Nine Months Ended
                 August 2,       August 3,       August 2,         August 3,
Segment
Earnings          2013            2012            2013              2012
(Loss) Before
Income Taxes
Professional      $ 60,508        $ 70,537        $ 233,521         $ 211,329
Residential         15,070          10,048          51,903            51,174
Other              (17,925 )      (21,117 )      (68,056   )      (68,557   )
Total             $ 57,653       $ 59,468       $ 217,368        $ 193,946   
                                                                    


THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
                                                          
                                               August 2,       August 3,
                                               2013            2012
ASSETS
Cash and cash equivalents                      $ 161,180       $ 143,058
Receivables, net                                 202,148         197,023
Inventories, net                                 258,929         234,790
Prepaid expenses and other current assets        27,426          24,436
Deferred income taxes                           62,324         62,368
Total current assets                            712,007        661,675
                                                               
Property, plant, and equipment, net              179,943         177,723
Goodwill and other assets, net                  139,180        147,130
Total assets                                   $ 1,031,130     $ 986,528
                                                               
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current portion of long-term debt              $ —             $ 1,858
Accounts payable                                 124,244         124,168
Accrued liabilities                             284,702        278,797
Total current liabilities                       408,946        404,823
                                                               
Long-term debt, less current portion             223,528         223,467
Deferred revenue                                 10,547          11,289
Deferred income taxes                            2,898           1,380
Other long-term liabilities                      6,592           7,822
Stockholders’ equity                            378,619        337,747
Total liabilities and stockholders’ equity     $ 1,031,130     $ 986,528
                                                                 


THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
                                                
                                                   Nine Months Ended
                                                   August 2,     August 3,
                                                   2013            2012
Cash flows from operating activities:
Net earnings                                       $ 149,895       $ 129,290
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Noncash income from finance affiliate                (5,658  )       (4,521  )
Provision for depreciation and amortization          39,204          37,929
Stock-based compensation expense                     7,927           7,465
Decrease (increase) in deferred income taxes         183             (443    )
Other                                                28              (117    )
Changes in operating assets and liabilities,
net of effect of acquisitions:
Receivables, net                                     (56,762 )       (51,640 )
Inventories, net                                     (12,048 )       (6,428  )
Prepaid expenses and other assets                    (1,539  )       (6,114  )
Accounts payable, accrued liabilities,
deferred revenue, and other long-term               36,910        59,986  
liabilities
Net cash provided by operating activities           158,140       165,407 
                                                                   
Cash flows from investing activities:
Purchases of property, plant, and equipment          (34,390 )       (28,158 )
Proceeds from asset disposals                        344             114
Distributions from finance affiliate, net            2,977           1,777
Acquisitions, net of cash acquired                  —             (9,663  )
Net cash used in investing activities               (31,069 )      (35,930 )
                                                                   
Cash flows from financing activities:
Repayments of short-term debt                        (415    )       (922    )
Repayments of long-term debt                         (1,769  )       (1,892  )
Excess tax benefits from stock-based awards          5,196           8,080
Proceeds from exercise of stock options              8,146           17,337
Purchases of Toro common stock                       (76,003 )       (67,354 )
Dividends paid on Toro common stock                 (24,453 )      (19,748 )
Net cash used in financing activities               (89,298 )      (64,499 )
                                                                   
Effect of exchange rates on cash and cash           (2,449  )      (2,806  )
equivalents
                                                                   
Net increase in cash and cash equivalents            35,324          62,172
Cash and cash equivalents as of the beginning       125,856       80,886  
of the period
                                                                   
Cash and cash equivalents as of the end of the     $ 161,180      $ 143,058 
period
                                                                   

Contact:

The Toro Company
Investor Relations
Amy Dahl, 952-887-8917
Managing Director, Corporate Communications and Investor Relations
amy.dahl@toro.com
or
Media Relations
Branden Happel, 952-887-8930
Senior Manager, Public Relations
branden.happel@toro.com