The Toro Company Reports Record Second Quarter Results

  The Toro Company Reports Record Second Quarter Results

  *Company achieves record second quarter sales of $745 million, a 6 percent
    increase, driven by strong demand for professional segment products
  *Quarterly net earnings increase 14 percent to a record $1.51 per share
  *The Toro Company to celebrate the significant milestone of 100 years in
    business on July 10, 2014

Business Wire

BLOOMINGTON, Minn. -- May 22, 2014

The Toro Company (NYSE: TTC) today reported net earnings of $87.1 million, or
$1.51 per share, on a net sales increase of 5.8 percent to $745 million for
its fiscal 2014 second quarter ended May 2, 2014. In the comparable fiscal
2013 period, the company delivered net earnings of $78.4 million, or $1.32 per
share, on net sales of $704.5 million.

“I’m proud of our team’s execution that delivered record sales and earnings
for the quarter despite challenging spring weather conditions for the second
straight year,” said Michael J. Hoffman, Toro’s chairman and chief executive
officer. “Although retail sales of some residential products were hampered by
the late spring, we experienced strong growth in our landscape maintenance
business. Contractors who benefited from the robust snow season last winter
invested in more new turf equipment during the quarter, favoring our
productivity-enhancing mowers. In addition, shipments of golf equipment and
irrigation products increased due to channel demand for our innovative new
product offerings, including the recently introduced INFINITY™ sprinklers.”

For the first six months, Toro reported net earnings of $113 million, or $1.95
per share, on a net sales increase of 3.6 percent to $1.191 billion. In the
comparable fiscal 2013 period, the company posted net earnings of $109.8
million, or $1.85 per share, on net sales of $1.149 billion. Strong retail
demand for snow products and landscape maintenance equipment, as well as
contributions from its micro irrigation, construction and rental businesses,
helped the company to surpass sales and earnings earned in the comparable
fiscal 2013 period, which benefited from the Tier 4 diesel engine transition.

“As we approach our Centennial and look ahead to the end of our Destination
2014 journey, we remain encouraged about both our business and prospects for
achieving our goals,” said Hoffman. “Our portfolio of innovative products has
us well-positioned to drive retail sales and strengthen our market share. We
will keep a watchful eye on retail demand and field inventories across our
businesses and make any necessary adjustments. In addition, we will benefit
from increased pre-season snowthrower shipments, primarily in the fourth
quarter, that are needed to replenish inventories diminished by strong
customer demand last winter. As we strive to achieve our operating earnings
goal, we will continue to pursue productivity improvements to leverage
expenses and expand margins. While focused on things within our control, we
remain mindful that Mother Nature may not deliver favorable summer growing
conditions again this year or economic conditions may change, either of which
could create potential challenges for our businesses and customers.”

The company continues to expect revenue growth for fiscal 2014 to be about 5
to 6 percent, and net earnings per share to be about $2.90 to $2.95. For the
third quarter, the company expects net earnings per share to be about $0.82.

SEGMENT RESULTS

Professional

  *Professional segment net sales for the second quarter totaled $528.6
    million, up 6.5 percent from the comparable fiscal 2013 period. Sales of
    landscape maintenance equipment increased on strong retail demand,
    including for our zero turn radius mowers. Golf equipment and irrigation
    product sales were up due to channel optimism and demand for new product
    offerings, including the INFINITY™ sprinklers and Multi Pro® advanced
    spraying system. Global micro irrigation sales increased with continued
    demand for more efficient solutions for agriculture and construction and
    rental equipment sales grew on channel demand for Toro® branded products.
    Slightly offsetting these increases were lower sales of professional
    products in international markets. For the first six months, professional
    segment net sales were $824 million, essentially flat with the comparable
    fiscal 2013 period. Sales benefited from strong retail demand for
    landscape maintenance equipment and increased demand for micro irrigation,
    construction and rental products, but were offset by sales in the first
    quarter of last fiscal year that benefited from the Tier 4 diesel engine
    transition and were not repeated this year.
  *Professional segment earnings for the second quarter totaled $122.4
    million, up 9 percent from the comparable fiscal 2013 period. For the
    first six months, professional segment earnings were $169.8 million, down
    1.8 percent from the comparable fiscal 2013 period.

Residential

  *Residential segment net sales for the second quarter totaled $210.4
    million, up 4.5 percent from the comparable fiscal 2013 period. Sales
    increased due to stronger domestic retail demand for our residential zero
    turn mowing products, as customers continued to transition to this mowing
    platform. International demand for walk power mowers, as well as domestic
    demand for electric blowers and trimmers, also benefited sales for the
    quarter. Offsetting these increases were lower shipments of domestic walk
    power mowers and decreased sales in Australia due to unfavorable currency
    exchange and weather conditions. For the first six months, residential
    segment net sales were $357.9 million, up 11 percent from the comparable
    fiscal 2013 period. Sales for the period increased on strong retail demand
    for our snow products, primarily in the first quarter, due to significant
    snowfall across key North American markets, as well as increased channel
    and retail demand for residential zero turn mowing products and
    international demand for walk power mowers.
  *Residential segment earnings for the second quarter totaled $23.8 million,
    down 3.5 percent from the comparable fiscal 2013 period. For the first six
    months, residential segment earnings were $42 million, up 13.9 percent
    from the comparable fiscal 2013 period.

OPERATING RESULTS

Gross margin for the second quarter was 35.5 percent, a decrease of 30 basis
points compared to the same fiscal 2013 period, primarily due to higher
commodity costs and unfavorable currency exchange rates, somewhat offset by
realized pricing. For the first six months, gross margin was 35.9 percent, a
decrease of 50 basis points, primarily due to higher commodity costs, segment
mix and unfavorable currency exchange rates, somewhat offset by realized
pricing.

Selling, general and administrative (SG&A) expense as a percent of sales for
the second quarter was 17.9 percent, a decrease of 120 basis points compared
to the same fiscal 2013 period. For the first six months, SG&A expense as a
percent of sales was 21.5 percent, a decrease of 60 basis points. For both
periods, the decrease primarily was due to lower administrative expense,
including health care costs, somewhat offset by higher incentive expense.

Second quarter operating earnings as a percent of sales improved 90 basis
points to 17.6 percent compared to the same fiscal 2013 period. For the first
six months, operating earnings as a percentage of sales improved 10 basis
points to 14.4 percent.

The effective tax rate for the second quarter was 32.6 percent, which is the
same as the effective tax rate for the comparable fiscal 2013 period. For the
first six months, the effective tax rate increased to 32.7 percent from 31.3
percent in the comparable fiscal 2013 period when the company benefited from
the retroactive reinstatement of the Federal Research and Engineering Tax
Credit in the first quarter.

Accounts receivable at the end of the second quarter totaled $313.5 million,
up 1.9 percent from the same fiscal 2013 period. Net inventories were $302.5
million, down 2.4 percent from the same period last year. Trade payables were
$236 million, up 15.8 percent compared to the same fiscal 2013 period,
primarily due to recent component and commodity purchases in anticipation of
product demand in the second half of our fiscal 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 $2 billion in fiscal 2013, 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
May 22, 2014 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 May 22, 2014. 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.

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 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,” and similar expressions or future
dates.Forward-looking statements involve risks and uncertainties that could
cause actual results to differ materially from those projected or implied.
Particular risks and uncertainties that may affect our operating results or
financial position include: worldwide economic conditions, including slow or
negative growth rates in global and domestic economies and weakened consumer
confidence; disruption at our manufacturing or distribution facilities,
including drug cartel-related violence affecting our maquiladora operations in
Juarez, Mexico; fluctuations in the cost and availability of raw materials and
components, including steel, engines, hydraulics and resins; the impact of
abnormal weather patterns, including unfavorable weather conditions
exacerbated by global climate change or otherwise; the impact of natural
disasters and global pandemics; the level of growth or contraction in our key
markets; government and municipal revenue, budget and spending levels;
dependence on The Home Depot as a customer for our residential business;
elimination of shelf space for our products at dealers or retailers; inventory
adjustments or changes in purchasing patterns by our customers; our ability to
develop and achieve market acceptance for new products; increased competition;
the risks attendant to international operations and markets, including
political, economic and/or social instability and tax policies in the
countries in which we manufacture or sell our products; foreign currency
exchange rate fluctuations; our relationships with our distribution channel
partners, including the financial viability of our distributors and dealers;
risks associated with acquisitions; management of our alliances or joint
ventures, including Red Iron Acceptance, LLC; the costs and effects of
enactment of, changes in and compliance with laws, regulations and standards,
including those relating to consumer product safety, Tier 4 emissions
requirements, conflict mineral disclosure, taxation, healthcare, and
environmental, health and safety matters; unforeseen product quality problems;
loss of or changes in executive management or key employees; interruption of
our management information systems, including by unauthorized access, security
breaches, cyber attacks or other disruptive events; the occurrence of
litigation or claims, including those involving intellectual property or
product liability matters; and other risks and uncertainties described in our
most recent annual report on Form 10-K, subsequent quarterly reports on Form
10-Q, and other filings with the Securities and Exchange Commission.We
undertake no obligation to update forward-looking statements made herein to
reflect events or circumstances after the date hereof.

                          (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         Six Months Ended
                     May 2,       May 3,        May 2,         May 3,
                     2014          2013          2014            2013
Net sales            $ 745,030     $ 704,486     $ 1,191,011     $ 1,149,147
Gross profit           264,540       252,301       428,054         418,118
Gross profit           35.5    %     35.8    %     35.9      %     36.4      %
percent
Selling, general,
and administrative    133,661     134,830     256,577       254,443   
expense
Operating earnings     130,879       117,471       171,477         163,675
Interest expense       (3,683  )     (4,149  )     (7,436    )     (8,398    )
Other income, net     1,920       2,995       3,830         4,438     
Earnings before        129,116       116,317       167,871         159,715
income taxes
Provision for         42,030      37,915      54,916        49,917    
income taxes
Net earnings         $ 87,086     $ 78,402     $ 112,955      $ 109,798   
                                                                 
Basic net earnings   $ 1.54       $ 1.35       $ 1.99         $ 1.88      
per share
                                                                 
Diluted net          $ 1.51       $ 1.32       $ 1.95         $ 1.85      
earnings per share
                                                                 
Weighted average
number of shares
of common stock        56,493        58,132        56,758          58,308
outstanding –
Basic
                                                                 
Weighted average
number of shares
of common stock        57,773        59,257        58,040          59,444
outstanding –
Diluted
                                                 
Segment Data (Unaudited)
(Dollars in thousands)
                                                 
                     Three Months Ended          Six Months Ended
                     May 2,        May 3,        May 2,          May 3,
Segment Net Sales    2014          2013          2014            2013
Professional         $ 528,561     $ 496,436     $ 824,029       $ 825,580
Residential            210,377       201,390       357,947         322,337
Other                 6,092       6,660       9,035         1,230     
Total *              $ 745,030    $ 704,486    $ 1,191,011    $ 1,149,147 
                                                                 
* Includes
international        $ 205,117     $ 212,005     $ 356,380       $ 353,596
sales of
                                                 
                     Three Months Ended          Six Months Ended
                     May 2,        May 3,        May 2,          May 3,
Segment Earnings
(Loss) Before        2014          2013          2014            2013
Income Taxes
Professional         $ 122,367     $ 112,275     $ 169,830       $ 173,013
Residential            23,822        24,679        41,956          36,833
Other                 (17,073 )    (20,637 )    (43,915   )    (50,131   )
Total                $ 129,116    $ 116,317    $ 167,871      $ 159,715   
                                                                 

THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
                                                        
                                             May 2,        May 3,
                                             2014          2013
ASSETS
Cash and cash equivalents                    $ 129,909     $ 80,341
Receivables, net                               313,489       307,770
Inventories, net                               302,477       309,998
Prepaid expenses and other current assets      29,218        30,434
Deferred income taxes                         39,261       62,768
Total current assets                          814,354      791,311
                                                           
Property, plant, and equipment, net            192,751       177,060
Deferred income taxes                          25,942        —
Goodwill and other assets, net                146,199      146,583
Total assets                                 $ 1,179,246   $ 1,114,954
                                                           
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current portion of long-term debt            $ 140         $ 250
Accounts payable                               235,971       203,710
Accrued liabilities                           302,515      294,648
Total current liabilities                     538,626      498,608
                                                           
Long-term debt, less current portion           223,855       223,513
Deferred revenue                               10,891        10,605
Deferred income taxes                          5,969         2,898
Other long-term liabilities                    14,355        6,287
Stockholders’ equity                          385,550      373,043
Total liabilities and stockholders’ equity   $ 1,179,246   $ 1,114,954
                                                           

THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
                                                 
                                                   Six Months Ended
                                                   May 2,        May 3,
                                                   2014           2013
Cash flows from operating activities:
Net earnings                                       $ 112,955      $ 109,798
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Noncash income from finance affiliate                (3,377   )     (3,532   )
Provision for depreciation and amortization          26,589         26,890
Stock-based compensation expense                     5,051          5,336
Decrease in deferred income taxes                    136            281
Other                                                (31      )     81
Changes in operating assets and liabilities, net
of effect of acquisition:
Receivables, net                                     (156,423 )     (160,534 )
Inventories, net                                     (62,072  )     (59,082  )
Prepaid expenses and other assets                    4,285          (3,486   )
Accounts payable, accrued liabilities, deferred     150,836      120,896  
revenue, and other long-term liabilities
Net cash provided by operating activities           77,949       36,648   
                                                                  
Cash flows from investing activities:
Purchases of property, plant, and equipment          (32,682  )     (19,508  )
Proceeds from asset disposals                        115            73
Contributions to finance affiliate, net              (4,868   )     (4,669   )
Acquisition, net of cash acquired                   (715     )    —        
Net cash used in investing activities               (38,150  )    (24,104  )
                                                                  
Cash flows from financing activities:
Repayments of short-term debt                        (849     )     (415     )
Increase in (repayments of) long-term debt           59             (1,548   )
Excess tax benefits from stock-based awards          6,657          4,577
Proceeds from exercise of stock options              4,761          6,573
Purchases of Toro common stock                       (81,694  )     (50,499  )
Dividends paid on Toro common stock                 (22,670  )    (16,364  )
Net cash used in financing activities               (93,736  )    (57,676  )
                                                                  
Effect of exchange rates on cash and cash           853          (383     )
equivalents
                                                                  
Net decrease in cash and cash equivalents            (53,084  )     (45,515  )
Cash and cash equivalents as of the beginning of    182,993      125,856  
the period
                                                                  
Cash and cash equivalents as of the end of the     $ 129,909     $ 80,341   
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
 
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