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