The Toro Company Reports Record Second Quarter Results
- Professional businesses deliver strong results driving quarterly and year-to-date performance
-
Reported quarterly EPS of
$1.21 ; adjusted quarterly EPS of$1.20 , up 22.4 percent over comparable 2017 period adjusted EPS of$0.98 -
Second quarter net sales increase 0.3 percent to
$875.3 million
For the first six months, Toro reported net earnings of
Second quarter operating earnings as a percent of sales were 19.5 percent, an improvement of 120 basis points compared to 18.3 percent in the same period last year. Operating earnings as a percent of sales for the first six months was 16.7 percent, an improvement of 90 basis points compared to the same period last year.
The reported tax rate for the second quarter was 22.4 percent compared to 23.9 percent last year. The adjusted tax rate for the second quarter was 23.0 percent compared to the adjusted tax rate of 30.9 percent in the same period last year. For the quarter, the adjusted tax rate excludes the benefit of the excess tax deduction for share-based compensation. For the first six months, the reported tax rate was 34.7 percent, up from 24.1 percent in the same period last year. The adjusted tax rate was 22.6 percent, down from 31.4 percent for the comparable period. The adjusted rates were significantly impacted by the enactment of U.S. tax reform as reported in the first quarter of fiscal 2018. The unfavorable impact of one-time charges associated with the provisional re-measurement of deferred tax assets and liabilities, and provisional calculation of the deemed repatriation tax, were partially offset by the benefit resulting from the reduction in the federal corporate tax rate. The company continues to estimate that its full fiscal year adjusted 2018 effective income tax rate will be about 23 percent.
“We are pleased to deliver another record quarter, despite challenging
spring conditions and inflationary headwinds,” said
“Our residential segment was not immune to the challenges experienced
industry-wide, caused by a slow start to spring in
“With the second half of the fiscal year still ahead of us, May retail activity is trending favorably for turf products and the late season snow helped set the stage for a good pre-season sell-in later in the fiscal year. We are encouraged by the global economic landscape and the optimism expressed by channel partners across our businesses. We are well positioned to meet customer needs through continued innovation, strong operational execution and continued focus fueling our productivity efforts, as our Vision 2020 employee initiatives gain traction. As always, we will work to prudently manage through the current inflationary environment.”
The company now expects revenue growth for fiscal 2018 to be about 4
percent, and adjusted net earnings per share to be about
SEGMENT RESULTS
Professional
-
Professional segment net sales for the second quarter were
$660.4 million , up 8.1 percent from$610.9 million last year. Balanced growth across our professional portfolio drove the positive results for the quarter. Momentum in our landscape contractor businesses was driven by strong sales of the new diesel-powered zero-turn mowers as the channel prepares for the selling season ahead. The golf and grounds businesses also performed well due to increased sales of rotary and large reel units. For the first six months, professional segment net sales were$1,064.0 million , up 8.3 percent from the comparable 2017 period. Demand for large reel golf and grounds equipment and our landscape contractor zero-turn mowers contributed to the results. -
Professional segment earnings for the second quarter were
$165.0 million , up 10.7 percent from$149.0 million in the same period last year. Professional segment earnings for the first six months were$240.9 million , up 10.9 percent from$217.2 million compared to the same period last year.
Residential
-
Residential segment net sales for the second quarter were
$212.2 million , down 17.8 percent from$258.1 million last year. A cold and delayed start to spring resulted in weakened channel demand for our walk power and zero-turn riding mowers for the quarter. This was a significant contrast to prior year performance where we saw early, favorable spring weather. For the first six months, residential segment net sales were$354.7 million , down 11.0 percent from$398.5 million last year. Below average snowfall early in the season and a poor start to spring negatively impacted sales of our residential turf and snow thrower products. -
Residential segment earnings for the second quarter were
$26.3 million , down 24.9 percent from$35.0 million in the comparable period last year. Residential segment earnings for the first six months were$42.0 million , down 18.6 percent from$51.6 million in the same period last year.
OPERATING RESULTS
Gross margin as a percent of sales for the second quarter was 37.0 percent, an increase of 80 basis points compared to last year. For the first six months, gross margin as a percent of sales was 37.1 percent, an increase of 40 basis points. For both periods, favorable foreign currency and the positive impact of segment mix were partially offset by increased commodity costs.
Selling, general and administrative (SG&A) expense as a percent of sales for the second quarter was 17.5 percent, a decrease of 40 basis points from the same period last year. For the first six months, SG&A expense as a percent of sales was 20.4 percent, a decrease of 50 basis points. The decrease for both periods was primarily due to prudent expense management and lower incentive expense, offset in part by increased investment in our key strategic initiatives, including higher engineering spend on new product development.
Accounts receivable at the end of the second quarter were
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The
Use of Non-GAAP Financial Information
This press release and
our related earnings call contain certain non-GAAP financial measures,
consisting of “adjusted" effective tax rate, net earnings and net
earnings per diluted share as measures of our operating performance.
Management believes these measures may be useful in performing
meaningful comparisons of past and present operating results, to
understand the performance of its ongoing operations and how management
views the business. Reconciliations of adjusted non-GAAP measures to
reported GAAP measures are included in the financial tables contained in
this press release. These measures, however, should not be construed as
an alternative to any other measure of performance determined in
accordance with GAAP.
The
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,” “anticipate,”
“continue,” “plan,” “estimate,” “project,” “believe,” “should,” “could,”
“will,” “would,” “possible,” “may,” “likely,” “intend,” “can,” “seek,”
“potential,” “pro forma,” or the negative thereof or similar
expressions. Forward-looking statements involve risks and uncertainties
that could cause actual events and 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
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 4, | May 5, | May 4, | May 5, | |||||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||||||
Net sales | $ | 875,280 | $ | 872,767 | $ | 1,423,526 | $ | 1,388,606 | ||||||||||||
Gross profit | 324,056 | 316,314 | 528,295 | 509,794 | ||||||||||||||||
Gross profit percentage | 37.0 | % | 36.2 | % | 37.1 | % | 36.7 | % | ||||||||||||
Selling, general and administrative expense | 153,783 | 157,018 | 291,100 | 289,928 | ||||||||||||||||
Operating earnings | 170,273 | 159,296 | 237,195 | 219,866 | ||||||||||||||||
Interest expense | (4,720 | ) | (4,676 | ) | (9,538 | ) | (9,559 | ) | ||||||||||||
Other income, net | 3,613 | 3,701 | 7,894 | 7,567 | ||||||||||||||||
Earnings before income taxes | 169,166 | 158,321 | 235,551 | 217,874 | ||||||||||||||||
Provision for income taxes | 37,877 | 37,846 | 81,658 | 52,409 | ||||||||||||||||
Net earnings | $ | 131,289 | $ | 120,475 | $ | 153,893 | $ | 165,465 | ||||||||||||
Basic net earnings per share of common stock | $ | 1.23 | $ | 1.11 | $ | 1.44 | $ | 1.53 | ||||||||||||
Diluted net earnings per share of common stock | $ | 1.21 | $ | 1.08 | $ | 1.41 | $ | 1.48 | ||||||||||||
Weighted-average number of shares of common stock outstanding — Basic | 106,423 | 108,203 | 106,830 | 108,419 | ||||||||||||||||
Weighted-average number of shares of common stock outstanding — Diluted | 108,835 | 111,138 | 109,353 | 111,451 | ||||||||||||||||
Segment Data (Unaudited) | ||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||||||
May 4, | May 5, | May 4, | May 5, | |||||||||||||||||
Segment Net Sales | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||
Professional | $ | 660,373 | $ | 610,896 | $ | 1,064,042 | $ | 982,705 | ||||||||||||
Residential | 212,169 | 258,134 | 354,676 | 398,524 | ||||||||||||||||
Other | 2,738 | 3,737 | 4,808 | 7,377 | ||||||||||||||||
Total net sales* | $ | 875,280 | $ | 872,767 | $ | 1,423,526 | $ | 1,388,606 | ||||||||||||
*Includes international net sales of: | $ | 207,079 | $ | 201,641 | $ | 353,869 | $ | 332,883 | ||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||||||
May 4, | May 5, | May 4, | May 5, | |||||||||||||||||
Segment Earnings (Loss) | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||
Professional | $ | 164,979 | $ | 149,011 | $ | 240,891 | $ | 217,177 | ||||||||||||
Residential | 26,304 | 35,047 | 42,017 | 51,605 | ||||||||||||||||
Other | (22,117 | ) | (25,737 | ) | (47,357 | ) | (50,908 | ) | ||||||||||||
Total segment earnings | $ | 169,166 | $ | 158,321 | $ | 235,551 | $ | 217,874 | ||||||||||||
THE TORO COMPANY AND SUBSIDIARIES | ||||||||
Condensed Consolidated Balance Sheets (Unaudited) | ||||||||
(Dollars in thousands) | ||||||||
May 4, | May 5, | |||||||
2018 | 2017 | |||||||
ASSETS |
||||||||
Cash and cash equivalents | $ | 206,100 | $ | 265,191 | ||||
Receivables, net | 329,570 | 328,524 | ||||||
Inventories, net | 394,801 | 341,576 | ||||||
Prepaid expenses and other current assets | 47,758 | 41,272 | ||||||
Total current assets | 978,229 | 976,563 | ||||||
Property, plant and equipment, net | 245,348 | 224,277 | ||||||
Deferred income taxes | 42,994 | 57,117 | ||||||
Goodwill and other assets, net | 369,176 | 340,801 | ||||||
Total assets | $ | 1,635,747 | $ | 1,598,758 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
Current portion of long-term debt | $ | 13,000 | $ | 23,105 | ||||
Short-term debt | — | 832 | ||||||
Accounts payable | 303,911 | 273,600 | ||||||
Accrued liabilities | 335,496 | 324,878 | ||||||
Total current liabilities | 652,407 | 622,415 | ||||||
Long-term debt, less current portion | 299,302 | 311,957 | ||||||
Deferred revenue | 24,672 | 24,948 | ||||||
Deferred income taxes | 1,770 | — | ||||||
Other long-term liabilities | 34,269 | 31,667 | ||||||
Total stockholders’ equity | 623,327 | 607,771 | ||||||
Total liabilities and stockholders’ equity | $ | 1,635,747 | $ | 1,598,758 | ||||
THE TORO COMPANY AND SUBSIDIARIES | ||||||||||
Condensed Consolidated Statements of Cash Flows (Unaudited) | ||||||||||
(Dollars in thousands) | ||||||||||
Six Months Ended | ||||||||||
May 4, | May 5, | |||||||||
2018 | 2017 | |||||||||
Cash flows from operating activities: | ||||||||||
Net earnings | $ | 153,893 | $ | 165,465 | ||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||||
Non-cash income from finance affiliate | (5,370 | ) | (4,686 | ) | ||||||
Contributions to finance affiliate, net | (2,959 | ) | (2,708 | ) | ||||||
Provision for depreciation and amortization | 30,141 | 34,548 | ||||||||
Stock-based compensation expense | 5,565 | 6,629 | ||||||||
Deferred income taxes | 21,121 | 136 | ||||||||
Other | (40 | ) | — | |||||||
Changes in operating assets and liabilities, net of effect of acquisitions: | ||||||||||
Receivables, net | (143,947 | ) | (164,495 | ) | ||||||
Inventories, net | (62,575 | ) | (30,100 | ) | ||||||
Prepaid expenses and other assets | (8,402 | ) | (9,709 | ) | ||||||
Accounts payable, accrued liabilities, deferred revenue and other long-term liabilities | 151,007 | 172,643 | ||||||||
Net cash provided by operating activities | 138,434 | 167,723 | ||||||||
Cash flows from investing activities: | ||||||||||
Purchases of property, plant and equipment | (35,365 | ) | (22,273 | ) | ||||||
Purchase of noncontrolling interest | (333 | ) | — | |||||||
Acquisitions, net of cash acquired | (31,202 | ) | (24,181 | ) | ||||||
Net cash used in investing activities | (66,900 | ) | (46,454 | ) | ||||||
Cash flows from financing activities: | ||||||||||
Increase in short-term debt, net | — | 832 | ||||||||
Payments on long-term debt | (20,239 | ) | (15,930 | ) | ||||||
Proceeds from exercise of stock options | 5,778 | 8,222 | ||||||||
Payments of withholding taxes for stock awards | (3,212 | ) | (2,723 | ) | ||||||
Purchases of Toro common stock | (116,490 | ) | (82,239 | ) | ||||||
Dividends paid on Toro common stock | (42,679 | ) | (37,936 | ) | ||||||
Net cash used in financing activities | (176,842 | ) | (129,774 | ) | ||||||
Effect of exchange rates on cash and cash equivalents | 1,152 | 141 | ||||||||
Net decrease in cash and cash equivalents | (104,156 | ) | (8,364 | ) | ||||||
Cash and cash equivalents as of the beginning of the fiscal period | 310,256 | 273,555 | ||||||||
Cash and cash equivalents as of the end of the fiscal period | $ | 206,100 | $ | 265,191 | ||||||
THE TORO COMPANY AND SUBSIDIARIES
Reconciliation of
Non-GAAP Financial Measures (Unaudited)
(Dollars in
thousands, except per-share data)
The company has provided non-GAAP financial measures, which are not
calculated or presented in accordance with accounting principles
generally accepted in
The following tables provide reconciliations of financial measures calculated and reported in accordance with GAAP as well as adjusted non-GAAP financial measures presented in the accompanying press release for the three and six month periods ended May 4, 2018 and May 5, 2017. The company believes these measures may be useful in performing meaningful comparisons of past and present operating results, to understand the performance of its ongoing operations, and how management views the business. The following is a reconciliation of our net earnings, diluted earnings per share ("EPS"), and effective tax rate to our adjusted net earnings, adjusted diluted EPS, and adjusted effective tax rate:
Net Earnings | Diluted EPS | Effective Tax Rate | ||||||||||||||||||||||||||
May 4, | May 5, | May 4, | May 5, | May 4, | May 5, | |||||||||||||||||||||||
Three Months Ended | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||
As Reported - GAAP | $ | 131,289 | $ | 120,475 | $ | 1.21 | $ | 1.08 | 22.4 | % | 23.9 | % | ||||||||||||||||
Impacts of tax reform1: | ||||||||||||||||||||||||||||
Net deferred tax asset revaluation2 | — | — | — | — | — | % | — | % | ||||||||||||||||||||
Deemed repatriation tax3 | — | — | — | — | — | % | — | % | ||||||||||||||||||||
Benefit of the excess tax deduction for share-based compensation4 | (1,037 | ) | (11,059 | ) | (0.01 | ) | (0.10 | ) | 0.6 | % | 7.0 | % | ||||||||||||||||
As Adjusted - Non-GAAP | $ | 130,252 | $ | 109,416 | $ | 1.20 | $ | 0.98 | 23.0 | % | 30.9 | % | ||||||||||||||||
Net Earnings | Diluted EPS | Effective Tax Rate | ||||||||||||||||||||||||||
May 4, | May 5, | May 4, | May 5, | May 4, | May 5, | |||||||||||||||||||||||
Six Months Ended | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||
As Reported - GAAP | $ | 153,893 | $ | 165,465 | $ | 1.41 | $ | 1.48 | 34.7 | % | 24.1 | % | ||||||||||||||||
Impacts of tax reform1: | ||||||||||||||||||||||||||||
Net deferred tax asset revaluation2 | 20,513 | — | 0.19 | — | (8.7 | )% | — | % | ||||||||||||||||||||
Deemed repatriation tax3 | 12,600 | — | 0.12 | — | (5.3 | )% | — | % | ||||||||||||||||||||
Benefit of the excess tax deduction for share-based compensation4 | (4,613 | ) | (15,927 | ) | (0.04 | ) | (0.14 | ) | 1.9 | % | 7.3 | % | ||||||||||||||||
As Adjusted - Non-GAAP | $ | 182,393 | $ | 149,538 | $ | 1.68 | $ | 1.34 | 22.6 | % | 31.4 | % | ||||||||||||||||
1 |
The actual impact of the U.S. tax reform may differ from our estimates, due to, among other things, changes in interpretations and assumptions we have made, guidance that may be issued, and changes in our structure or business model. | |
2 |
Signed into law on December 22, 2017, the Tax Cuts and Jobs Act ("Tax Act"), reduced the U.S. federal corporate tax rate from 35.0 percent to 21.0 percent, effective January 1, 2018, resulting in a blended U.S. federal statutory tax rate for the company of 23.3 percent for the fiscal year ended October 31, 2018. This reduction in rate requires the re-measurement of the company's net deferred taxes as of the date of enactment which resulted in a non-cash charge of $20.5 million during the six month period ended May 4, 2018. No deferred tax remeasurement charges were recorded in the second quarter of fiscal 2018. |
|
3 |
The Tax Act imposed a one-time deemed repatriation tax on the company's historical undistributed earnings and profits of foreign affiliates which resulted in a one-time charge of $12.6 million during the six month period ended May 4, 2018, payable over eight years. No repatriation tax charges were recorded in the second quarter of fiscal 2018. |
|
4 |
In the first quarter of fiscal 2017, the company adopted Accounting Standards Update No. 2016-09, Stock-based Compensation: Improvements to Employee Share-based Payment Accounting, which requires that any excess tax deduction for share-based compensation be immediately recorded within income tax expense. The company recorded discrete tax benefits of $1.0 million and $4.6 million as excess tax deductions for share-based compensation during the three and six months ended May 4, 2018, respectively. The Tax Act reduced the U.S. federal corporate tax rate, which reduced the tax benefit related to share-based compensation by $0.5 million and $2.0 million for the for the three and six month periods ended May 4, 2018, respectively. |
|
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Source: The
The Toro Company
Investor Relations
Heather
Hille, 952-887-8923
Director, Investor Relations
heather.hille@toro.com
or
Media
Relations
Branden Happel, 952-887-8930
Senior Manager,
Public Relations
branden.happel@toro.com