2003 Net Earnings Per Diluted Share Total $3.12, Exceeding Analyst Estimates

BLOOMINGTON, Minn., Dec. 10 /PRNewswire-FirstCall/ -- The Toro Company (NYSE: TTC) today reported record net earnings of $81.6 million, or $3.12 per diluted share, on record net sales of $1,496.6 million for the fiscal year ended October 31, 2003. The company's fiscal 2003 results include an after- tax restructuring and other expense charge of $0.04 per diluted share and a gain of $0.08 per diluted share resulting from a legal settlement. For its fiscal 2003 fourth quarter ended October 31, 2003, Toro reported net earnings of $5.6 million, or $0.21 per diluted share, on net sales of $310.3 million. Results for the fiscal 2003 fourth quarter included an after-tax restructuring and other expense charge totaling $0.01 per diluted share.

Kendrick B. Melrose, The Toro Company Chairman and Chief Executive Officer, said that with its strong 2003 results, Toro achieved the 5.5% profit-after-tax goal of its three-year profit-improvement initiative. "A tremendous company-wide effort made 2003 the best year in Toro's history," said Melrose. "The broad engagement of all our people in our '5 by Five' campaign has moved Toro to a high ranking position, on a profit-after-tax basis, when compared to our peer companies," said Melrose. "That achievement reflects the profit-improvement mentality now deeply ingrained in our corporate culture, a mentality that will be a key asset as we continue to strive for additional profitability improvement. With the conclusion of our '5 by Five' initiative, we are now challenging ourselves to build on its momentum to further improve profitability. Our new three-year campaign will add a major focus on stronger revenue growth through accelerated investments in new innovation initiatives, expanding current markets and strengthening our position with emerging and underserved customer groups."

To put these financial results in perspective, for the full 2002 fiscal year Toro reported net income of $35.3 million, or $1.37 per diluted share, on net sales of $1,399.3 million. Toro's fiscal 2002 results included three previously reported items: a non-cash charge of $24.6 million, or $0.95 per diluted share, reflecting the cumulative effect of a change in accounting principle related to the adoption of SFAS no. 142; restructuring and other expenses related to plant closings and asset impairments totaling $5.6 million, or $0.22 per diluted share; and a one-time federal tax refund of $1.8 million, or $0.07 per diluted share, from prior fiscal years related to the company's foreign sales corporation. In the fiscal 2002 fourth quarter, Toro reported net earnings of $5.0 million, or $0.19 per diluted share, on net sales of $275.4 million. Results for the fiscal 2002 fourth quarter included a restructuring and other income benefit with the net effect of $1.0 million after-tax, or $0.04 per diluted share.

SEGMENT RESULTS

Segment data is provided in the table following the "Condensed Consolidated Statements of Earnings."

PROFESSIONAL

Fiscal 2003 net sales for the professional segment totaled $929.4 million, up 7.8% compared with fiscal 2002 with growth in almost all product categories. For the full year, operating earnings for the professional segment totaled $146.8 million, up 31.4% compared with fiscal 2002. The increase reflects the benefits of the company's profit improvement initiatives, lower currency support costs and lower manufacturing costs resulting from the transfer of certain production to lower cost facilities.

Compared with the fiscal 2002 fourth quarter, fiscal 2003 fourth quarter professional segment sales increased 10.4% to $177.8 million. Professional segment operating earnings for the fiscal 2003 fourth quarter totaled $13.3 million, down 8.6% from $14.6 million in the fiscal 2002 fourth quarter. The decline reflects the impact of a write-down of certain automated manufacturing equipment that is being phased out in the move to a more cost effective process.

The sales growth in both the quarter and the year resulted primarily from a substantial increase in our landscape contractor equipment business, with particularly strong contributions from new products. For the full year, worldwide sales grew in all major product categories and benefited from favorable foreign currency exchange effects.

RESIDENTIAL

For the year, residential segment sales totaled $506.5 million, up 6.8% compared with fiscal 2002. Fiscal 2003 operating earnings for the residential segment totaled $55.5 million, up 6.8% from fiscal 2002.

Residential segment sales for the fiscal 2003 fourth quarter totaled $110.3 million, up 19.3% from the fiscal 2002 fourth quarter. Operating earnings for the same period in the residential segment totaled $9.2 million, down 22.8% from the 2002 fourth quarter. The decline is attributable primarily to expenses associated with lowering production to better balance Toro inventory level with demand.

For both the quarter and the year, the increase in residential segment sales resulted from growth in walk power mower shipments. Walk power mower shipments benefited from successful promotional programs and continued strong retail demand in the dealer and mass channel. Residential segment sales in both periods also benefited from growth in Timecutter(R) Z riding mower shipments, strong initial stocking orders for the new line of Power Max(R) two-stage snowthrowers and favorable currency exchange effects.

DISTRIBUTION

For fiscal 2003, Distribution segment sales declined 15.7% compared with fiscal 2002. Distribution segment sales for the fiscal 2003 fourth quarter totaled $37.0 million, down 7.8% compared with the fiscal 2002 period. The majority of the decline results from the company's sale of a distributor effective December 31, 2002.

REVIEW OF OPERATIONS

For the full year, gross margin improved to 35.8% from 34.7% in fiscal 2002. Gross margins improved in all areas as a result of the company's ongoing process improvement, cost reduction efforts, and the net effect of transferring production to lower cost plants. Gross margin for the fiscal 2003 fourth quarter was 34.6% compared with 35.9% in the fiscal 2002 fourth quarter. Gross margins declined in the quarter as a result of the previously mentioned unplanned manufacturing expenses.

For fiscal 2003, selling, general and administrative expenses were 27.0% of net sales, compared to 26.9% in 2002. Selling, general and administrative expenses for the fiscal 2003 fourth quarter were 31.2% of net sales compared with 32.9% of net sales in the fiscal 2002 fourth quarter.

Interest expense declined $3.5 million for the full fiscal year and $0.8 million for the fiscal 2003 fourth quarter. The decline for both periods results from lower average borrowing levels and the use of earnings to retire debt.

Net inventories at the end of fiscal 2003 totaled $228.9 million, up 2.0% from $224.4 million at the end of fiscal 2002. The increase primarily reflects the impact of higher foreign currency exchange rates.

Net receivables at the end of fiscal 2003 totaled $280.1 million compared with $255.7 million at the end of fiscal 2002. The increase was primarily the result of higher overall sales as well as the impact of foreign currency exchange rates on international receivables.

BUSINESS OUTLOOK

"We have more than doubled our profit after-tax yield from four years ago, thanks to the committed efforts of all Toro employees," said Melrose. "The success of this initiative provides a firm foundation for our next three-year campaign, which focuses on unleashing our people's energy to further improve our after-tax profitability while also accelerating top line growth. To drive this growth, we will be investing at a significantly higher level in innovation, technology and new product initiatives, as well as for business and brand development. These growth initiatives will benefit from the more operationally efficient platform we have built." Melrose said, "Toro also plans to achieve even higher levels of process and productivity improvement through the next generation initiative using 'Lean /No Waste' concepts in both our plant and office environments."

For fiscal 2004, Toro is currently targeting to deliver a 10% to 12% increase on fiscal 2003's $3.12 in diluted earnings per share with net sales growth of 7% to 9%. "Our major seasons have yet to begin, and because of the inevitable uncertainties related to weather, the economy and global geo- political issues, our outlook for fiscal 2004 is cautiously optimistic. As our 2003 results demonstrate, however, we are very dedicated to achieving our financial goals regardless of overall business conditions," said Melrose. For its fiscal first quarter, typically a small revenue period, Toro currently expects to report diluted earnings of $0.15 to $0.20 per share on net sales about equal with its fiscal 2003 first quarter.

The Toro Company is a leading worldwide provider of outdoor maintenance and beautification products for home, recreation and commercial landscapes.

The Toro Company will conduct a conference call and webcast for investors beginning at 10:00 a.m. Central Time (CST) on December 10, 2003. 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. These uncertainties include factors that affect all businesses operating in a global market as well as matters specific to Toro. Particular risks and uncertainties facing the company's overall financial position at the present include the threat of further terrorist acts and war, which may result in contraction of the U.S. and worldwide economies; slow growth rate in global and domestic economies, resulting in rising unemployment and weakened consumer confidence; our ability to achieve the goals for the "Lean/No Waste" growth and profit improvement program which is intended to improve our revenue growth and after-tax return on sales; the company's ability to achieve sales growth and low double-digit diluted earnings per share growth in fiscal 2004; unforeseen product quality problems in the development and production of new and existing products; potential issues with moving production between facilities; continued slow growth in the rate of new golf course construction or existing golf course renovations; increased dependence on The Home Depot as a customer for the residential segment; reduced government spending for grounds maintenance equipment due to reduced tax revenue and tighter government budgets; elimination of shelf space for our products at retailers; changes in raw material costs, including higher oil prices; financial viability of distributors and dealers; market acceptance of existing and new products; and increased and adverse changes in currency exchange rates or raw material commodity prices and the costs we incur in providing price support to international customers and suppliers. In addition to the factors set forth in this paragraph, market, economic, financial, competitive, 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 statement.

                      THE TORO COMPANY AND SUBSIDIARIES

          Condensed Consolidated Statements of Earnings (Unaudited)
           (Dollars and shares in thousands, except per-share data)

                           Three Months Ended        Fiscal Years Ended
                        October 31,  October 31,  October 31,  October 31,
                            2003         2002         2003         2002

    Net sales             $310,262     $275,412   $1,496,588   $1,399,273
    Gross profit           107,296       98,964      535,459      485,263
      Gross profit percent   34.6%        35.9%        35.8%        34.7%
    Selling, general, and
     administrative expense 96,747       90,589      404,365      376,278
    Restructuring and
     other expense (income)    350       (1,544)       1,826        8,409
      Earnings from
       operations           10,199        9,919      129,268      100,576
    Interest expense        (3,721)      (4,523)     (16,285)     (19,747)
    Other income, net        1,014        2,054        7,935        5,970
      Earnings before income
       taxes and cumulative
       effect of change in
       accounting principle  7,492        7,450      120,918       86,799
    Provision for income
     taxes                   1,868        2,458       39,298       26,868
      Net earnings before
       cumulative effect of
       change in accounting
       principle             5,624        4,992       81,620       59,931
    Cumulative effect of
     change in accounting
     principle, net of
     income tax benefit
     of $509                     -            -            -      (24,614)
      Net earnings          $5,624       $4,992      $81,620      $35,317

    Basic net earnings per
     share, before cumulative
     effect of change in
     accounting principle    $0.22        $0.20        $3.26        $2.39
    Cumulative effect of
     change in accounting
     principle, net of
     income tax benefit          -            -            -        (0.98)
    Basic net earnings
     per share               $0.22        $0.20        $3.26        $1.41

    Diluted net earnings
     per share, before
     cumulative effect of
     change in accounting
     principle               $0.21        $0.19        $3.12        $2.32
    Cumulative effect of
     change in accounting
     principle, net of
     income tax benefit          -            -            -        (0.95)
    Diluted net earnings
     per share               $0.21        $0.19        $3.12        $1.37

    Weighted average number
     of shares of common
     stock outstanding
     - Basic                24,997       24,788       24,998       25,050

    Weighted average number
     of shares of common
     stock outstanding
     - Dilutive             26,345       25,701       26,149       25,873

    Shares and per share data have been adjusted for all periods presented to
    reflect a two-for-one stock split effective April 1, 2003.


                      THE TORO COMPANY AND SUBSIDIARIES

                       Net Sales by Segment (Unaudited)
                            (Dollars in thousands)

                            Three Months Ended        Fiscal Years Ended
                         October 31,  October 31,  October 31,  October 31,
    Segment Net Sales       2003         2002         2003         2002

    Professional          $177,763     $161,027     $929,434     $862,294
    Residential            110,289       92,475      506,466      474,333
    Distribution            36,970       40,110      133,957      158,935
    Other                  (14,760)     (18,200)     (73,269)     (96,289)
      Total *             $310,262     $275,412   $1,496,588   $1,399,273

    * Includes international
      sales of             $58,847      $52,205     $288,998     $261,603

     Earnings (Loss) Before Income Taxes and Cumulative Effect of Change
                in Accounting Principle by Segment (Unaudited)
                            (Dollars in thousands)

                            Three Months Ended        Fiscal Years Ended
                         October 31,  October 31,  October 31,  October 31,
    Segment Earnings (Loss) 2003         2002         2003         2002
    Professional(A)        $13,341      $14,590     $146,756     $111,709
    Residential(B)           9,245       11,978       55,460       51,916
    Distribution               (82)         290         (505)       2,251
    Other                  (15,012)     (19,408)     (80,793)     (79,077)
      Total                 $7,492       $7,450     $120,918      $86,799

    (A) Includes restructuring and other income of $273 thousand and $358
        thousand for the three-month period and fiscal year ended October 31,
        2003, respectively.  Includes restructuring and other expense
        (income) of $(1,525) thousand and $8,428 thousand for the three-month
        period and fiscal year ended October 31, 2002, respectively.
    (B) Includes restructuring and other expense of $623 thousand and $2,184
        thousand for the three-month period and fiscal year ended October 31,
        2003, respectively. Includes restructuring and other income of $19
        thousand for the three-month period and fiscal year ended October 31,
        2002.


                      THE TORO COMPANY AND SUBSIDIARIES

              Condensed Consolidated Balance Sheets (Unaudited)
                            (Dollars in thousands)

                                                  October 31,    October 31,
                                                      2003           2002
    ASSETS
    Cash and cash equivalents                       $110,287        $62,816
    Receivables, net                                 280,124        255,739
    Inventories, net                                 228,909        224,367
    Prepaid expenses and other current assets         12,484         10,497
    Deferred income taxes                             42,111         38,722
      Total current assets                           673,915        592,141

    Property, plant, and equipment, net              159,116        156,779
    Deferred income taxes                              1,181          4,196
    Goodwill and other assets                         93,220         93,024
      Total assets                                  $927,432       $846,140

    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current portion of long-term debt                 $3,830        $15,825
    Short-term debt                                    2,138          1,156
    Accounts payable                                  73,976         86,180
    Accrued liabilities                              223,192        190,589
      Total current liabilities                      303,136        293,750

    Long-term debt, less current portion             175,091        178,756
    Deferred revenue and other long-term liabilities  12,003          8,344
    Stockholders' equity                             437,202        365,290
      Total liabilities and stockholders' equity    $927,432       $846,140


                      THE TORO COMPANY AND SUBSIDIARIES

         Condensed Consolidated Statements of Cash Flows (Unaudited)
                            (Dollars in thousands)

                                                      Fiscal Years Ended
                                                   October 31,   October 31,
                                                      2003          2002
    Cash flows from operating activities:
    Net earnings                                     $81,620        $35,317
      Adjustments to reconcile net earnings
       to net cash provided by operating activities:
      Cumulative effect of change in
       accounting principle                                -         24,614
      Non-cash asset impairment write-off              6,814          4,099
      Provision for depreciation and amortization     33,173         30,932
      Loss (gain) on disposal of property,
       plant, and equipment                              273           (856)
      (Increase) decrease in deferred income
       tax asset                                        (374)           730
      Tax benefits related to employee stock
       option transactions                             2,642          1,508
      Changes in operating assets and liabilities:
        Receivables, net                             (23,789)        15,938
        Inventories, net                              (2,471)        10,294
        Prepaid expenses and other assets             (2,152)            32
        Accounts payable, accrued expenses,
         and deferred revenue                         21,665         22,364
          Net cash provided by operating activities  117,401        144,972

    Cash flows from investing activities:
      Purchases of property, plant, and equipment    (44,663)       (46,031)
      Proceeds from disposals of property,
       plant, and equipment                            2,009          2,964
      Decrease in investment in affiliates             1,000              -
      Decrease (increase) in other assets                115         (2,362)
      Proceeds from sale of business                   1,016              -
      Acquisition, net of cash acquired               (1,244)             -
          Net cash used in investing activities      (41,767)       (45,429)

    Cash flows from financing activities:
      Increase (decrease) in short-term debt             982        (33,257)
      Repayments of long-term debt                   (15,846)          (497)
      Increase in other long-term liabilities            167            118
      Proceeds from exercise of stock options          8,923         12,941
      Purchases of common stock                      (18,726)       (24,155)
      Dividends on common stock                       (6,005)        (6,026)
          Net cash used in financing activities      (30,505)       (50,876)

    Foreign currency translation adjustment            2,342          1,273

    Net increase in cash and cash equivalents         47,471         49,940
    Cash and cash equivalents as of the
     beginning of the fiscal year                     62,816         12,876

    Cash and cash equivalents as of the end
     of the fiscal year                             $110,287        $62,816

SOURCE The Toro Company CONTACT: Investor Relations, Stephen P. Wolfe, Vice President, CFO, +1-952-887-8076, or Stephen D. Keating, Director, Investor Relations, +1-952-887-8526; or Media Relations, Connie Hawkinson, Toro Media Relations, +1-952-887-8984, pr@toro.com , all of The Toro Company