Toro Reports First Quarter Earnings Per Diluted Share of $0.54
Sales Growth and Margin Increase Drive Improvement in Operating Results And Increase in Fiscal 2003 Guidance Live Conference Call 10 a.m. CST www.toro.com/companyinfo/invest.html
The Toro Company (NYSE: TTC) today reported net earnings of $7.0 million, or $0.54 per diluted share, on net sales of $296.0 million for its fiscal 2003 first quarter ended January 31, 2003. Earnings per diluted share for the period included a one-time gain of $0.16 resulting from a legal settlement.In the comparable fiscal 2002 period, the company reported a net loss of $29.7 million, or $2.38 per diluted share. Adjusting for restructuring expenses, asset impairment charges and goodwill write-offs, the company reported net earnings of $1.5 million, or $0.12 per diluted share, for the fiscal 2002 first quarter. Net sales for the fiscal 2002 period totaled $277.9 million.
Qtr. Ended Qtr. Ended
1/31/03 2/1/02
Reported diluted earnings per share $0.54 $(2.38)
Add:
Cumulative effect of change in accounting
principle - 1.97
Restructuring and other expense - 0.53
Adjusted diluted earnings per share $0.54 $0.12
Kendrick B. Melrose, The Toro Company Chairman and Chief Executive Officer,
attributed the stronger-than-expected fiscal 2003 first quarter operating
performance to sales growth in both the professional and residential segments
coupled with an increase in gross margin resulting from the company's continued
focus on ongoing profit improvement strategies. "In the face of economic and
geopolitical conditions that remain very challenging and uncertain, we started
the new fiscal year with an outstanding operating performance," said Melrose.
"Our first quarter results demonstrate the sustainable earnings power we are
building at Toro through multiple initiatives to strengthen our business. We are
benefiting from demand for new products, better management of inventories, the
transfer of certain production to lower cost environments and other elements of
our '5 by Five' profit improvement initiatives," said Melrose.
SEGMENT RESULTS
PROFESSIONAL
For the fiscal 2003 first quarter, professional segment sales increased 10.1% to $193.4 million. The increase resulted from higher volume in golf, grounds and landscape contractor equipment and residential/commercial irrigation products. Sales of Exmark branded landscape contractor equipment products were up significantly, reflecting the success of new products in the market as well as lower field inventories entering fiscal 2003. Toro also benefited from customer demand for newly introduced products as well as a stronger beginning order position in its other professional businesses. Operating profit for the professional segment in the fiscal 2003 first quarter totaled $27.8 million, up 45.8% from $19.0 million before restructuring and other expenses in the fiscal 2002 first quarter.
RESIDENTIAL
Residential sales for the fiscal 2003 first quarter increased 2.7% to $94.7 million. Shipments of Toro branded walk power mowers led the increase due to the continued success of the new walk power mower line. In addition, some walk power mower shipments were accelerated into the first quarter to support an early retail promotional program that began in February. Riding mower shipments were also up for the quarter, primarily as a result of initial stocking orders from dealers for the new Timecutter Z mowers. The sales growth in these areas was somewhat offset by lower sales in other consumer product categories. Operating profit for the residential segment for the fiscal 2003 first quarter totaled $8.7 million, up 12.4% in the fiscal 2002 first quarter.
DISTRIBUTOR
Distribution segment sales for the fiscal 2003 first quarter declined 23.2% primarily as a result of the sale, effective December 31, 2002, of a company-owned distributor and the timing of shipments. The company has signed a letter of intent to purchase the assets of a southeastern U.S. distributor due to a challenging financial situation. The purchase is expected to close during the second quarter.
REVIEW OF OPERATIONS
Gross margin for the fiscal 2003 first quarter was 35.7%, up from 34.3% in the first quarter of fiscal 2002. The improvement reflects benefits from several profit improvement and cost reduction strategies under its "5 by Five" initiative. Among these were improved plant utilization, the transfer of certain production to lower cost environments in Juarez, Mexico and El Paso, Texas, as well as last year's closures of facilities in Riverside, California and Evansville, Indiana.
Selling, general and administrative expenses in the fiscal 2003 first quarter were up slightly as a percentage of sales, to 32.4% compared with 32.0% in the fiscal 2002 first quarter. The primary contributors to the increase were higher warranty costs and incentive compensation.
The company's interest expense in the fiscal 2003 first quarter declined by $1.2 million, or 23.1%, compared with the fiscal 2002 first quarter. The decline results primarily from lower average short-term debt.
BUSINESS OUTLOOK
Based on its strong first quarter performance, the expected sustainability of key performance measures and a currently favorable outlook for the balance of the fiscal year, Toro is adjusting its guidance for fiscal 2003 earnings upward. The company said it is now providing net earnings guidance for fiscal 2003 of $5.65 to $5.75 per diluted share, excluding the $0.16 per diluted share benefit from a legal settlement recorded in the first quarter. For its fiscal second quarter, the company said it currently anticipates earnings per diluted share to exceed $3.00.
"We continue to expect sales growth in our professional and residential segments despite the volatile geopolitical situation and uncertain economic conditions," said Melrose. "Our outlook would further improve if these uncertainties were resolved. Conversely, this outlook could worsen if these conditions further deteriorate. Our newly introduced products are being well received in the marketplace including several products we emphasized at the Golf Course Superintendents Association of America Conference and Show in Atlanta last week. In addition, we expect retail sales of our key lawn and garden product categories to remain strong."
Melrose added that much of the margin improvement and cost containment measures that benefited the company's first quarter results should continue during 2003. "Our production capacity and inventories are better aligned with demand due to recent facility rationalization and inventory management actions. We expect the impact on earnings from ongoing profit improvement and asset management initiatives to continue as volumes increase during our seasonally strongest quarters," said Melrose.
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 Standard Time (CST) on February 25, 2003. The webcast will be available at www.streetevents.com or at www.toro.com/companyinfo/invest.html . Webcast participants will need to complete a brief registration form and should allot 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; continued slowing of growth in global and domestic economies, resulting in rising unemployment and weakened consumer confidence; our ability to achieve goals of the "5 by Five" profit improvement program, which is intended to improve our after-tax return on sales; the company's ability to achieve sales growth and low double-digit diluted earnings per share growth in fiscal 2003; unforeseen product quality problems in the development and production of new and existing products; potential issues with opening new production facilities and moving production between facilities; continued slow growth rate in 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 Operations (Unaudited)
(Dollars and shares in thousands, except per-share data)
Three Months Ended
January 31, February 1,
2003 2002
Net sales $295,962 $277,915
Gross profit 105,581 95,307
Gross profit percent 35.7% 34.3%
Selling, general, and administrative expense 95,864 89,012
Restructuring and other expense - 9,953
Earnings (loss) from operations 9,717 (3,658)
Interest expense (4,092) (5,320)
Other income, net 4,795 1,334
Earnings (loss) before income taxes and
cumulative effect of change in accounting
principle 10,420 (7,644)
(Provision) benefit for income taxes (3,439) 2,523
Net earnings (loss) before cumulative effect
of change in accounting principle 6,981 (5,121)
Cumulative effect of change in accounting
principle, net of income tax benefit of $509 - (24,614)
Net earnings (loss) $6,981 $(29,735)
Basic net earnings (loss) per share, before
cumulative effect of change in accounting
principle $0.56 $(0.41)
Cumulative effect of change in accounting
principle, net of income tax benefit - (1.97)
Basic net earnings (loss) per share $0.56 $(2.38)
Diluted net earnings (loss) per share, before
cumulative effect of change in accounting
principle $0.54 $(0.41)
Cumulative effect of change in accounting
principle, net of income tax benefit - (1.97)
Diluted net earnings (loss) per share $0.54 $(2.38)
Weighted average number of shares of common
stock outstanding - Basic 12,461 12,500
Weighted average number of shares of common
stock outstanding - Dilutive 12,922 12,500
Net Sales by Segment (Unaudited)
(Dollars in thousands)
Three Months Ended
January 31, February 1,
2003 2002
Professional $193,444 $175,765
Residential 94,665 92,216
Distribution 18,600 24,229
Other (10,747) (14,295)
Total * $295,962 $277,915
* Includes international sales of $67,456 $63,095
Earnings (Loss) Before Income Taxes and Cumulative Effect of Change
in Accounting Principle by Segment (Unaudited)
(Dollars in thousands)
Three Months Ended
January 31, February 1,
2003 2002
Professional $27,756 $9,080
Residential 8,661 7,706
Distribution (3,358) (2,087)
Other (22,639) (22,343)
Total $10,420 $(7,644)
THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
January 31, February 1,
2003 2002
ASSETS
Cash and cash equivalents $87 $46
Receivables, net 311,892 302,189
Inventories, net 267,376 274,524
Prepaid expenses and other current assets 11,689 17,415
Deferred income taxes 39,474 34,261
Total current assets 630,518 628,435
Property, plant, and equipment, net 159,474 144,445
Deferred income taxes 4,196 9,721
Goodwill and other assets 93,913 94,946
Total assets $888,101 $877,547
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt $15,846 $513
Short-term debt 25,024 113,938
Accounts payable 90,397 75,656
Other accrued liabilities 194,917 172,744
Total current liabilities 326,184 362,851
Long-term debt, less current portion 178,724 194,553
Other long-term liabilities 8,259 7,091
Stockholders' equity 374,934 313,052
Total liabilities and stockholders' equity $888,101 $877,547
THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
Three Months Ended
January 31, February 1,
2003 2002
Cash flows from operating activities:
Net earnings (loss) $6,981 $(29,735)
Adjustments to reconcile net earnings (loss)
to net cash used in operating activities:
Cumulative effect of change in accounting
principle - 24,614
Non-cash asset impairment write-off - 4,163
Provision for depreciation and amortization 7,310 7,336
Gain on disposal of property, plant, and
equipment (4) (10)
Increase in deferred income tax asset (752) (334)
Changes in operating assets and liabilities:
Receivables, net (52,399) (30,512)
Inventories, net (48,213) (39,863)
Prepaid expenses and other current assets (1,322) (6,209)
Accounts payable and other accrued
liabilities 13,257 (7,846)
Net cash used in operating activities (75,142) (78,396)
Cash flows from investing activities:
Purchases of property, plant, and equipment (11,451) (9,245)
Proceeds from disposal of property, plant,
and equipment 31 62
Decrease in investment in affiliates 1,000 -
Increase in other assets (2,147) (2,426)
Proceeds from sale of business 1,016 -
Net cash used in investing activities (11,551) (11,609)
Cash flows from financing activities:
Increase in short-term debt 23,868 79,525
Repayments of long-term debt (11) (12)
Decrease in other long-term liabilities (85) (57)
Proceeds from exercise of stock options 1,693 661
Purchases of common stock (598) (1,415)
Dividends on common stock (1,495) (1,501)
Net cash provided by financing activities 23,372 77,201
Foreign currency translation adjustment 592 (26)
Net decrease in cash and cash equivalents (62,729) (12,830)
Cash and cash equivalents as of the beginning
of the period 62,816 12,876
Cash and cash equivalents as of the end of
the period $87 $46
SOURCE The Toro Company
CONTACT: Investors, Stephen P. Wolfe, Vice President, CFO,
+1-952-887-8076, or Stephen D. Keating, Director, Investor Relations,
+1-952-887-8526, or Media, Shelley Benedict, Media Relations, +1-952-887-8930,
pr@toro.com , all of The Toro Company
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