Toro Reports Record Fiscal 2006 Net Sales and Net Earnings
Net Earnings Per Diluted Share Up 18.8 Percent to $2.91; Board Raises Quarterly Dividend From $0.09 to $0.12 Per Common Share
BLOOMINGTON, Minn.--(BUSINESS WIRE)--Dec. 7, 2006--The Toro Company (NYSE:TTC) today reported record net sales and net earnings for the fiscal year ended October 31, 2006.
Net earnings for the year totaled $129.1 million, or $2.91 per diluted share, compared with net earnings of $114.1 million, or $2.45 per diluted share, in fiscal 2005. Net sales for fiscal 2006 increased 3.2 percent to $1,836.0 million from $1,779.4 million last year.
For the fourth quarter ended October 31, 2006, Toro reported net earnings of $4.5 million, or $0.10 per diluted share, on net sales of $329.5 million. In the comparable fiscal 2005 period, the Company reported net earnings of $6.6 million, or $0.14 per diluted share, on net sales of $337.1 million.
Continued strong cash flows from operations enabled the Company to use $147 million for share repurchases and $15 million for dividend payments during fiscal 2006. Additionally, the Company's board of directors increased the quarterly dividend from $0.09 to $0.12 per common share, payable January 12, 2007 to shareholders of record on December 18, 2006.
"We completed a solid 2006 with increased net sales and earnings," said Michael J. Hoffman, chairman and chief executive officer. "Our ability to achieve record results in a challenging environment demonstrates the fundamental strength of the business and our commitment to drive profitable growth." The Company reported that worldwide growth in its professional segment net sales helped offset lower net sales in the domestic residential segment. International net sales increased 12.6 percent over 2005 and accounted for 27 percent of total revenues, up from 24.8 percent in 2005.
Completion of fiscal 2006 marks the conclusion of the Company's three-year profitability and revenue growth initiative. Hoffman noted that Toro exceeded the 6 percent profit-after-tax goal and fell just short of the 8 percent three-year compounded revenue growth goal for the 6+8 initiative.
SEGMENT RESULTS
Segment data are provided in the table following the "Condensed Consolidated Statements of Earnings."
Professional
-- Professional segment net sales for fiscal 2006 increased 6.9
percent to $1,224.8 million. Increases in worldwide net sales
in golf and sports fields and grounds markets combined with
double-digit growth in nearly all international professional
segment categories comprised the majority of the increase.
-- Professional segment net earnings for fiscal 2006 increased
9.8 percent to $227.7 million.
-- For the fiscal 2006 fourth quarter, professional segment net
sales were up modestly to $212.3 million compared with $208.6
million in the fiscal 2005 fourth quarter.
-- Professional segment net earnings for the fiscal 2006 fourth
quarter totaled $20.5 million compared with $24.0 million in
the corresponding quarter last year. The decline in the fiscal
fourth quarter earnings was due to increased warranty costs
and continued investments in marketing and service areas.
Residential
-- Residential segment net sales for fiscal 2006 declined 2.9
percent to $566.6 million from $583.3 million in fiscal 2005.
For the year, solid increases in domestic riding mower sales
and residential products for international markets were more
than offset by lower sales in most other domestic residential
product categories.
-- Residential segment net earnings for fiscal 2006 were $34.1
million, a 32.0 percent decline from $50.2 million in fiscal
2005.
-- For the fiscal 2006 fourth quarter, residential segment net
sales were $102.9 million compared to $111.1 million in the
fiscal 2005 fourth quarter.
-- Residential segment net earnings for the fiscal 2006 fourth
quarter were $0.9 million, compared to $6.7 million in the
2005 fourth quarter. The decline in the fiscal fourth quarter
earnings resulted from a charge for customs duties and lower
sales volumes.
REVIEW OF OPERATIONS
Gross margin for fiscal 2006 was 35.0 percent compared with 34.6 percent in fiscal 2005. The improvement was derived from a larger percentage of professional segment products in consolidated sales, cost reductions resulting from lean initiatives and price increases somewhat offset by higher commodity costs and customs duties.
For the fiscal 2006 fourth quarter, gross margin was 33.6 percent, down slightly from 33.8 percent in the fiscal 2005 fourth quarter primarily due to higher customs duties.
Selling, general and administrative (SG&A) expenses for fiscal 2006 improved to 24.0 percent of net sales compared to 24.3 percent in fiscal 2005. The improvement resulted from lower insurance costs and incentive compensation, as well as expense leveraging from the ongoing profitability improvement efforts throughout the Company. For the fiscal 2006 fourth quarter, SG&A expenses were 30.4 percent compared to 30.3 percent in the same period last year.
Accounts receivable at year end totaled $294.8 million, down $0.9 million from the end of fiscal 2005 on a net sales decrease of 2.3 percent in the quarter. Net inventory at fiscal year end increased 1.4 percent, or $3.2 million, to $238.5 million. The Company generated $190.3 million in cash flow from operations during fiscal 2006 which represents a 9.3 percent increase over fiscal 2005.
BUSINESS OUTLOOK
"As we enter fiscal 2007, our year end balance sheet is strong and we continue to generate healthy operating cash flows," said Hoffman. "We have increased our profit-after-tax yield from 5.5 percent to 7.0 percent over the past three years, thanks to the committed efforts of our more than 5,000 employees worldwide. With the conclusion of our 6+8 initiative, we are challenging ourselves to build on this momentum and further improve our financial performance while continuously increasing our focus to deliver innovative, market-leading products and increased value to our customers. Toro's next three-year initiative will emphasize both internal growth and growth through acquisitions using a disciplined approach. Additionally, we will continue to drive efficiencies and improvements in our operations and SG&A via our Lean Enterprise efforts."
The Company currently expects to report a 10 to 12 percent increase in fiscal 2007 net earnings per diluted share, on revenue growth of 5 to 7 percent. For its fiscal first quarter, typically a small revenue period, Toro currently expects to report diluted net earnings of $0.30 to $0.33 per share.
The Toro Company is a leading worldwide provider of outdoor maintenance and beautification products for home, recreation and commercial landscapes
LIVE CONFERENCE CALL December 7, 2006 10:00 a.m. CST www.thetorocompany.com/invest
The Toro Company will conduct a conference call and webcast for investors beginning at 10:00 a.m. Central Time (CST) on December 7, 2006. 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 that could cause actual results to differ materially from those projected or implied. These uncertainties include factors that affect all businesses operating in a global market as well as matters specific to Toro. Particular risks and uncertainties that may affect the company's operating results or overall financial position at the present include: slow growth rates in global and domestic economies, resulting in rising unemployment and weakened consumer confidence; the threat of further terrorist acts and war, which may result in contraction of the U.S. and worldwide economies; fluctuations in the cost and availability of raw materials, including steel and other commodities; rising costs of transportation; the impact of abnormal weather patterns and natural disasters; level of growth in the golf market; reduced government spending for grounds maintenance equipment due to reduced tax revenue and tighter government budgets; dependence on The Home Depot as a customer for the residential segment; elimination of shelf space for our products at retailers; unforeseen inventory adjustments or changes in purchasing patterns by our customers; market acceptance of existing and new products; increased competition; our ability to achieve the goals for the new three-year growth and profit improvement initiative which is intended to improve our revenue growth and after-tax return on sales; the company's ability to achieve net sales and net earnings per diluted share growth in fiscal 2007; our increased dependence on international sales and the risks attendant to international operations; interest rates and currency movements including, in particular, our exposure to foreign currency risk; financial viability of distributors and dealers; our ability to successfully achieve our plans for and integrate acquisitions and manage alliances; the costs and effects of complying with changes in tax, fiscal, government and other regulatory policies, including rules relating to environmental, health and safety matters; unforeseen product quality problems in the development, production and usage of new and existing products; loss of or changes in executive management; ability of management to manage around unplanned events; the occurrence of litigation or claims, including the previously disclosed pending litigation against the company and other defendants that challenges the horsepower ratings of lawnmowers, of which the company is currently unable to assess whether the litigation would have a material adverse effect on the company's consolidated operating results or financial condition, although an adverse result might be material to operating results in a particular reporting period. 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,
2006 2005 2006 2005
----------- ----------- ----------- -----------
Net sales $329,486 $337,091 $1,835,991 $1,779,387
Gross profit 110,850 113,799 643,316 615,366
Gross profit
percent 33.6% 33.8% 35.0% 34.6%
Selling, general, and
administrative
expense 100,311 102,264 440,440 432,640
----------- ----------- ----------- -----------
Earnings from
operations 10,539 11,535 202,876 182,726
Interest expense (3,575) (4,280) (17,672) (17,733)
Other income, net 1,462 2,554 7,550 5,279
----------- ----------- ----------- -----------
Earnings before
income taxes 8,426 9,809 192,754 170,272
Provision for income
taxes 3,964 3,237 63,609 56,190
----------- ----------- ----------- -----------
Net earnings $4,462 $6,572 $129,145 $114,082
=========== =========== =========== ===========
Basic net earnings per
share $.11 $.15 $3.01 $2.55
=========== =========== =========== ===========
Diluted net earnings
per share $.10 $.14 $2.91 $2.45
=========== =========== =========== ===========
Weighted average
number of shares of
common stock
outstanding - Basic 41,654 43,543 42,887 44,714
Weighted average
number of shares of
common stock
outstanding -
Dilutive 43,007 45,384 44,344 46,539
THE TORO COMPANY AND SUBSIDIARIES
Segment Data (Unaudited)
(Dollars in thousands)
Three Months Ended Fiscal Years Ended
----------------------- -----------------------
October 31, October 31, October 31, October 31,
Segment Net Sales 2006 2005 2006 2005
---------------------- ----------- ----------- ----------- -----------
Professional $212,339 $208,562 $1,224,775 $1,145,361
Residential 102,855 111,103 566,641 583,291
Other 14,292 17,426 44,575 50,735
----------- ----------- ----------- -----------
Total (a) $329,486 $337,091 $1,835,991 $1,779,387
=========== =========== =========== ===========
(a) Includes
international sales
of $93,993 $84,922 $495,993 $440,644
Three Months Ended Fiscal Years Ended
----------------------- -----------------------
Segment Earnings
(Loss) Before Income October 31, October 31, October 31, October 31,
Taxes 2006 2005 2006 2005
---------------------- ----------- ----------- ----------- -----------
Professional $20,512 $24,016 $227,692 $207,398
Residential 922 6,667 34,094 50,160
Other (13,008) (20,874) (69,032) (87,286)
----------- ----------- ----------- -----------
Total $8,426 $9,809 $192,754 $170,272
=========== =========== =========== ===========
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
October 31, October 31,
2006 2005
----------- -----------
ASSETS
----------------------------------------------
Cash and cash equivalents $55,523 $41,402
Receivables, net 294,833 295,683
Inventories, net 238,544 235,347
Prepaid expenses and other current assets 9,437 16,084
Deferred income taxes 58,756 58,558
----------- -----------
Total current assets 657,093 647,074
----------- -----------
Property, plant, and equipment, net 166,323 167,277
Goodwill and other assets 98,567 102,386
----------- -----------
Total assets $921,983 $916,737
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------------
Current portion of long-term debt $- $46
Short-term debt 320 325
Accounts payable 89,673 87,952
Accrued liabilities 255,546 252,879
----------- -----------
Total current liabilities 345,539 341,202
----------- -----------
Long-term debt, less current portion 175,000 175,000
Long-term deferred income taxes - 872
Deferred revenue and other long-term
liabilities 9,415 9,629
Stockholders' equity 392,029 390,034
----------- -----------
Total liabilities and stockholders' equity $921,983 $916,737
=========== ===========
THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
Fiscal Years Ended
-----------------------
October 31, October 31,
2006 2005
----------- -----------
Cash flows from operating activities:
Net earnings $129,145 $114,082
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Non-cash asset impairment - 23
Equity losses from investments 1,559 1,468
Provision for depreciation and amortization 42,564 42,829
Gain on disposal of property, plant, and
equipment (110) (260)
Stock-based compensation expense 6,641 9,312
Increase in deferred income taxes (2,742) (8,635)
Changes in operating assets and liabilities:
Receivables 75 7,381
Inventories (522) (1,210)
Prepaid expenses and other assets 9,390 462
Accounts payable, accrued expenses, and
deferred revenue 4,271 8,631
----------- -----------
Net cash provided by operating
activities 190,271 174,083
----------- -----------
Cash flows from investing activities:
Purchases of property, plant, and equipment (39,885) (37,432)
Proceeds from asset disposals 1,033 2,740
Increase in investments in affiliates (371) (757)
Decrease in other assets 1,161 1,550
Proceeds from sale of a business - 765
Acquisition, net of cash acquired - (35,285)
----------- -----------
Net cash used in investing
activities (38,062) (68,419)
----------- -----------
Cash flows from financing activities:
Decrease in short-term debt (5) (774)
Repayments of long-term debt (46) (45)
Excess tax benefits from stock-based awards 13,131 5,989
Proceeds from exercise of stock options 10,683 8,164
Purchases of Toro common stock (146,543) (156,972)
Dividends paid on Toro common stock (15,421) (10,755)
----------- -----------
Net cash used in financing
activities (138,201) (154,393)
----------- -----------
Effect of exchange rates on cash 113 (625)
----------- -----------
Net increase (decrease) in cash and cash
equivalents 14,121 (49,354)
Cash and cash equivalents as of the beginning
of the fiscal year 41,402 90,756
----------- -----------
Cash and cash equivalents as of the end of the
fiscal year $55,523 $41,402
=========== ===========
CONTACT: The Toro Company
Investor Relations:
John Wright, 952-887-8865
Director, Investor Relations
or
Media Relations:
Connie Kotke, 952-887-8984
Manager, Corporate Communications
pr@toro.com
www.thetorocompany.com
SOURCE: The Toro Company