Toro Reports Record Fiscal 2007 Earnings

  • Net Earnings Per Share Up 16.8 Percent to $3.40
  • Board Raises Quarterly Dividend From $0.12 to $0.15 Per Common Share
  • Company Announces Acquisition of Turf Guard(TM) Technology

BLOOMINGTON, Minn.--(BUSINESS WIRE)--Dec. 6, 2007--The Toro Company (NYSE:TTC) today reported record net sales and net earnings for the fiscal year ended October 31, 2007. Net earnings for the year totaled $142.4 million, or $3.40 per share, compared with net earnings of $129.1 million, or $2.91 per share, in fiscal 2006. Net sales for fiscal 2007 increased 2.2 percent to $1,876.9 million from $1,836 million last year.

For the fourth quarter ended October 31, 2007, Toro reported net earnings of $6.5 million, or $0.16 per share, on net sales of $332.5 million. In the comparable fiscal 2006 period, the company reported net earnings of $4.5 million, or $0.10 per share, on net sales of $329.5 million.

During fiscal 2007, continued strong cash flows enabled the company to use $202.3 million for share repurchases and dividend payments. Additionally, the company's board of directors increased the quarterly dividend from $0.12 to $0.15 per common share, payable January 11, 2008 to shareholders of record on December 17, 2007.

"In challenging market conditions, our performance in fiscal 2007 highlights the strength and resiliency of our company," said Michael J. Hoffman, chairman and chief executive officer. "We completed another record year of increased net sales and net earnings with solid growth in the worldwide professional segment. We believe these results indicate that Toro has outperformed in a soft market." The company reported worldwide growth in its professional segment net sales which helped offset softness in the residential segment worldwide. International net sales increased 9.6 percent over 2006 and accounted for 29 percent of total net sales, an increase from 27 percent in 2006.

SEGMENT RESULTS

Professional

  • Professional segment net sales for fiscal 2007 increased 3.7 percent to $1,270.5 million. Increases in worldwide net sales of equipment and irrigation systems to the sports field and grounds and golf markets were driven by strong acceptance of new products. Additionally, the acquisition of Rain Master(TM) and currency effects contributed to this increase. Partially offsetting this increase were field inventory reductions of landscape contractor products resulting in modest declines in the sale of these products.
  • Professional segment earnings for fiscal 2007 increased 11.6 percent to $254.2 million.
  • For the fiscal 2007 fourth quarter, professional segment net sales totaled $218.2 million compared with $212.3 million in the fiscal 2006 fourth quarter.
  • Professional segment earnings for the fiscal 2007 fourth quarter totaled $26.7 million compared with $20.5 million in the corresponding quarter last year.

Residential

  • Residential segment net sales for fiscal 2007 declined 0.6 percent to $563.5 million from $566.6 million in fiscal 2006. For the year, strong worldwide acceptance of new zero turn riding products and walk power mowers were more than offset by declines in sales of snowthrower and electric products.
  • Residential segment earnings for fiscal 2007 were $41.8 million, a 22.7 percent increase from $34.1 million in fiscal 2006.
  • For the fiscal 2007 fourth quarter, residential segment net sales were $100.8 million compared to $102.9 million in the fiscal 2006 fourth quarter.
  • Residential segment earnings for the fiscal 2007 fourth quarter were $1.5 million, compared to $0.9 million in the 2006 fourth quarter.

REVIEW OF OPERATIONS

Gross margin for fiscal 2007 was 36.1 percent compared with 35 percent in fiscal 2006. The improvement resulted from a larger percentage of professional segment products, selective price increases and cost reductions from ongoing lean efforts which was somewhat offset by increased commodity costs. For the fiscal 2007 fourth quarter, gross margin was 34.9 percent, up from 33.6 percent in the fiscal 2006 fourth quarter.

Selling, general and administrative (SG&A) expenses were 24.2 percent in fiscal 2007, slightly higher than the 24 percent in the prior year. For the fiscal 2007 fourth quarter, SG&A expenses were 31.9 percent compared to 30.4 percent in the same period last year.

Interest expense for the year was up $1.8 million or up 10 percent compared to the prior year.

The effective tax rate for 2007 was 33.2 percent compared with 33.0 percent in fiscal 2006.

Accounts receivable at year end totaled $283.1 million, down 4 percent or $11.7 million from the end of fiscal 2006 on a net sales increase of 0.9 percent in the quarter. Net inventory at fiscal year end increased 5.3 percent, or $12.7 million, to $251.3 million due to lower-than-anticipated shipments in the fourth quarter. The company generated $183.6 million in cash flow from operations during fiscal 2007 compared to $190.3 million in fiscal 2006.

BUSINESS OUTLOOK

Today, Toro announced the acquisition of Turf Guard Wireless Monitoring System technology to further strengthen its leadership position in the golf irrigation market. The acquisition is an important addition to the company's precision irrigation strategy for the future. Turf Guard is designed to measure soil moisture, salinity and temperature through buried wireless sensors that transmit data to a web-based interface for analysis. It will provide a significant and competitive benefit to assist customers in the overall management of water application. Although Toro's long-term strategy will benefit from the addition of this technology, revenue contributions in the short-term are not expected to be material.

Commenting on the outlook for 2008, Hoffman said, "While the challenging market conditions of 2007 are likely to continue, we believe we are well-positioned to deliver a year of solid returns. We also anticipate another year of share gains in 2008, supported by continued strong customer acceptance of innovative new products and a growing global presence."

The company currently expects to deliver a 9 to 11 percent increase in fiscal 2008 net earnings per share, on revenue growth of 3 to 5 percent. For its fiscal first quarter, typically a small revenue period, Toro expects to report net earnings of $0.40 to $0.45 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 6, 2007 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 6, 2007. 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, resins and other commodities; rising fuel and other costs of transportation; the impact of abnormal weather patterns and natural disasters; the level of growth in our markets, including 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; 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 our current three-year growth, profit and asset management initiative called "GrowLean" which is intended to improve our revenue growth, after-tax return on sales and working capital efficiency; 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 or key employees; ability of management to manage around unplanned events; our reliance on our intellectual property rights and the absence of infringement of the intellectual property rights of others; 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,
                          2007        2006        2007        2006
                       ----------- ----------- ----------- -----------
Net sales                $332,456    $329,486  $1,876,904  $1,835,991
Gross profit              116,151     110,850     678,375     643,316
    Gross profit
     percent                 34.9%       33.6%       36.1%       35.0%
Selling, general, and
 administrative
 expense                  106,004     100,311     454,726     440,440
                       ----------- ----------- ----------- -----------
    Earnings from
     operations            10,147      10,539     223,649     202,876
Interest expense           (4,210)     (3,575)    (19,445)    (17,672)
Other income, net           3,202       1,462       9,023       7,550
                       ----------- ----------- ----------- -----------
    Earnings before
     income taxes           9,139       8,426     213,227     192,754
Provision for income
 taxes                      2,605       3,964      70,791      63,609
                       ----------- ----------- ----------- -----------
    Net earnings         $  6,534    $  4,462  $  142,436  $  129,145
                       =========== =========== =========== ===========

Basic net earnings per
 share                   $    .16    $    .11  $     3.50  $     3.01
                       =========== =========== =========== ===========

Diluted net earnings
 per share               $    .16    $    .10  $     3.40  $     2.91
                       =========== =========== =========== ===========

Weighted average
 number of shares of
 common
stock outstanding -
 Basic                     39,900      41,654      40,682      42,887

Weighted average
 number of shares of
 common
stock outstanding -
 Dilutive                  41,090      43,007      41,864      44,344
                  THE TORO COMPANY AND SUBSIDIARIES
                       Segment Data (Unaudited)
                        (Dollars in thousands)

                         Three Months Ended      Fiscal Years Ended
                       ----------------------- -----------------------
Segment Net Sales      October 31, October 31, October 31, October 31,
                          2007        2006        2007        2006
---------------------- ----------- ----------- ----------- -----------
Professional             $218,159     $212,339 $1,270,530  $1,224,775
Residential               100,839      102,855    563,524     566,641
Other                      13,458       14,292     42,850      44,575
                       ----------- ----------- ----------- -----------
 Total (a)               $332,456     $329,486 $1,876,904  $1,835,991
                       =========== =========== =========== ===========

(a) Includes
 international sales
 of                      $101,806      $93,993 $  543,599  $  495,993

                         Three Months Ended      Fiscal Years Ended
                       ----------------------- -----------------------
Segment Earnings       October 31, October 31, October 31, October 31,
 (Loss) Before Income     2007        2006        2007        2006
 Taxes
---------------------- ----------- ----------- ----------- -----------
Professional             $ 26,701    $ 20,512  $  254,178  $  227,692
Residential                 1,513         922      41,828      34,094
Other                     (19,075)    (13,008)    (82,779)    (69,032)
                       ----------- ----------- ----------- -----------
 Total                   $  9,139    $  8,426  $  213,227  $  192,754
                       =========== =========== =========== ===========
          Condensed Consolidated Balance Sheets (Unaudited)
                        (Dollars in thousands)

                                               October 31, October 31,
                                                  2007        2006
                                               ----------- -----------
ASSETS
----------------------------------------------
Cash and cash equivalents                         $ 62,047    $ 55,523
Receivables, net                                   283,115     294,833
Inventories, net                                   251,275     238,544
Prepaid expenses and other current assets           10,677       9,437
Deferred income taxes                               57,814      55,846
                                               ----------- -----------
  Total current assets                             664,928     654,183
                                               ----------- -----------

Property, plant, and equipment, net                170,672     166,323
Goodwill and other assets                          115,237      98,567
                                               ----------- -----------
  Total assets                                    $950,837    $919,073
                                               =========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------------
Current portion of long-term debt                 $  1,611    $      -
Short-term debt                                        372         320
Accounts payable                                    90,966      89,673
Accrued liabilities                                248,521     252,636
                                               ----------- -----------
  Total current liabilities                        341,470     342,629
                                               ----------- -----------

Long-term debt, less current portion               227,598     175,000
Deferred revenue and other long-term
 liabilities                                        11,331       9,415
Stockholders' equity                               370,438     392,029
                                               ----------- -----------
  Total liabilities and stockholders' equity      $950,837    $919,073
                                               =========== ===========
                  THE TORO COMPANY AND SUBSIDIARIES

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

                                                 Fiscal Years Ended
                                               -----------------------
                                               October 31, October 31,
                                                  2007        2006
                                               ----------- -----------
Cash flows from operating activities:
Net earnings                                    $ 142,436   $ 129,145
  Adjustments to reconcile net earnings to net
   cash provided by operating activities:
  Equity losses from investments                      361       1,559
  Provision for depreciation and amortization      42,105      42,564
  Gain on disposal of property, plant, and
   equipment                                         (194)       (110)
  Stock-based compensation expense                  7,293       6,641
  Increase in deferred income taxes                  (522)     (1,709)
  Changes in operating assets and liabilities:
    Receivables                                     9,033          75
    Inventories                                    (1,915)       (522)
    Prepaid expenses and other assets                (977)      9,390
    Accounts payable, accrued expenses, and
     deferred revenue                             (14,046)      3,238
                                               ----------- -----------
          Net cash provided by operating
           activities                             183,574     190,271
                                               ----------- -----------

Cash flows from investing activities:
  Purchases of property, plant, and equipment     (42,168)    (39,885)
  Proceeds from asset disposals                       267       1,033
  Increase in investment in affiliates                  -        (371)
  Decrease in other assets                          1,494       1,161
  Acquisitions, net of cash acquired               (9,881)          -
                                               ----------- -----------
          Net cash used in investing
           activities                             (50,288)    (38,062)
                                               ----------- -----------

Cash flows from financing activities:
  Decrease in short-term debt                         (10)         (5)
  Issuance of long-term debt, net of costs        121,491           -
  Repayments of long-term debt                    (75,000)        (46)
  Excess tax benefits from stock-based awards      13,775      13,131
  Proceeds from exercise of stock options          13,255      10,683
  Purchases of Toro common stock                 (182,843)   (146,543)
  Dividends paid on Toro common stock             (19,459)    (15,421)
                                               ----------- -----------
          Net cash used in financing
           activities                            (128,791)   (138,201)
                                               ----------- -----------

Effect of exchange rates on cash                    2,029         113
                                               ----------- -----------

Net increase in cash and cash equivalents           6,524      14,121
Cash and cash equivalents as of the beginning
 of the fiscal year                                55,523      41,402
                                               ----------- -----------

Cash and cash equivalents as of the end of the
 fiscal year                                    $  62,047   $  55,523
                                               =========== ===========

CONTACT: The Toro Company
Investor Relations:
John Wright, 952-887-8865
Director, Investor Relations
invest@toro.com
or
Media Relations:
Connie Kotke, 952-887-8984
Manager, Corporate Communications
pr@toro.com
www.thetorocompany.com

SOURCE: The Toro Company

Our Company

At The Toro Company, we take great pride in helping our customers enrich the beauty, productivity, and sustainability of the land. Founded in 1914, The Toro Company was built on a tradition of quality and caring relationships. Today, the company is a leading worldwide provider of innovative solutions for the outdoor environment including turf maintenance, snow and ice management, landscape, rental and specialty construction equipment, and irrigation and outdoor lighting solutions. Through a strong network of professional distributors, dealers and retailers in more than 125 countries, we proudly offer a wide range of products across a family of global brands to help golf courses, professional contractors, groundskeepers, agricultural growers, rental companies, government and educational institutions, and homeowners – in addition to many leading sports venues and historic sites around the world.