Toro Reports Record Third Quarter Earnings
Net Earnings Per Share Up 12.1 Percent to $1.02
BLOOMINGTON, Minn.--(BUSINESS WIRE)--Aug. 23, 2007--The Toro Company (NYSE:TTC) today reported record net earnings of $42.5 million, or $1.02 per diluted share, on net sales of $478.7 million for its fiscal third quarter ended August 3, 2007. In the comparable fiscal 2006 period, the company reported net earnings of $40.3 million, or $0.91 per diluted share, on net sales of $477.9 million.
For the fiscal nine months, Toro reported net earnings of $135.9 million, or $3.23 per diluted share, on net sales of $1,544.4 million. In the comparable 2006 period, Toro reported net earnings of $124.7 million, or $2.78 per diluted share, on net sales of $1,506.5 million.
"In the face of challenging economic and market conditions, our earnings performance in the third quarter and year-to-date has us on track to deliver another year of solid financial results," said Michael Hoffman, chairman and chief executive officer. "We continue to benefit from the favorable effects of our lean initiatives and increased emphasis on asset management. Although we are not satisfied with our revenue growth, retail demand for our innovative products outpaced shipments, resulting in lower field inventory levels. Additionally, we believe our market share position improved in most businesses."
SEGMENT RESULTS
Segment data are provided in the table following the "Condensed Consolidated Statements of Earnings."
Professional
-- Professional segment net sales for the fiscal 2007 third
quarter increased 3.8 percent to $332 million. The increase
resulted primarily from strong worldwide growth in shipments
and retail sales of landscape contractor equipment.
-- Professional segment net sales for the year-to-date increased
3.9 percent to $1,052 million. The year-to-date increase in
Professional segment sales reflects increased worldwide
shipments of equipment for golf courses, sports field and
grounds products and irrigation systems. This increase was
somewhat offset by a decline in landscape contractor shipments
resulting in lower field inventory levels.
-- Professional segment earnings for the fiscal 2007 third
quarter were $70.9 million, up 13.5 percent from $62.5 million
in the fiscal 2006 third quarter.
-- For the year-to-date, professional segment earnings totaled
$227.7 million, up 9.3 percent from $208.3 million in the
comparable fiscal 2006 period.
Residential
-- Residential segment sales for the fiscal 2007 third quarter
decreased 8.5 percent to $133 million. Compared with the 2006
third quarter, strong growth in domestic shipments of
zero-turning-radius riding mowers was offset by a significant
decline in snowthrower shipments. The decline in snowthrower
shipments was primarily due to the impact of the mild winter
in the previous snow season.
-- For the year-to-date, Residential segment sales are about flat
with the prior year, at $463 million compared with $463.8
million. The same factors affecting the quarter results
impacted year-to-date sales for the segment. Additionally,
strong retail acceptance of a new walk power mower line also
helped mitigate the impact of the decline in snowthrower
shipments for the year-to-date.
-- Residential segment earnings for the fiscal 2007 third quarter
totaled $8.2 million, down 5.8 percent from $8.8 million in
the fiscal 2006 third quarter.
-- For the year-to-date, Residential segment earnings totaled
$40.1 million, up 25 percent from $32 million in the
comparable fiscal 2006 period.
REVIEW OF OPERATIONS
Gross margin for the fiscal 2007 third quarter was 37.1 percent compared with 35.6 percent in the prior year's third quarter. The margin improvement resulted primarily from productivity and efficiency gains generated by the company's lean initiatives and, to a lesser extent, a higher mix of professional products in the third quarter. For the year-to-date, gross margin improved to 36.4 percent compared with 35.3 percent for the first nine months of fiscal 2006.
Selling, general and administrative (SG&A) expenses as a percentage of net sales increased to 23.1 percent compared with 22.7 percent in the fiscal 2006 third quarter due to higher administrative expenses.
Interest expense for the fiscal 2007 third quarter totaled $5 million, compared with $4.7 million in the fiscal 2006 third quarter.
The effective tax rate in the 2007 third quarter was 33.4 percent compared with 32.6 percent in last year's third quarter.
Accounts receivable at the end of the fiscal 2007 third quarter totaled $379.8 million, down $14.2 million, or 3.6 percent, on net sales that were essentially flat with the same period last year.
Net inventories at the end of the fiscal 2007 third quarter totaled $243.4 million, down $11.6 million, or 4.5 percent, from the end of the fiscal 2006 third quarter.
Cash flow from operations for the first nine months increased to $83.7 million compared to $63.9 million in 2006. This improvement reflects higher operating profit and the company's continued focus on asset management.
BUSINESS OUTLOOK
"In the fiscal year's final quarter, we remain focused on advancing our market leadership positions with innovative products while continuing to drive profitability improvement company-wide," said Hoffman. "Our strategic GrowLean initiatives for long-term growth, bottom-line leverage, and a lower working capital level have us on track to deliver solid full year results and positions us well for fiscal 2008."
Given the current market conditions and increased focus on reducing field inventory towards a working capital goal, the company said it expects net sales growth for the fiscal year to be approximately 3 percent. The company also noted that it is narrowing its previous guidance of 11 to 14 percent for net earnings per diluted share to the higher end of the range. It now expects fiscal full year net earnings per diluted share to increase 13 to14 percent.
The Toro Company is a leading worldwide provider of outdoor maintenance and beautification products for home, recreation and commercial landscapes.
LIVE CONFERENCE CALL
August 23, 2007 10:00 a.m. CDT
www.thetorocompany.com/invest
The Toro Company will conduct a conference call and webcast for investors beginning at 10:00 a.m. Central Time (CDT) on August 23, 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 and other commodities; rising 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 Nine Months Ended
------------------- -----------------------
August 3, August 4, August 3, August 4,
2007 2006 2007 2006
--------- --------- ----------- -----------
Net sales $478,707 $477,861 $1,544,448 $1,506,505
Gross profit 177,443 170,336 562,224 532,466
Gross profit percent 37.1% 35.6% 36.4% 35.3%
Selling, general, and
administrative expense 110,598 108,615 348,722 340,129
--------- --------- ----------- -----------
Earnings from
operations 66,845 61,721 213,502 192,337
Interest expense (4,959) (4,677) (15,235) (14,097)
Other income, net 1,954 2,756 5,821 6,088
--------- --------- ----------- -----------
Earnings before income
taxes 63,840 59,800 204,088 184,328
Provision for income taxes 21,354 19,478 68,186 59,645
--------- --------- ----------- -----------
Net earnings $ 42,486 $ 40,322 $ 135,902 $ 124,683
========= ========= =========== ===========
Basic net earnings per
share $ 1.05 $ .94 $ 3.32 $ 2.88
========= ========= =========== ===========
Diluted net earnings per
share $ 1.02 $ .91 $ 3.23 $ 2.78
========= ========= =========== ===========
Weighted average number of
shares of common
stock outstanding - Basic 40,569 42,852 40,938 43,283
Weighted average number of
shares of common
stock outstanding -
Dilutive 41,803 44,360 42,113 44,806
THE TORO COMPANY AND SUBSIDIARIES
Segment Data (Unaudited)
(Dollars in thousands)
Three Months Ended Nine Months Ended
------------------- -----------------------
Segment Net Sales August 3, August 4, August 3, August 4,
2007 2006 2007 2006
-------------------------- --------- --------- ----------- -----------
Professional $332,014 $319,733 $1,052,013 $1,012,436
Residential 132,981 145,308 463,043 463,786
Other 13,712 12,820 29,392 30,283
--------- --------- ----------- -----------
Total (a) $478,707 $477,861 $1,544,448 $1,506,505
========= ========= =========== ===========
(a) Includes international
sales of $120,319 $113,651 $ 441,793 $ 402,000
Three Months Ended Nine Months Ended
------------------- -----------------------
Segment Earnings (Loss) August 3, August 4, August 3, August 4,
Before Income Taxes 2007 2006 2007 2006
-------------------------- --------- --------- ----------- -----------
Professional $ 70,887 $ 62,474 $ 227,737 $ 208,311
Residential 8,246 8,752 40,055 32,037
Other (15,293) (11,426) (63,704) (56,020)
--------- --------- ----------- -----------
Total $ 63,840 $ 59,800 $ 204,088 $ 184,328
========= ========= =========== ===========
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
August 3, August 4,
2007 2006
---------- ----------
ASSETS
------------------------------------------------
Cash and cash equivalents $ 94,192 $ 24,815
Receivables, net 379,788 394,038
Inventories, net 243,437 255,031
Prepaid expenses and other current assets 13,018 14,624
Deferred income taxes 58,499 56,326
---------- ----------
Total current assets 788,934 744,834
---------- ----------
Property, plant, and equipment, net 170,748 163,703
Deferred income taxes 1,861 -
Goodwill and other assets, net 98,563 94,931
---------- ----------
Total assets $1,060,106 $1,003,468
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------------------
Current portion of long-term debt $ - $ 12
Short-term debt 1,449 24,535
Accounts payable 83,366 86,998
Accrued liabilities 266,383 269,145
---------- ----------
Total current liabilities 351,198 380,690
---------- ----------
Long-term debt, less current portion 223,157 175,000
Deferred revenue and other long-term liabilities 10,354 10,477
Stockholders' equity 475,397 437,301
---------- ----------
Total liabilities and stockholders' equity $1,060,106 $1,003,468
========== ==========
THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
Nine Months Ended
-------------------
August 3, August 4,
2007 2006
--------- ---------
Cash flows from operating activities:
Net earnings $135,902 $124,683
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Equity losses from investments 136 1,004
Provision for depreciation and amortization 30,263 31,490
Gain on disposal of property, plant, and
equipment (133) (84)
Stock-based compensation expense 5,474 6,018
(Increase) decrease in deferred income taxes (2,323) 419
Changes in operating assets and liabilities:
Receivables (86,942) (99,062)
Inventories 101 (17,481)
Prepaid expenses and other assets (3,693) 3,042
Accounts payable, accrued expenses, and
deferred revenue 4,948 13,836
--------- ---------
Net cash provided by operating
activities 83,733 63,865
--------- ---------
Cash flows from investing activities:
Purchases of property, plant, and equipment (32,863) (26,693)
Proceeds from asset disposals 152 908
Increase in investment in affiliates - (371)
Decrease in other assets 734 5,716
Acquisition, net of cash acquired (1,088) -
--------- ---------
Net cash used in investing activities (33,065) (20,440)
--------- ---------
Cash flows from financing activities:
Increase in short-term debt 998 24,191
Issuance of long-term debt, net of costs 121,465 -
Repayments of long-term debt (75,000) (34)
Excess tax benefits from stock-based awards 12,956 16,270
Proceeds from exercise of stock options 11,456 8,196
Purchases of Toro common stock (70,382) (97,388)
Dividends paid on Toro common stock (14,729) (11,700)
--------- ---------
Net cash used in financing activities (13,236) (60,465)
--------- ---------
Effect of exchange rates on cash 1,237 453
--------- ---------
Net increase (decrease) in cash and cash
equivalents 38,669 (16,587)
Cash and cash equivalents as of the beginning of
the fiscal period 55,523 41,402
--------- ---------
Cash and cash equivalents as of the end of the
fiscal period $ 94,192 $ 24,815
========= =========
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