Net Earnings Per Diluted Share Up 23%

BLOOMINGTON, Minn., Aug. 24 /PRNewswire-FirstCall/ -- The Toro Company (NYSE: TTC) today reported record fiscal third quarter net earnings of $40.3 million, or $0.91 per diluted share, on record net sales of $477.9 million for the quarter ended August 4, 2006. In the comparable fiscal 2005 period, the company reported net earnings of $34.4 million, or $0.74 per diluted share, on net sales of $466.9 million.

For the nine months ended August 4, 2006, Toro reported record net earnings of $124.7 million or $2.78 per diluted share, on record net sales of $1,506.5 million. In the comparable fiscal 2005 period, the company reported net earnings of $107.5 million, or $2.29 per diluted share, on net sales of $1,442.3 million.

Michael J. Hoffman, The Toro Company's chairman and chief executive officer, said Toro is on track for another record year as growth in worldwide professional segment sales and earnings continued to offset slight declines in domestic residential segment results. "We remain focused on advancing our market leadership positions with innovative products and strengthening customer relationships," said Hoffman. "We are also realizing profitability improvement through our company-wide lean initiatives, thereby enabling us to deliver strong, consistent financial results. Despite challenging market conditions, we expect to meet our fiscal 2006 guidance for earnings per share growth."

SEGMENT RESULTS

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

Professional

• Professional segment sales for the fiscal 2006 third quarter increased 5.7 percent to $319.7 million. The company continues to benefit from golf course investment in maintenance equipment and irrigation systems.
• Strong growth in sales of domestic commercial equipment and irrigation products more than offset a slowdown in domestic landscape contractor equipment.
• Professional segment earnings for the fiscal 2006 third quarter totaled $62.5 million, up 4.3 percent from $59.9 million in the fiscal 2005 third quarter.
• For fiscal 2006 to date, professional segment earnings totaled $208.3 million on an 8.1 percent increase in net sales to $1,012.4 million compared with segment net earnings of $183.4 million on net sales of $936.8 million in the first nine months of fiscal 2005.

Residential

• Residential segment sales for the fiscal 2006 third quarter totaled $145.3 million, down 2.2 percent compared with the fiscal 2005 third quarter.
• The decline for the segment was primarily due to slower sales for electric products and retail irrigation products which were partially offset by increased shipments of walk power mowers and zero-turning- radius riding mowers.
• Residential segment earnings for the fiscal 2006 third quarter totaled $8.8 million, down 13.3 percent from $10.1 million in the fiscal 2005 third quarter.
• For fiscal 2006 to date, residential segment earnings totaled $32 million on a 1.8 percent decline in net sales to $463.8 million compared with segment net earnings of $43.5 million on net sales of $472.2 million in the first nine months of fiscal 2005.

REVIEW OF OPERATIONS

Gross margin for the fiscal 2006 third quarter was 35.6 percent compared with 35 percent for the fiscal 2005 third quarter. Gross margin in the fiscal 2006 third quarter benefited from a more favorable mix in professional products compared with the fiscal 2005 third quarter.

Fiscal 2006 third quarter selling, general and administrative (SG&A) expenses as a percentage of net sales improved to 22.7 percent from 23.2 percent in the fiscal 2005 third quarter. The improvement in SG&A was due to lower administration expenses.

Interest expense for the third quarter totaled $4.7 million compared with $4.8 million in the 2005 third quarter.

The effective tax rate in the 2006 third quarter was 32.6 percent, compared with 31.9 percent in the same period last year.

Accounts receivable at quarter end totaled $394 million, down slightly compared with the end of the fiscal 2005 third quarter.

Quarter-ending inventory totaled $255 million, up $19.9 million or 8.5 percent compared with the end of the fiscal 2005 third quarter. The increase resulted from lower than expected third quarter sales volume.

BUSINESS OUTLOOK

Commenting on the company's outlook for the remainder of fiscal 2006, Toro chairman and chief executive officer Michael Hoffman said the company now expects sales growth for fiscal 2006 to range from 3 to 5 percent, with earnings per share growth for the full year of 15 to 17 percent.

"We have generated solid earnings growth throughout 2006 despite challenges posed by lower than expected revenues and higher commodity costs," said Hoffman. "In the fiscal year's final quarter, we will continue to invest in innovation initiatives for future growth while driving improvements in supply chain efficiencies and profitability initiatives to ensure another record year for Toro shareholders."

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

LIVE CONFERENCE CALL
August 24, 10:00 a.m. CDT
http://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 24, 2006. The webcast will be available at http://www.streetevents.com or at http://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 '6+8' 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 sales and earnings per share growth in fiscal 2006; our ability to successfully integrate acquisitions and manage alliances; ability of management to manage around unplanned events; unforeseen product quality problems in the development and production of new and existing products; fluctuations in the cost and availability of raw materials, including steel and other commodities; rising cost of transportation; level of growth in the golf market; 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; increased competition; elimination of shelf space for our products at retailers; financial viability of distributors and dealers; market acceptance of existing and new products; unforeseen inventory adjustments or changes in purchasing patterns by our customers; the impact of abnormal weather patterns; and 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.

    (Financial tables follow)



                      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 4,     July 29,    August 4,    July 29,
                            2006         2005         2006         2005
    Net sales             $477,861     $466,942   $1,506,505   $1,442,296
    Gross profit           170,336      163,261      532,466      501,567
      Gross profit percent   35.6%        35.0%        35.3%        34.8%
    Selling, general, and
     administrative
     expense               108,615      108,595      340,129      330,376
      Earnings from
       operations           61,721       54,666      192,337      171,191
    Interest expense        (4,677)      (4,820)     (14,097)     (13,453)
    Other income, net        2,756          642        6,088        2,725
      Earnings before
       income taxes         59,800       50,488      184,328      160,463
    Provision for income
     taxes                  19,478       16,111       59,645       52,953
      Net earnings         $40,322      $34,377     $124,683     $107,510

    Basic net earnings
     per share                $.94         $.77        $2.88        $2.38

    Diluted net earnings
     per share                $.91         $.74        $2.78        $2.29

    Weighted average number
     of shares of common
     stock outstanding
     - Basic                42,852       44,494       43,283       45,121
    Weighted average number
     of shares of common
     stock outstanding
     - Dilutive             44,360       46,438       44,806       46,966



                      THE TORO COMPANY AND SUBSIDIARIES
                           Segment Data (Unaudited)
                            (Dollars in thousands)

                           Three Months Ended        Nine Months Ended
                          August 4,    July 29,     August 4,    July 29,
    Segment Net Sales       2006         2005         2006         2005

    Professional          $319,733     $302,517   $1,012,436     $936,799
    Residential            145,308      148,590      463,786      472,188
    Other                   12,820       15,835       30,283       33,309
      Total*              $477,861     $466,942   $1,506,505   $1,442,296

    * Includes
       international sales
       of                 $113,651     $108,353     $402,000     $355,782


    Segment Earnings        Three Months Ended       Nine Months Ended
     (Loss) Before         August 4,    July 29,    August 4,    July 29,
     Income Taxes            2006         2005        2006         2005

    Professional           $62,474      $59,894     $208,311     $183,382
    Residential              8,752       10,096       32,037       43,493
    Other                  (11,426)     (19,502)     (56,020)     (66,412)
      Total                $59,800      $50,488     $184,328     $160,463



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

                                                    August 4,       July 29,
                                                      2006            2005

    ASSETS
    Cash and cash equivalents                        $24,815        $34,665
    Receivables, net                                 394,038        394,395
    Inventories, net                                 255,031        235,146
    Prepaid expenses and other current assets         14,624         14,142
    Deferred income taxes                             58,203         51,861
      Total current assets                           746,711        730,209

    Property, plant, and equipment, net              163,703        166,890
    Deferred income taxes                                  -             39
    Goodwill and other assets                         94,931        104,247
      Total assets                                $1,005,345     $1,001,385

    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current portion of long-term debt                    $12            $45
    Short-term debt                                   24,535         54,509
    Accounts payable                                  86,998         75,964
    Accrued liabilities                              271,022        267,770
      Total current liabilities                      382,567        398,288

    Long-term debt, less current portion             175,000        175,012
    Long-term deferred income taxes                      872          3,837
    Deferred revenue and other long-term liabilities   9,605          9,318
    Stockholders' equity                             437,301        414,930
      Total liabilities and stockholders' equity  $1,005,345     $1,001,385



                      THE TORO COMPANY AND SUBSIDIARIES

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

                                                      Nine Months Ended
                                                    August 4,      July 29,
                                                      2006           2005

    Cash flows from operating activities:
    Net earnings                                    $124,683       $107,510
      Adjustments to reconcile net earnings
       to net cash provided by operating
       activities:
      Equity losses from investments                   1,004            510
      Provision for depreciation and amortization     31,490         30,110
      Gain on disposal of property, plant,
       and equipment                                     (84)          (339)
      Stock-based compensation expense                 6,018          7,284
      Decrease (increase) in deferred income taxes       419         (7,481)
      Changes in operating assets and liabilities:
        Receivables                                  (99,062)       (86,491)
        Inventories                                  (17,481)          (767)
        Prepaid expenses and other assets              3,042          2,897
        Accounts payable, accrued expenses,
         and deferred revenue                         13,836         14,611
          Net cash provided by operating activities   63,865         67,844

    Cash flows from investing activities:
      Purchases of property, plant, and equipment    (26,693)       (24,294)
      Proceeds from asset disposals                      908          2,447
      Increase in investments in affiliates             (371)          (197)
      Decrease in other assets                         5,716            158
      Proceeds from sale of a business                     -            765
      Acquisition, net of cash acquired                    -        (35,285)
        Net cash used in investing activities        (20,440)       (56,406)

    Cash flows from financing activities:
      Increase in short-term debt                     24,191         53,374
      Repayments of long-term debt                       (34)           (34)
      Excess tax benefits from share-based
       arrangements                                   16,270          5,665
      Proceeds from exercise of stock options          8,196          7,609
      Purchases of Toro common stock                 (97,388)      (125,093)
      Dividends paid on Toro common stock            (11,700)        (8,151)
        Net cash used in financing activities        (60,465)       (66,630)

    Effect of exchange rates on cash                     453           (899)

    Net decrease in cash and cash equivalents        (16,587)       (56,091)
    Cash and cash equivalents as of the beginning
     of the period                                    41,402         90,756

    Cash and cash equivalents as of the end
     of the period                                   $24,815        $34,665


SOURCE  The Toro Company
CONTACT:  
Investor Relations: John Wright, Director, Investor Relations
+1-952-887-8865
 or
 Media Relations: Connie Kotke, Manager, Corporate Communications
+1-952-887-8984
 pr@toro.com 
both of The Toro Company
 
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    Web site:  http://www.thetorocompany.com