Toro Reports Second Quarter Results
- Company reports net earnings per share of $1.60
- Significant improvement in channel inventory
- Board authorizes repurchase of 4 million additional shares and declares quarterly dividend
BLOOMINGTON, Minn.--(BUSINESS WIRE)--May 22, 2008--The Toro Company (NYSE: TTC) today reported net earnings of $62.8 million, or $1.60 per share, on net sales of $638.5 million for its fiscal second quarter ended May 2, 2008. In the comparable fiscal 2007 period, the company reported net earnings of $75.0 million, or $1.77 per share, on net sales of $686.7 million.
For the year to date, Toro reported net earnings of $81.4 million, or $2.07 per share, on net sales of $1,044.3 million. In the first half of fiscal 2007, the company reported net earnings of $93.4 million, or $2.21 per share, on net sales of $1,065.7 million.
"Fiscal 2008 has been a challenging year due to a weakening domestic economy, late spring and cautious ordering," said Michael J. Hoffman, Toro's chairman and chief executive officer. "As a result, we have taken prudent actions to adjust production levels, control costs, and work with our channel partners on field inventory - which is significantly lower compared to last year. Our financial condition remains strong and we will keep investing to grow our business for the long term."
The company's continued strong cash flow prompted its board of directors to authorize the repurchase of up to 4 million additional shares of common stock. The Board also declared a regular quarterly cash dividend of $0.15 per common share, payable July 11, 2008 to shareholders of record on June 20, 2008.
SEGMENT RESULTS
Professional
- Professional segment net sales for the fiscal 2008 second quarter decreased 4.0 percent to $429.9 million. Sales declined in nearly all product categories domestically, but increased modestly in most categories outside the United States. Cautious ordering by customers, challenging domestic economic conditions and distribution changes resulted in lower quarterly sales for most domestic businesses. For the year to date, professional segment net sales increased 0.4 percent to $723.1 million.
- Professional segment earnings for the fiscal 2008 second quarter were $96.6 million, down 10.9 percent compared with the fiscal 2007 second quarter. For the year to date, professional segment earnings totaled $149.1 million, down 4.9 percent.
Residential
- Residential segment net sales for the fiscal 2008 second quarter declined 11.8 percent to $201.3 million. Sales declined in most domestic product categories due to weak economic conditions and a late-arriving spring that affected customer purchases. For the year to date, residential segment net sales declined 6.2 percent to $309.5 million.
- Residential segment earnings for the fiscal 2008 second quarter were $21.1 million, down 23.2 percent compared with the fiscal 2007 second quarter. For the year to date, residential segment earnings totaled $23.9 million, down 24.9 percent.
REVIEW OF OPERATIONS
Gross margin for the fiscal 2008 second quarter was 35.7 percent compared with 35.6 percent in the comparable fiscal 2007 period. For the year to date, gross margin was 36.1 percent and flat as a percent of sales with the first half of fiscal 2007. Higher commodity and fuel costs were offset by favorable product mix and currency, and the continued focus on cost reductions and productivity improvements achieved through the company's GrowLean initiative.
Selling, general and administrative (SG&A) expenses for the fiscal 2008 second quarter declined $0.9 million, but increased to 19.6 percent of net sales from 18.3 percent in the fiscal 2007 second quarter. For the year to date, SG&A expenses were 23.2 percent of net sales compared with 22.3 percent in the prior year's first half. Despite lower sales, the company continued to increase spending for marketing and engineering investments.
Interest expense for the second quarter was down $0.4 million, a decrease of 6.4 percent, compared to the prior year's second quarter. For the year to date, interest expense totaled $10.3 million - essentially flat compared to the first half of fiscal 2007.
The effective tax rate for the second quarter of fiscal 2008 was 35.0 percent compared with 34.6 percent in the fiscal 2007 second quarter. This year's second quarter tax rate was higher due to the expiration of the federal Research and Engineering Tax Credit on December 31, 2007.
Accounts receivable as of the end of the fiscal 2008 second quarter totaled $547.2 million, down $30.0 million or 5.2 percent, on a sales decrease of $48.2 million, or 7 percent. Net inventories increased by $17.5 million, or 7.1 percent compared with the end of the fiscal 2007 second quarter. Cash used in operating activities improved by $9 million in spite of lower year to date net earnings.
BUSINESS OUTLOOK
Commenting on the company's outlook for the remainder of fiscal 2008, Hoffman said: "We remain focused on managing our business in light of these difficult conditions, and will continue to drive customer demand for our innovative products. Field inventories are in good shape, our strategic direction is sound, and our cash flow remains strong. Additionally, we are encouraged by the tremendous efforts of all our employees and channel partners around the world."
Looking ahead, the company expects fiscal 2008 net sales to be roughly equal to fiscal 2007 net sales of $1,876.9 million with net earnings per share flat to down 5 percent from the $3.40 per share reported for fiscal 2007.
The Toro Company is a leading worldwide provider of outdoor maintenance and beautification products for home, recreation and commercial landscapes.
LIVE CONFERENCE CALL
May 22, 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 May 22, 2008. 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; our relationships with our distribution channel partners, including the 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 Six Months Ended
------------------- -----------------------
May 2, May 4, May 2, May 4,
2008 2007 2008 2007
--------- --------- ----------- -----------
Net sales $638,510 $686,653 $1,044,309 $1,065,741
Gross profit 227,766 244,716 376,903 384,781
Gross profit percent 35.7% 35.6% 36.1% 36.1%
Selling, general, and
administrative expense 124,943 125,843 242,060 238,124
--------- --------- ----------- -----------
Earnings from
operations 102,823 118,873 134,843 146,657
Interest expense (5,419) (5,789) (10,302) (10,276)
Other (expense) income, net (798) 1,476 900 3,867
--------- --------- ----------- -----------
Earnings before income
taxes 96,606 114,560 125,441 140,248
Provision for income taxes 33,822 39,594 44,030 46,832
--------- --------- ----------- -----------
Net earnings $ 62,784 $ 74,966 $ 81,411 $ 93,416
========= ========= =========== ===========
Basic net earnings per
share $ 1.64 $ 1.82 $ 2.12 $ 2.27
========= ========= =========== ===========
Diluted net earnings per
share $ 1.60 $ 1.77 $ 2.07 $ 2.21
========= ========= =========== ===========
Weighted average number of
shares of common stock
outstanding - Basic 38,239 41,098 38,313 41,119
Weighted average number of
shares of common stock
outstanding - Diluted 39,126 42,253 39,263 42,255
Segment Data (Unaudited)
(Dollars in thousands)
Three Months Ended Six Months Ended
------------------- -----------------------
Segment Net Sales May 2, May 4, May 2, May 4,
2008 2007 2008 2007
-------------------------- --------- --------- ----------- -----------
Professional $429,884 $447,857 $ 723,080 $ 719,999
Residential 201,315 228,204 309,491 330,062
Other 7,311 10,592 11,738 15,680
--------- --------- ----------- -----------
Total (a) $638,510 $686,653 $1,044,309 $1,065,741
========= ========= =========== ===========
(a) Includes international
sales of $197,770 $188,861 $ 356,227 $ 321,474
Three Months Ended Six Months Ended
------------------- -----------------------
Segment Earnings (Loss) May 2, May 4, May 2, May 4,
Before Income Taxes 2008 2007 2008 2007
-------------------------- --------- --------- ----------- -----------
Professional $ 96,616 $108,490 $ 149,126 $ 156,850
Residential 21,073 27,430 23,897 31,809
Other (21,083) (21,360) (47,582) (48,411)
--------- --------- ----------- -----------
Total $ 96,606 $114,560 $ 125,441 $ 140,248
========= ========= =========== ===========
THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
May 2, May 4,
2008 2007
---------- ----------
ASSETS
-------------------------------------------------
Cash and cash equivalents $ 32,053 $ 40,797
Receivables, net 547,192 577,223
Inventories, net 265,428 247,906
Prepaid expenses and other current assets 13,698 12,904
Deferred income taxes 56,633 58,042
---------- ----------
Total current assets 915,004 936,872
---------- ----------
Property, plant, and equipment, net 172,203 169,123
Deferred income taxes 6,508 1,861
Goodwill and other assets, net 110,172 98,405
---------- ----------
Total assets $1,203,887 $1,206,261
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------------------
Current portion of long-term debt $ 2,341 $ 75,000
Short-term debt 151,500 45,825
Accounts payable 117,425 120,642
Accrued liabilities 275,911 280,069
---------- ----------
Total current liabilities 547,177 521,536
---------- ----------
Long-term debt, less current portion 227,753 223,141
Deferred revenue and other long-term liabilities 16,813 9,681
Stockholders' equity 412,144 451,903
---------- ----------
Total liabilities and stockholders' equity $1,203,887 $1,206,261
========== ==========
THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
Six Months Ended
---------------------
May 2, May 4,
2008 2007
---------- ----------
Cash flows from operating activities:
Net earnings $ 81,411 $ 93,416
Adjustments to reconcile net earnings to net
cash used in operating activities:
Equity losses from investments 324 125
Provision for depreciation and amortization 21,836 20,393
Gain on disposal of property, plant, and
equipment (81) (99)
Gain on sale of a business (113) -
Stock-based compensation expense 3,281 3,828
Increase in deferred income taxes (1,463) (1,982)
Changes in operating assets and liabilities:
Receivables (260,988) (282,982)
Inventories (13,920) (5,628)
Prepaid expenses and other assets (2,870) (2,322)
Accounts payable, accrued liabilities,
deferred revenue, and other long-term
liabilities 61,291 54,941
---------- ----------
Net cash used in operating activities (111,292) (120,310)
---------- ----------
Cash flows from investing activities:
Purchases of property, plant, and equipment (22,479) (21,752)
Proceeds from asset disposals 871 117
Increase in investment in affiliates (250) -
Increase in other assets (279) (48)
Proceeds from sale of a business 1,048 -
Acquisitions, net of cash acquired (1,000) (1,088)
---------- ----------
Net cash used in investing activities (22,089) (22,771)
---------- ----------
Cash flows from financing activities:
Increase in short-term debt 151,128 45,455
Issuance of long-term debt, net of costs - 121,436
Repayments of long-term debt, net of costs (750) -
Excess tax benefits from stock-based awards 339 5,464
Proceeds from exercise of stock options 1,718 6,992
Purchases of Toro common stock (36,906) (41,912)
Dividends paid on Toro common stock (11,478) (9,865)
---------- ----------
Net cash provided by financing
activities 104,051 127,570
---------- ----------
Effect of exchange rates on cash (664) 785
---------- ----------
Net decrease in cash and cash equivalents (29,994) (14,726)
Cash and cash equivalents as of the beginning of
the period 62,047 55,523
---------- ----------
Cash and cash equivalents as of the end of the
period $ 32,053 $ 40,797
========== ==========
CONTACT: The Toro Company
Investor Relations
John Wright, 952-887-8865
Director, Investor Relations
invest@toro.com
or
Media Relations
Branden Happel, 952-887-8930
Manager, Public Relations
pr@toro.com
www.thetorocompany.com
SOURCE: The Toro Company