BLOOMINGTON, Minn., May 24 /PRNewswire-FirstCall/ -- The Toro Company (NYSE: TTC) today reported record fiscal second quarter net earnings of $62 million, or $1.33 per diluted share, on net sales of $628.4 million for the quarter ended April 29, 2005. In the comparable fiscal 2004 period, the company reported net earnings of $52.2 million, or $1.00 per diluted share, on net sales of $548 million.

For the six months ended April 29, 2005, Toro reported net earnings of $73.1 million, or $1.55 per diluted share, on net sales of $975.4 million compared with net earnings of $61.5 million, or $1.18 per diluted share, on net sales of $861.6 million in the first six months of fiscal 2004.

Earnings per share figures for all periods reported have been adjusted to reflect the effects of a 2-for-1 stock split effective March 28, 2005.

Kendrick B. Melrose, The Toro Company's executive chairman, said strong shipments of both professional and residential products, especially in international markets, were responsible for the 14.7 percent increase in second quarter net sales. Excluding the effects of Hayter Ltd., a U.K.-based manufacturer of residential and commercial mowing equipment which Toro acquired in February 2005, net sales would have increased 11.4 percent. International sales increased 41.1% compared with the fiscal 2004 second quarter as a result of strong international demand and contributions from Hayter Ltd.

"We continued to realize impressive results from our leadership position in the professional segment markets, where demand from landscape contractor, golf course and other commercial customers remained strong," said Melrose. "Moreover, international sales increased from growth in the residential and golf markets, a host of innovative products introduced across several markets, and the relative weakness of the U.S. dollar."

Melrose noted that, as in the company's fiscal 2005 first quarter, net earnings for the second quarter benefited from double-digit revenue growth and the leveraging of selling, general and administrative expense (SG&A) resulting, in part, from substantial progress on the company's "No Waste" profitability improvement initiative.

SEGMENT RESULTS

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

Professional

Compared with the prior year, fiscal 2005 second quarter professional segment sales increased 14.9 percent to $389.1 million. For the second consecutive year, volume increased in nearly all product categories. In addition, net sales for the 2005 second quarter included contributions from Hayter's professional products.

"Equipment sales to the landscape contractor market continued to be robust as our landscape contractor customers remained optimistic about the year and are investing in new equipment," said Michael J. Hoffman, chief executive officer, The Toro Company. "Domestically, we are seeing healthy retail demand for golf and grounds maintenance equipment resulting in strong shipments and market share growth. In our international markets, golf course renovation and improvement projects as well as new course construction helped drive increased demand."

Professional segment earnings for the fiscal 2005 second quarter totaled $84.6 million, up 18 percent from $71.7 million in last year's second quarter. The increase resulted primarily from higher sales in the quarter and expense leveraging.

For the year to date, professional segment earnings totaled $123.5 million on net sales of $634.3 million compared with earnings of $100.2 million on net sales of $546.2 million in last year's first six months.

Residential

Residential segment sales for the second quarter totaled $227.7 million, up 16.9 percent compared with last year's second quarter. Strong shipments of both Toro(R) and Lawn-Boy(R) brand walk power mowers and contributions from Hayter were the primary sources of sales growth in the quarter and more than offset the decline in retail irrigation and riding mower sales compared with last year's second quarter. "Our expanded presence and innovative offerings of the Toro and Lawn-Boy brands in large retailers and dealers have resulted in strong sales growth for us," said Hoffman.

Residential segment earnings for the fiscal 2005 second quarter increased to $29 million from $26.7 million last year, which was less than expected due to increases in commodity costs.

For the year to date, Residential segment earnings totaled $33.4 million on net sales of $323.6 million compared with earnings of $35.1 million on net sales of $292.7 million for the same period last year.

Review of operations

Gross margin for the second quarter was 34.5 percent compared with 36.3 percent for last year's quarter. The decline in gross margin resulted primarily from purchase accounting adjustments due to the Hayter acquisition, and increased costs for steel, fuel and petroleum-based resins. The impact of these higher costs was partially offset by price increases and continued cost reductions, resulting from the company's lean manufacturing initiatives and favorable foreign currency exchange effects.

In contrast, the reduction in SG&A expense as a percent of sales more than offset the decline in gross margin. SG&A declined to 19 percent as a percentage of net sales compared with 21.4 percent in the same period last year. As in the fiscal 2005 first quarter, the improvement resulted primarily from expense leveraging from the company's "No Waste" initiative. "While we were not able to completely offset commodity cost increases by our strong lean manufacturing initiative, we were very pleased to see that our profit improvement efforts below the gross margin line are now paying off," said Hoffman.

Interest expense for the second quarter totaled $4.9 million compared with $3.7 million in the same period last year.

Accounts receivable at the end of the second quarter totaled $544.9 million, up 12.4 percent, but less than the 14.7 percent increase in net sales. Quarter-ending inventory totaled $256.9 million, up only 7.7 percent compared with the end of the fiscal 2004 second quarter. The increases in the quarter-ending accounts receivable and inventories resulted primarily from higher foreign exchange rates and the Hayter acquisition completed early in the fiscal 2005 second quarter.

Business outlook

Commenting on Toro's outlook for the rest of 2005, Melrose cautioned that sales to homeowners during most of the second quarter were below the company's expectations, due to unfavorable weather in the U.S. market. "Reorder volume for residential products in our fiscal third quarter will likely be adversely affected," said Melrose. "If the remainder of the spring retail season does not return to more favorable weather soon, our third quarter earnings target will be at risk. Nonetheless, on the assumption of normal weather patterns resuming for the balance of the season, we are raising our earnings outlook for fiscal 2005 modestly."

Melrose said he is confident Toro will report another strong year as it continues to focus on its "6+8" profit improvement and growth initiative, international expansion strategies and the development and introduction of innovative new products. "Our performance to date reflects our continuing commitment to industry-leading quality and innovation and our focused application of lean manufacturing and 'no-waste' principles," said Melrose. "As we assimilate the year's positive and negative prospects, we now expect net earnings per diluted share for fiscal 2005 to exceed last year's record levels by 15 to 18 percent. Due to the uncertainty of the second quarter's retail effect on the third quarter's shipment levels, we are maintaining our sales growth guidance of 9 to 11 percent."

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

The Toro Company will conduct a conference call and webcast for investors beginning at 10:00 a.m. Central Time (CDT) on May 24, 2005. 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 2005; 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; potential issues with moving production between facilities; 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. 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
                                April 29,   April 30,    April 29,   April 30,
                                 2005(1)     2004(2)      2005(1)     2004(2)

    Net sales                  $628,441     $548,027     $975,354    $861,600
    Gross profit                216,643      198,879      338,306     311,489
      Gross profit percent         34.5%        36.3%        34.7%       36.2%
    Selling, general, and
     administrative expense     119,542      117,147      221,781     213,162
      Earnings from operations   97,101       81,732      116,525      98,327
    Interest expense             (4,873)      (3,702)      (8,633)     (7,584)
    Other income, net               942          465        2,083       1,774
      Earnings before
       income taxes              93,170       78,495      109,975      92,517
    Provision for
     income taxes                31,212       26,296       36,841      30,993
      Net earnings              $61,958      $52,199      $73,134     $61,524

    Basic net earnings
     per share                    $1.38        $1.05        $1.61       $1.24

    Diluted net earnings
     per share                    $1.33        $1.00        $1.55       $1.18

    Weighted average number
     of shares of common
      stock outstanding
       - Basic                   44,754       49,599       45,438      49,725

    Weighted average number
     of shares of common
      stock outstanding
      - Dilutive                 46,592       52,178       47,210      52,230

    Shares and per share data have been adjusted for all periods presented to
    reflect a two-for-one stock split effective
    March 28, 2005.

    (1) Prepared under the accounting provisions of Statement of Financial
        Accounting Standard No. 123 (Revised 2004), "Share-Based Payment."
    (2) Prepared under the accounting provisions of Accounting Principles
        Board Opinion No. 25, "Accounting for Stock Issued to Employees," (APB
        No. 25), and related Interpretations.



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

                                  Three Months Ended       Six Months Ended
                                 April 29,   April 30,    April 29,  April 30,
                                   2005        2004         2005       2004

    Segment Net Sales
    Professional                 $389,052    $338,524     $634,282    $546,202
    Residential                   227,722     194,838      323,598     292,725
    Other                          11,667      14,665       17,474      22,673
      Total*                     $628,441    $548,027     $975,354    $861,600

    * Includes international
       sales of                  $157,722    $111,773     $247,369    $187,151


                                 Three Months Ended       Six Months Ended
                                April 29,   April 30,   April 29,   April 30,
                                  2005        2004        2005        2004
    Segment Earnings (Loss)
     Before Income Taxes
    Professional                 $84,623     $71,704    $123,488     $100,153
    Residential                   28,963      26,719      33,397       35,056
    Other                        (20,416)    (19,928)    (46,910)     (42,692)
      Total                      $93,170     $78,495    $109,975      $92,517



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

                                                    April 29,       April 30,
                                                      2005            2004
    ASSETS
    Cash and cash equivalents                        $14,449        $31,825
    Receivables, net                                 544,871        484,763
    Inventories, net                                 256,926        238,472
    Prepaid expenses and other current assets         13,476         13,422
    Deferred income taxes                             56,265         44,256
      Total current assets                           885,987        812,738

    Property, plant, and equipment, net              170,334        163,097
    Deferred income taxes                                 39          1,181
    Goodwill and other assets                        105,517         99,647
      Total assets                                $1,161,877     $1,076,663

    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current portion of long-term debt                    $45           $225
    Short-term debt                                  151,137         29,991
    Accounts payable                                 114,915         96,636
    Accrued liabilities                              293,333        260,159
      Total current liabilities                      559,430        387,011

    Long-term debt, less current portion             175,024        175,069
    Long-term deferred income taxes                    3,837              -
    Deferred revenue and other long-term liabilities  13,065         12,228
    Stockholders' equity                             410,521        502,355
      Total liabilities and
       stockholders' equity                       $1,161,877     $1,076,663



                      THE TORO COMPANY AND SUBSIDIARIES

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


                                                       Six Months Ended
                                                     April 29,    April 30,
                                                       2005         2004
    Cash flows from operating activities:
    Net earnings                                     $73,134        $61,524
      Adjustments to reconcile net
       earnings to net cash used in
       operating activities:
      Non-cash asset impairment recovery                   -            (52)
      Equity losses from an investment                   302            374
      Provision for depreciation and amortization     18,592         17,052
      Gain on disposal of property, plant, and
       equipment                                        (242)          (219)
      Stock-based compensation expense                 4,819          4,317
      Increase in deferred income taxes              (11,792)        (2,098)
      Changes in operating assets and liabilities:
        Receivables, net                            (238,162)      (211,449)
        Inventories, net                             (20,248)        (8,937)
        Prepaid expenses and other current assets      4,189            553
        Accounts payable, accrued expenses,
         and deferred revenue                         81,000         75,888
          Net cash used in operating activities      (88,408)       (63,047)

    Cash flows from investing activities:
      Purchases of property, plant, and equipment    (15,106)       (21,356)
      Proceeds from disposal of property, plant,
       and equipment                                   2,351          1,425
      Increase in investment in affiliates              (197)        (1,065)
      Increase in other assets                          (538)           (54)
      Proceeds from sale of a business                   765              -
      Acquisition, net of cash acquired              (35,285)             -
          Net cash used in investing activities      (48,010)       (21,050)

    Cash flows from financing activities:
      Increase in short-term debt                    150,007         27,815
      Repayments of long-term debt                       (22)        (3,627)
      Excess tax benefits from share-based
       arrangements                                    4,015          2,927
      Proceeds from exercise of stock options          5,631          5,709
      Purchases of Toro common stock                 (94,029)       (23,872)
      Dividends paid on Toro common stock             (5,482)        (2,991)
          Net cash provided by financing activities   60,120          5,961

    Effect of exchange rates on cash                      (9)          (326)

    Net decrease in cash and cash equivalents        (76,307)       (78,462)
    Cash and cash equivalents as of the
     beginning of the period                          90,756        110,287

    Cash and cash equivalents as
     of the end of the period                        $14,449        $31,825

SOURCE The Toro Company
05/24/2005
CONTACT: Investor Relations, Stephen P. Wolfe, Vice President, CFO,
+1-952-887-8076, or John Wright, Director, Investor Relations,
+1-952-887-8865, or Media Relations, Connie Kotke, Toro Media Relations,
+1-952-887-8984, pr@toro.com , all of The Toro Company
Company News On-Call: http://www.prnewswire.com/comp/103025.html
Web site: http://www.thetorocompany.com
http://www.thetorocompany.com/invest
(TTC)