Toro Third Quarter Net Earnings Up 26.5% on 15.1% Net Sales Growth
Company on Track for Record Full Year Net Sales and Earnings
LIVE CONFERENCE CALL
August 24, 10:00 a.m. CT
www.thetorocompany.com/invest
BLOOMINGTON, Minn., Aug. 24 /PRNewswire-FirstCall/ -- The Toro Company (NYSE: TTC) today reported record net earnings of $34.2 million, or $1.33 per diluted share, on net sales of $454.0 million for its fiscal 2004 third quarter ended July 30, 2004. In its fiscal 2003 third quarter, Toro reported net earnings of $27.0 million, or $1.03 per diluted share on net sales of $394.5 million.
For the nine months ended July 30, 2004, Toro reported net earnings of $95.7 million, or $3.68 per diluted share, on net sales of $1,315.6 million. In the comparable fiscal 2003 period, Toro reported net earnings of $76.0 million, or $2.92 per diluted share, on net sales of $1,186.3 million.
Kendrick B. Melrose, The Toro Company Chairman and Chief Executive officer, said the strong third quarter results keep the company on track to deliver the best full year financial performance in its history. "During our third quarter, we continued to generate healthy sales growth in all segments," said Melrose. "And, as in our second quarter, we converted strong volume growth into even stronger earnings growth by continuing to focus on overall operating effectiveness, productivity improvement through lean manufacturing initiatives, expense reductions through our 'no waste' programs and focused asset management. Our year-to-date gross margin remained above last year's rate despite continued increases in steel and rising transportation and other commodity costs."
Melrose said third quarter sales exceeded expectations in most business categories, reflecting increased demand in a recovering economy and brand strength in Toro's principal markets. "During the third quarter, shipments were particularly strong in our landscape contractor, commercial, and international businesses," said Melrose. "In addition, our lean manufacturing and no-waste initiatives are clearly boosting profitability."
SEGMENT RESULTS
Segment data is provided in the table following the "Condensed Consolidated Statement of Earnings."
Professional
For the third quarter, professional segment sales increased 17.9% to $287.9 million. As in the prior quarter, segment sales increased in nearly all product categories, although irrigation product sales fell short of the company's expectations.
International sales for the third quarter increased 16.4% compared with the fiscal 2003 period.
Professional segment earnings for the third quarter were $54.3 million, up 28.6% from the fiscal 2003 third quarter which benefited from leveraging of expenses.
Residential
Residential segment sales for the third quarter totaled $144.2 million, up 11.8% from the prior year third quarter. Product categories with the strongest period-over-period sales growth included snow throwers and electric products.
International sales for the third quarter increased 20.7% compared with last year's third quarter. Most of the increase was attributable to strong snow thrower and electric product demand.
Residential segment earnings for the third quarter totaled $17.6 million, up 33.5% from $13.2 million in the prior year period. The improvement in third quarter profitability in this segment was largely due to reduced expenses and a prior year restructuring charge of $1.7 million.
Distribution
Worldwide distribution segment sales for the third quarter totaled $47.1 million, up 9.4% compared with last year's third quarter.
Distribution segment earnings for the third quarter were $2.3 million, flat with the comparable prior-year period.
REVIEW OF OPERATIONS
Gross margin for the third quarter was 36.2% compared with 37.2% in the prior year's third quarter. "The margin decline was primarily the result of increases in costs for steel, other commodities and transportation, which were partially offset through our ongoing cost management and productivity improvement efforts," said Melrose.
Selling, general and administrative (SG&A) expenses for the third quarter were 24.6% of net sales, down from 25.8% in the fiscal 2003 third quarter. Continued expense leveraging and reductions more than countered increases in incentive expenses as well as additional expenses related to ongoing new product development and other growth initiatives.
Interest expense for the third quarter was $3.9 million, down from $4.2 million in the comparable year-ago period as a result of lower average debt and improved asset management.
The company's balance sheet continued to strengthen from increased earnings and effective working capital management. Net inventories at the end of the third quarter were $217.4 million, down nearly 7.9% from the end of the fiscal 2003 third quarter. Accounts receivable at the end of the third quarter totaled $381.3 million, up only 2.2%, significantly less than the consolidated net sales increase of 15.1%.
BUSINESS OUTLOOK
"Our strong performance through the first nine months of fiscal 2004 should continue through the year's final quarter and into fiscal 2005," said Melrose. "We expect our lean/no waste initiatives to yield strong profitability improvement for this year as well as fiscal 2005. Moreover, we believe continued investments in key growth initiatives will help ensure our sales growth outperforms the market. Lastly, we fully expect to complete the year with a solid balance sheet, strong operating cash flow, and low inventories in the field." The company expects to report fiscal 2004 net earnings per diluted share in the range of $3.82 to $3.90, excluding the effects of the previously announced share repurchase program, on sales growth of 9 to 10%.
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 August 24, 2004. 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; higher interest rates; 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" profit improvement and growth initiative which is intended to improve our revenue growth and after-tax return on sales; the company's ability to implement lean manufacturing; our ability to manage assets, such as reducing inventories and receivables; the company's ability to achieve sales growth and double-digit diluted earnings per share growth in fiscal 2004; unforeseen product quality problems in the development and production of new and existing products; potential issues with moving production between facilities; continued slow growth in the rate of new golf course construction or existing golf course renovations; 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; elimination of shelf space for our products at retailers; changes in raw material costs, including higher oil, steel, aluminum and other commodity prices; financial viability of distributors and dealers; governmental restriction on water usage and water availability; market acceptance of existing and new products; and increased and adverse changes in currency exchange rates or raw material commodity prices and the costs we incur in providing price support to international customers and suppliers. 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 July 30, August 1, July 30, August 1, 2004 2003 2004 2003 Net sales $454,044 $394,524 $1,315,644 $1,186,326 Gross profit 164,202 146,950 475,691 428,163 Gross profit percent 36.2% 37.2% 36.2% 36.1% Selling, general, and administrative expense 111,696 101,735 324,944 309,344 Restructuring and other (income) expense (228) 1,655 (314) 1,476 Earnings from operations 52,734 43,560 151,061 117,343 Interest expense (3,893) (4,152) (11,477) (12,564) Other income, net 1,533 956 3,307 8,647 Earnings before income taxes 50,374 40,364 142,891 113,426 Provision for income taxes 16,161 13,320 47,154 37,430 Net earnings $34,213 $27,044 $95,737 $75,996 Basic net earnings per share $1.40 $1.08 $3.88 $3.04 Diluted net earnings per share $1.33 $1.03 $3.68 $2.92 Weighted average number of shares of common stock outstanding - Basic 24,369 25,070 24,698 24,999 Weighted average number of shares of common stock outstanding - Dilutive 25,794 26,305 26,022 26,062 Segment Data (Unaudited) (Dollars in thousands) Three Months Ended Nine Months Ended July 30, August 1, July 30, August 1, 2004 2003 2004 2003 Segment Net Sales Professional $287,928 $244,111 $834,130 $751,671 Residential 144,227 129,043 436,952 396,177 Distribution 47,074 43,039 111,607 96,987 Other (25,185) (21,669) (67,045) (58,509) Total* $454,044 $394,524 $1,315,644 $1,186,326 * Includes international sales of $81,135 $69,140 $268,286 $230,151 THE TORO COMPANY AND SUBSIDIARIES Earnings (Loss) Before Income Taxes by Segment (Unaudited) (Dollars in thousands) Three Months Ended Nine Months Ended July 30, August 1, July 30, August 1, 2004 2003 2004 2003 Segment Earnings (Loss) Professional (a) $54,326 $42,235 $154,479 $133,415 Residential (b) 17,635 13,205 52,691 46,215 Distribution 2,255 2,327 1,685 (423) Other (23,842) (17,403) (65,964) (65,781) Total $50,374 $40,364 $142,891 $113,426 (a) Includes restructuring and other income of $52 thousand for the nine- month period in fiscal 2004. Includes restructuring and other income of $14 thousand and $86 thousand for the three-month and nine-month periods in fiscal 2003, respectively. (b) Includes restructuring and other income of $228 thousand and $262 thousand for the three-month and nine-month periods in fiscal 2004, respectively. Includes restructuring and other expense of $1,669 thousand and $1,561 thousand for the three-month and nine-month periods in fiscal 2003, respectively. Condensed Consolidated Balance Sheets (Unaudited) (Dollars in thousands) July 30, August 1, 2004 2003 ASSETS Cash and cash equivalents $34,022 $15,725 Receivables, net 381,329 373,173 Inventories, net 217,357 236,035 Prepaid expenses and other current assets 13,968 13,451 Deferred income taxes 49,103 42,299 Total current assets 695,779 680,683 Property, plant, and equipment, net 164,851 163,593 Deferred income taxes 1,181 4,196 Goodwill and other assets, net 98,942 94,232 Total assets $960,753 $942,704 LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of long-term debt $44 $250 Short-term debt 3,146 5,784 Accounts payable 68,245 67,415 Accrued liabilities 278,060 239,707 Total current liabilities 349,495 313,156 Long-term debt, less current portion 175,058 178,703 Deferred revenue and other long-term liabilities 12,747 10,231 Stockholders' equity 423,453 440,614 Total liabilities and stockholders' equity $960,753 $942,704 THE TORO COMPANY AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) (Dollars in thousands) Nine Months Ended July 30, August 1, 2004 2003 Cash flows from operating activities: Net earnings $95,737 $75,996 Adjustments to reconcile net earnings to net cash provided by operating activities: Non-cash asset impairment (recovery) write-off (415) 901 Equity losses from an investment 538 - Provision for depreciation and amortization 25,398 22,950 Gain on disposal of property, plant, and equipment (254) (38) Increase in deferred income tax asset (7,021) (3,228) Tax benefits related to employee stock option transactions 8,087 1,916 Changes in operating assets and liabilities: Receivables, net (107,990) (119,757) Inventories, net 11,787 (5,331) Prepaid expenses and other current assets (1,194) (3,569) Accounts payable, accrued expenses, and deferred revenue 57,121 31,281 Net cash provided by operating activities 81,794 1,121 Cash flows from investing activities: Purchases of property, plant, and equipment (31,185) (31,081) Proceeds from disposal of property, plant, and equipment 1,833 1,638 (Increase) decrease in investment in affiliates (1,278) 1,000 Decrease (increase) in other assets 285 (448) Proceeds from sale of business - 1,016 Acquisition, net of cash acquired - (1,244) Net cash used in investing activities (30,345) (29,119) Cash flows from financing activities: Increase in short-term debt 1,047 3,899 Repayments of long-term debt (3,819) (15,825) Increase in other long-term liabilities 114 38 Proceeds from exercise of stock options 12,018 6,639 Purchases of common stock (132,234) (9,629) Dividends on common stock (4,443) (4,503) Net cash used in financing activities (127,317) (19,381) Effect of exchange rates on cash (397) 288 Net decrease in cash and cash equivalents (76,265) (47,091) Cash and cash equivalents as of the beginning of the period 110,287 62,816 Cash and cash equivalents as of the end of the period $34,022 $15,725
SOURCE The Toro Company
CONTACT: Investor Relations, Stephen P. Wolfe, Vice President, CFO, 952-887-8076,
or Tom Larson, Assistant Treasurer, 952-887-8449,
or Media Relations, Connie Hawkinson, Toro Media Relations, 952-887-8984, pr@toro.com , all of The Toro Company
Web site: http://www.thetorocompany.com