The Toro Company has reported results for its fiscal first-quarter ended Feb. 3, 2023, including record first-quarter net sales of $1.15 billion, up 23% year-over-year.
Professional segment net sales for the first quarter were $880.7 million, up 30.9% from $672.9 million in the same period last year. The increase was driven by higher shipments of products broadly across the segment, net price realization, and incremental revenue from the first quarter fiscal 2022 acquisition of the Intimidator Group.
Professional segment earnings for the first quarter were $144.1 million, up 54.5% from $93.3 million in the same period last year, and, when expressed as a percentage of net sales, 16.4%, up from 13.9% in the prior-year period. The increase was primarily due to net price realization, net sales leverage, and productivity improvements, partially offset by higher material, freight, and manufacturing costs, and the addition of the Intimidator Group at a lower initial margin than the segment average.
Residential segment net sales for the first quarter were $264.6 million, up 3.6% from $255.4 million in the same period last year. The increase was primarily driven by net price realization and higher shipments of zero turn riding mowers, partially offset by lower shipments of snow products.
Residential segment earnings for the first quarter were $37.8 million, up 19.1% from $31.8 million in the same period last year, and when expressed as a percentage of net sales, 14.3%, up from 12.4% in the prior-year period. The increase was largely driven by net price realization and productivity improvements, partially offset by higher material, freight, and manufacturing costs, and higher SG&A expense.
Gross margin for the first quarter was 34.5%, compared with 32.2% for the same prior-year period. The increase in gross margin was primarily due to net price realization and productivity improvements, partially offset by higher material, freight, and manufacturing costs, as well as the addition of the Intimidator Group at a lower initial gross margin than the company average.
Operating earnings as a percentage of net sales were 11.9% for the first quarter, compared with 9.8% in the same prior-year period. *Adjusted operating earnings as a percentage of net sales for the first quarter were 11.9%, compared with 9.9% in the same prior-year period.
For fiscal 2023, management continues to expect net sales growth in the range of 7% to 10% and *adjusted diluted EPS in the range of $4.70 to $4.90. The estimated *adjusted diluted EPS range excludes the tax benefits recorded as excess tax deductions for stock compensation. The company's guidance is based on current visibility in this evolving and dynamic macro environment, and reflects expectations for strong demand across key professional markets, normalized seasonal demand patterns for residential and landscape contractor solutions, and continued operational execution. This guidance also assumes steady supply chain improvement throughout the year, with a return to a more typical distribution of quarterly sales.
Inventory & Pricing
During the earnings call Q&A, Vice President and Chief Financial Officer Renee Peterson had the following to say regarding inventory levels:
As really our sales cadence normalizes, what we're seeing is we're getting back into more of that normal pattern with inventory, really building inventory as we go into the spring and then seeing that depleted as we go through the season. If you look at sequentially from Q4, our inventory was relatively flat up a little bit, but we were encouraged because WIP was relatively flat. And just, I guess, stepping back and looking at it when we look at the mix of inventory, we still see a higher level of WIP inventory vs. finished goods than we would ideally like.
We do think as we work through the remainder of the year with the supply chain improving, that we'll see that improvement, and we'll see that mix normalize. And our backlog is strong. So, we see strong demand and the pricing associated with that backlog is current. And when we look from an overall free cash flow conversion standpoint, we've embedded our thoughts around working capital and maintained our guidance around 100% conversion.
When asked how they plan to position the residential segment in terms of pricing, Chairman and Chief Executive Officer Olson stated the following:
I would, first of all say that we're going into the spring selling season in the best position that we've been for several years with regard to better, healthier field inventory as we head into that spring season. As I think we've talked about before, normal to us also means that promotions come back into play to get – motivate people to go out and shop for new products.
So, those are pretty much normal for us. And that's the extent to which price would be affected is that the normal promotions would be coming back in. And all of that is included within our guidance.
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