BLOOMINGTON, Minn. — The Toro Company today reported net earnings of $93.8 million, or $1.64 per share, on a net sales increase of 10.9 percent to $826.2 million for its 2015 second quarter ended May 1, 2015. In the comparable fiscal 2014 period, the company delivered net earnings of $87.1 million, or $1.51 per share, on net sales of $745 million.

“Good spring weather conditions helped generate robust retail sales during the quarter,” said Michael J. Hoffman, Toro’s chairman and chief executive officer. “Additionally, I’m proud of the dedication of and execution by our strong team that enabled us to deliver our record results. On the residential side of the business, we drove increased sales due to our innovative product line-up, including our new platform of consumer zero-turn riding mowers and new all-wheel drive walk power mower. We also benefited from expanded retail placement for these products. In our professional segment, landscape contractors readied themselves for the spring season by investing in our zero-turn riding and walk behind mowers and newly introduced Toro and Exmark branded spreader-sprayer turf management products. Additionally, our recently acquired BOSS® line of snow and ice management products contributed to our second quarter results. Like other companies, however, our earnings were not immune from unfavorable foreign currency rates and also were affected by segment mix.”

For the first six months, Toro reported net earnings of $124.7 million, or $2.18 per share, on a net sales increase of 9.2 percent to $1.3 billion. In the comparable fiscal 2014 period, the company posted net earnings of $113 million, or $1.95 per share, on net sales of $1.191 billion. “Our residential segment contributed double-digit revenue growth in the year-to-date period due to strong retail demand for residential zero-turn riding and walk power mowers, as well as higher demand for our residential snow thrower products,” said Hoffman. “On the professional side of our business, the addition of the BOSS snow and ice management products, higher sales of landscape maintenance equipment and solid demand for our golf turf maintenance equipment all helped us to deliver record results for the period.”

“As we continue through the key selling season, we are encouraged by the strong retail sales results that we are seeing across our businesses. We believe that we are well-positioned with our portfolio of innovative products to drive additional sales and increase our market share. In particular, we are excited by the successful launch of our Reelmaster 5010-H hybrid fairway mower for the golf market and early customer demand for our all-new Dingo TX 1000 compact utility loader for the landscape contractor and rental markets that will be released in our third quarter. With that said, we are mindful of the fact that Mother Nature delivered two consecutive favorable summer growing seasons in 2013 and 2014 and may not do so again this year. We also will have to manage the unfavorable foreign currency rate conditions that we expect will continue to pressure our international business. We will remain flexible to address both anticipated and unforeseen challenges and will keep a careful eye on both retail demand and field inventories. In addition, we will focus on the key things within our control that will help us achieve our Destination PRIME objectives, including investing in product innovation, delivering excellent customer service and executing in our markets.”

The company continues to expect revenue growth for fiscal 2015 to be about 8 to 10 percent and net earnings per share to be about $3.35 to $3.45. For the third quarter, the company expects net earnings per share to be about $0.85 to $0.90.

Segment Results

Professional

• Professional segment net sales for the second quarter totaled $552.8 million, up 4.6 percent from $528.6 million in the same period last year. Incremental sales of our recently acquired BOSS snow and ice management products contributed to the growth for the quarter. In addition, landscape maintenance equipment sales increased due to solid retail demand for our professional zero-turn riding and walk behind mowing platforms and new turf management products. Domestic golf sales also grew on strong channel and retail demand for our innovative application equipment and vehicles. For the first six months, professional segment net sales were $892.5 million, up 8.3 percent from the comparable fiscal 2014 period. For the year-to-date period, sales benefited from the addition of the BOSS snow and ice management products to our professional portfolio, higher sales of landscape maintenance mowing and turf management equipment, and strong demand for our golf turf maintenance equipment and vehicles. Somewhat offsetting the sales growth in both periods were unfavorable currency exchange rates.
• Professional segment earnings for the second quarter totaled $120.8 million, down 1.3 percent from $122.4 million in the same period last year. For the first six months, professional segment earnings were $176.5 million, up 3.9 percent from the comparable fiscal 2014 period.

Residential

• Residential segment net sales for the second quarter were $267.9 million, up 27.3 percent from $210.4 million in the same period last year. For the first six months, residential segment net sales were $402.6 million, up 12.5 percent from the comparable fiscal 2014 period. The sales growth in both periods benefited from strong retail demand for, and expanded retail placement of, our innovative product line-up that included our new platform of residential zero-turn riding mowers and new all-wheel drive walk power mower. The year-to date period also benefited from demand for residential snow thrower products. Somewhat offsetting growth in both the quarter and year-to-date periods were unfavorable currency exchange rates.
• Residential segment earnings for the second quarter were $34.8 million, up 46.2 percent from $23.8 million the same period last year. For the first six months, residential segment earnings were $48.6 million, up 15.8 percent from the comparable fiscal 2014 period.

Operating Results

Gross margin as a percent of sales for the second quarter was 34.1 percent, a decrease of 140 basis points from the same period last year. Half of this decrease was due to unfavorable currency exchange rates and the other half was due to the segment mix impact of stronger sales in our residential segment. For the first six months, gross margin as a percent of sales was 34.7 percent, a decrease of 120 basis points from the same period last year, primarily due to unfavorable currency exchange rates.

Selling, general and administrative (SG&A) expense as a percent of sales for the second quarter was 17.3 percent, a decrease of 60 basis points from the same period last year. For the first six months, SG&A expense as a percent of sales was 20.6 percent, a decrease of 90 basis points from the same period last year. For both periods, these decreases were due to the leveraging of expenses over higher sales volumes.

Operating earnings as a percent of sales for the second quarter was 16.8 percent, a decrease of 80 basis points from the same period last year. Operating earnings as a percent of sales for the first six months was 14.1 percent, a decrease of 30 basis points from the same period last year.

Interest expense for the second quarter was $4.8 million, up $1.1 million from the same period last year, and interest expense for the first six months was $9.5 million, up $2 million from the same period last year. For both periods, the increases primarily were due to the additional long-term debt issued in connection with the BOSS acquisition.

The effective tax rate for the second quarter was 31.1 percent, compared to 32.6 percent in the same period last year. For the first six months, the effective tax rate was 30 percent, compared to 32.7 percent in the same period last year, primarily due to the benefit realized in our first quarter from the retroactive reenactment of the domestic research tax credit for calendar year 2014.

Accounts receivable at the end of the second quarter totaled $351.6 million, up 12.2 percent compared to the end of the same period last year. Net inventories were $341.4 million, up 12.9 percent compared to the end of the same period last year. Trade payables were $256.4 million, up 8.7 percent compared to the end of the same period last year.

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