BLOOMINGTON, Minn. — The Toro Co. (NYSE:TTC) reports net earnings of $105.7 million, or $1.89 per share, on a net sales increase of 1.2% to $836.4 million for its 2016 second quarter ended April 29, 2016. In the comparable fiscal 2015 period, the company delivered net earnings of $93.8 million, or $1.64 per share, on net sales of $826.2 million.
For the first six months, Toro reported net earnings of $144.9 million, or $2.58 per share, on a net sales increase of 1.7% to $1,322.8 million. In the comparable fiscal 2015 period, the company posted net earnings of $124.7 million, or $2.18 per share, on net sales of $1,300.5 million.
Earlier this week, the company announced that its board of directors had declared a quarterly cash dividend of $0.30 per share. This dividend is payable on July 12, 2016 to shareholders of record on June 21, 2016. This year marks the company’s seventh consecutive year of annual dividend growth, and this quarter the company’s 128th consecutive quarterly dividend declaration.
“We were pleased by the strong sales in our professional segment, particularly for our landscape contractor and golf products at the start of our key selling season,” said Michael J. Hoffman, Toro’s chairman and chief executive officer. “Similarly, we are encouraged by the positive momentum we are seeing from our specialty construction business as we continue to strengthen our position in the industry. We are experiencing strong demand for our new Dingo TX 1000 compact utility loader, which has been well received by landscape contractors and rental houses alike.”
“On the residential side of the business, warmer spring weather early in the quarter was offset by poor weather in the later part of the quarter, which negatively impacted sales,” said Hoffman. “Our second quarter results were also negatively impacted by lower sales of residential riding products due to channel demand pulled forward in the first quarter driven by supply issues last year. We have higher inventory levels of riding mowers than normal because we wanted to ensure we were a better supplier to our customers this year, in light of the prior year manufacturing and availability issues.”
“Now, in the midst of our key selling season for spring and summer products, we are encouraged by solid retail demand across our businesses and the strong margin improvement in both segments. However, we acknowledge that the mild winter conditions we experienced earlier this fiscal year resulted in higher inventory levels at both the company and in the field. This along with expected softer preseason retail demand for snow products will present a headwind in the second half for shipments of our residential snow and BOSS professional snow and ice management equipment. Going forward, we will increase our efforts on those things within our control, including reducing inventory levels for the second half of the fiscal year.”
The company now expects revenue growth for fiscal 2016 to be flat to up 2% and net earnings per share to increase to about $3.90 to $4.00. For the third quarter, the company expects net earnings per share to be about $0.95.
Professional segment net sales for the second quarter totaled $595.2 million, up 7.7% from $552.8 million in the same period last year. The increase was due largely to strong demand for landscape contractor, golf and specialty construction equipment. For the first six months, professional segment net sales were $934.0 million, up 4.7% from the comparable fiscal 2015 period. For the year-to-date period, sales benefited from strong demand for both Toro® and Exmark branded landscape contractor equipment. Continued growth in our specialty construction business also contributed to the six month results. The sales growth for the quarter was somewhat offset by lower sales of irrigation. International sales year to date have declined due to the impact of unfavorable currency exchange rates.
Professional segment earnings for the second quarter totaled $141.6 million, up 17.2% from $120.8 million in the same period last year. For the first six months, professional segment earnings were $203.2 million, up 15.2% from the comparable fiscal 2015 period.
Residential segment net sales for the second quarter were $238.2 million, down 11.1% from $267.9 million in the same period last year. The sales decrease was primarily due to reduced channel demand for our zero turn riding mowers. The decline was somewhat offset by higher sales of our walk power mowers driven by demand for new products, including our all-wheel drive and SmartStow mowers. For the first six months, residential segment net sales were $382.5 million, down 5.0% from the comparable fiscal 2015 period.
Residential segment earnings for the second quarter were $35.0 million, up 0.4% from $34.8 million the same period last year. For the first six months, residential segment earnings were $51.7 million, up 6.5% from the comparable fiscal 2015 period.
Gross margin as a percent of sales for the second quarter was 36.2%, an increase of 210 basis points from the same period last year. The increase was due to favorable commodity costs, productivity improvements and product mix, with stronger sales in our professional segment. For the first six months, gross margin as a % of sales was 36.7%, an increase of 200 basis points from the same period last year, again due to favorable commodity costs, productivity and product mix.
Selling, general and administrative (SG&A) expense as a % of sales for the second quarter was 17.7%, an increase of 40 basis points from the same period last year. For the first six months, SG&A expense as a percent of sales was 20.9%, an increase of 30 basis points in the comparable period last year.
Operating earnings as a percent of sales for the second quarter was 18.5%, an increase of 170 basis points year over year. Operating earnings as a percent of sales for the first six months was 15.8%, an increase of 170 basis points from the same period last year.
The effective tax rate for the second quarter was 31.5%, compared to 31.1% year over year. For the first six months, the effective tax rate was 30.3%, compared to 30.0% in the same period last year.
Accounts receivable at the end of the second quarter totaled $329.8 million, down 6.2% compared to last year. Net inventories were $369.1 million, up 8.1% and trade payables were $260.5 million, up 1.6% compared to the same period last year.