- Net sales increased 27.3% compared to the same prior-year period
- Reported diluted EPS up 18.2%, and *adjusted diluted EPS up 20.8%, compared to the same prior-year period
- Maintains full-year adjusted EPS guidance range of $3.33 to $3.40 per diluted share, which includes the recently completed Venture Products acquisition
BLOOMINGTON, Minn. — The Toro Co. (NYSE: TTC) today reported results for its first quarter ended January 31, 2020.
“Fiscal 2020 is off to a solid start, fueled by revenue growth and gross margin expansion in the quarter that builds on similar results last year,” said Richard M. Olson, chairman and chief executive officer. “The integration of Charles Machine Works is progressing ahead of our original expectations as we approach the first anniversary of the acquisition, and we are on track to achieve our synergy goals. Among the many key initiatives that we expect will contribute to our fiscal year, we are excited about expanding our residential product reach through our new placement with the Tractor Supply Company. In fact, we believe all our channel partners will benefit from the refreshed products, branding and marketing. Finally, we announced the closing of the acquisition of Venture Products earlier this week. We welcome the Venture Products team and the well-regarded Ventrac® product line to The Toro Company.”
First Quarter Fiscal 2020 Financial Highlights
- Net sales of $767.5 million, up 27.3% compared with $603.0 million in the first quarter of fiscal 2019.
- Net earnings of $70.1 million, up 17.7% compared with $59.5 million in the first quarter of fiscal 2019; *Adjusted net earnings of $69.7 million, up 22.9% compared with $56.7 million in the same prior-year period.
- Reported EPS of $0.65 per diluted share, up 18.2% compared with $0.55 per diluted share in the first quarter of fiscal 2019; *Adjusted EPS of $0.64 per diluted share, up 20.8% compared with $0.53 per diluted share in the same prior-year period.
Second Quarter and Fiscal Year 2020 Outlook
“In addition to anticipated healthy demand for our core products in the golf, grounds, contractor and construction markets, there is considerable pre-season excitement for the new products we displayed at recent industry trade shows,” continued Olson. “The all-electric e-Dingo compact utility loader, Greensmaster eTriFlex and 60V Flex-Force steel deck walk power mower enhance our lithium-ion battery-powered offerings and demonstrate our commitment to alternative energy solutions. At the Golf Industry Show, we showcased smart-connected and autonomous-enabled product concepts focused on helping customers be more productive.”
“We are realizing productivity and synergy gains from the Charles Machine Works acquisition and seeing some benefit from the current commodity cost environment. This translated into higher gross margin in the first quarter and we expect to see full year gross margin expansion,” continued Olson.
The company is maintaining its fiscal 2020 guidance, including net sales of about $3.6 billion and adjusted EPS of $3.33 to $3.40 per diluted share. For the second quarter, the company expects adjusted EPS of $1.28 to $1.33 per diluted share. Full year and second quarter 2020 guidance includes the benefit of Venture Products and nominal disruptions from coronavirus. Guidance excludes the benefit of the excess tax deduction for share-based compensation and acquisition and integration-related costs.
“While we are optimistic about the year, there are several factors beyond our control that may affect our performance, such as unfavorable weather conditions and more significant disruptions from coronavirus. As always, we will concentrate on controlling what we can control, while being prepared to respond to those factors that we cannot, and continuing to focus on our key strategic priorities of accelerating profitable growth, driving productivity and operational excellence, and empowering our people,” concluded Olson.
- Professional segment net sales for the first quarter increased 30.7% to $594.7 million from $455.0 million in the same period last year. The addition of Charles Machine Works, improved net price realization, and strong early-season order activity for snow and ice management products were the primary drivers of the net sales growth, which was somewhat offset by lower shipments of landscape contractor zero-turn riding mowers as the company managed field inventory in advance of the key selling season.
- Professional segment earnings for the first quarter increased 16.5% to $102.5 million from $88.0 million in the same period last year, largely a result of the acquisition of Charles Machine Works.
- Residential segment net sales for the first quarter increased 14.3% to $165.8 million from $145.2 million in the same period last year, primarily driven by shipments of zero-turn riding mowers to our new mass retail channel outlet.
- Residential segment earnings for the first quarter increased 65% to $21.6 million from $13.1 million in the same period last year, primarily due to favorable sales mix, productivity and synergy initiatives, lower commodity and tariff costs, and reductions in freight cost.
Gross margin for the first quarter was 37.5% compared with 35.8% for the same prior-year period, an increase of 170 basis points. Adjusted gross margin for the first quarter was 37.6% compared with 35.8% for the first quarter of fiscal 2019. The increase in gross margin and adjusted gross margin for the first quarter of fiscal 2020 was primarily driven by productivity and synergy initiatives, improved net price realization, lower freight costs, and lower commodity and tariff costs.
Selling, general and administrative (SG&A) expense as a percent of sales for the first quarter increased 140 basis points to 25.6% from 24.2% in the same year-ago period, reflecting higher costs due to the addition of Charles Machine Works and increased indirect sales and marketing expense.
Operating earnings as a percent of net sales were 11.9% for the first quarter, compared with 11.6% for the same period last year. Adjusted operating earnings as a percent of net sales were 12.1% in the quarter, compared with 11.9% in the same period last year.
Interest expense in the first quarter was $8.2 million compared with $4.7 million in the same prior-year period as a result of incremental borrowings to fund the purchase of Charles Machine Works.
The effective tax rate for the first quarter was 18.6%, compared with 15.0% for the first quarter of fiscal 2019, driven by a lower tax benefit related to the excess tax deduction for share-based compensation. The adjusted effective tax rate for the first quarter was 21.0%, compared with 20.9% for the first quarter of fiscal 2019.
Working capital at the end of the first quarter was up, primarily driven by the addition of Charles Machine Works. Also contributing to higher working capital were increased residential segment inventory to support the expanded mass retail channel, various new product introductions, and higher landscape contractor finished goods as the company managed field inventory ahead of the key spring selling season. Accounts receivable at the end of the first quarter were $321.2 million, up 42.4% from last year. Net inventories were $739.0 million, up 77.4% from last year. Accounts payable were $348.0 million, up 23.6% from the comparable period last year.