- Acquisition of Charles Machine Works
completed ahead of schedule with favorable first month results
- Second quarter sales increase 9.9
percent to $962.0 million, fueled by acquisition
- Reported quarterly EPS of $1.07;
adjusted quarterly EPS of $1.17
- New full-year EPS guidance of $2.90 to
$3.00 and full-year revenue guidance of about $3.2 billion, both
inclusive of Charles Machine Works
The Toro Company (NYSE: TTC) today reported net earnings of
$115.6 million, or $1.07 per share, on a net sales increase of 9.9
percent to $962.0 million for its second quarter ended May 3, 2019.
In the comparable fiscal 2018 period, the company delivered net
earnings of $131.3 million, or $1.21 per share, on net sales of
$875.3 million. Adjusted 2019 second quarter net earnings were
$126.0 million, or $1.17 per share, compared to adjusted net
earnings of $130.3 million, or $1.20 per share in the comparable
2018 period, a decrease of 2.5 percent.
For the first six months, Toro reported net earnings of $175.1
million, or $1.62 per share, on a net sales increase of 9.9 percent
to $1,565.0 million. For the first six months, adjusted net
earnings were $182.7 million, or $1.69 per share, compared to
adjusted net earnings of $182.4 million, or $1.68 per share, in the
comparable 2018 period, an increase of 0.6 percent. Please see the
tables for a reconciliation of financial measures calculated and
reported in accordance with GAAP, as well as adjusted non-GAAP
financial measures.
"The first half of 2019 has been dynamic for The Toro Company,"
said Richard M. Olson, Toro's chairman and chief executive officer.
"We continue to be excited about the transformational acquisition
of Charles Machine Works, while managing through unfavorable
weather conditions in key regions. Poor spring weather,
particularly in April, across much of the United States and
Australia not only negatively impacted demand for spring turf
products, but it also caused disruption in our supply chain and
shipping capabilities. However, despite these headwinds, we have
finished the first half of the year with solid revenue growth,"
said Olson.
"We are very pleased with the initial integration of our largest
acquisition, Charles Machine Works, and we are encouraged by the
synergy opportunities we are already executing on and expect to
achieve over time. The residential business also enjoyed positive
revenue momentum in both the quarter and year-to-date results. We
continue to gain market share in key categories and expect
profitability in the residential business to improve later in the
fiscal year, as commodity costs moderate and as we see the
anticipated benefits of productivity improvements."
"Looking ahead, warmer spring and summer weather should arrive
soon to help spur turf equipment sales. We are also encouraged by
the prospect of a good snow preseason sell-in later in the fiscal
year, positive integration momentum, as well as synergy and margin
improvement opportunities associated with the acquisition of
Charles Machine Works. Further, we are excited about our innovative
new product introductions as we head into our key selling season
and we believe we are well positioned to build on our strategic
initiatives as we enter the second half of the fiscal year."
In the third quarter, we expect adjusted net earnings per share
of about $0.70 to $0.75. For the full-year, we are providing new
adjusted net earnings per share guidance of about $2.90 to $3.00
and new revenue guidance of about $3.2 billion. These estimates are
inclusive of Charles Machine Works and assume a return to
normalized weather patterns for the remainder of the fiscal
year.
SEGMENT RESULTS
Professional
- Professional segment net sales for the
second quarter were $723.5 million, up 9.6 percent from $660.4
million last year. For the first six months, professional segment
net sales were $1,178.5 million, up 10.8 percent from the
comparable 2018 period. For both periods, the addition of Charles
Machine Works, as well as growth in our landscape contractor, BOSS®
snow and ice management and rental and specialty construction
businesses contributed to the results. Somewhat offsetting the
growth for both periods were lower shipments of domestic golf and
grounds equipment and irrigation product, due to delays caused by
supplier issues and poor spring weather.
- Professional segment earnings for the
second quarter were $150.1 million, down 9.0 percent from $165.0
million in the same period last year. Professional segment earnings
for the first six months were $238.1 million, down 1.2 percent from
$240.9 million compared to the same period last year. The segment
earnings for both periods include purchase accounting adjustments
related to the acquisition of Charles Machine Works.
Residential
- Residential segment net sales for the
second quarter were $232.1 million, up 9.4 percent from $212.2
million last year. For the first six months, residential segment
net sales were $377.3 million, up 6.4 percent from $354.7 million
last year. For both periods, the increases were primarily due to
strong demand for domestic walk power and zero-turn riding mowers
and increased shipments of snow throwers.
- Residential segment earnings for the
second quarter were $22.0 million, down 16.2 percent from $26.3
million in the comparable period last year. Residential segment
earnings for the first six months were $35.1 million, down 16.5
percent from $42.0 million in the same period last year. The
decreases in both periods were largely due to the unfavorable
impacts of tariff and trade related cost increases.
OPERATING RESULTS
Reported gross margin as a percent of sales for the second
quarter was 33.4 percent, a decrease of 360 basis points compared
to the prior year. Adjusted gross margin as a percent of sales for
the second quarter was 34.4 percent, a decrease of 260 basis points
compared to last year. For the first six months, reported gross
margin as a percent of sales was 34.3 percent, a decrease of 280
basis points over the prior year. Adjusted gross margin as a
percent of sales for the first six months was 34.9 percent, a
decrease of 220 basis points compared to last year. For both
periods, increased inflation and tariff-related costs, product mix
and continued supply chain challenges contributed to the decline,
partially offset by pricing and productivity improvements.
Selling, general and administrative (SG&A) expense as a
percent of sales for the second quarter was 19.1 percent, an
increase of 160 basis points from the same period last year. For
the first six months, SG&A expense as a percent of sales was
21.0 percent, an increase of 60 basis points. For both periods,
acquisition integration and transaction costs contributed to the
increases compared to the respective periods last year.
Second quarter reported operating earnings as a percent of sales
were 14.3 percent, a decrease of 520 basis points compared to 19.5
percent in the same period last year. Adjusted operating earnings
for the second quarter were 16.4 percent, a decrease of 310 basis
points compared to 19.5 percent last year. For the first six
months, reported operating earnings as a percent of sales were 13.3
percent, a decrease of 340 basis points compared to 16.7 percent
last year. For the first six months, adjusted operating earnings as
a percent of sales were 14.7 percent compared to 16.7 percent, a
decrease of 200 basis points compared to the prior year.
The effective tax rate for the second quarter was 15.8 percent,
compared to 22.4 percent for the second quarter of last year. The
adjusted tax rate for the second quarter was 19.9 percent, compared
to 23.0 percent last year. For the first six months, the reported
tax rate was 15.5 percent, down from 34.7 percent in the comparable
period. The adjusted tax rate for the first six months was 20.2
percent, compared to 22.6 percent for the same period last year.
With the addition of Charles Machine Works, the company now expects
its full- year effective tax rate to be about 20.5 percent.
Accounts receivable at the end of the first quarter were $428.6
million, up 30.0 percent from last year. Net inventories were
$611.3 million, up 54.8 percent from last year. Trade payables were
$391.7 million, up 28.9 percent from the comparable period last
year. These increases were largely due to the acquisition of
Charles Machine Works.
About The Toro CompanyThe Toro Company (NYSE: TTC) is a
leading worldwide provider of innovative solutions for the outdoor
environment including turf and landscape maintenance, snow and ice
management, underground utility construction, rental and specialty
construction, and irrigation and outdoor lighting
solutions. With sales of $2.6 billion in fiscal 2018, The Toro
Company’s global presence extends to more than 125 countries
through a family of brands that includes Toro, Ditch Witch, Exmark,
BOSS Snowplow, American Augers, Subsite Electronics, HammerHead,
Trencor, Unique Lighting Systems, Irritrol, Hayter, Pope, Lawn-Boy,
MTI Equipment and Radius HDD. Through constant innovation and
caring relationships built on trust and integrity, The Toro Company
and its family of brands have built a legacy of excellence by
helping customers care for golf courses, sports fields,
construction sites, public green spaces, commercial and residential
properties and agricultural operations. For more information,
visit www.thetorocompany.com.
LIVE CONFERENCE CALLMay 23, 2019 at 10:00 a.m.
CDTwww.thetorocompany.com/invest
The Toro Company will conduct its earnings call and webcast for
investors beginning at 10:00 a.m. CDT on May 23, 2019. The webcast
will be available at www.streetevents.com or at 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.
Use of Non-GAAP Financial InformationThis press release
and our related earnings call contain certain non-GAAP financial
measures, consisting of adjusted gross profit, operating earnings
before income taxes, operating earnings, net earnings, net earnings
per diluted share and effective tax rate, as measures of our
operating performance. Management believes these measures may be
useful in performing meaningful comparisons of past and present
operating results, to understand the performance of its ongoing
operations and how management views the business. Reconciliations
of adjusted non-GAAP measures to reported GAAP measures are
included in the financial tables contained in this press release.
These measures, however, should not be construed as an alternative
to any other measure of performance determined in accordance with
GAAP.
The Toro Company does not attempt to provide reconciliations of
forward-looking non-GAAP EPS guidance to projected GAAP EPS
guidance because the combined impact and timing of recognition of
these potential charges or gains is inherently uncertain and
difficult to predict and is unavailable without unreasonable
efforts. In addition, we believe such reconciliations would imply a
degree of precision and certainty that could be confusing to
investors. Such items could have a substantial impact on GAAP
measures of financial performance.
Forward-Looking StatementsThis news release contains
forward-looking statements, which are being made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. These forward-looking statements are based on
management’s current assumptions and expectations of future events,
and often can be identified by words such as “expect,” “strive,”
“looking ahead,” “outlook,” “guidance,” “forecast,” “goal,”
“optimistic,” “anticipate,” “continue,” “plan,” “estimate,”
“project,” “believe,” “should,” “could,” “will,” “would,”
“possible,” “may,” “likely,” “intend,” “can,” “seek,” “potential,”
“pro forma,” or the negative thereof or similar expressions.
Forward-looking statements involve risks and uncertainties that
could cause actual events and results to differ materially from
those projected or implied. Particular risks and uncertainties that
may affect our operating results or financial position include:
worldwide economic conditions, including slow or negative growth
rates in global and domestic economies and weakened consumer
confidence; disruption at our manufacturing or distribution
facilities, including drug cartel-related violence affecting our
maquiladora operations in Juarez, Mexico; fluctuations in the cost
and availability of raw materials and components, including steel,
engines, hydraulics and resins; the impact of abnormal weather
patterns, including unfavorable weather conditions exacerbated by
global climate change or otherwise; the impact of natural disasters
and global pandemics; the level of growth or contraction in our key
markets; government and municipal revenue, budget and spending
levels; dependence on The Home Depot as a customer for our
residential business; elimination of shelf space for our products
at dealers or retailers; inventory adjustments or changes in
purchasing patterns by our customers; our ability to develop and
achieve market acceptance for new products; increased competition;
the risks attendant to international relations, operations and
markets, including political, economic and/or social instability
and conflict, tax and trade policies in the U.S. and other
countries in which we manufacture or sell our products, and
implications of the United Kingdom’s process for exiting the
European Union; foreign currency exchange rate fluctuations; our
relationships with our distribution channel partners, including the
financial viability of our distributors and dealers; risks
associated with acquisitions, including those related to our recent
acquisition of Charles Machine Works, such as delays or failure by
us in achieving the net sales, earnings and any cost or revenue
synergies expected from the acquisition, delays and challenges in
integrating the businesses, business disruptions due to the
acquisition, impacts as a result of purchase accounting adjustments
and unanticipated liabilities or exposures for which we have not
been indemnified or may not recover; management of our alliances or
joint ventures, including Red Iron Acceptance, LLC; the costs and
effects of enactment of, changes in and compliance with laws,
regulations and standards, including those relating to consumer
product safety, accounting, taxation, trade and tariffs,
healthcare, and environmental, health and safety matters;
unforeseen product quality problems; loss of or changes in
executive management or key employees; the occurrence of litigation
or claims, including those involving intellectual property or
product liability matters; and other risks and uncertainties
described in our most recent annual report on Form 10-K, subsequent
quarterly reports on Form 10-Q, and other filings with the
Securities and Exchange Commission. We make no commitment to revise
or update any forward-looking statements in order to reflect events
or circumstances occurring or existing after the date any
forward-looking statement is made.
THE TORO COMPANY AND SUBSIDIARIES Condensed
Consolidated Statements of Earnings (Unaudited) (Dollars and
shares in thousands, except per-share data)
Three Months Ended
Six Months Ended May 3, May
4, May 3, May 4,
2019 2018
2019 2018 Net sales $ 962,036 $ 875,280
$ 1,564,992 $ 1,423,526 Gross profit 321,298 324,056 536,915
528,295 Gross profit percentage 33.4 % 37.0 % 34.3 % 37.1 %
Selling, general and administrative expense
183,573 153,783
329,136 291,100 Operating
earnings 137,725 170,273 207,779 237,195 Interest expense (6,694 )
(4,720 ) (11,436 ) (9,538 ) Other income, net
6,149 3,613
10,857 7,894 Earnings before
income taxes 137,180 169,166 207,200 235,551 Provision for income
taxes 21,610
37,877 32,090
81,658 Net earnings $ 115,570
$ 131,289 $ 175,110
$ 153,893
Basic net
earnings per share of common stock $ 1.08
$ 1.23 $ 1.64
$ 1.44
Diluted net
earnings per share of common stock $ 1.07
$ 1.21 $ 1.62
$ 1.41 Weighted-average number of shares of
common stock outstanding — Basic 106,679 106,423 106,466 106,830
Weighted-average number of shares of common stock
outstanding — Diluted 108,007
108,835 107,909
109,353
Segment Data
(Unaudited) (Dollars in thousands)
Three Months Ended
Six Months Ended May 3, May 4,
May 3, May 4, Segment Net Sales
2019 2018
2019 2018 Professional $ 723,506 $
660,373 $ 1,178,512 $ 1,064,042 Residential 232,147 212,169 377,305
354,676 Other 6,383
2,738 9,175
4,808 Total net sales* $ 962,036
$ 875,280 $ 1,564,992
$ 1,423,526
*Includes
international net sales of: $ 219,077
$ 207,079 $ 360,622
$ 353,869
Three Months
Ended Six Months Ended May 3,
May 4, May 3, May 4, Segment Earnings
(Loss) 2019 2018
2019 2018 Professional $
150,119 $ 164,979 $ 238,097 $ 240,891 Residential 22,030 26,304
35,102 42,017 Other (34,969 )
(22,117 ) (65,999 )
(47,357 ) Total segment earnings $ 137,180
$ 169,166 $ 207,200
$ 235,551
THE TORO
COMPANY AND SUBSIDIARIES Condensed Consolidated Balance
Sheets (Unaudited) (Dollars in thousands)
May 3, May 4,
2019 2018
ASSETS
Cash and cash equivalents $ 180,078 $ 206,100 Receivables, net
428,567 329,570 Inventories, net 611,331 394,801 Prepaid expenses
and other current assets 50,298
47,758 Total current assets 1,270,274
978,229 Property, plant and equipment,
net 425,381 245,348 Deferred income taxes 4,484 42,994 Goodwill and
other assets, net 765,861
369,176 Total assets $ 2,466,000 $
1,635,747
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Current portion of long-term debt $ 90,000 $ 13,000 Accounts
payable 391,692 303,911 Accrued liabilities
360,082 335,496 Total current liabilities
841,774 652,407
Long-term debt, less current portion 721,079 299,302 Deferred
income taxes 50,665 1,770 Other long-term liabilities
47,205 58,941 Total stockholders’
equity 805,277 623,327
Total liabilities and stockholders’ equity $
2,466,000 $ 1,635,747
THE TORO
COMPANY AND SUBSIDIARIES Condensed Consolidated Statements
of Cash Flows (Unaudited) (Dollars in thousands)
Six Months Ended May 3,
May 4, 2019
2018 Cash flows from operating activities: Net
earnings $ 175,110 $ 153,893 Adjustments to reconcile net earnings
to net cash provided by operating activities: Non-cash income from
finance affiliate (5,825 ) (5,370 ) Contributions to finance
affiliate, net (1,743 ) (2,959 ) Provision for depreciation and
amortization 43,452 30,141 Stock-based compensation expense 7,025
5,565 Deferred income taxes (193 ) 21,121 Other 42 (40 ) Changes in
operating assets and liabilities, net of effect of acquisitions:
Receivables, net (169,820 ) (143,947 ) Inventories, net (4,683 )
(62,575 ) Prepaid expenses and other assets 534 (8,402 ) Accounts
payable, accrued liabilities, deferred revenue and other long-term
liabilities 120,091
151,007 Net cash provided by operating activities
163,990 138,434
Cash flows from investing activities: Purchases of
property, plant and equipment (33,421 ) (35,365 ) Proceeds from
asset disposals 105 — Investment in unconsolidated entities (150 )
(333 ) Acquisitions, net of cash acquired
(692,077 ) (31,202 ) Net cash used in
investing activities (725,543 )
(66,900 ) Cash flows from financing activities:
Borrowings under debt arrangements 700,000 — Repayments under debt
arrangements (201,004 ) (20,239 ) Proceeds from exercise of stock
options 24,408 5,778 Payments of withholding taxes for stock awards
(1,894 ) (3,212 ) Purchases of Toro common stock (20,043 ) (116,490
) Dividends paid on Toro common stock (47,930
) (42,679 ) Net cash provided by (used in)
financing activities 453,537
(176,842 ) Effect of exchange rates on cash
and cash equivalents (1,030 )
1,152 Net decrease in cash and cash
equivalents (109,046 )
(104,156 ) Cash and cash equivalents as of the beginning of the
fiscal period 289,124
310,256 Cash and cash equivalents as of the end of
the fiscal period $ 180,078 $
206,100
THE TORO COMPANY AND
SUBSIDIARIESReconciliation of Non-GAAP Financial Measures
(Unaudited)(Dollars in thousands, except per-share
data)
The company has provided non-GAAP financial measures, which are
not calculated or presented in accordance with accounting
principles generally accepted in the United States ("GAAP"), as
information supplemental and in addition to the most directly
comparable financial measures presented in the accompanying press
release that are calculated and presented in accordance with GAAP.
The company believes these measures may be useful in performing
meaningful comparisons of past and present operating results, to
understand the performance of its ongoing operations, and how
management views the business. Such non-GAAP financial measures
should not be considered superior to, as a substitute for, or as an
alternative to, and should be considered in conjunction with, the
GAAP financial measures presented in the accompanying press
release. The non-GAAP financial measures in the accompanying press
release may differ from similar measures used by other
companies.
The following table provides a reconciliation of financial
measures calculated and reported in accordance with GAAP, as well
as adjusted non-GAAP financial measures, in the accompanying press
release for the three and six month periods ended May 3, 2019
and May 4, 2018:
Three Months
Ended Six Months Ended
May 3, 2019 May 4, 2018
May 3, 2019 May 4, 2018 Gross
profit $ 321,298 $ 324,056 $ 536,915 $
528,295 Acquisition-related costs1 9,519
— 9,519
— Adjusted non-GAAP gross profit
$ 330,817 $ 324,056
$ 546,434 $ 528,295
Operating earnings $ 137,725 $ 170,273
$ 207,779 $ 237,195 Acquisition-related costs1
20,107 —
21,754 — Adjusted non-GAAP
operating earnings $ 157,832 $
170,273 $ 229,533 $
237,195
Earnings before income
taxes $ 137,180 $ 169,166 $ 207,200 $ 235,551 Acquisition-related
costs1 20,107 —
21,754 —
Adjusted non-GAAP earnings before income taxes
$ 157,287 $ 169,166 $
228,954 $ 235,551
Net earnings $ 115,570 $ 131,289 $ 175,110 $ 153,893
Acquisition-related costs1 16,352 — 17,862 — Tax impact of
share-based compensation2 (5,957 ) (1,037 ) (10,318 ) (4,613 ) U.S.
Tax Reform3 — —
— 33,113
Adjusted non-GAAP net earnings $ 125,965
$ 130,252 $ 182,654
$ 182,393
Diluted EPS $ 1.07 $ 1.21 $ 1.62 $ 1.41 Acquisition-related costs1
0.15 — 0.17 — Tax impact of share-based compensation2 (0.05 ) (0.01
) (0.10 ) (0.04 ) U.S. Tax Reform3 —
— —
0.31 Adjusted non-GAAP diluted EPS
$ 1.17 $ 1.20 $
1.69 $ 1.68
Effective tax rate 15.8 % 22.4 % 15.5 % 34.7 % Acquisition-related
costs1 (0.2 )% — % (0.3 )% — % Tax impact of share-based
compensation2 4.3 % 0.6 % 5.0 % 1.9 % U.S. Tax Reform3
— % — % — %
(14.0 )% Adjusted non-GAAP effective tax rate
19.9 % 23.0 %
20.2 % 22.6 % 1
During the second quarter of fiscal 2019, we acquired The Charles
Machine Works, Inc. ("CMW"), a privately held Oklahoma corporation.
These amounts represent integration and transaction costs, as well
as amortization of the inventory fair value step-up amount and
backlog intangible asset resulting from purchase accounting
adjustments, related to our acquisition of CMW during the three and
six month periods ended May 3, 2019. 2 In the first quarter
of fiscal 2017, we adopted Accounting Standards Update No. 2016-09,
Stock-based Compensation: Improvements to Employee Share-based
Payment Accounting, which requires that any excess tax deduction
for share-based compensation be immediately recorded within income
tax expense. These amounts represent the discrete tax benefits
recorded as excess tax deductions for share-based compensation
during the three and six month periods ended May 3, 2019 and May 4,
2018. 3 Signed into law on December 22, 2017, the Tax Act,
reduced the U.S. federal corporate tax rate from 35.0 percent to
21.0 percent, effective January 1, 2018, resulting in a blended
U.S. federal statutory tax rate of 23.3 percent for the fiscal year
ended October 31, 2018. This reduction in rate required the
re-measurement of the company's net deferred taxes as of the date
of enactment. The Tax Act also imposed a one-time deemed
repatriation tax on the company's historical undistributed earnings
and profits of foreign affiliates. The remeasurement of the
company's net deferred taxes and the one-time deemed repatriation
tax resulted in a combined charge of $33.1 million during the six
month period ended May 4, 2018. No charges related to the Tax Act
were recorded in the second quarter of fiscal 2018.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190523005153/en/
Investor RelationsHeather HilleDirector, Investor
Relations(952) 887-8923, heather.hille@toro.com
Media RelationsBranden HappelSenior Manager, Public
Relations(952) 887-8930, branden.happel@toro.com
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