The Toro Company reported results for its fiscal third quarter ended Aug. 4, 2023 on Sept. 7. In a separate news release, the company also announced a new strategic partnership with Lowe's.

“During the third quarter, we experienced a sharp and accelerated reduction in homeowner demand for residential and professional segment lawn care products,” said Richard M. Olson, chairman and chief executive officer. “This drove the underperformance versus our expectations, and also led to the Intimidator Group non-cash impairment charges. Demand was strong across the rest of our end customer base, and with that, the other businesses in our diverse portfolio delivered excellent growth in the quarter.”

“The softness in homeowner demand was driven by a combination of macro factors, including economic uncertainty, higher interest rates, and consumer spending preferences following a period of exceptional demand during the pandemic, along with unusually unfavorable weather patterns. These factors led to significantly lower than expected shipments of lawn care solutions in both our residential and professional segments. Macro factors drove reduced demand from homeowners, including purchase deferrals and trade-downs, as well as a reduction in orders by our dealer channel and an acceleration of destocking by our mass channel. Dry conditions in key regions persisted throughout June and into July, which delayed replacement needs and slowed mid-season channel replenishment orders.

“On a positive note, the rest of the businesses in our diverse portfolio performed well. We continued to see exceptional demand within the professional segment for our underground and specialty construction, and golf and grounds solutions driven by infrastructure spending and support, sustained momentum in new golfers and rounds played, and the prioritization of public green spaces. Importantly, with improved supply and our team’s operational execution, volumes were up significantly for those businesses on a year-over-year basis, as lead times continued to improve.”

Revenue

Third-quarter net sales totaled $1.08 billion, down 7% year-over-year compared to $1.16 billion in the comparable period of fiscal 2022. 

Professional segment net sales for the third quarter were $896.3 million, up 1.1% from $886.2 million in the same period last year. The increase was primarily driven by higher shipments of underground and specialty construction, and golf and grounds products, and net price realization, partially offset by lower shipments of lawn care equipment.

Professional segment earnings for the third quarter were $13 million, down 92.1% from $166.2 million in the same period last year, and when expressed as a percentage of net sales, 1.5%, down from 18.8% in the prior-year period. The decrease was primarily due to gross non-cash impairment charges of $151.3 million, and higher material and manufacturing costs, partially offset by productivity improvements and net price realization.

Residential segment net sales for the third quarter were $175.3 million, down 35.1% from $270 million in the same period last year. The decrease was primarily driven by lower shipments of products broadly across the segment.

Residential segment earnings for the third quarter were $3.8 million, down 85.4% from $26.3 million in the same period last year, and when expressed as a percentage of net sales, 2.2%, down from 9.8% in the prior-year period. The decrease was primarily driven by lower volume and unfavorable product mix, partially offset by lower material costs.

Outlook

“As we look ahead, we have and are taking appropriate actions to further align costs and production to demand trends that we expect will continue into fiscal 2024,” continued Olson. "We believe the combination of macro dynamics and weather patterns this year has exacerbated the rebalancing of homeowner demand for lawn care solutions in both of our residential and professional segments, which has resulted in elevated dealer field inventories of those products, along with higher floorplanning expense than originally anticipated. At the same time, we expect continued strength in demand and substantial order backlog for our underground and specialty construction, and golf and grounds solutions. As the supply chain for those products further stabilizes, we intend to leverage our existing manufacturing footprint to implement incremental, flexible production capacity to better serve our customers and return backlog to more normal levels as soon as possible."

For the fiscal year ending Oct. 31, 2023, the company now expects net sales similar to slightly higher than the prior fiscal year, and adjusted diluted EPS in the range of $4.05 to $4.10. The updated full-year outlook is based on management’s current visibility, and assumes continued supply chain stabilization, incremental manufacturing inefficiencies as production is further aligned to demand, and a continuation of the macro factors that affected third quarter results.

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