The Toro Company, a leading global provider of solutions for the outdoor environment, reported June 6 2024 results for its fiscal second quarter ended May 3, 2024.

“We executed well in the second quarter, delivering results aligned with our expectations and achieving record net sales,” said Richard M. Olson, chairman and chief executive officer. “We realized exceptional growth in our residential segment due to our strong mass channel, successful new product introductions, and better weather conditions compared to last year. Our quarterly results also reflect growth in our professional segment’s underground and specialty construction, and golf and grounds businesses. For these businesses, our team drove incremental output within our existing manufacturing footprint to address elevated order backlog and better serve our customers. Importantly, we made significant progress in reducing dealer field inventories of lawn care equipment in both the residential and professional segment, a result of lower shipments to that channel, coupled with spring retail momentum.  

“Throughout the quarter, we advanced our enterprise strategic priorities and introduced innovative products that address our customers’ most pressing needs. Recent examples include our new generation of Toro TimeCutter® and Titan® zero turn mowers, for which customer response exceeded expectations, our new TX1000 Turbo compact utility loader with enhanced SmartPower® features for improved operator efficiency and productivity, and the world’s most powerful all-terrain horizontal directional drill, the Ditch Witch AT120, for the accelerating underground construction market.  

“Our strong business fundamentals, leadership in attractive end markets, and deep relationships give us confidence in our ability to deliver growth in fiscal 2024,” added Olson. “For our professional segment, we expect continued strength in demand for our underground construction business, supported by a long runway of robust private and public multi-year spending to address global infrastructure needs. We also expect continued strength in our golf business, with healthy budgets supported by the sustained momentum in rounds played, an increase in new golfers, and new course development. For these businesses, order backlog remains elevated and, as such, we expect to continue driving increased output to improve lead times. For lawn care products, we are encouraged by the positive signs of recovery in homeowner markets along with the favorable spring weather patterns to date. We expect continued growth in shipments to our residential segment mass channel, and anticipate this growth will help offset our expectations for lower preseason shipments of snow and ice management products given the lack of snow this past winter.

“Overall, our team is laser focused on operating with dedication and agility, driving productivity across the enterprise, and capitalizing on our innovative product portfolio to drive value for our customers, channel partners and shareholders,” concluded Olson. 

Professional segment net sales for the second quarter were $1,005.6 million, down 5.9% from $1,068.7 million in the same period last year. The decrease was primarily driven by lower shipments of zero-turn mowers, partially offset by higher shipments of underground and specialty construction equipment and golf and grounds products.

Professional segment earnings for the second quarter were $190.7 million, down 16.2% from $227.5 million in the same period last year, and when expressed as a percentage of net sales, 19.0%, compared to 21.3% in the prior-year period. The change in profitability as expected was primarily due to lower net sales volume and higher material and manufacturing costs, partially offset by productivity improvements.

For fiscal 2024, the company continues to expect low single-digit total company net sales growth, and *adjusted diluted EPS in the range of $4.25 to $4.35. This guidance is based on current visibility and assumes:  

• Continued strong demand and stable supply for businesses with elevated order backlog.
• a continuation of macro factors that have driven increased consumer and channel caution.
• weather patterns aligned with historical averages for the remainder of the year.

This guidance also considers:

• Elevated field inventory levels of lawn care and snow and ice management products
• Manufacturing inefficiencies as production and inventory levels continue to be adjusted to market conditions
• The net impact across all residential mass channel partners related to our new strategic partnership with Lowe's

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Residential segment net sales for the second quarter were $335.6 million, up 26.3% from $265.8 million in the same period last year. The increase was primarily driven by higher shipments to our mass channel, partially offset by lower shipments to our dealer channel.

Residential segment earnings for the second quarter were $36.1 million, up 59.0% from $22.7 million in the same period last year, and when expressed as a percentage of net sales, 10.8%, up from 8.6% in the prior-year period. The year-over-year increase was largely due to net sales leverage and productivity improvements, partially offset by product mix and higher material and manufacturing costs.

• Second-quarter net sales of $1.35 billion, compared to $1.34 billion in the same period of fiscal 2023
• Second-quarter reported diluted EPS of $1.38, compared to $1.59 in the same period of fiscal 2023 
• Second-quarter *adjusted diluted EPS of $1.40, compared to $1.58 in the same period of fiscal 2023

Operating Results

Gross margin and *adjusted gross margin for the second quarter were both 33.6%, down from 35.8% for both in the same prior-year period. The decrease was primarily due to product mix and higher material and manufacturing costs, partially offset by productivity improvements.

SG&A expense as a percentage of net sales for the second quarter was 19.7%, compared with 19.5% in the prior-year period. The increase was primarily driven by slightly higher corporate expenses, mostly offset by lower marketing costs.

Operating earnings as a percentage of net sales were 13.9% for the second quarter, compared with 16.3% in the same prior-year period. *Adjusted operating earnings as a percentage of net sales for the second quarter were 14.2%, compared with 16.3% in the same prior-year period.

Interest expense was $16.7 million for the second quarter, up $2.0 million from the same prior-year period. This increase was primarily due to higher average outstanding borrowings and higher average interest rates.

The reported effective tax rate for the second quarter was 19.2%, compared with 20.6% in the same prior year period. The *adjusted effective tax rate for the second quarter was 19.8% compared with 21.1% in the same prior year period. The decrease for both the reported and *adjusted effective tax rate was primarily due to a more favorable geographic mix of earnings.

 To view the full Q2 earnings report and the tables (located on page 7), click here.