• 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

BLOOMINGTON, Minn. — 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 6 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 6 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 6 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 6 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 6 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 6 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 6 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 6 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 6 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 6 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 6 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 6 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 6 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.