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The Toro Company Reports Operating Results (10-Q)

September 02, 2010 | About:
10qk

10qk

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The Toro Company (TTC) filed Quarterly Report for the period ended 2010-07-30.

The Toro Company has a market cap of $1.68 billion; its shares were traded at around $51.56 with a P/E ratio of 19.4 and P/S ratio of 1.1. The dividend yield of The Toro Company stocks is 1.4%. The Toro Company had an annual average earning growth of 12.7% over the past 10 years. GuruFocus rated The Toro Company the business predictability rank of 2.5-star.TTC is in the portfolios of Bill Frels of Mairs & Power Inc. , Columbia Wanger of Columbia Wanger Asset Management, Kenneth Fisher of Fisher Asset Management, LLC, Diamond Hill Capital of Diamond Hill Capital Management Inc, Bruce Kovner of Caxton Associates, Chuck Royce of Royce& Associates, Steven Cohen of SAC Capital Advisors, First Pacific Advisors of First Pacific Advisors, LLC, Jeremy Grantham of GMO LLC.

Highlight of Business Operations:

We continued to focus on reducing working capital and improving asset management. As a result of our efforts, we maintained our goal to reduce average net working capital (accounts receivable plus inventory less trade payables) as a percentage of net sales at a level below 20 percent, or “in the teens.” Our average net working capital as a percentage of net sales for the twelve months ended July 30, 2010 was 15.4 percent. The impact of our efforts to reduce working capital resulted in a significant improvement of our cash flows from operating activities for the first nine months of fiscal 2010 compared to the first nine months of fiscal 2009. We continued to return value to our shareholders with our stock repurchase program, in which we repurchased $135.3 million of our stock for the nine months ended July 30, 2010. We also paid a cash dividend of $0.18 per share during the third quarter of fiscal 2010, which was an increase of 20 percent over our cash dividend of $0.15 per share for the third quarter of fiscal 2009.

Net earnings for the third quarter of fiscal 2010 were $33.4 million, or $1.01 per diluted share, compared to $19.8 million, or $0.54 per diluted share, for the third quarter of fiscal 2009, resulting in a net earnings per diluted share increase of 87.0 percent. Year-to-date net earnings in fiscal 2010 were $90.0 million, or $2.66 per diluted share, compared to $63.4 million, or $1.73 per diluted share, for the same year-to-date period last fiscal year, resulting in a net earnings per diluted share increase of 53.8 percent. The primary factors contributing to these earnings improvement were higher sales volumes, an increase in gross margin, higher other income, and a lower effective tax rate, somewhat offset by an increase in SG&A expense. In addition, third quarter and year-to-date fiscal 2010 net earnings per diluted share were benefited by approximately $0.09 per share and $0.21 per share, respectively, compared to the same periods in fiscal 2009, as a result of reduced shares outstanding from repurchases of our common stock.

Worldwide consolidated net sales for the third quarter and year-to-date periods of fiscal 2010 were up 16.2 percent and 9.6 percent, respectively, from the same periods in the prior fiscal year. Worldwide professional segment net sales were up 21.8 percent and 9.9 percent for the third quarter and year-to-date periods of fiscal 2010, respectively, compared to the same periods in the prior fiscal year. Shipments of most professional segment products were up primarily as a result of improved economic conditions, the successful introduction of new products, better availability of our products in the third quarter of fiscal 2010 compared to the second quarter of fiscal 2010, and customers who aligned their orders closer to retail demand, all of which resulted in increased demand for our products. Sales for golf equipment and irrigation systems were also strong as a result of increased capital spending from golf course customers, resulting in higher demand for our products. Professional segment field inventory levels continue to decline and were down as of the end of the third quarter of fiscal 2010 compared to the end of the third quarter of fiscal 2009. Net sales of micro-irrigation products were up for the year-to-date comparison due to our investments in additional manufacturing capacity that increased production of our water conserving products to meet the growing worldwide market demand. Residential segment net sales increased 7.6 percent and 11.0 percent for the third quarter and year-to-date periods of fiscal 2010, respectively, compared to the same periods in fiscal 2009 as a result of continued strong demand, resulting in part, from customer acceptance of and additional product placement for riding products, as well as favorable weather conditions. In addition, shipments of snow thrower products were up for the year-to-date period of fiscal 2010 compared to the same period in the prior fiscal year due to increased demand from heavy snow falls during the winter season of 2009-2010 and the timing of the introduction of our new redesigned offering of snow thrower products that shipped to customers in the first quarter of fiscal 2010. Net sales of Pope irrigation products sold in Australia also increased for the year-to-date period of fiscal 2010 compared to the year-to-date period of fiscal 2009 due to additional product placement. International net sales for the third quarter and year-to-date periods of fiscal 2010 increased 17.6 percent and 9.9 percent, respectively, from the same periods in the prior fiscal year. A stronger U.S. dollar compared to the Euro and the British pound decreased our net sales by approximately $3.6 million for the third quarter of fiscal 2010. However, a weaker U.S. dollar compared to other currencies in which we transact business, mainly the Australian dollar and the Canadian dollar, accounted for approximately $10 million of additional net sales for the year-to-date period of fiscal 2010.

SG&A expense increased $13.6 million, or 14.5 percent, for the third quarter of fiscal 2010 compared to the third quarter of fiscal 2009. SG&A expense increased $18.7 million, or 6.2 percent, for the year-to-date period of fiscal 2010 compared to the year-to-date period of fiscal 2009. These increases were due mainly to an increase in employee incentive compensation expense of $7.4 million and $16.4 million for the third quarter and year-to-date periods of fiscal 2010 compared to the same periods in the prior fiscal year, respectively, related to improved financial performance in fiscal 2010, as compared to fiscal 2009, as well as an increase in marketing, warranty, and warehousing expense due to higher sales volumes. Somewhat offsetting those increases was our leaner cost structure resulting from cost reduction efforts taken in fiscal 2009 and costs incurred in fiscal 2009 for workforce adjustments of $1.0 million and $3.1 million for the third quarter and year-to-date periods of fiscal 2010 compared to the same periods in the prior fiscal year, respectively, that were not duplicated in fiscal 2010. As a percentage of net sales, SG&A expense declined for the third quarter and year-to-date periods of fiscal 2010 to 23.5 percent and 23.6 percent, respectively, from 23.9 percent and 24.4 percent in the third quarter and year-to-date periods of fiscal 2009, respectively. These declines were attributable to leveraging fixed SG&A costs over higher sales volumes.

Other income (expense), net for the third quarter and year-to-date periods of fiscal 2010 improved $6.4 million and $5.9 million, respectively, compared to the same periods in the prior fiscal year. These increases were due to expenses incurred last year for several legal matters in the aggregate of $5.0 million that were not duplicated in fiscal 2010 and income from our investment in Red Iron of $1.2 million for the third quarter of fiscal 2010 and $1.7 million for the first nine months of fiscal 2010, somewhat offset by a decrease in finance charge revenue.

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