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The Toro Company Reports Operating Results (10-Q)

June 04, 2010 | About:
10qk

10qk

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The Toro Company (TTC) filed Quarterly Report for the period ended 2010-04-30.

The Toro Company has a market cap of $1.85 billion; its shares were traded at around $55.11 with a P/E ratio of 23.7 and P/S ratio of 1.2. The dividend yield of The Toro Company stocks is 1.3%. 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, Columbia Wanger of Columbia Wanger Asset Management, Diamond Hill Capital of Diamond Hill Capital Management Inc, Kenneth Fisher of Fisher Asset Management, LLC, Chuck Royce of Royce& Associates, Bruce Kovner of Caxton Associates, 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, as of the end of our fiscal 2010 second quarter we achieved our long-term goal to reduce average net working capital (accounts receivable plus inventory less trade payables) as a percentage of net sales to below 20 percent, or “in the teens.” Our average net working capital as a percentage of net sales for the twelve months ended April 30, 2010 was 19.0 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 six months of fiscal 2010 compared to the first six months of fiscal 2009. We also paid a cash dividend of $0.18 per share during the second quarter of fiscal 2010, which was an increase of 20 percent over our cash dividend of $0.15 per share for the second quarter of fiscal 2009.

Net earnings for the second quarter of fiscal 2010 were $45.7 million, or $1.34 per diluted share, compared to $36.9 million, or $1.00 per diluted share, for the second quarter of fiscal 2009, resulting in net earnings per diluted share increase of 34.0 percent. Year-to-date net earnings in fiscal 2010 were $56.6 million, or $1.65 per diluted share, compared to $43.6 million, or $1.18 per diluted share, last fiscal year, resulting in net earnings per diluted share increase of 39.8 percent. The primary factors contributing to these earnings improvement were higher sales volumes, an increase in gross margin, and a lower effective tax rate, somewhat offset by an increase in SG&A expense. In addition, second quarter and year-to-date fiscal 2010 net earnings per diluted share were benefited by approximately $0.10 per share and $0.11 per share, respectively, compared to the same periods in fiscal 2009, as a result of reduced shares outstanding from repurchases of our common stock.

SG&A expense increased $13.1 million, or 12.8 percent, for the second quarter of fiscal 2010 compared to the second quarter of fiscal 2009 due to an increase in employee incentive compensation expense, but was even as a percentage of net sales at 20.5 percent as compared to the second quarter of fiscal 2009. SG&A expense increased $5.1 million, or 2.5 percent for the year-to-date period of fiscal 2010 compared to the year-to-date period of fiscal 2009. SG&A expense as a percentage of net sales for the year-to-date period of fiscal 2010 decreased to 23.7 percent compared to 24.6 percent for the year-to-date period of fiscal 2009. This decrease was primarily attributable to our leaner cost structure resulting from cost reduction efforts taken in fiscal 2009, costs incurred in fiscal 2009 for workforce adjustments of $2.1 million that were not duplicated in fiscal 2010, and a decrease in bad debt expense of $1.1 million. Somewhat offsetting those decreases was an increase in employee incentive compensation expense of $9.0 million from anticipated improved financial performance in fiscal 2010, as compared to fiscal 2009.

Other income, net for the second quarter and year-to-date periods of fiscal 2010 decreased $0.6 million and $0.5 million, respectively, compared to the same periods in the prior fiscal year. These decreases were due to lower foreign currency exchange rate gains, a decrease in finance charge revenue, somewhat offset by income from our investment in Red Iron.

Net Sales. Net sales for the other segment include sales from our wholly owned domestic distribution company less sales from the professional and residential segments to that distribution company. In fiscal 2009, “Other” also included elimination of the professional and residential segments floor plan interest costs from Toro Credit Company (TCC), our wholly owned financing company. With the establishment of Red Iron, net sales for the “Other” segment no longer includes corporate financing activities, including the elimination of floor plan costs from TCC, which results in lower net sales for the other segment. Net sales for the “Other” segment were down for the second quarter and year-to-date periods of fiscal 2010 compared to the same periods in the last fiscal year by $2.8 million, or 46.9 percent, and $4.8 million, or 49.0 percent, respectively, as a result of the elimination of TCC floor plan interest costs, as well as lower net sales at our wholly owned distributorship.

Operating Losses. Operating losses for the other segment were up for the second quarter and year-to-date periods of fiscal 2010 by $6.6 million, or 37.8 percent, and $4.5 million, or 10.8 percent, respectively, compared to the same periods in the last fiscal year. These loss increases were primarily attributable to an increase in employee incentive compensation expense due to anticipated improved financial performance in fiscal 2010, as compared to fiscal 2009, lower foreign currency exchange rate gains, and the elimination of TCC floor plan interest costs, as described above. Somewhat offsetting those factors was overall reduced spending from our leaner cost structure as a result of actions we implemented in fiscal 2009, as well as elimination of costs incurred in fiscal 2009 for workforce adjustments.

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