Release Date: June 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The Toro Co (TTC, Financial) delivered record net sales of $1.35 billion for the second quarter, driven by a 26% growth in the residential segment.
- Strong demand in the underground and specialty construction and golf and grounds businesses has kept order backlogs elevated.
- The company successfully reduced dealer field inventories of lawn care equipment in both professional and residential segments.
- New product introductions, such as the Toro TimeCutter and Titan zero-turn mowers, have been well received and are driving market share gains.
- The Toro Co (TTC) is on track to achieve $100 million in annualized savings by fiscal 2027 from its multiyear productivity initiative, AMP (Amplifying Maximum Productivity).
Negative Points
- Adjusted diluted earnings per share decreased to $1.40 from last year's $1.58, primarily due to segment and product mix.
- Professional segment net sales decreased by 5.9% year-over-year, driven by lower shipments of zero-turn mowers.
- Reported and adjusted gross margins both decreased to 33.6% from 35.8% last year, due to unfavorable segment mix and higher material and manufacturing costs.
- SG&A expenses as a percentage of net sales increased slightly to 19.7% from 19.5% last year, driven by higher corporate expenses.
- Inventory levels for snow and ice management products remain higher than ideal due to lower-than-expected snowfall last winter.
Q & A Highlights
Q: Angie, you mentioned a strong conviction in long-term growth. Does that extend into next fiscal year, and are you confident that next fiscal year will also show organic total sales growth?
A: Richard Olson, Chairman of the Board, President, Chief Executive Officer: We do see opportunities for continued growth into next year. The demand profile and continued orders in key growth areas like underground and construction are expected to extend into '25. Additionally, normalizing shipment flow and the strength of our mass strategy provide further growth opportunities.
Q: You mentioned ramping up share repurchase activity in the second half. Is it fair to assume that the bulk of the expected free cash flow might go towards repurchases?
A: Angie Drake, Chief Financial Officer, Vice President: With the improvement in cash flow, we spent about $10 million on share repurchases and expect to ramp that up in the second half, exceeding last year's $60 million. We will assess our cash position and make decisions based on that.
Q: What's the timing of expected normalization of elevated field inventory in landscape and retail channels?
A: Richard Olson, Chairman of the Board, President, Chief Executive Officer: We are well over halfway through reducing field inventory in key areas, driven by strong retail activity and restricted shipments. We expect to normalize dealer field inventories by the end of this fiscal year, with snow inventory being a factor this fall.
Q: Can you provide a retail sales growth number for landscape contractor equipment and residential channels?
A: Richard Olson, Chairman of the Board, President, Chief Executive Officer: We don't provide specific numbers, but retail activity has been much better than the last couple of years, driven by new product introductions and strong partnerships with mass channels like Lowe's.
Q: How much better do shipments get in the second half for golf and Ditch Witch due to debottlenecking investments?
A: Richard Olson, Chairman of the Board, President, Chief Executive Officer: Shipments will be substantially better relative to the second half of last year, thanks to continuous ramp-up and improved production output.
Q: What's your best estimate of deferred replacement demand in the landscape contractor category?
A: Richard Olson, Chairman of the Board, President, Chief Executive Officer: We are seeing pent-up replacement demand being addressed now, especially in the homeowner portion of the landscape contractor market. The combination of better weather and seasonal conditions is driving this recovery.
Q: Can you provide more details on the productivity initiative and its impact on financials?
A: Angie Drake, Chief Financial Officer, Vice President: Our AMP initiative aims to achieve $100 million in annual cost savings by 2027. We are focusing on sustainable supply base, design to value, and route to market, with a recent addition of working capital management. Year-to-date, we've seen $8.3 million in onetime implementation costs, mostly consulting fees.
Q: How do you expect working capital to trend for the remainder of the year?
A: Angie Drake, Chief Financial Officer, Vice President: Accounts receivable is typically higher in Q2 due to seasonal flow. We expect inventory to continue improving, with a focused effort on reducing it as part of our AMP initiative.
Q: Is the sell-through in landscape contractor and residential channels sustainable?
A: Richard Olson, Chairman of the Board, President, Chief Executive Officer: Yes, we believe it is sustainable. Retail activity is strong, and we have additional opportunities as we ramp up production to meet demand.
Q: What are the differences in spending between private, semiprivate, and public golf courses?
A: Richard Olson, Chairman of the Board, President, Chief Executive Officer: All segments are quite strong, driven by increased golf participation and rounds played. We don't see significant differences across these segments at this point.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
