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The Toro Company Reports Strong First-Quarter Fiscal 2021 Results

The Toro Company (NYSE: TTC) today reported results for its fiscal first quarter ended January 29, 2021.

“We began fiscal 2021 with strong momentum across our professional and residential businesses,” said Richard M. Olson, chairman and chief executive officer. “This drove double-digit top-line growth in the current dynamic environment, primarily due to higher shipments of professional landscape contractor zero-turn riding mowers and robust retail demand for residential snow equipment and Flex-Force battery-powered products. Incremental sales from the Venture Products acquisition also contributed to first-quarter growth. We expanded profitability in the quarter by executing on our productivity initiatives and through disciplined cost management. We continued to provide innovative products that align with the needs of our customers, and invested in key technology areas including alternative power, smart connected and autonomous, to drive long-term sustainable growth. We are grateful to our team and channel partners for their perseverance in serving our customers while remaining focused on keeping each other safe.”

FIRST-QUARTER FISCAL 2021 FINANCIAL HIGHLIGHTS

  • Net sales of $873.0 million, up 13.7% from $767.5 million in the first quarter of fiscal 2020.
  • Net earnings of $111.3 million, up 58.8% from $70.1 million in the first quarter of fiscal 2020; *adjusted net earnings of $93.2 million, up 33.8% from $69.7 million in the first quarter of fiscal 2020.
  • Reported EPS of $1.02 per diluted share, up 56.9% from $0.65 per diluted share in the first quarter of fiscal 2020; *adjusted EPS of $0.85 per diluted share, up 32.8% from $0.64 per diluted share in the first quarter of fiscal 2020.
  • Deployed $90.0 million to pay down debt and returned $59.8 million to shareholders through regular dividends and the resumption of share repurchases; liquidity of approximately $1.0 billion as of January 29, 2021.

OUTLOOK

“Looking ahead to the remainder of the fiscal year, we are encouraged by continuing positive demand trends. As we enter the key selling season for many of our professional businesses, we are well positioned with our suite of new products to capitalize on the recovery occurring across core markets. We also expect to see ongoing retail demand for our innovative residential segment all-season product lineup. Our guidance is based on current visibility and certain potential effects of COVID-19. We are actively managing a dynamic supply chain and cost inflation environment. We intend to deliver profitable growth by focusing on our enterprise strategic priorities and the needs of our customers,” concluded Olson.

The Company is reaffirming its full-year fiscal 2021 guidance of total net sales growth in the range of 6.0% to 8.0% and *adjusted EPS in the range of $3.35 to $3.45 per diluted share. The *adjusted diluted EPS guidance range excludes the benefit of the excess tax deduction for share-based compensation and the favorable one-time legal settlement in the first quarter of fiscal 2021.

FIRST-QUARTER SEGMENT RESULTS

Professional Segment

  • Professional segment net sales for the first quarter were $650.2 million, up 9.3% compared with $594.7 million in the same period last year. The increase was primarily due to higher shipments of landscape contractor zero-turn riding mowers and incremental sales from the Venture Products acquisition, partially offset by decreased sales of underground construction equipment to oil and gas markets and timing of international shipments of golf and grounds equipment.
  • Professional segment earnings for the first quarter were $116.8 million, up 14.0% compared with $102.5 million in the same period last year, and when expressed as a percentage of net sales, up 80 basis points to 18.0% from 17.2%. The increase was primarily due to sales volume leverage and productivity and synergy initiatives, partially offset by manufacturing cost pressures and product mix.

Residential Segment

  • Residential segment net sales for the first quarter were $217.7 million, up 31.3% compared with $165.8 million in the same period last year. The increase was primarily due to strong retail demand for snow equipment and Flex-Force battery-powered products, as well as increased shipments of walk power mowers.
  • Residential segment earnings for the first quarter were $32.1 million, up 48.9% compared with $21.6 million in the same period last year, and when expressed as a percentage of net sales, up 170 basis points to 14.7% from 13.0% a year ago. The increase was primarily due to sales volume leverage and productivity and synergy initiatives, partially offset by manufacturing cost pressures and product mix.

OPERATING RESULTS

Gross margin for the first quarter was 36.1%, down 140 basis points compared with 37.5% for the same prior-year period. *Adjusted gross margin for the first quarter was 36.1%, down 150 basis points compared with 37.6% for the same prior-year period. The decreases in gross margin and adjusted gross margin were primarily due to manufacturing cost pressures and product mix, partially offset by productivity and synergy initiatives.

SG&A as a percentage of net sales for the first quarter decreased 570 basis points to 19.9% from 25.6% in the prior-year period. The decrease was primarily due to sales volume leverage, a favorable one-time legal settlement and lower indirect marketing expenses as a result of reduced meeting, travel and entertainment costs.

Operating earnings as a percentage of net sales increased 430 basis points to 16.2% for the first quarter of fiscal 2021. *Adjusted operating earnings as a percentage of net sales increased 210 basis points to 14.2% for the first quarter of fiscal 2021.

Interest expense was down $0.6 million for the first quarter of fiscal 2021, driven by lower interest rates.

The reported effective tax rate for the first quarter was 18.1% compared with 18.6% for the same period in fiscal 2020, primarily driven by higher tax benefits from the excess tax deduction for share-based compensation. The *adjusted effective tax rate for the first quarter was 21.5% compared with 21.0% for the first quarter of fiscal 2020, primarily driven by the geographic mix of earnings.

*Non-GAAP financial measure. Please see the tables provided for a reconciliation of historical non-GAAP financial measures to the most comparable GAAP measures.

LIVE CONFERENCE CALL
March 4, 2021 at 10:00 a.m. CST
www.thetorocompany.com/invest

The Toro Company will conduct its earnings call and webcast for investors beginning at 10:00 a.m. CST on March 4, 2021. The webcast will be available at www.thetorocompany.com/invest. Webcast participants will need to complete a brief registration form and should allocate extra time before the webcast begins to register and, if necessary, install audio software.

About The Toro Company

The Toro Company (NYSE: TTC) is a leading worldwide provider of innovative solutions for the outdoor environment including turf and landscape maintenance, snow and ice management, underground utility construction, rental and specialty construction, and irrigation and outdoor lighting solutions. With sales of $3.4 billion in fiscal 2020, The Toro Company’s global presence extends to more than 125 countries through a family of brands that includes Toro, Ditch Witch, Exmark, BOSS Snowplow, Ventrac, American Augers, Subsite Electronics, HammerHead, Trencor, Unique Lighting Systems, Irritrol, Hayter, Pope, Perrot, Lawn-Boy and Radius HDD. Through constant innovation and caring relationships built on trust and integrity, The Toro Company and its family of brands have built a legacy of excellence by helping customers work on golf courses, sports fields, construction sites, public green spaces, commercial and residential properties and agricultural operations. For more information, visit www.thetorocompany.com.

Use of Non-GAAP Financial Information

This press release and our related earnings call references certain financial measures that are not calculated or presented in accordance with U.S. GAAP ("non-GAAP financial measures"), as information supplemental and in addition to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP. The non-GAAP financial measures included within this press release and our related earnings call consist of gross profit, gross margin, operating earnings, earnings before income taxes, net earnings, net earnings per diluted share, and the effective tax rate, each as adjusted, and free cash flow and free cash flow conversion.

The Toro Company uses these non-GAAP financial measures in making operating decisions because it believes they provide meaningful supplemental information regarding core operational performance and provide the Company with a better understanding of how to allocate resources to both ongoing and prospective business initiatives. Additionally, these non-GAAP financial measures facilitate its internal comparisons for both historical operating results and competitors' operating results by factoring out potential differences caused by charges and benefits not related to its regular ongoing business, including, without limitation, certain non-cash, large, and/or unpredictable charges and benefits; acquisitions or dispositions; legal judgments, settlements, or other matters; and tax positions. Further, the Company believes that these non-GAAP financial measures, when considered in conjunction with the financial measures prepared in accordance with U.S. GAAP, provide investors with useful supplemental financial information to better understand its core operational performance.

Reconciliations of historical non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures are included in the financial tables contained in this press release. These non-GAAP financial measures, however, should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the U.S. GAAP financial measures included within this press release and the Company's related earnings call. These non-GAAP financial measures may differ from similar measures used by other companies.

The Toro Company cannot provide quantitative reconciliations of forward-looking non-GAAP financial measures provided herein or in its related earnings call without unreasonable effort because the combined effect and timing of recognition of potential charges or gains is inherently uncertain and difficult to predict. In addition, since any adjustments could have a substantial effect on U.S. GAAP measures of financial performance, such quantitative reconciliations would imply a degree of precision and certainty that could be confusing to investors. From a qualitative perspective, it is anticipated that the differences between the forward-looking non-GAAP financial measures and the most directly comparable GAAP financial measure will consist of items similar to those described in the financial tables later in this release, including for example, acquisition-related costs, net litigation settlement and tax impact of share-based compensation.

Forward-Looking Statements

This news release contains forward-looking statements, which are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management’s current assumptions and expectations of future events, and often can be identified by words such as “expect,” “strive,” “looking ahead,” “outlook,” “guidance,” “forecast,” “goal,” “optimistic,” “anticipate,” “continue,” “plan,” “estimate,” “project,” “believe,” “should,” “could,” “will,” “would,” “possible,” “may,” “likely,” “intend,” “can,” “seek,” “potential,” “pro forma,” or the negative thereof or similar expressions. Forward-looking statements involve risks and uncertainties that could cause actual events and results to differ materially from those projected or implied. Forward-looking statements in this release include the Company's fiscal 2021 financial guidance. Particular risks and uncertainties that may affect the Company’s operating results or financial position include: COVID-19 related factors, risks and challenges, including among others, the severity of COVID-19, its effect on the demand for the Company’s products and services, the ability of dealers, retailers, and other channel partners that sell the Company’s products to remain open, availability of employees and their ability to conduct work away from normal working locations and/or under revised protocols, the ability to receive commodities, components, parts, and accessories on a timely basis through its supply chain and at anticipated costs, and the ability of the Company to continue its production operations; adverse worldwide economic conditions, including weakened consumer confidence; disruption at or in proximity to its facilities or in its manufacturing or other operations, or those in its distribution channel customers, mass retailers or home centers where its products are sold, or suppliers; fluctuations in the cost and availability of commodities, components, parts, and accessories, including steel, engines, hydraulics and resins; the effect of abnormal weather patterns; the effect of natural disasters, social unrest, and global pandemics; the level of growth or contraction in its key markets; customer, government and municipal revenue, budget, spending levels and cash conservation efforts; loss of any substantial customer; inventory adjustments or changes in purchasing patterns by customers; the Company’s ability to develop and achieve market acceptance for new products; increased competition; the risks attendant to international relations, operations and markets, including political, economic and/or social instability and conflict, tax and trade policies, trade regulation and/or antidumping and countervailing duties petitions; foreign currency exchange rate fluctuations; financial viability of and/or relationships with the Company’s distribution channel partners; risks associated with acquisitions, including those related to the recent acquisitions of Charles Machine Works and Venture Products, Inc.; impairment of goodwill or other intangible assets; delays or failures in implementing, and unanticipated charges, as a result of, restructuring activities; management of alliances or joint ventures, including Red Iron Acceptance, LLC; impact of laws, regulations and standards, consumer product safety, accounting, taxation, trade and tariffs, healthcare, and environmental, health and safety matters; unforeseen product quality problems; loss of or changes in executive management or key employees; the occurrence of litigation or claims, including those involving intellectual property or product liability matters; and other risks and uncertainties described in the Company’s most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q or current reports on Form 8-K, and other filings with the Securities and Exchange Commission. The Company makes no commitment to revise or update any forward-looking statements in order to reflect events or circumstances occurring or existing after the date any forward-looking statement is made.

THE TORO COMPANY AND SUBSIDIARIES

Consolidated Statements of Earnings (Unaudited)

(Dollars and shares in thousands, except per-share data)

 

Three Months Ended

January 29, 2021

January 31, 2020

Net sales

$

872,986

$

767,483

Cost of sales

557,950

479,395

Gross profit

315,036

288,088

Gross margin

36.1

%

37.5

%

Selling, general and administrative expense

173,571

196,959

Operating earnings

141,465

91,129

Interest expense

(7,522

)

(8,156

)

Other income, net

1,883

3,166

Earnings before income taxes

135,826

86,139

Provision for income taxes

24,545

16,048

Net earnings

$

111,281

$

70,091

Basic net earnings per share of common stock

$

1.03

$

0.65

Diluted net earnings per share of common stock

$

1.02

$

0.65

Weighted-average number of shares of common stock outstanding — Basic

108,122

107,423

Weighted-average number of shares of common stock outstanding — Diluted

109,194

108,655

Segment Data (Unaudited)

(Dollars in thousands)

 

Three Months Ended

Segment Net Sales

January 29,
2021

January 31,
2020

Professional

$

650,223

$

594,721

Residential

217,700

165,848

Other

5,063

6,914

Total net sales*

$

872,986

$

767,483

*Includes international net sales of:

$

191,681

$

175,835

Three Months Ended

Segment Earnings (Loss)

January 29, 2021

January 31, 2020

Professional

$

116,816

$

102,474

Residential

32,108

21,566

Other

(13,098

)

(37,901

)

Total segment earnings

$

135,826

$

86,139

THE TORO COMPANY AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)

(Dollars in thousands)

 

January 29,
2021

January 31,
2020

October 31,
2020

ASSETS

Cash and cash equivalents

$

433,394

$

108,914

$

479,892

Receivables, net

306,865

321,192

261,135

Inventories, net

675,307

738,960

652,433

Prepaid expenses and other current assets

41,177

51,442

34,188

Total current assets

1,456,743

1,220,508

1,427,648

Property, plant, and equipment, net

457,147

431,253

467,919

Goodwill

422,163

362,136

424,075

Other intangible assets, net

410,587

347,643

408,305

Right-of-use assets

75,467

73,137

78,752

Investment in finance affiliate

22,955

25,455

19,745

Deferred income taxes

9,658

6,161

6,466

Other assets

20,418

25,316

20,318

Total assets

$

2,875,138

$

2,491,609

$

2,853,228

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current portion of long-term debt

$

9,992

$

113,903

$

99,873

Accounts payable

364,361

348,003

363,953

Accrued liabilities

429,820

348,027

376,524

Short-term lease liabilities

15,368

14,374

15,447

Total current liabilities

819,541

824,307

855,797

Long-term debt, less current portion

691,356

601,016

691,250

Long-term lease liabilities

63,469

62,015

66,641

Deferred income taxes

71,970

50,676

70,435

Other long-term liabilities

49,080

41,545

54,277

Stockholders’ equity:

Preferred stock

Common stock

107,613

106,977

107,583

Retained earnings

1,104,285

837,194

1,041,507

Accumulated other comprehensive loss

(32,176

)

(32,121

)

(34,262

)

Total stockholders’ equity

1,179,722

912,050

1,114,828

Total liabilities and stockholders’ equity

$

2,875,138

$

2,491,609

$

2,853,228

THE TORO COMPANY AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)

 

Three Months Ended

January 29,
2021

January 31,
2020

Cash flows from operating activities:

Net earnings

$

111,281

$

70,091

Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:

Non-cash income from finance affiliate

(1,283

)

(1,751

)

(Contributions to) distributions from finance affiliate, net

(1,927

)

442

Depreciation of property, plant and equipment

19,173

18,089

Amortization of other intangible assets

4,894

4,714

Fair value step-up adjustment to acquired inventory

470

Stock-based compensation expense

4,516

3,960

Deferred income taxes

1,232

141

Other

1,080

175

Changes in operating assets and liabilities, net of the effect of acquisitions:

Receivables, net

(46,159

)

(53,044

)

Inventories, net

(25,594

)

(88,557

)

Prepaid expenses and other assets

(2,794

)

237

Accounts payable, accrued liabilities, deferred revenue and other liabilities

30,606

21,734

Net cash provided by (used in) operating activities

95,025

(23,299

)

Cash flows from investing activities:

Purchases of property, plant and equipment

(10,504

)

(11,821

)

Asset acquisition, net of cash acquired

(4,542

)

Proceeds from asset disposals

74

25

Proceeds from sale of a business

12,886

Net cash used in investing activities

(2,086

)

(11,796

)

Cash flows from financing activities:

Borrowings under debt arrangements

82,025

Repayments under debt arrangements

(90,000

)

(68,025

)

Proceeds from exercise of stock options

7,714

6,710

Payments of withholding taxes for stock awards

(941

)

(1,361

)

Purchases of TTC common stock

(31,351

)

Dividends paid on TTC common stock

(28,411

)

(26,856

)

Net cash used in financing activities

(142,989

)

(7,507

)

Effect of exchange rates on cash and cash equivalents

3,552

(312

)

Net decrease in cash and cash equivalents

(46,498

)

(42,914

)

Cash and cash equivalents as of the beginning of the fiscal period

479,892

151,828

Cash and cash equivalents as of the end of the fiscal period

$

433,394

$

108,914

THE TORO COMPANY AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures (Unaudited)
(Dollars in thousands, except per-share data)

The company has provided financial measures that are not calculated or presented in accordance with United States ("U.S") generally accepted accounting principles ("GAAP") ("non-GAAP financial measures"), as information supplemental and in addition to the most directly comparable financial measures presented in the accompanying press release that are calculated and presented in accordance with U.S. GAAP. The company uses these non-GAAP financial measures in making operating decisions because the company believes they provide meaningful supplemental information regarding the company's core operational performance and provide the company with a better understanding of how to allocate resources to both ongoing and prospective business initiatives. Additionally, these non-GAAP financial measures facilitate management's internal comparisons to both the company's historical operating results and to the company's competitors' operating results by factoring out potential differences caused by charges and benefits not related to the company's regular, ongoing business, including, without limitation, certain non-cash, large, and/or unpredictable charges and benefits; acquisitions or dispositions; legal judgments, settlements or other matters; and tax positions. The company believes that such non-GAAP financial measures, when considered in conjunction with the company's financial measures prepared in accordance with U.S. GAAP, provide investors with useful supplemental financial information to better understand the company's core operational performance. These non-GAAP financial measures should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the most directly comparable U.S. GAAP financial measures presented in the accompanying press release. The non-GAAP financial measures presented in the accompanying press release may differ from similar measures used by other companies.

The following table provides a reconciliation of financial measures calculated and reported in accordance with U.S. GAAP to the most directly comparable non-GAAP financial measures included within the accompanying press release for the three month periods ended January 29, 2021 and January 31, 2020:

Three Months Ended

January 29,
2021

January 31,
2020

Gross profit

$

315,036

$

288,088

Acquisition-related costs2

470

Non-GAAP gross profit

$

315,036

$

288,558

Gross margin

36.1

%

37.5

%

Acquisition-related costs2

%

0.1

%

Non-GAAP gross margin

36.1

%

37.6

%

Operating earnings

$

141,465

$

91,129

Litigation settlement, net1

(17,075

)

Acquisition-related costs2

2,018

Non-GAAP operating earnings

$

124,390

$

93,147

Earnings before income taxes

$

135,826

$

86,139

Litigation settlement, net1

(17,075

)

Acquisition-related costs2

2,018

Non-GAAP earnings before income taxes

$

118,751

$

88,157

Net earnings

$

111,281

$

70,091

Litigation settlement, net1

(13,455

)

Acquisition-related costs2

1,633

Tax impact of share-based compensation3

(4,578

)

(2,035

)

Non-GAAP net earnings

$

93,248

$

69,689

Three Months Ended

January 29,
2021

January 31,
2020

Diluted EPS

$

1.02

$

0.65

Litigation settlement, net1

(0.13

)

Acquisition-related costs2

0.01

Tax impact of share-based compensation3

(0.04

)

(0.02

)

Non-GAAP diluted EPS

$

0.85

$

0.64

Effective tax rate

18.1

%

18.6

%

Tax impact of share-based compensation3

3.4

%

2.4

%

Non-GAAP effective tax rate

21.5

%

21.0

%

1

On November 19, 2020, Exmark Manufacturing Company Incorporated ("Exmark"), a wholly-owned subsidiary of TTC, and Briggs & Stratton Corporation ("BGG") entered into a settlement agreement ("Settlement Agreement") relating to the decade-long patent infringement litigation that Exmark originally filed in May 2010 against Briggs & Stratton Power Products Group, LLC ("BSPPG"), a former wholly-owned subsidiary of BGG (Case No. 8:10CV187, U.S. District Court for the District of Nebraska) (the "Infringement Action"). The Settlement Agreement provided, among other things, that upon approval by the bankruptcy court, and such approval becoming final and nonappealable, BGG agreed to pay Exmark $33.65 million ("Settlement Amount"). During January 2021, the Settlement Amount was received by Exmark in connection with the settlement of the Infringement Action and at such time, the underlying events and contingencies associated with the gain contingency related to the Infringement Action were satisfied. As such, the company recognized in selling, general and administrative expense within the Condensed Consolidated Statements of Earnings during the first quarter of fiscal 2021 (i) the gain associated with the Infringement Action and (ii) a corresponding expense related to the contingent fee arrangement with the company's external legal counsel customary in patent infringement cases equal to approximately 50 percent of the Settlement Amount. Accordingly, litigation settlement, net represents the net amount recorded in selling, general and administrative expense within the Condensed Consolidated Statements of Earnings for the settlement of the Infringement Action during the three month period ended January 29, 2021.

 

2

On March 2, 2020, the company completed the acquisition of Venture Products, Inc. ("Venture Products") and on April 1, 2019, the company completed the acquisition of The Charles Machine Works, Inc. ("CMW"). Acquisition-related costs for the three month period ended January 31, 2020 represent costs incurred related to our acquisition of Venture Products, as well as integration costs and charges incurred for the take-down of the inventory fair value step-up amount resulting from purchase accounting adjustments related to our acquisition of CMW. No acquisition-related costs were incurred during the three month period ended January 29, 2021.

 

3

The accounting standards codification guidance governing employee stock-based compensation requires that any excess tax deduction for share-based compensation be immediately recorded within income tax expense. Employee stock-based compensation activity, including the exercise of stock options under The Toro Company Amended and Restated 2010 Equity and Incentive Plan, can be unpredictable and can significantly impact the company's net earnings, diluted EPS, and effective tax rate. These amounts represent the discrete tax benefits recorded as excess tax deductions for share-based compensation during the three month periods ended January 29, 2021 and January 31, 2020.

Contacts:

Investor Relations
Julie Kerekes
Senior Managing Director, Investor Relations
(952) 887-8846, julie.kerekes@toro.com

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