On September 5, 2024, The Toro Co (TTC, Financial) released its 8-K filing for the third quarter of fiscal 2024. The Toro Co, a manufacturer of turf maintenance and landscaping equipment, reported a mixed performance with net sales and earnings per share (EPS) missing analyst estimates.
Company Overview
The Toro Co manufactures a wide range of turf maintenance and landscaping equipment, including reel and rotary riding products, trim cutting and walking mowers, greens rollers, turf sprayer equipment, underground irrigation systems, heavy-duty walk-behind mowers, and sprinkler systems. The company markets its products through a network of distributors and dealers, primarily to professional users maintaining turfs and sports fields such as golf courses. The company's operations are divided into two segments: Professional and Residential, with the Professional segment generating a substantial part of its revenue. The Toro Co also produces snow plowers and ice management products, with the United States being its key revenue-generating market.
Performance and Challenges
The Toro Co reported third-quarter net sales of $1.16 billion, up 6.9% from $1.08 billion in the same period of fiscal 2023. However, this fell short of the analyst estimate of $1.26 billion. The reported diluted EPS was $1.14, up from a loss of $(0.14) in the same period last year, but below the analyst estimate of $1.22. The company cited increased macro caution in July, which led to lower-than-expected lawn care shipments to dealers, as a significant challenge.
Financial Achievements
Despite the challenges, The Toro Co achieved substantial growth in its residential segment, driven by strong mass channel performance and the strategic addition of Lowe’s. The Professional segment saw increased output and shipments in underground construction and golf and grounds businesses, addressing sustained demand and elevated order backlog.
Income Statement Highlights
| Metric | Q3 FY24 | Q3 FY23 | % Change |
|---|---|---|---|
| Net Sales | $1,156.9 million | $1,081.8 million | 7% |
| Net Earnings (Loss) | $119.3 million | $(15.0) million | 895% |
| Diluted EPS | $1.14 | $(0.14) | 914% |
Segment Performance
Professional Segment: Net sales for the third quarter were $880.9 million, down 1.7% from $896.3 million in the same period last year. The decrease was primarily driven by lower shipments of snow and ice management products, lawn care equipment, and compact utility loaders. However, the segment's earnings increased to $165.7 million, up from $13.0 million in the same period last year, due to prior-year non-cash impairment charges, productivity improvements, and net price realization.
Residential Segment: Net sales for the third quarter were $267.5 million, up 52.6% from $175.3 million in the same period last year. The increase was driven by higher shipments to the mass channel. Segment earnings rose to $32.6 million, up from $3.8 million in the same period last year, due to net sales leverage, productivity improvements, and net price realization.
Operating Results
Gross margin for the third quarter was 34.8%, up from 34.4% in the same prior-year period. SG&A expense as a percentage of net sales was 22.0%, compared with 22.2% in the prior-year period. Operating earnings as a percentage of net sales were 12.8%, compared with (1.8)% in the same prior-year period. Interest expense was $14.5 million, down $0.5 million from the same prior-year period. The reported effective tax rate for the third quarter was 17.3%, compared with 47.6% in the same prior-year period.
Analysis
The Toro Co's performance in the third quarter of fiscal 2024 highlights both strengths and challenges. The company's ability to drive growth in its residential segment and maintain strong performance in its professional segment's underground construction and golf and grounds businesses is commendable. However, the increased macro caution and lower-than-expected shipments of lawn care products pose challenges that need to be addressed. The company's strategic initiatives, including the AMP productivity initiative, are expected to yield long-term benefits and drive value for shareholders.
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Explore the complete 8-K earnings release (here) from The Toro Co for further details.
