Release Date: September 05, 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 a nearly 7% increase in net sales to $1.16 billion for the third quarter.
- Residential segment grew 53%, driven by increased shipments to the mass channel and the strategic addition of Lowe's.
- Adjusted diluted earnings per share increased by 24% to $1.18, reflecting productivity and manufacturing efficiencies.
- Free cash flow improved substantially compared to last year, indicating disciplined execution and focus on working capital.
- The company remains on track to deliver at least $100 million of annualized run rate savings by fiscal 2027 from its AMP initiative.
Negative Points
- Lower shipments of snow and ice management products and contractor-grade zero-turn mowers due to elevated field inventories.
- Increased caution from homeowners and dealers, driven by macro factors such as high interest rates and geopolitical environment, led to lower-than-expected shipments of lawn care products.
- Professional segment net sales decreased by 1.7% year over year, primarily due to lower shipments of certain products.
- Higher material and manufacturing costs partially offset productivity improvements and net price realization.
- The company revised its full-year fiscal '24 guidance downward, reflecting increased caution in homeowner-facing markets.
Q & A Highlights
Q: Can you provide context on the backlog and order intake for the quarter?
A: Richard Olson, Chairman and CEO: The backlog has decreased year-over-year and sequentially, primarily in the golf and grounds and underground segments. Despite increased production, strong order intake has kept the backlog elevated. We expect the backlog to normalize by the end of fiscal 2025.
Q: How are you managing the increased macro caution in the lawn and garden segment?
A: Richard Olson, Chairman and CEO: We are 80% through normalizing dealer field inventory levels. The caution is mainly from homeowners on larger-ticket items, leading to trade-down activity and lower shipments in July. We are adjusting production to align with this trend.
Q: Are you still on track to normalize field inventories and Red Iron DSOs by the end of the fiscal year?
A: Richard Olson, Chairman and CEO: Yes, we are on track and have made significant progress. We may not be completely back to zero, but we are much closer to normal levels compared to the start of the year.
Q: What is your outlook for next year's sales growth?
A: Richard Olson, Chairman and CEO: We are cautiously optimistic. We expect strong performance in golf and grounds, underground construction, and mass channel partnerships like Lowe's. Snow product sales could also improve with a normal winter season. However, macroeconomic factors like interest rates and political environment add some caution.
Q: How did the change in tax rate impact your financials?
A: Angie Drake, CFO: The lower tax rate was driven by a favorable geographic mix of earnings and a transfer pricing study. This did not significantly impact our international business performance.
Q: Can you elaborate on the opportunities in the golf segment?
A: Richard Olson, Chairman and CEO: There are over 500 significant new and renovation golf projects worldwide, which typically include irrigation upgrades. This presents a substantial opportunity for both our equipment and irrigation solutions.
Q: What is your approach to capital allocation and M&A?
A: Richard Olson, Chairman and CEO: We continue to look for strategic investments that enhance shareholder value. This includes adjacencies and product lines, as well as technology acquisitions like Left Hand Robotics.
Q: How are you progressing with the AMP productivity initiative?
A: Angie Drake, CFO: We made significant progress in Q3, including a supplier summit and portfolio adjustments. We remain confident in delivering at least $100 million in annualized savings by fiscal 2027.
Q: When will we see the benefits of lower steel costs in your financials?
A: Richard Olson, Chairman and CEO: Steel cost negotiations are ongoing, and we expect to see benefits in our financials as contracts are renegotiated. This process is continuous and not tied to a specific fiscal year.
Q: What is driving the change in your revenue guidance?
A: Richard Olson, Chairman and CEO: The primary factor is increased caution from homeowners, leading to lower dealer orders and shipments. This has been factored into our revised guidance for the rest of the year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
