The Toro Company (TTC) 1 Sep 222022 Q3 Earnings call transcript

Good day, ladies and gentlemen and welcome to the Toro Company’s Third Quarter Earnings Conference Call. My name is Latif and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s conference, Julie Kerekes, Treasurer and Senior Managing Director of Global Tax and Investor Relations. Please proceed, Ms. Kerekes.

morning, good and you everyone. Thank

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of risks You the are inherent in all and making statements. difficulties, aware predictive uncertainties

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improvements. continue to our driven record at long execute upon in level line performance our achieved Moving third quarter segment high by history results, performance quarterly and of professional a to financial build we margin We strong results with delivering expectations. our and

XX.X% grew grew a sales adjusted by net XX.X%, quarter our earnings per share third both Our by while diluted basis. year-over-year on

We with our manufacturing along products, in for supply continue favorable improvements chain our see to incremental efficiency. demand and innovative

constrained Professional what supply. broad-based our by our driven in line continued net and dynamic and time robust demand of Our produce to a as serving on customers remains well top segment growth was in to as team focus environment. realization well ability this was our price operating

demand and segment, For as solid, more with line moderating our in residential was typical trends. expected seasonal

have the built that’s growth. years and higher we achieved the Importantly, in growth on base of single-digit we of healthy X segment with residential top double-digit

profitability. Turning to

details the from we of year-over-year points raising sales, this XXXX percent Renee These adjusted ability As our results operating excellence points guidance remain adjusted diluted With more net year. minutes. execute our the priorities and we progress, productivity earnings basis our a in sequentially strategic and well. resiliency, XXX and people. growth, earnings per few we this team’s to are underscore Throughout share accelerating guidance on our quarter fiscal second quarter, dedication time of second for our empowering share driving XX profitable year. grew a focused the will on and of operational basis this

to long-term delivered integration of performance opportunities. we in This strong growth includes track. setting Intimidator capitalize result, near-term up the Group, a attractive also the while remains As on ourselves our on which

build market and the sharing space. as zero-turn are and technology our Our large mower leadership growing in resources we teams

our We win Corporate It are and latest in we strategies. The has Report. been At Company, excited people, about purpose, our is in long actions and in serve ingrained how growth to invest customers the Sustainability compete core communities publication and right our Toro our way. and sustainability of the

priorities, strategic ethnic hybrid Our battery and and leadership positions. Scope and outlines aligned and greenhouse in targets women goals absolute specific minorities reducing sales, the including latest X gas report emissions performance and product racial increasing with X of increasing our number and

We are challenges battery today’s includes hybrid as our doing This such global developing technologies. next-generation to simultaneously committed and strengthening business. our addressing our while solutions part in

our conditions the mowers class exceptional to a eTriFlex help staffing club’s designing operators July, Golf prepare challenges these it created allowing our operators. previously and for the while delivering Greens XX. second-to-none by to compromise practices the greens used St. supported done Championship the are addressed X sustainability providing important, while the their work and by were Equally experience We perform reduce world This no playing In emissions Club. mowers performance products Andrew’s for XXXth at or customers also exhaust productivity. Open electric fully that eliminate

can across is forum Sustainability of and Lab, a ideas Systems Park in support helping also facilitate The Recently, demonstrated and the way will more a America. we Company how the now our and together between These deeper and two sustainability support increased we Our first customers and we commitment sustainability to understanding of manufacturers of enrich Through share North better for we call community work and is agencies sustainable ways with just turn the the established I examples practices. to our this to leaders. partner Renee initiative, quarter gain beauty, of hosted review results. detailed to hope over land. many purpose are best a to we Toro solutions which highlights Urban collaboration productivity of our our financial third the industry

good in Thank third and record everyone. delivered operational improvements. by We driving you, the Rick profitability quarter excellence and morning results

year. to from net grew and dynamic, Reported sales a the adapt XX% XX.X% by to of percent was primarily the our supply down decrease The X.X%. and improvements from availability partially billion, the and overall by net products. third from increased diluted of remains by team regions and Residential for net Intimidator was continued driven dry increase builds fiscal of of expressed were net to patterns $X.XX quarter by stand-on an lower primarily of This adjusted up and environment margin were XXXX year-over-year year sales our sales for unfavorable The last Group This sales quarter average. While to this Professional quarter partially improvements growth quarter the was price third third XX% compared chain for percent This as reported mix. mowers of hot for offset last well. The last shipments for net execute due quarter We year. earlier net EPS were and the mowers growth revenue manufacturing by this expressed material quarter net quarter XX.X% leverage. earnings the of when quarter $XXX.X material $X.XX year. partially and was growth year-over-year sales, segment year-over-year the up third $XXX product the and ago. when and segment the realization, the relative in shipments was freight a certain were segment year. and net $X.XX categories fiscal for driven manufacturing walk-power offset productivity both and up in by increase a respectively the quarter this million, constraints. riding in increased Professional net third price products. was XXXX. freight of XX.X% sales acquisition of for and and and primarily This the zero-turn the year-over-year. $X.XX, million, of was offset weather higher in year of the and $XXX.X the XX% up we third incremental was and quarter net quarter year-over-year third primarily were was million increase due higher initial from costs XX.X%. lower realization, the by This Group This third key third from and million, as This of driven segment fiscal quarter price earnings in to the to zero-turn product sales, portable-power certain snow productivity higher in volumes price favorable Residential product $XX.X segment realization realization, on addition X.X% partially offset costs mowers at last Intimidator lower despite a year.

offset freight compared execution, improvement average. this to results. same gross realization higher and company basis primarily point material The the XX to increases third XX.X% a Group gross price to manufacturing were improvement and gross a period reported sequential the both at point to our both year. net relative and in second margin costs strong quarter, Intimidator XX.X%. operating productivity last we adjusted With In margin achieved by quarter the partially improvements the initial a Turning of This for addition to of basis was XXX our the and compared year-over-year year. were adjusted margin in due lower operational

for was first manage a long-term. by was within in percent by and were on and in This This period the legal last average earnings respectively improvement focused year The primarily expense to over from in ago. tax XX.X% period for improving XX.X%, quarter driven in the up sales continue million, operating a the year. $X.X higher was compared SG&A a XX%, same sales net percent year. from control last same percent our in sales a and from for expenses. of for one-time third the compared respectively quarter driven This quarter quarter effective Operating We the up net net margins incremental borrowing as year leverage. XX% prior were well same XX.X% quarter to same Interest XX.X% Adjusted XX.X% year. marketing was XX.X% our the the for $X.X fund restoring adjusted ago. higher the the third the sales as net period the and was to a reported period up acquisition period indirect were offset XX.X% factors as settlement by the million partially and rates to expense period and last of as year XX.X% a same interest earnings the quarter of as are rates.

Turning accounts work the in of by Intimidator to Inventory were the and process balance to million, service and compared parts. sales was up increase a sheet, XX% up year acquisition from million, last driven higher ago, XX% This $XXX organic by primarily our higher driven Group. goods, was $XXX year. receivable finished

addition, million. inflation acquisition. from we through higher activity payment inventory inflation, we QX last XX% impact and on into manage our the year. from and composition was and this our as In includes progress improved this this environment primarily made materials the This fiscal And We unique terms of driven to turns work-in-process normalize $XXX QX by acquisition. reducing purchase increased Accounts XXXX. year inventory and expect balances and from raw to incremental to payable

$XXX planned acquisition. the placement refinance XX-year to issued This in During borrowings. refinancing was we related the the step Intimidator outstanding private our million to quarter, revolver notes of final Group

the our We quarter. X of gross debt-to-EBITDA of ratio within paid down $XX target also in debt to remain Xx. million We

sheet. to strong follow supported our continue a We capital allocation by approach, disciplined balance

our leverage goals by plan actions year-to-date to million priorities making cash and both January through dividends highlighted and $XXX $XX our share of in investments, Intimidator of strategic our to Our flexibility. repurchases, Group returning support fund and shareholders million dividends regular this investments in capacity, remain: organically year, to growth, shareholders and $XXX $XXX are priorities product to in a maintaining acquisition support through approximately include to return These financial expenditures repurchases. acquisitions, long-term share capital profitable in business and to which our with million million productivity deploy million in $XXX new and our

are We improvements with we the are quarter we’re seeing. strong supply and operational the chain and entering encouraged fourth momentum, by incremental

XXXX fiscal guidance our As Rick on are full based mentioned, current updating we year visibility.

account normalization For growth expectation patterns for year, of ongoing sales our takes reflects into of now this we trends summer. impact the XX%. expect residential and the demand and spring about change net full weather of This unfavorable the

growth For the digits. we year mid-single anticipate full segment, in residential net sales the

expect For average. continue we segment, the company net the professional sales above to growth

of we Looking fiscal gross Taking of at XXXX to be gross in continue improvement to sequential quarters and macro into the account the margins, current slightly year. we three Intimidator Group, each of margins have addition below the factors fiscal expect XXXX levels. made

Moving earnings. to operating

pressures quarter Group. to expect For the to And our supply to are development operational into expectations continue research to XXXX. last percent and the of of more higher to XXXX. directly net be be prioritize the sales normalized This a our realizing, expect anticipates fiscal full slightly to operating customers margin be inflationary also strategic spending more professional for investments, as Intimidator the and and we engage takes fiscal lower. year, residential margin full fourth well year than with as we account segment adjusted in and as the segment similar This we expect continue SG&A our earnings improvements year of as acquisition the to chain we continued

the are $X.XX range We close fiscal EPS diluted and of confident to year out we adjusted $X.XX. raising to guidance we’re our a full as year,

diluted a one-time the deduction As adjusted stock as guidance excess our well the reminder, costs. as benefit compensation of for acquisition-related tax EPS excludes

guidance net free This to of constrained we through We supply. reflects manage are are making working cash also earnings. range XX% the reported conversion a this of investments our XX% we as capital time flow updating of to

We rate to expect more free work cash typical in a normalize levels. flow to revert we to conversion XXXX fiscal inventory as

tax we depreciation our back the $XX In turn strategic growth. We and building about expect our investments effective million about XX%. about to remain priorities addition, we make and on rate an Rick. to adjusted business call now future and $XXX to support of expense amortization of on of long-term interest as will focused prudent continue the execute for I million,

Thanks, Renee.

of As we The show well markets year, the each enter chain fiscal attractive to of the signs final incremental continues supply our remain in quarter improvement. we we of serve. positioned

and We are making operational adjustments agility to drive enhanced flexibility.

are our on serving market well remained our markets. demand We Overall, focused in winning customers end and solid.

to outdoor our We essential products they are perform are across necessary benefiting of work as the used from nature environments.

market Customers factors brands comes I’ll segment. and and with from networks. future our which recognize now innovation, comment benefiting impact the and We’re are our markets, distribution also durability macro trust the our leadership and support starting quality, appreciate extensive seeing in service and results, we our products. that with professional on could our

demand specialty underground providing continue both investments, infrastructure a construction, private public with to For see tailwind. strong and we multiyear and

equipment With industry, are lineup capitalize demand. the underground this specialty we comprehensive construction prepared most in and to the on heightened

are well levels. demand of course budgets golf, pre-pandemic healthy. and a For Rounds shows no pace down at continue slowing played above to trend sign

and equipment poised offer our on to company in leader both are only to as and momentum. market build the As golf, the we irrigation solutions

grounds, products. well we interest zero as continue of green the exhaust in increasing as For to and prioritization municipalities emission see spaces

sustainable well For solutions, with growing offerings professionals. positioned customers no are a to suite seeking compromise of geared we

in For earlier snow ice inventory this management, preseason seeing year the out we cleared following and that channel. are storms the late-season bookings healthy

into expansion category. the leadership enhance recent We liquid continue this our including our in market, to de-icing

and products significantly provide amount reduced new exceptional received salt performance. required. are Our being of by the also de-icing well customers They

Toro Spartan contractors, extend are environment, us remains position that In and leadership solutions brands, and especially growing more three retail seasonal that drive just need important market this the productivity trends and This extremely our attractive. seeing and we For do our Exmark, well efficiency the space. landscape demand. to in in current typical are large, for

Moving to the residential segment.

a We patterns with signs are includes typical seasonal that as to see demand normalizing continue This alignment expected. more trends.

This by for eye on lineup, overall and us, business keep spending. few last marketing. continue is we driven refresh over brand as top demand an of this placement have our been investments product base the normalization expanded higher retail consumer to built we confidence broader a years. Importantly perspective, and in sentiment well the From on as of has

monetary inflation, uncertainty. the operational coupled solutions. We enterprise-wide autonomous relationships ability we macro these excellence, environment headwinds. leveraging level connected deep stakeholders strategic with and policy drive focus monitoring these on our are actions heightened We of advances to drivers Today, include across going for leadership and also sharp navigate areas innovation, and in of our geopolitical our in remain allocation confident forward. investments portfolio. our We’re will a future in acknowledge Key and alternative smart power, growth value and all believe prudent capital broad our

our always, to and Toro gratitude would to customers extended Session that, our note, our resilience. Company’s to extend dedication success. their shareholders will open like like the team I I also their As my the for key Question-and-Answer the channel up for call With continued and would support. that is we employees questions. On thank to for partners,

Thank of first line you. Longbow Our from the of [Operator Research. Instructions] your line open. MacGregor, is David MacGregor comes question David

morning, the And of big change to long-lasting be you behind thanks might box just on have temporary consequences? for us in which which weakness is everyone. business, sense walk may taking tied a in Rick, I mowers, the – that inventory a the management, in more how retail of Good nature much give questions. can hi, residential the there guess more POS, versus

Yes. drought be immediate a way kind the was That more to to it more the impacted then situation. those within into for just to got we factors. by, that by category that’s happens spring. converted an of a the the of mid-portion in seasonal late summer, business. really just of that reflecting be Walk-power example, And when affected demand That is the categories happens mower really one

more So it doesn’t that. reflect anything than

Yes. to growth And pro. it’s we also period, that I recognize as residential as well think in that zero-turn during important within saw within mowers same

other very our just excited really about. saw continued is – of growth that we’re in for mower, that that that’s part that’s positive one we just area, Maybe and Flex-Force electric suite

Right.

it thanks golf of encouraging. indicated for Okay, couple is which Machine it’s Charles then turning maybe drag for chain a you the a improving, like that. supply in to But also times is that And and professional still side, Works. seems

those Are dates well of So I’m estimate using and best XXXX? Charles at looking we for I’m Works. golf curious for your Machine – what’s channels get be would for kind supply

are we chain. the focused Yes, very supply Right. on

We like and beyond have solid incredible well some demand that very into looks XXXX cases. it’s in

focus on supply And so our is chain.

We that meetings say we’ve day, in product. per per the seeing And the have focused that we’re top we’re got. results multiple week on of improvement, seeing I producing when issues improvements bottom-line

seeing these away. also are go really top We issues – the

challenge So across as on the of lot many the this professional did the but list. we’re down year don’t We further have engine as are working a more components multiple of businesses, the big markets. side issues the at we last time, shared

components, So with do power it’s anything elements, to of transmission wire higher the a electronics, threads do to having electrical so of with and lot horsepower, areas hydraulic common harnesses.

We are having chip markets having well. other the that same are challenges as

that design good marketing or to team team working different and through. really – a the together – working team that sourcing through to the solutions. way our go is in The it’s team, list, we’re areas beyond are there issues up come has news still further the issues to down So lot into but we’re working of include our our really extended top find

an It’s to good the with finding equally could it alternative. cases, many always design In an be So not alternative got that’s have a supplier way better. designs.

question you will is that. pricing. XXXX growth Do remain normal? for price for on still expect Thanks above me Great. Last just in

Yes.

very solid, price our for it’s to demand market, standpoint. discipline. over we remains but years. our last forward very look that And products, the competitively, pricing we price, with been the we rational dynamic very from will number competitors our of we But As and are David, continue also price to

improve is focus to over margins our restore So and our time.

that expect we you incorporate think will as supports can I that forward look that. pricing So that

very Thanks much.

Thank you.

Cleveland Research. comes question Bosshard Bosshard. ahead, Eric Please from Eric next of go Our

Thanks. I have two things.

used expression means? you And Can contractor I the the of times, to demand. you you are normalized used explain as seeing in just same what couple First residential. the normalized think a landscape of all, relates demand it you expression

Yes.

of line, last in that that the from XX%. So, some if so the product pandemic the We that residential the business through change but obviously, have rebooting has business absolute by team grew more marketing that to the forth that the the years. – for think partners, that specifically, work adding we of couple been grew business and foundational than you ‘XX champ business benefited did business, completely messaging underlying to we about channel about the past. period ‘XX the effects, from an pandemic as we talked was And

during we of would the the So, there returning weather in higher which drivers, business, substantially to That how was out in that Is at summer more being the business the spring, and the timing are plateau than fall. before. play are XXXX spring, patterns. that the of it be enough that’s and said, the a new we of does seasonal normal moisture drivers

for a late it’s a referring spring late to patterns was to for challenging have business, season normal long and – then residential last been the So, part very business with very starting summer. that a dry of And really over time. this converting that the actually

a – business the in to that was in it’s normal grew it grow real And macro QX. that time we pattern. So, environment. – did But challenging that returning it’s we

So, to the there. job great a team continues do

something different to has And then or – it returning side, view Is sounds on it’s than the way same the there? is landscape that residential done is does and better to normal. landscape perhaps it normalization contractor, contractor normal, so like

be Landscape strong. contractor continues very to

are as products purchased that that, percentage by aspect of well. there certain mowing a talking if those the are homeowners large anything, are you about If of

that That’s there small that business portion have probably they of – So, the customer. of like residential more is type a acts reference. a

they to landscape that purchases be behind are And we strong most capital continues on a cases, contractors working in meet very pro-perspective. the and of demand. are where purchases, broader creation, their contractors’ from that terms catch And maintain to that up. are to properties, their that’s In landscape working

And then guidance sales days today, and XX. XX it’s the ago, secondly, was than XX more it XX to

takes the the What’s range versus days of ago And so different. now top what different at it’s discussion? out appears XX but the of similar, end that

is residential the factors range the took of That the market. XX the portion. in have XX XX It the to and versus mentioned just I because residential

upon building from operational supply that’s raise an just that And performance from across and the we the in really that our area, the guidance standpoint, did and EPS seeing improvements we both portfolio. are chain

Okay. could. if And then I one more

In as it you terms contractor being relates of – Rick, mentioned, purchase. behind to landscape that

mentioned as inventories or about ‘XX. that to you think relates start – into, about history we Can channel or to look think how earlier, either like to to backlog through – is or all it start at channel relative would backlog you as about if XXXX not as think you golf or think you demand that what dimensionalize ‘XX. As inventories strong frame I

of on comment those. can I Sure. both

There First field few is in a see. inventory, all, of like The Company lower than significantly would exceptions. to Toro general we is for

of about working that been that not have field during a and started categories channel all our inventory virtually late work return levels pro-categories try call And the they spring, do talked the customers and some need be of have of markets to in the there the normal we inventory We to residential end market summer the across partners more at have very field normal are with do our but to supply we the closely enough residential to to something environment. constrained that’s to in do have levels. been and

work. will we So,

will end the demand, fulfill bring field As we level. a customer to to better, chain then inventories we obviously, gets normal back the supply and more work

backlog, be specifically position and strong our higher the speaking than demand very continues fiscal the Just when the to we it ended – year. backlog have we was is to

primarily a for position from also some within it it – management creation, the progress and strong products very at professional be is couple previously, coming snow about customers last on from but just confident very continues those to the we healthy professional areas there business, point, for We and of that we ice specialty business. golf, landscape and peak, the for from down bringing months underground have made and a construction very in They need all a feel demand. significant this talked

you. Thank helpful. Very Great.

Thank you.

of line is next Wojs, comes Our from your Timothy open. question Wojs Timothy Baird.

if Yes. kind Good in Maybe are about backlog kind of of just things, of seen given Hey above would and think everybody just think half you tracking seasonality, you the I you morning. what fulfillment kind back again. of into the have from would when given for you more what in I mean things business heading you be just seasonality? of kind start where normal to kind year, and seasonality of to expect, see fiscal are ‘XX? and inventories the backlog field normal

Yes. Maybe I can start, Rick, you can add on.

perspective. probably more as supply Rick normal business, professional constrained being the chain. from But the I think, is just residential seasonal a see really we expect to said, business by Tim,

golf going when that’s businesses of take difficult we we little going more construction, longer. grounds to for So, bit and It’s exactly normal to us cadence. think little a and some to that’s think as But underground such longer that take occur. to for return our bit will to a a predict

year For sooner businesses, continue we a some will some and landscape of seeing such next portion little But good the for are business it into going supply think of next well. recovery to professional as a be more as constrained we year contractor. do

not case business, you underground, In the business, special Just It’s the shift seasonal really seasons they new construction, our underground business, it’s different XXXX those about the of the the seasonal. Ditch for of additional not example. Witch and if point, patterns on. snow, very have one factors, newer parts are really driven think in by especially from

the it long-term. a base some provides consistent that takes So, variability more of out

think a about of of kind of takes helpful. about And I from mean guess should year, and of puts next mean to we kind kind That’s high-level consider high-level that I perspective, I next normalized there you mean relative Okay. we margin? any then as maybe think year? kind are as XX% I the incremental

next begun we see we We Hopefully, an continues inflation the think rate have are We that future of do we seen coming – standpoint. environment still commodities some that from has of think their inflationary peaks some seeing as that decline. the well as will year. kind of a off to

see to expect we that. So,

continue as supply that. to really Rick our chain. improve will focus working try We on And to to said,

Our end are very markets healthy.

in we really portfolio are and of position. our as broad as seeing, All helping look And are just we mentioned, of Rick our at us portfolio the customers a great strength diversification. the

go next it be we year So, it will year. positive do as we a feel and think into about pretty strong

Okay. And Good. and just kind any the quarter? are just kind price in and ballpark last on there the volumes way of what out one, price is to break of volume, unit then

would saw the look price a is at driver, in to growth major was the volume strength we – as turns, was and also positive Tim, that that our well especially realization acquisition, Intimidator as price What Yes. as we a well. of zero Group factoring in area

in multiple last that to that impact the took we realizing are We of year. the response price inflation actions saw the we

And So, supply still we the professional as the again, price. that’s business, constrained. driver is behind have stated,

categories see standpoint, and we more growth would we if could a in more ship product – from we volume we professional a standpoint. key So did from build

of demand for an overall overall seeing versus and company. price more but solid, we of are So, impact volume the

year. Okay, good and on time good. for luck of rest the Thanks the

Tim. Thanks

you. Thank

your is from Tom Tom Research. open. Our line Northcoast comes next of Hayes question Hayes,

from towards and called more wondering Maybe, I guys the know and thanks headwind cadence, from front, margin negative out if kind time for expect that was you just impact the acquisition of move – will. Renee, you Intimidator abate a Group. I Appreciate everyone. you normalized of my morning the when on taking Good to Hey. questions. that kind the

Yes.

track seeing acquisition We standpoint are the working and in on seeing acquisition from expect market do – really that acquired on we standpoint. impact synergies And really will are – are forward first from just is integration them – the the improvements those a recorded benefits our Group I we of to be absolute and zero-turn forward. QX and it’s Group, so there We within certainly, – mean Intimidator was margin an market. improve But going and an going actions. would fast-growing year Intimidator making expect to continue the some we from

also we but with Group, do portfolio. Intimidator also Group, we leverage focused contractor benefit, on landscape we are also across is the whole our with technology our across the other brands What as not how just but So, really are Intimidator seeing an well.

the Okay. residential Great. for up. wondering professional obviously, continue you likely by there irrigation on of that just large be will for side? products either seem change drought in your any to really and be U.S. impacted been Rick, the maybe, And conditions if portions then seen letting I is have of or demand have the don’t was any to the

of which I would normal demand variation are we periods, business. accustomed as happens them that kinds in these in really characterize to our

in expect some for you what good to business. water it can normal – it starts irrigation would seeing are restrictions place be actually negatively put those it. point, initially But response And circumstances. So, full of we affect at the where pretty then in are

the areas that of We have across the couple growth over last affected would had years. be great

so you unusual, in what drought And conditions. expect would nothing the but

the time Thanks today. Alright. taking for Appreciate it.

you. Thank

Ms. please concludes question-and-answer session. proceed Kerekes, to closing of This remarks. the Q&A End

look to you Latif, Company. Toro and The full thank year our you, interest in your Thank results to XXXX. forward quarter again fiscal questions in everyone discuss fourth for December and talking We and with all for

Thank presentation. in the conference. concludes your you This today’s participation for

disconnect. You may day. now Good