Toro Company ((TTC)) has held its Q3 earnings call. Read on for the main highlights of the call.
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The Toro Company’s recent earnings call presented a mixed sentiment, reflecting both strengths and challenges. The company showcased robust growth in its Professional segment and significant cost savings through its AMP program, alongside strong free cash flow, indicating a solid operational stance. However, these positives were balanced by difficulties in the Residential segment, a decline in total net sales, and a notable non-cash impairment charge, painting a picture of mixed results overall.
Professional Segment Growth
The Professional segment emerged as a key driver of Toro’s performance, with net sales reaching $931 million in the third quarter, marking a 6% increase year-over-year. This growth was fueled by higher shipments in underground construction and golf and grounds products, alongside effective net price realization. Earnings for this segment soared by 20% to $199 million, resulting in an impressive earnings margin of 21.3%, up from 18.8% the previous year.
Operational Efficiency and Cost Savings
Toro’s AMP productivity program played a crucial role in enhancing operational efficiency, delivering $75 million in annualized cost savings. The program is on track to achieve at least $100 million by 2027. In fiscal year 2025, the company realized $47 million in savings, positively impacting SG&A expenses and the overall cost structure.
Strong Free Cash Flow and Share Repurchase
The company reported strong free cash flow of $292 million through the third quarter, with a conversion rate of 90%. Toro also invested $90 million in share repurchases during the quarter, bringing the year-to-date total to $290 million, demonstrating a commitment to returning value to shareholders.
Innovation in Product Offerings
Toro continued to innovate with the launch of new products such as the Ventrac 45RC, Trakt eDingo, and the Trakt Electric Ultra Buggy. The company also highlighted advancements in the golf segment with the introduction of Toro Spatial Adjust irrigation control software and Perfrared moisture sensing technology.
Decline in Residential Segment
The Residential segment faced significant challenges, with net sales dropping to $193 million, a 28% decline year-over-year. This was attributed to lower shipments as homeowners deferred big-ticket purchases. Earnings for the quarter were $4 million, or 1.9% of sales, compared to $33 million, or 12.2% of sales last year.
Total Company Net Sales Decline
Total consolidated net sales for the quarter were reported at $1.13 billion, down 2.2% from the same period a year ago. This decline was partly due to strategic divestitures of noncore assets in the prior year.
Non-Cash Impairment Charge
The earnings report included a significant non-cash impairment charge of $0.62 per diluted share, or $81 million pretax, related to the Spartan trade name. This was due to persistently lower homeowner demand and a slower market recovery.
Pressure on Overall Margins
The company experienced pressure on its overall margins, with reported and adjusted gross margins for the quarter at 33.7% and 34.4%, respectively, down from 34.8% and 35.4% last year. This was primarily due to lower net sales volume, higher material and manufacturing costs, and inventory valuation adjustments.
Forward-Looking Guidance
Looking ahead, Toro provided a cautious full-year outlook, acknowledging persistent headwinds in the Residential segment but highlighting strong performance in the Professional segment. The company projected adjusted EPS at the low end of the prior range, around $4.15, with full-year net sales expected to be at the low end of flat to a 3% decline. Professional segment revenue is anticipated to rise slightly, while Residential segment revenue is expected to fall by mid-teens year-over-year. The AMP productivity program remains on track to achieve $100 million in savings by 2027.
In summary, The Toro Company’s earnings call reflected a dual narrative of strength and challenge. While the Professional segment and cost-saving initiatives showcased strong performance, the Residential segment and overall sales decline highlighted areas of concern. The company’s forward-looking guidance remains cautious, with a focus on maintaining growth in its Professional segment amidst ongoing challenges.