Record EPS for Toro in 3Q – Analyst Blog

Sales inched up 1% year over year to $504 million, but fell short of the Zacks Consensus Estimate of $529 million. Strong sales performance in the Professional segment mitigated the decline in the Residential segment.

Gross profit increased 6% year over year to $178 million with gross margin expanding 180 basis points to 35.3%. Selling, general and administrative expenses increased 4% year over year to $117 million. Operating income increased 11% year over year to $61 million in the quarter. Operating margin expanded 120 basis points to 12.1% in the quarter.

Professional: Sales for the segment jumped 4% year over year to $361 million. New products and strong demand in markets, despite the drought, led to increased sales of landscape maintenance equipment. Domestic sales of golf equipment and irrigation also increased on the back of strong demand of new products. Furthermore, recent acquisitions were also accretive to sales. However, international economic issues and unfavorable currency exchange were minor offsets. The segment’s operating profit increased 10% to $70 million.

Residential: The segment reported sales of $136 million, down 8% year over year, affected by the drought conditions. Snow blower sales and residential riding products sales were down. However, sales of Toro’s new string and hedge trimmers and shipments of walk power mowers were up slightly during the quarter. Operating income, however, saw a 10% increase on a year-over-year basis to $10 million from an adjusted $9 million in the year-ago quarter. The year-ago quarter excluded a pre-tax charge of $4.5 million for one-time costs associated with a rework issue affecting a large number of walk power mowers. Including the same, operating income in the quarter soared 117%.

Toro Co. ended the quarter with cash and cash equivalents of $143 million, up from the $82.6 million at the end of second quarter 2012. Cash flow from operating activities during the first nine months of fiscal 2012 improved to $165 million from $72 million in the prior-year comparable period. As of August 3, 2012, debt to capitalization ratio improved to 40% from 42.1% as of May 4, 2012.

For fiscal 2012, Toro Co. envisions revenue growth of around 4 to 5% and net earnings to be about $2.10 per share. The earnings guidance includes a negative impact of 8 cents per share for investments related to the Astec and Stone product-line acquisitions. This has been trimmed from the company’s earlier expectation of revenue growth of about 7 to 8% and net earnings of around $4.30 per share. Drought condition in the U.S and uncertain economic scenario in Europe led to the muted guidance.

Toro Co. will continue to benefit from the strong performance of the golf industry. As the number of golf grounds continues to grow, increased revenues from the courses will positively impact the company’s future capital budgets. This will help bolster Toro Co.’s sales moving ahead. The outlook looks positive for the landscape contractor business as large acreage owners who are replacing their ageing line and garden tractors with Toro’s latest commercial-grade zero turn equipment. Furthermore, successful launch of new products will help drive its revenues. However, drought conditions and the uncertain European scenario remain overhang. The company currently retains a Zacks #3 Rank (short-term Hold recommendation).

Bloomington, Minnesota.-based Toro Co. is a worldwide provider of turf and landscape maintenance equipment, and irrigation solutions, to help customers care for golf courses, sports fields, public green spaces, commercial and residential properties, and agricultural fields. The company operates through its two segments- Professional and Residential. Deere & Company (DE) and Honda Motor Co., Ltd. (HMC) are peers of Toro Co.

Toro Co. (TTC) reported record third quarter 2012 earnings of 67 cents per share, up 22% from 55 cents in the year-ago quarter and outperforming the Zacks Consensus Estimate of 62 cents per share. Increased sales of landscape maintenance, golf and irrigation equipments were the main growth drivers, partially offset by slowing residential sales.

Operational Update

Sales inched up 1% year over year to $504 million, but fell short of the Zacks Consensus Estimate of $529 million. Strong sales performance in the Professional segment mitigated the decline in the Residential segment.

Gross profit increased 6% year over year to $178 million with gross margin expanding 180 basis points to 35.3%. Selling, general and administrative expenses increased 4% year over year to $117 million. Operating income increased 11% year over year to $61 million in the quarter. Operating margin expanded 120 basis points to 12.1% in the quarter.

Segment Performance

Professional: Sales for the segment jumped 4% year over year to $361 million. New products and strong demand in markets, despite the drought, led to increased sales of landscape maintenance equipment. Domestic sales of golf equipment and irrigation also increased on the back of strong demand of new products. Furthermore, recent acquisitions were also accretive to sales. However, international economic issues and unfavorable currency exchange were minor offsets. The segment’s operating profit increased 10% to $70 million.

Residential: The segment reported sales of $136 million, down 8% year over year, affected by the drought conditions. Snow blower sales and residential riding products sales were down. However, sales of Toro’s new string and hedge trimmers and shipments of walk power mowers were up slightly during the quarter. Operating income, however, saw a 10% increase on a year-over-year basis to $10 million from an adjusted $9 million in the year-ago quarter. The year-ago quarter excluded a pre-tax charge of $4.5 million for one-time costs associated with a rework issue affecting a large number of walk power mowers. Including the same, operating income in the quarter soared 117%.

Financial Position

Toro Co. ended the quarter with cash and cash equivalents of $143 million, up from the $82.6 million at the end of second quarter 2012. Cash flow from operating activities during the first nine months of fiscal 2012 improved to $165 million from $72 million in the prior-year comparable period. As of August 3, 2012, debt to capitalization ratio improved to 40% from 42.1% as of May 4, 2012.

Outlook

For fiscal 2012, Toro Co. envisions revenue growth of around 4 to 5% and net earnings to be about $2.10 per share. The earnings guidance includes a negative impact of 8 cents per share for investments related to the Astec and Stone product-line acquisitions. This has been trimmed from the company’s earlier expectation of revenue growth of about 7 to 8% and net earnings of around $4.30 per share. Drought condition in the U.S and uncertain economic scenario in Europe led to the muted guidance.

Our Take

The Toro Co. will continue to benefit from the strong performance of the golf industry. As the number of golf grounds continues to grow, increased revenues from the courses will positively impact the company’s future capital budgets. This will help bolster Toro Co.’s sales moving ahead. The outlook looks positive for the landscape contractor business as large acreage owners who are replacing their ageing line and garden tractors with Toro’s latest commercial-grade zero turn equipment. Furthermore, successful launch of new products will help drive its revenues. However, drought conditions and the uncertain European scenario remain overhang. The company currently retains a Zacks #3 Rank (short-term Hold recommendation).

Bloomington, Minnesota.-based Toro Co. is a worldwide provider of turf and landscape maintenance equipment, and irrigation solutions, to help customers care for golf courses, sports fields, public green spaces, commercial and residential properties, and agricultural fields. The company operates through its two segments- Professional and Residential. Deere & Company (DE) and Honda Motor Co., Ltd. (HMC) are peers of Toro Co.

Toro Co. (TTC) reported record third quarter 2012 earnings of 67 cents per share, up 22% from 55 cents in the year-ago quarter and outperforming the Zacks Consensus Estimate of 62 cents per share. Increased sales of landscape maintenance, golf and irrigation equipments were the main growth drivers, partially offset by slowing residential sales.

Operational Update

Sales inched up 1% year over year to $504 million, but fell short of the Zacks Consensus Estimate of $529 million. Strong sales performance in the Professional segment mitigated the decline in the Residential segment.

Gross profit increased 6% year over year to $178 million with gross margin expanding 180 basis points to 35.3%. Selling, general and administrative expenses increased 4% year over year to $117 million. Operating income increased 11% year over year to $61 million in the quarter. Operating margin expanded 120 basis points to 12.1% in the quarter.

Segment Performance

Professional: Sales for the segment jumped 4% year over year to $361 million. New products and strong demand in markets, despite the drought, led to increased sales of landscape maintenance equipment. Domestic sales of golf equipment and irrigation also increased on the back of strong demand of new products. Furthermore, recent acquisitions were also accretive to sales. However, international economic issues and unfavorable currency exchange were minor offsets. The segment’s operating profit increased 10% to $70 million.

Residential: The segment reported sales of $136 million, down 8% year over year, affected by the drought conditions. Snow blower sales and residential riding products sales were down. However, sales of Toro’s new string and hedge trimmers and shipments of walk power mowers were up slightly during the quarter. Operating income, however, saw a 10% increase on a year-over-year basis to $10 million from an adjusted $9 million in the year-ago quarter. The year-ago quarter excluded a pre-tax charge of $4.5 million for one-time costs associated with a rework issue affecting a large number of walk power mowers. Including the same, operating income in the quarter soared 117%.

Financial Position

Toro Co. ended the quarter with cash and cash equivalents of $143 million, up from the $82.6 million at the end of second quarter 2012. Cash flow from operating activities during the first nine months of fiscal 2012 improved to $165 million from $72 million in the prior-year comparable period. As of August 3, 2012, debt to capitalization ratio improved to 40% from 42.1% as of May 4, 2012.

Outlook

For fiscal 2012, Toro Co. envisions revenue growth of around 4 to 5% and net earnings to be about $2.10 per share. The earnings guidance includes a negative impact of 8 cents per share for investments related to the Astec and Stone product-line acquisitions. This has been trimmed from the company’s earlier expectation of revenue growth of about 7 to 8% and net earnings of around $4.30 per share. Drought condition in the U.S and uncertain economic scenario in Europe led to the muted guidance.

Our Take

The Toro Co. will continue to benefit from the strong performance of the golf industry. As the number of golf grounds continues to grow, increased revenues from the courses will positively impact the company’s future capital budgets. This will help bolster Toro Co.’s sales moving ahead. The outlook looks positive for the landscape contractor business as large acreage owners who are replacing their ageing line and garden tractors with Toro’s latest commercial-grade zero turn equipment. Furthermore, successful launch of new products will help drive its revenues. However, drought conditions and the uncertain European scenario remain overhang. The company currently retains a Zacks #3 Rank (short-term Hold recommendation).

Bloomington, Minnesota.-based Toro Co. is a worldwide provider of turf and landscape maintenance equipment, and irrigation solutions, to help customers care for golf courses, sports fields, public green spaces, commercial and residential properties, and agricultural fields. The company operates through its two segments- Professional and Residential. Deere & Company (DE) and Honda Motor Co., Ltd. (HMC) are peers of Toro Co.