Investor Relations Stephen P. Wolfe Vice President, CFO (952) 887-8076
John Wright Director, Investor Relations (952) 887-8865
Connie Kotke Toro Media Relations (952) 887-8984 www, pr@toro.com
Web Site www.thetorocompany.c om
TORO REPORTS RECORD 2005 NET SALES AND EARNINGS
Net Earnings Per Diluted Share Up 21.3% Board Raises Quarterly Dividend From $0.06 To $0.09 Per Common Share
LIVE CONFERENCE CALL December 7, 10:00 a.m. CT www.thetorocompany.com/invest
BLOOMINGTON, Minn. (December 7, 2005) – The Toro Company (NYSE: TTC) today reported record net earnings of $114.1 million, or $2.45 per diluted share, on record net sales of $1,779.4 million for the fiscal year ended October 31, 2005. In fiscal 2004, the company reported net earnings of $102.7 million, or $2.02 per diluted share, on net sales of $1,652.5 million.
For the fiscal 2005 fourth quarter ended October 31, Toro reported net earnings of $6.6 million, or $0.14 per diluted share, on net sales of $337.1 million compared with net earnings of $6.9 million, or $0.14 per diluted share, on net sales of $336.9 million in the fiscal 2004 fourth quarter.
Earnings per share figures for all periods have been adjusted to reflect the effects of a 2-for-1 stock split which was effective March 28, 2005.
The company’s Board of Directors voted to increase the quarterly dividend from $0.06 to $0.09 per common share, payable Jan. 12, 2006 to shareholders of record on Dec. 16, 2005.
“The Toro Company delivered excellent results in 2005 on the strength of a broad and growing business portfolio and our continued emphasis on profitability improvement initiatives,” said Michael J. Hoffman, The Toro Company’s president and chief executive officer. “While the overall business environment was less favorable in 2005 than in 2004, we were nevertheless able to deliver financial performance in line with our goals for sales growth and profit improvement set out in our three-year ‘6+8’ initiative,” said Hoffman.
Hoffman noted that double-digit growth in sales for the professional segment and international business overall helped offset slower sales in the domestic residential segment. “Including contributions from the acquisition of Hayter, Ltd., international sales increased 29.1 percent over 2004 and accounted for nearly 25 percent of total revenues, up from 21 percent in 2004. In particular, international sales of residential products increased more than 50 percent,” said Hoffman. “Increasingly strong growth from our international business is consistent with our overall growth strategy and efforts to increase international revenues to a higher percentage of overall company revenues. The results from accelerating our international growth provided better balance in our business that, in 2005, helped mitigate the effect of unfavorable weather primarily impacting our domestic residential segment.”
SEGMENT RESULTS
Segment data are provided in the table following the “Condensed Consolidated Statements of Earnings.”
Professional
Fiscal year segment net sales totaled $1,145.4 million, up 11.3 percent compared with 2004. Growth in the professional segment was driven by new products, the company’s continued leadership in golf course maintenance equipment and landscape contractor mowing products, broad-based strength in international markets and the acquisition of Hayter. Fourth quarter segment sales increased 7.1 percent.
For the fiscal year, professional segment earnings totaled $207.4 million an increase of 19.8 percent compared with fiscal 2004. Segment earnings for the quarter totaled $24.0 million compared to $18.6 million in the corresponding quarter last year.
Residential
Fiscal year segment net sales totaled $583.3 million, up 5.2 percent from fiscal 2004. Growth in residential international sales, including contributions from the Hayter acquisition, more than offset weakness in the domestic residential segment in the second half of the fiscal year. Residential segment sales for the fiscal 2005 fourth quarter totaled $111.1 million, down 5.3 percent from the fiscal 2004 fourth quarter.
For the fiscal year, residential segment earnings totaled $50.2 million, a decrease of 18.8 percent from fiscal 2004.Segment earnings for the fiscal 2005 fourth quarter were $6.7 million compared with $9.1 million in the same period last year.
REVIEW OF OPERATIONS
For the fiscal year, gross margin was 34.6 percent compared with 35.9 percent in fiscal 2004. The decline resulted primarily from higher commodity costs and the impact of the Hayter acquisition. In the fourth quarter, gross margin was 33.8 percent compared with 34.8 percent in the same period last year.
SG&A expense as a percentage of net sales improved to 24.3 percent in fiscal 2005 compared with 25.9 percent in fiscal 2004. The improvement resulted from lower incentive compensation and warranty costs, as well as expense leveraging accomplished through continued implementation of lean and no-waste efforts throughout the company. For the fiscal 2005 fourth quarter, SG&A expenses were 30.3 percent of net sales compared with 30.6 percent of net sales in the fiscal 2004 fourth quarter.
Interest expense for fiscal 2005 totaled $17.7 million compared with $15.5 million in fiscal 2004. The company’s effective tax rate for fiscal 2005 was 33.0 percent.
Accounts receivable at the end of fiscal 2005 totaled $295.7 million, up $15.1 million or 5.4 percent higher than the end of fiscal 2004. Net inventory at year-end totaled $235.3 million, up $8.1 million or 3.6 percent. The increases in year-end accounts receivable and inventories are primarily the result of the Hayter acquisition which was completed in the second quarter of fiscal 2005.
The company generated $174.1 million in cash from operations in fiscal 2005 compared with $175.3 million in fiscal 2004.
During fiscal 2005, the company repurchased approximately 3.9 million of its common shares for an aggregate purchase price of approximately $157.0 million.
BUSINESS OUTLOOK
Commenting on Toro’s outlook for fiscal 2006, Hoffman said Toro remains on track to achieve the after-tax profit margin and sales growth goals of the company’s three-year ‘6+8’ initiative.
“In fiscal 2004, the first year of this program, we benefited from favorable conditions in most markets, and we turned in a record financial performance,” said Hoffman. “In fiscal 2005, we faced tougher challenges in the form of increasing commodity costs and less favorable market and weather conditions — particularly in North America. We were nevertheless able to deliver financial performance in line with our long-term goals thanks to continued focus on investment in new products, innovation and technology, contributions from international markets and ongoing emphasis on implementing lean principles and reducing waste. Our year end balance sheet is strong, and we continue to generate healthy cash flows to fund future growth and investments. Recognizing that the company is positioned to sustain continued strong financial performance, the company’s Board of Directors voted to increase our quarterly dividend.”
The company is also well-positioned to resume stronger top line growth in fiscal 2006. “With our diverse mix of businesses, steady stream of new products and wider market coverage, we are better able to generate top line growth. Our revenue growth initiatives coupled with our continued emphasis on reducing waste and driving down costs are improving the company’s overall earnings power,” said Hoffman.
The company currently expects to report a 12 to 15 percent increase in fiscal 2006 net earnings per share on revenue growth of 8%, not including any future acquisitions. For its fiscal 2006 first quarter, typically the smallest revenue period, Toro expects to report diluted earnings per share of $0.25 to $0.28.
The Toro Company is a leading worldwide provider of outdoor maintenance and beautification products for home, recreation and commercial landscapes.
The Toro Company will conduct a conference call and webcast for investors beginning at
10:00 a.m. Central Time (CST) on December 7, 2005. The webcast will be available at www.streetevents.com or at www.thetorocompany.com/invest. Webcast participants will need to complete a brief registration form and should allocate extra time before the webcast begins to register and, if necessary, download and install audio software.
1
Safe Harbor
Statements made in this news release, which are forward-looking, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties. These uncertainties include factors that affect all businesses operating in a global market as well as matters specific to Toro. Particular risks and uncertainties facing the company’s overall financial position at the present include the threat of further terrorist acts and war, which may result in contraction of the U.S. and worldwide economies; slow growth rate in global and domestic economies, resulting in rising unemployment and weakened consumer confidence; our ability to achieve the goals for the ‘6+8’ growth and profit improvement initiative which is intended to improve our revenue growth and after-tax return on sales; the company’s ability to achieve sales and earnings per share growth in fiscal 2006; our ability to successfully integrate acquisitions and manage alliances; ability of management to manage around unplanned events; unforeseen product quality problems in the development and production of new and existing products; fluctuations in the cost and availability of raw materials, including steel and other commodities; rising cost of transportation; level of growth in the golf market; increased dependence on The Home Depot as a customer for the residential segment; reduced government spending for grounds maintenance equipment due to reduced tax revenue and tighter government budgets; increased competition; elimination of shelf space for our products at retailers; financial viability of distributors and dealers; market acceptance of existing and new products; unforeseen inventory adjustments or changes in purchasing patterns by our customers; the impact of abnormal weather patterns; and the previously disclosed pending litigation against the company and other defendants that challenges the horsepower ratings of lawnmowers, of which the company is currently unable to assess whether the litigation would have a material adverse effect on the company’s consolidated operating results or financial condition, although an adverse result might be material to operating results in a particular reporting period. In addition to the factors set forth in this paragraph, market, economic, financial, competitive, weather, production and other factors identified in Toro’s quarterly and annual reports filed with the Securities and Exchange Commission, could affect the forward-looking statements in this press release. Toro undertakes no obligation to update forward-looking statements made in this release to reflect events or circumstances after the date of this statement.
(Financial tables follow)
2
THE TORO COMPANY AND SUBSIDIARIES Condensed Consolidated Statements of Earnings (Unaudited)
(Dollars and shares in thousands, except per-share data)
Three Months Ended
Fiscal Years Ended
October 31,
October 31,
October 31,
October 31,
20051
20042
20051
20042
Net sales
$
337,091
$
336,864
$
1,779,387
$
1,652,508
Gross profit
113,799
117,379
615,366
593,070
Gross profit percent
33.8
%
34.8
%
34.6
%
35.9
%
Selling, general, and administrative expense
102,264
103,215
432,640
427,845
Earnings from operations
11,535
14,164
182,726
165,225
Interest expense
(4,280
)
(4,046
)
(17,733
)
(15,523
)
Other income, net
2,554
224
5,279
3,531
Earnings before income taxes
9,809
10,342
170,272
153,233
Provision for income taxes
3,237
3,413
56,190
50,567
Net earnings
$
6,572
$
6,929
$
114,082
$
102,666
Basic net earnings per share
$
.15
$
.15
$
2.55
$
2.11
Diluted net earnings per share
$
.14
$
.14
$
2.45
$
2.02
Weighted average number of shares of common stock outstanding – Basic
43,543
46,766
44,714
48,728
Weighted average number of shares of common stock outstanding – Dilutive
45,384
48,843
46,539
50,766
Shares and per share data have been adjusted for all periods presented to reflect a two-for-one stock split effective March 28, 2005.
1 Prepared under the accounting provisions of Statement of Financial Accounting Standard No. 123 (Revised 2004), “Share-Based Payment.” 2 Prepared under the accounting provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,”
(APB No. 25), and related Interpretations.
3
THE TORO COMPANY AND SUBSIDIARIES Segment Data (Unaudited) (Dollars in thousands)
Three Months Ended
Fiscal Years Ended
October 31,
October 31,
October 31,
October 31,
Segment Net Sales
2005
2004
2005
2004
Professional
$
208,562
$
194,811
$
1,145,361
$
1,028,941
Residential
111,103
117,382
583,291
554,334
Other
17,426
24,671
50,735
69,233
Total *
$
337,091
$
336,864
$
1,779,387
$
1,652,508
* Includes international sales of
$
84,922
$
73,074
$
440,644
$
341,360
Three Months Ended
Fiscal Years Ended
October 31,
October 31,
October 31,
October 31,
Segment Earnings (Loss) Before Income Taxes
2005
2004
2005
2004
Professional
$
24,016
$
18,632
$
207,398
$
173,111
Residential
6,667
9,086
50,160
61,777
Other
(20,874
)
(17,376
)
(87,286
)
(81,655
)
Total
$
9,809
$
10,342
$
170,272
$
153,233
Condensed Consolidated Balance Sheets (Unaudited) (Dollars in thousands)
October 31,
October 31,
2005
2004
ASSETS
Cash and cash equivalents
$
41,402
$
90,756
Receivables, net
295,683
280,577
Inventories, net
235,347
227,200
Prepaid expenses and other current assets
16,084
16,931
Deferred income taxes
58,558
53,064
Total current assets
647,074
668,528
Property, plant, and equipment, net
167,277
164,665
Goodwill and other assets
102,386
98,907
Total assets
$
916,737
$
932,100
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current portion of long-term debt
$
46
$
45
Short-term debt
325
1,099
Accounts payable
87,952
87,147
Accrued liabilities
252,879
235,791
Total current liabilities
341,202
324,082
Long-term debt, less current portion
175,000
175,046
Long-term deferred income taxes
872
3,837
Deferred revenue and other long-term liabilities
9,629
8,316
Stockholders’ equity
390,034
420,819
Total liabilities and stockholders’ equity
$
916,737
$
932,100
4
THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited) (Dollars in thousands)
Fiscal Years Ended
October 31,
October 31,
2005
2004
Cash flows from operating activities:
Net earnings
$
114,082
$
102,666
Adjustments to reconcile net earnings to net cash provided by operating activities:
Non-cash asset impairment (recovery)
23
(726
)
Equity losses from investments
1,468
781
Provision for depreciation and amortization
42,829
36,093
Gain on disposal of property, plant, and equipment
(260
)
(216
)
Stock-based compensation expense
9,312
17,128
(Increase) decrease in deferred income taxes
(8,635
)
551
Changes in operating assets and liabilities:
Receivables, net
7,381
(10,558
)
Inventories, net
(1,210
)
(310
)
Prepaid expenses and other assets
462
(4,391
)
Accounts payable, accrued expenses, and deferred revenue
8,631
34,274
Net cash provided by operating activities
174,083
175,292
Cash flows from investing activities:
Purchases of property, plant, and equipment
(37,432
)
(40,812
)
Proceeds from asset disposals
2,740
2,098
Increase in investments in affiliates
(757
)
(1,278
)
Decrease in other assets
1,550
1,118
Proceeds from sale of businesses
765
578
Acquisition, net of cash acquired
(35,285
)
—
Net cash used in investing activities
(68,419
)
(38,296
)
Cash flows from financing activities:
Increase in short-term debt
(774
)
(1,039
)
Repayments of long-term debt
(45
)
(3,830
)
Excess tax benefits from share-based arrangements
5,989
9,857
Proceeds from exercise of stock options
8,164
14,307
Purchases of Toro common stock
(156,972
)
(169,821
)
Dividends paid on Toro common stock
(10,755
)
(5,839
)
Net cash used in financing activities
(154,393
)
(156,365
)
Effect of exchange rates on cash
(625
)
(162
)
Net decrease in cash and cash equivalents
(49,354
)
(19,531
)
Cash and cash equivalents as of the beginning of the fiscal year
90,756
110,287
Cash and cash equivalents as of the end of the fiscal year
$
41,402
$
90,756
5
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