The Toro Company 8111 Lyndale Ave South Bloomington, MN 55420
Investor Relations John Wright , Director, Investor Relations (952) 887-8865
Media Relations Connie Kotke Manager, Corporate Communications (952) 887-8984,pr@toro.com www.thetorocompany.com
TORO REPORTS RECORD THIRD QUARTER SALES AND EARNINGS Net Earnings Per Diluted Share Up 23%
BLOOMINGTON, Minn. (August 24, 2006) – The Toro Company (NYSE: TTC) today reported record fiscal third quarter net earnings of $40.3 million, or $0.91 per diluted share, on record net sales of $477.9 million for the quarter ended August 4, 2006. In the comparable fiscal 2005 period, the company reported net earnings of $34.4 million, or $0.74 per diluted share, on net sales of $466.9 million.
For the nine months ended August 4, 2006, Toro reported record net earnings of $124.7 million or $2.78 per diluted share, on record net sales of $1,506.5 million. In the comparable fiscal 2005 period, the company reported net earnings of $107.5 million, or $2.29 per diluted share, on net sales of $1,442.3 million.
Michael J. Hoffman, The Toro Company’s chairman and chief executive officer, said Toro is on track for another record year as growth in worldwide professional segment sales and earnings continued to offset slight declines in domestic residential segment results. “We remain focused on advancing our market leadership positions with innovative products and strengthening customer relationships,” said Hoffman. “We are also realizing profitability improvement through our company-wide lean initiatives, thereby enabling us to deliver strong, consistent financial results. Despite challenging market conditions, we expect to meet our fiscal 2006 guidance for earnings per share growth.”
SEGMENT RESULTS Segment data are provided in the table following the “Condensed Consolidated Statements of Earnings.”
Professional
•
Professional segment sales for the fiscal 2006 third quarter increased 5.7 percent to $319.7 million. The company continues to benefit from golf course investment in maintenance equipment and irrigation systems.
•
Strong growth in sales of domestic commercial equipment and irrigation products more than offset a slowdown in domestic landscape contractor equipment.
•
Professional segment earnings for the fiscal 2006 third quarter totaled $62.5 million, up 4.3 percent from $59.9 million in the fiscal 2005 third quarter.
•
For fiscal 2006 to date, professional segment earnings totaled $208.3 million on an 8.1 percent increase in net sales to $1,012.4 million compared with segment net earnings of $183.4 million on net sales of $936.8 million in the first nine months of fiscal 2005.
Residential
•
Residential segment sales for the fiscal 2006 third quarter totaled $145.3 million, down 2.2 percent compared with the fiscal 2005 third quarter.
•
The decline for the segment was primarily due to slower sales for electric products and retail irrigation products which were partially offset by increased shipments of walk power mowers and zero-turning-radius riding mowers.
•
Residential segment earnings for the fiscal 2006 third quarter totaled $8.8 million, down 13.3 percent from $10.1 million in the fiscal 2005 third quarter.
•
For fiscal 2006 to date, residential segment earnings totaled $32 million on a 1.8 percent decline in net sales to $463.8 million compared with segment net earnings of $43.5 million on net sales of $472.2 million in the first nine months of fiscal 2005.
REVIEW OF OPERATIONS Gross margin for the fiscal 2006 third quarter was 35.6 percent compared with 35 percent for the fiscal 2005 third quarter. Gross margin in the fiscal 2006 third quarter benefited from a more favorable mix in professional products compared with the fiscal 2005 third quarter.
Fiscal 2006 third quarter selling, general and administrative (SG&A) expenses as a percentage of net sales improved to 22.7 percent from 23.2 percent in the fiscal 2005 third quarter. The improvement in SG&A was due to lower administration expenses.
Interest expense for the third quarter totaled $4.7 million compared with $4.8 million in the 2005 third quarter.
The effective tax rate in the 2006 third quarter was 32.6 percent, compared with 31.9 percent in the same period last year.
Accounts receivable at quarter end totaled $394 million, down slightly compared with the end of the fiscal 2005 third quarter.
Quarter-ending inventory totaled $255 million, up $19.9 million or 8.5 percent compared with the end of the fiscal 2005 third quarter. The increase resulted from lower than expected third quarter sales volume.
BUSINESS OUTLOOK Commenting on the company’s outlook for the remainder of fiscal 2006, Toro chairman and chief executive officer Michael Hoffman said the company now expects sales growth for fiscal 2006 to range from 3 to 5 percent, with earnings per share growth for the full year of 15 to 17 percent.
“We have generated solid earnings growth throughout 2006 despite challenges posed by lower than expected revenues and higher commodity costs,” said Hoffman. “In the fiscal year’s final quarter, we will continue to invest in innovation initiatives for future growth while driving improvements in supply chain efficiencies and profitability initiatives to ensure another record year for Toro shareholders.”
The Toro Company is a leading worldwide provider of outdoor maintenance and beautification products for home, recreation and commercial landscapes.
1
LIVE CONFERENCE CALL August 24, 10:00 a.m. CDT www.thetorocompany.com/invest
The Toro Company will conduct a conference call and webcast for investors beginning at 10:00 a.m. Central Time (CDT) on August 24, 2006.The webcast will be available atwww.streetevents.com or atwww.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.
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
Nine Months Ended
August 4,
July 29,
August 4,
July 29,
2006
2005
2006
2005
Net sales
$
477,861
$
466,942
$
1,506,505
$
1,442,296
Gross profit
170,336
163,261
532,466
501,567
Gross profit percent
35.6
%
35.0
%
35.3
%
34.8
%
Selling, general, and administrative expense
108,615
108,595
340,129
330,376
Earnings from operations
61,721
54,666
192,337
171,191
Interest expense
(4,677
)
(4,820
)
(14,097
)
(13,453
)
Other income, net
2,756
642
6,088
2,725
Earnings before income taxes
59,800
50,488
184,328
160,463
Provision for income taxes
19,478
16,111
59,645
52,953
Net earnings
$
40,322
$
34,377
$
124,683
$
107,510
Basic net earnings per share
$
.94
$
.77
$
2.88
$
2.38
Diluted net earnings per share
$
.91
$
.74
$
2.78
$
2.29
Weighted average number of shares of common stock outstanding – Basic
42,852
44,494
43,283
45,121
Weighted average number of shares of common stock outstanding – Dilutive
44,360
46,438
44,806
46,966
Segment Data (Unaudited) (Dollars in thousands)
Three Months Ended
Nine Months Ended
August 4,
July 29,
August 4,
July 29,
Segment Net Sales
2006
2005
2006
2005
Professional
$
319,733
$
302,517
$
1,012,436
$
936,799
Residential
145,308
148,590
463,786
472,188
Other
12,820
15,835
30,283
33,309
Total *
$
477,861
$
466,942
$
1,506,505
$
1,442,296
* Includes international sales of
$
113,651
$
108,353
$
402,000
$
355,782
Three Months Ended
Nine Months Ended
August 4,
July 29,
August 4,
July 29,
Segment Earnings (Loss) Before Income Taxes
2006
2005
2006
2005
Professional
$
62,474
$
59,894
$
208,311
$
183,382
Residential
8,752
10,096
32,037
43,493
Other
(11,426
)
(19,502
)
(56,020
)
(66,412
)
Total
$
59,800
$
50,488
$
184,328
$
160,463
3
THE TORO COMPANY AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) (Dollars in thousands)
August 4,
July 29,
2006
2005
ASSETS
Cash and cash equivalents
$
24,815
$
34,665
Receivables, net
394,038
394,395
Inventories, net
255,031
235,146
Prepaid expenses and other current assets
14,624
14,142
Deferred income taxes
58,203
51,861
Total current assets
746,711
730,209
Property, plant, and equipment, net
163,703
166,890
Deferred income taxes
—
39
Goodwill and other assets
94,931
104,247
Total assets
$
1,005,345
$
1,001,385
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current portion of long-term debt
$
12
$
45
Short-term debt
24,535
54,509
Accounts payable
86,998
75,964
Accrued liabilities
271,022
267,770
Total current liabilities
382,567
398,288
Long-term debt, less current portion
175,000
175,012
Long-term deferred income taxes
872
3,837
Deferred revenue and other long-term liabilities
9,605
9,318
Stockholders’ equity
437,301
414,930
Total liabilities and stockholders’ equity
$
1,005,345
$
1,001,385
4
THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited) (Dollars in thousands)
Nine Months Ended
August 4,
July 29,
2006
2005
Cash flows from operating activities:
Net earnings
$
124,683
$
107,510
Adjustments to reconcile net earnings to net cash provided by operating activities:
Equity losses from investments
1,004
510
Provision for depreciation and amortization
31,490
30,110
Gain on disposal of property, plant, and equipment
(84
)
(339
)
Stock-based compensation expense
6,018
7,284
Decrease (increase) in deferred income taxes
419
(7,481
)
Changes in operating assets and liabilities:
Receivables
(99,062
)
(86,491
)
Inventories
(17,481
)
(767
)
Prepaid expenses and other assets
3,042
2,897
Accounts payable, accrued expenses, and deferred revenue
13,836
14,611
Net cash provided by operating activities
63,865
67,844
Cash flows from investing activities:
Purchases of property, plant, and equipment
(26,693
)
(24,294
)
Proceeds from asset disposals
908
2,447
Increase in investments in affiliates
(371
)
(197
)
Decrease in other assets
5,716
158
Proceeds from sale of a business
—
765
Acquisition, net of cash acquired
—
(35,285
)
Net cash used in investing activities
(20,440
)
(56,406
)
Cash flows from financing activities:
Increase in short-term debt
24,191
53,374
Repayments of long-term debt
(34
)
(34
)
Excess tax benefits from share-based arrangements
16,270
5,665
Proceeds from exercise of stock options
8,196
7,609
Purchases of Toro common stock
(97,388
)
(125,093
)
Dividends paid on Toro common stock
(11,700
)
(8,151
)
Net cash used in financing activities
(60,465
)
(66,630
)
Effect of exchange rates on cash
453
(899
)
Net decrease in cash and cash equivalents
(16,587
)
(56,091
)
Cash and cash equivalents as of the beginning of the period
41,402
90,756
Cash and cash equivalents as of the end of the period
$
24,815
$
34,665
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