TTC - Earnings call 2 2023 | The Toro Company

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Operator

Good day, ladies and gentlemen, and welcome to The Toro Company's Second Quarter Earnings Conference Call. My name is Tanya, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. [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. Ms. proceed, Please Kerekes.

Julie Kerekes

good and Thank morning, you, everyone.

release a and earnings our website, this Information morning, can be corporate issued copy thetorocompany.com. found of Our section was in Investor the

posted investor presentation. to also We earnings second release general earnings presentation have and supplement a our quarter

Drake, and We call Angie policy. [ forward-looking ], Investor are Relations. Jeremy with Executive today and our statement President our Olson, Chairman Steffan Vice On Chief Chief begin customary and Rick Officer; [as] Financial Officer; Director,

make statements financial acquisition-related estimates economic, regarding will results and we impact for the includes market plans and both call, This projections that may and our this During acceptance, forward-looking factors technological, weather, of and business our other future. and regarding assumptions operating customers.

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

well of our duty Our cause may from do statements. have note actual filings our as risk not important earnings factors those SEC release Please materially the forward-looking differ that update detail our as we in results to our that predictions. to some a

and GAAP of presented operations of considered substitute present our addition, ongoing release financial in results as financial the will as to operating be performance non-GAAP be may should in Non-GAAP of comparisons the call. in and release earnings the applicable measures. Reconciliations We measures in not our or on and measures superior meaningful past reference non-GAAP presentations GAAP found flows performing measures we a during financial this financial historical earnings how our measures can to management useful filings. SEC believe business. our certain for our reported In this in understand investor to website be and call, and financial views measures our well these cash

call now the to will I that, With Rick. over turn

Richard Olson

per results and good share everyone. second and adjusted delivered sales line in X% earnings up Thanks, diluted last record reported XX% year. respectively, and top bottom XX%, Julie, and were We the over were Net up and morning, quarter.

performance, Our top and the line gains growth areas key was demand. grounds segment construction continued from golf achieved increased with driven of strong we volume where especially in professional production, along robust by and

execution from by supply Our ability our chain operational improvements. increase continued was efficiencies gained output driven disciplined and to

For sales pressured patterns our leverage volumes Residential macroeconomic sales have to the we unfavorable diversify Once were growth our weather actions quarter. the segment, again, our and beneficial, in by overall scale taken net and delivered portfolio proves factors. we

bottom our to performance. line Moving

earnings a Our sales XXX by as team delivered a improvement and mix net This result positive percentage for realization, the of basis quarter net gains. adjusted operating year-over-year. productivity driven in point favorable price was

the improvements in positioning environment, strategy quarter is inflationary prioritizing in strong while remained solutions. technology overall freight investments also slow long-term costs. element to our profitable growth. delivered rate for in alternative we The key connected autonomous an and with the power, continues smart While the results notable of We company in growth

to We continue options leverage sustainable introduce performance. compromise and productivity. provide and All investments customers no products these to develop that increased on with with

Popular that our new products of XX-volt pleased as of X best recently are recognized We XXXX. Flex-Force products Mechanics were lawn

for all. the We're we the on beauty, the market productivity together common that and working way extension our leadership of Recreation and goal benefit relationships innovative is this life sustainability customer land. shares best Association of and council foundation is and products. Our on a challenges is closely example solve helping continue to excited build the to strive National central enrich deploys the This of and enhances built as the An business solutions customers This leadership partnership both explores Park the offering with that commitments Recreation to the delivering Parks foundation ultimate communities. sector, purpose our in with long-term Council. Business an and quality the stronger our to of of of to

Another as the selection [Arnold] example for Country is our courses recent well [indiscernible] Lodge as with legendary connected X Palmer. Club, and proof Bayhill partner Club as

to continue these top-notch with positioned guests story momentum are providing and into We members, half. strong are and professionals. clubs partner Mr. believe honored second legacy Palmer's well of they the delivered the a that carry year, to golf we as We for experience half we of a first

for our accustomed cycles. to hallmark While weather success the economic environment continue our remains kinds while operating intend and resiliency strategic dynamic, macro with discipline business all priorities. advancing through long-term growing are and we our We of to

market focus, we term. quarter term this turn and Angie to review With With that, more financial of near over second call the will leadership expect I long a our both to our the in for detailed grow results. the

Angela Drake

Thank morning, you, Rick, good and everyone.

grew up Adjusted patterns share, solutions to $X.XX of second to As of the last achieving diluted of weather compared increase for was per consolidated highlights geared share, in per X.X% said, diluted Reported from Rick $X.XX delivered performance year. We we performance our attractive and sales a broad XX.X% from EPS This XX.X% environment. dynamic EPS very an markets. majority overall sales the net billion, diluted portfolio $X.XX. backdrop a large quarter, strong operating unfavorable end and record professional amid a benefits was of up EPS our net $X.XX. to the $X.XX and quarter with

segment year-over-year percentage due costs. offset by were as and favorable This net sales, a realization, golf leverage. to net up were increase shipments XX.X%. products for segment Professional the higher XX.X% Professional primarily billion, were quarter XX.X%, price was When productivity second grounds quarter earnings across XX.X% driven $XXX.X for earnings primarily segment realization. and of and net net year-over-year. to million. material product net was and and second for the expressed improvement by the was The segments mix, up strength up from sales higher notable manufacturing price with products increase sales broadly partially construction This of $X.XX the for

of sales driven of and lower by as shipments Residential the costs. were by quarter XX.X% offset Residential were segment When earnings products down million. last decrease price from the down down the sales broadly a million, for decrease to $XX.X earnings second across price XX.X% sales, volumes, offset the lower expressed XX.X%. were segment net percentage to was driven realization expense year-over-year $XXX.X This compared quarter X.X%, by net for lower was segment, by primarily costs. higher realization. segment and partially was freight year. The net marketing partially higher for primarily net manufacturing The

Turning to our operating results.

by XX.X% compared last for last XX.X%, material the improvement year-over-year primarily Operating in XX.X% both year. net driven up percentage to improvements XX.X% was product were respectively. year. from realization, the sales margin partially primarily The a and for the to the compares higher net same to expense, of period adjusted higher were favorable sales XX.X% quarter, in marketing and increase of mix quarter and as same and XX.X% second leverage. expense This costs. respectively, XX.X%, quarter the basis. period by SG&A gross adjusted XX.X% and partially earnings reported a net was offset percentage for Our This was due manufacturing productivity as price both a reported by sales and offset on net

to period and million, XX.X%. was from to for and the The rates. average due last was XX.X% and year. the quarter $X.X for respectively, expense quarter effective tax XX.X%, the million This increase XX.X% primarily up same rates interest second adjusted higher $XX.X Interest reported compared were

inflation by by service a of Accounts Primarily work was compared lower. year This of the by in sheet the $XXX balance process our second sales work down up inventory Accounts compared residential parts, Sequentially, partially were end of was last with reduction first as international offset was but primarily to Inventory purchases. to ago, supply improved by lower XX% quarter. flat billion, driven million, constraints. to were receivable Turning a from X% driven of sales. $X.X in process our the end and goods, finished up composition X% payable to XXXX, higher net primarily higher from ago. net a in due year year. and increase component slightly the largely inventory $XXX segment fiscal quarter relatively and million, driven

flow compared also investment-grade $XX to spend to and It $XX service process million capital driven expenditures use million We period credit primarily gross $X.X the seasonal year-to-date dynamics was million cash. and work to our maintaining Xx Year-to-date we are our levels remain well committed in last timing ratio debt-to-EBITDA leverage to within Xx year. same reflects target higher better customers. the our a by free rating. This of as in with of including parts continue and was working supply cash serve capital chain current needs navigate

the fund This long-term growth. our turn investments that which supports sheet, to in balance provides flexibility drive strong sustainable financial

that with dividends share Our disciplined investments through shareholders cash approach priorities to repurchases in our through include returning and unchanged business, maintaining both to and acquisitions, organically leverage and goals. making capital allocation our remains strategic

growth. our new in to manufacturing highlighted are for sign this priorities deploy recent technologies our including capital capacity by expenditures actions, These to million plan and $XXX advanced products year investments,

payout our through year-to-date last repurchases. year return nearly share over $XX increase and XX% dividend shareholders million of to Our of

in we ahead markets. for to key As strong look year, products continued the fiscal innovative second segment expect of half demand we the our professional

of continue the possible golf to chain closely year guidance adjusted time, our and improvements increased will on backdrop by based we will net We are agile incremental prepared to and this continue grounds through will enable macroeconomic our encouraged in we and production for ranges. At also sales term. narrowing dynamics a XXXX to share and and be the current construction expect per fiscal With near earnings remain diluted that products. we the same our supply range visibility, outcomes monitor full are

rates range also For for sales to for unfavorable as previously. X% This homeowners to continuation of macroeconomic also production and we to assumes second our fiscal trends. normal This products golf expectations sold and of patterns for half and of includes reflects to X% net This expect weather experienced patterns XX% grounds weather the in in to well X% segment year. as the Residential more year-to-date for XXXX, a professional construction the products. anticipated volume improved growth compared reductions due now

average at for the to full company than We segment the year. sales a higher grow expect total continue rate to Professional net

segment, to XXXX. to we For Residential sales percentage a now be fiscal XXXX as expect down the mid-teens compared fiscal net

being to cadence QX with a quarterly more sales QX anticipate continue We and our larger quarters. typical

at Looking profitability.

expect to gross fiscal compared continue We margin to XXXX fiscal XXXX. in improvement

improve our of to lower margin our by for This we year. position than close With in the products sales net inefficiencies driven the the guidance expect year. anticipated to to half we half year second of primarily revision now as to and the manufacturing our the we as inventory be gross demand the was to volumes geared work out production homeowners adjust first

price these expect offset manufacturing gains net inefficiencies We productivity partially to realization. by be and

In now reflection to expect lower addition, of net company compared segment the segment, earnings the last we adjusted improvement margin continue year. sales expect the full last compared We to reduction in full and year. for as to This year for volume. Professional year, a of for the Residential as a in percentage operating expected a earnings total is

per range guidance to diluted the For our our the fiscal share-based our compensation. of narrowing half quarterly EPS adjusted are the net estimate for similar we the the adjusted revised average line deduction In of to share diluted of be quarter excludes XXXX $X.XX sales fourth expect the expectations, category, EPS other first from This range and $X.XX $X.XX excess the run of benefit we year tax with to activities $X.XX. to rate previous year. quarter of the full third to

about of we conversion million, cash of Additionally, full $XXX now approximately to earnings. free about for of expense to amortization of million depreciation the XXX% XX% $XX interest $XXX reported and net and million year, expect flow

We continue XX%. to of expect rate tax an effective about adjusted

of quarter low year at rate our end third company range. the a XXXX, full we to sales the of to fiscal below net guidance grow slightly Turning expect total

growth sales quarter rate for Professional the to growth the segment, second that segment. we similar expect net For the rate

the segment, reduction third same total period and given meaningful third Residential a the gross year. dynamics the margin the expect to expect the we basis be mentioned. company net to on we for operating we From quarter, earnings last similar margin sales For adjusted a quarter perspective, a year-over-year in profitability

slightly to segment, same the quarter expect professional For higher similar margin third year. the earnings we be period the than to last

to manufacturing demand. Residential segment, inefficiencies lower driven we we production as than be For associated earnings the third expect adjust margin the the period same last lower quarter and by volumes to expected year,

We same third adjusted last share year. higher our the expect than quarter were period diluted be to slightly they per earnings for

and products of our diversified will we network. the attractive support Even portfolio realize that believe macro our continue weather team. XX% distribution testament growth these We with the to by expect full to future diluted of and address adjusted a expected and to year we end to deliver benefits extensive XX% bolstered markets, year-over-year and A engaged benefits our dynamics, EPS. current in

for building confident long-term value stakeholders. in our profitable and ability drive to all our business We remain are for growth sustained

With that, I'll the Rick. call to turn back

Richard Olson

you, Angie. Thank

As share encouraged of we key of An strong situation the employees and the innovative partners. this has order to well supported of by fiscal and segment second product in additional demand the of warmer we the color end year, enter as Professional interest. are the each chain arrival are team markets been topic half weather. across of channel our positioned serve of continuation with like believe the We best by some on a improving I'd expected seasonally markets. backlog we supply lineup attractive we

Traditionally, not order backlog typically been a our times products. our company metric shorter given for meaningful lead for has

was backlog fiscal order billion the of XXXX. our at $X.X reported, previously As end

order XXXX fiscal the our $XXX million. was of backlog end perspective, historical For at

the While current and Majority elevated consider segment. experienced can products these the result order level growth we has patterns. construction and the can fulfillment backlog products, that and of also supply with in a The some golf for our a of continues coupled be over balance what we've significantly inflation Professional customer to to increase is factor. remains of our variation attributed contributed demand be high grounds for of seasonal robust disruption chain influence of would a to be overall normal. business our and extended This order and

quarter orders, new supported these remains of increased products. At higher we across quarter our quarter during at time, second pace the chain. With an the the end at end volume this the slightly improving second continue of for significant open the the of XXXX. these by of achieved first the fiscal same to disciplined book compared to experience end than order the balance growth we execution categories Importantly, supply with demand

throughout Given and dynamic, fiscal this expect backlog we elevated this to beyond remain year.

soon a possible. Our support output remains backlog and reducing level normal team customers lead on to return more focused times to our as optimizing and as

the broader Turning to economy.

on inflation. geopolitical business an and overall We're and patterns. We monetary also eye continue and the consumer to spending monitoring keep policy confidence actions, environment

conditions. In including banking addition, we're watching developments in the sector, any tightening of credit

part banking access business our for and our practice, financing and normal attractive As leverage channel of offer customers. to to scale end relationships options we our

funding quality strong. to We our remains believe continue the credit operate expect smoothly customers will this of and

as in partners We close our are monitor we keeping developments. continue banking contact to with

starting macro our factors could seeing in now segment. I'll on the Professional which we comment future end impact results, are markets, our with

broadband as in comprehensive aging to and well as we expect this the we with product include investments We to in infrastructure and the a private These the industry. robust public power infrastructure. specialty on demand alternative address believe construction, position supported solutions underground continue are demand and strong For by investments. lineup multiyear capitalize to most build-outs

solutions only we this For continuing as company the and strength the support demand. interest long-standing in in both and attractive budgets rounds leader irrigation well golf, offer extremely overall played and remain the healthy the in and in positioned We course market market game equipment drive expect strong to both. to as

prioritization products, healthy zero-exhaust and anticipate emission green we supported interest by municipalities For budgets. spaces and of grounds, continuing in

us suite market. Our serve position of to compromise well sustainable deep this growing no relationships and solutions

channel that, in has management, subdued lack as expect Midwest, to some of provide ice relative levels snowfalls we sell-in snowfall presence pre-season expected Having at higher better, strong left a year. offset. were is late-season last our snow For said inventory more and to where the

by Toro We Spartan. market be to well For extensive serve the remain and more brands, this with contractor demand to and solutions, X landscape leadership, turf channel professional and remain including affected who we market from Exmark, environment. positioned homeowners to our products professionals prefer our from current expect strong demand

businesses, on factors keeping demand projects and irrigation our and how economic play solid in expect this For weather to overall, we're eye market. an remain we out for

Moving preferences. environment also watching segment, with channel patterns, the inventory levels. consumer and the watching to Residential we're affects confidence along spending weather how current We're

While products. the by accelerated demand of of nature the normalized, replacement our expect benefit pandemic to we continue from to has nondiscretionary regular this driven segment the cycles,

channel refreshed lineup, expect long term. strong our also from expanded brands we a Importantly, remain product the competitive benefits for advantage and the

our results outcomes equipped believe plan macroeconomic While well positive for is we of range term, this and we to the organization anticipate environment. near in a in deliver

long weather portfolio. expect and resiliency of managing a patterns record and scale broad benefits and with continued from and have track growing cycles through We economic our agility

grow our record empowering give to strategic innovative our Our regular by necessary stakeholders our people. believe driving the with end and of replacement in perform best-in-class We well market to long adaptability. talented excellence offer us These distribution confidence long demonstrates networks service year-to-date cycles leadership productivity and accelerating value positioned and term. these for team performance along we operational and benefits We solutions priorities markets. all ability profitable our that over and in factors, guided remain our work attractive growth, drive in enterprise near the term and both with

would On results. customers above support channel to beyond that like going thank and and to our note, deliver partners for our great and day employees I every

Company's the continued gratitude to success. your and customers to our You like my I shareholders The extend support. for Toro key are to also would

we questions. the will up open that, for With call

Operator

Sam from Darkatsh of come our [Operator first will Raymond Instructions] And question James.

Sam Darkatsh

questions, if X, could. A X I couple quick

Could both respect cancellation you're in relative year-end, backlog and XQ as well the if obviously talk you as Rick? seeing commentary absolute is to about around off, could, rates, what terms very encouraging. you sequential First to with

Richard Olson

mean, hours additional in news Good and in from not output great a through extremely really check been maybe low our And just coming is cancellation seeing rates, do I news fact to have the circle question. really, more even on strongly. within level is and last the XX factor. cancellation better we are demand that's back I is rates, chance an a of the seeing factories perhaps the we're

underground, output professional in exceeding, specialty grounds and we're coming from golf but outstanding. from the respects, some our businesses construction, our So demand factories, has been the

done expected. we it's more So than

Sam Darkatsh

extremely in cancellation in no from sequentially So absolute rates terms, tick even higher though quarter? low, it's last

Richard Olson

no. No,

Sam Darkatsh

Okay. in Residential had as the don't relates about Terrific. normal And holds, or But your which least if than [a then my so question, decremental is my math much lower to least other than now know, previously is down only midpoint sales the residential million about guidance, contemplated. it might I business, the suggests maybe, less margin at think $XXX guidance at residential you your at nickel], suggest. I

the that where margin products? So offset ticket volumes is or a type lower at better-than-expected are residential offset lower is Or you're lower and the of margins? the pro expecting sales coming

Richard Olson

is those with fulfill demand. Pro higher referred to the business and margins to that you product The the get more offset to of the strength ability produced the

numbers offset really it's the So for projecting residential. really -- for that that's we're the lower

Sam Darkatsh

the market Rick. you quick. at more trends Obviously, what peers? Talk apologize, one extent trends, have virtually product sneak you're visibility, -- about seeing in. the but retail. to and could placement Can same sell-through I it's trends of talk seeing you sorts If the share, your everybody is versus what about I Residential

Richard Olson

strength number market years the technology we've seen relevant portfolio. positive of to have We share very work a the reflecting strong feel about It's We've have position. really across our to last done that very channels. over portfolio, our the a very

seen our are important to addition that partners in in also We've the very to network. So dealer the us. strength mass

first done first quarter, In fact, or exceptional in the It's quarter excuse half the with well. strength of -- year me, dealer second business. our very

Operator

our moment next for One question.

from will question Tim of Wojs next Baird. Our come

Timothy Wojs

and of of you it better little of Is the much color kind expecting productivity? how maybe areas? of could some back kind really that of little add just rates kind just is give half? maybe ago where you mean Rick, the golf the it easing what's and terms what a bit are of in in of just start, and of and for to just bit production us X grounds supply or was just context just today improved in some that? construction driving chain context bottleneck versus a you're it kind the Is months of can where of I Maybe

Richard Olson

one actually then that's years, case, of of that is our number that's a volume. and with of line. unit by so us for been amount the actual over I volume it's last production this think revenue I the stories the inflation the big the forth facilities. there's this success know coming growth driven of In quarter price from it's lot into significantly gone reflects within in

supply own it's better suppliers ago, facilities still last categories, the time had specifically. the And chain, some production true. gotten of narrowed it's down that's really but Our couple to some over the mentioned been quarters, we've key

pacing our the of getting steadily the availability relative those components it's revenue volume is this quarter, last still the production growth of was and is driver better number at significant pretty this to which quarters. our of point. But output So

Timothy Wojs

kind back the half quarter? year? expect looks Or of more are in the the Okay. you half of you And that do the incremental second expecting back improvements like

Richard Olson

the suppliers all but and are -- our at our getting our All and operations down improvement included factors expect all guidance, of do look in we [indiscernible] up all that's as within healthier. our we steady

Timothy Wojs

Okay.

field Good. of questions business, assign second I the professional? business, guess would characterize that the I the much overall you landscape Okay. levels just would to there. that kind actual pro of, part just within pro then how How the X I business, then kind kind inventory you And question, when versus first think the guess, the you is on pro kind maybe the of homeowner that landscape of guess, about just question. And of of

Richard Olson

Yes.

a of inventory last normal, years where the in in struggled field. least this number we enough That's question, for cases, X this the the have don't portion to inventory -- appreciable in first I contractor category optimum you, the a Toro now Exmark of the the in at specific all, with landscape the or large business. you a is inventory product. Keep is for for we, than some mind, higher the have probably If on field but is that land brands, of be have -- a homeowner And would a more homeowner And an justify business. and that the homeowner across brands, Spartan. number is has professional acreage

And so that's kind there. of the situation

They homeowners be homeowners. LTE is strong from of element coming So to demand The an that. the demand professional less Pro landscape the would for and continues very products. be contractors

So inventories grade. more as field so professional that is field of end lower that and of well, which correlate the to range, the lower higher -- inventory inventory -- would

Timothy Wojs

within that helpful. as percentage of now XX-volt Okay. there a how are last much products there business? your question. way maybe -- is And the Residential the a any then -- think of That's overall just business, Is to kind about

Richard Olson

our reflects. that if of We the -- I don't XX% XX% number business, residential of categories is a you that's have of if overall. business to specific XX-volt smaller one But the about overall think just

Timothy Wojs

Okay.

Okay. at year, guys. the the the back Good. color Good luck I the half of time. and appreciate

Richard Olson

I appreciate the questions.

Operator

question David our question. moment for Research. come MacGregor next Longbow our of will One next And from

David S. MacGregor

contractor. which contractor weight your pretty Is sales on off now that landscape what and to so, you to special XX make suggests that into through think maybe the that question I guidance? be year or in majority of of sign. in the is in this construction you've adjustments late I wanted getting And mind. up demand I on to to the be the and a retail business landscape you on this for Tim's increasing elasticity mean terms golf season, did Can that's you good July set seeing your Yes. it's any been demand a pick the patterns. if category? looks like I up got mean revisions made category extend back-to-back you're in it that's Yes. events velocity, just going incentivized. about talk just just to Congratulations

Richard Olson

a as programs as later last a shift come we're much to part But would number of of of build spring, with -- thinking imagine, of the and in have creating the factor best the We more normal retail to for our that picture. you really et They been programs, counting our especially, cetera, years. regard guidance, the process normal we later into haven't back can year. the of into on with any

So you're that's inventory at programs. I field -- looking low professional field in general, I at probably some some was inventory, seeing, -- to would what about there you're question for if just say, just looking all earlier the than an products, see half the about certainly, the very professional is we point, talking of true is this at much lower products. we'd that for like LTE were would

commonly professional of purchased different that story that prefer products. by portions little that of homeowners entry-level a the are more Some are

David S. MacGregor

increased business, remarks more And just and contractor you're seeing landscape Is you prepared is where some marketing these this talked trying in the your to really about the support expense. of residential consumer-facing businesses? it

Angela Drake

side the marketing seen really in campaign our kind more for and is but have of a marketing to those was to the benefits expenses we for of our of that which of promotions residential normal group, targeted planful. But sales yes, long-term see those targeted brand we premium some things. We've Yes. kind had are normalize, of beginning

David S. MacGregor

want inventories. And ask to Okay. I about the

[conversion] down about are timing I the thinking thinking of of much the And of April pretty back XXX% you standpoint, But from XX% inventory levels about thinking typical in extending timing sort the how and your excesses you're XXXX. noticed are I getting the timing? of to you maybe more remained now. previous into sort guidance, liquidation about Your we're how talking guess a in line turns. of sort XX quarter. with to

Angela Drake

our I'll be. is to first probably not Yes. really inventory it want we that with saying start where

a where really in have went sharp the this that reduce see some We over our sitting bit. see is finished second have. goods. stronger now our quarter on the working cash down all think cash as the capital based to to flow, WIP very inventory of focus about in our composition do in year actually We we amount of on flow majority a improvement The the expect that of did we our inventory half. factors we And

Operator

Tom for come of moment King. next question. our question And One will CL our from Hayes next

Thomas Hayes

First golf segment, Rick. the on

semiprivate are of difference the spectrum, course, seeing municipal, you the wondering, is private? Just across demand in any whether or

Richard Olson

Yes.

be the of to golf continues welcome you First hear again. can And see just end as golf and get spectrum types those been to prioritized you budgets very are golf The at the outdoor have looking you demand back. conditions. with now. parts budgets and courses. for we the right demand, their very all, strong, professional of for the in healthy interest municipal the imagine, across situation and that from into Good from parks When happening courses, municipal in golf of what's of

the get replacements for equipment just they when small you do that even still golfers strong and and very would upgrade So [end] and to the municipal available normally level, private demand to do. seeing they're the that funding feeds

across the bottom. not suites other the strong than that, we're a buy different They really But spectrum. to seeing difference So demand top is of equipment.

Thomas Hayes

continued rental Maybe equipment the the are little Okay. the just shifting And was space it? about in public wondering bit some of guys have know a demand. seeing how market. talked just companies the you gears to I strong I

Richard Olson

see We the same.

there orders as we're sources, And seeing strength our go a says asked of out back of that industry and reflected rental the having it's which ourselves conversation. for continues, that near look in numbers and all our strength the back of to the just and in again, really confirmed at area responsible for are I we future term. came well. leader the the the rental fact, In are

they the future. the about So lot of a very business, positive rental but drivers are of

Operator

One moment for our next question.

coming Bosshard is question next Company. Our Cleveland of from Research Eric

Eric Bosshard

Two I things, could. if

all, what just on of What expected? than some what's to ago? First in Residential, I'd days now just again, versus played XX differently love out different clarity summarize

Richard Olson

had like earnings pace Yes, relative -- other about arrive we're [greenout] last shifted was markets direction. call, from think previously. And a the opposite what year to ahead Residential the for had the call, we bit to said America if after early. little I in were in the shortly what things the track -- about be At that we that key you North and time, it down our we that we spring of actually we and talked would when think

the So and factors, including one et the cetera, weather economy, can trump other the is factor and biggest that timing. seasonal

that's commentary shortly about best where shifted last to what our try So things call. we going. after our are think reflect We

thereafter. factor for we And -- keys banking are then residential maybe second happened businesses, the shortly is the confidence that consumer in think the situation economy the that the

shortly expected factors, So time. within we are the and weather driving than news we had at is Pro think And we last the lower economy after positive that demand is X better happened commentary. a residential, biggest our

So accounts XX% And that's to Residential the a business. of that for substantial offsets business on looking we're XX% very seeing that is to what our very, strong.

Eric Bosshard

be not business different made there's a bring then an to And -- a that about Is retailers Just of in inventory? appetite not up? point. this terms within can is Is a lot the of discussion timing, that in Okay. curious from something there it season. extended

Richard Olson

promotions you're the you where if is dynamics previously are middle we of -- there. of the was there portion work, the We mentioned, what are interest more dynamics expect the the place spring of think dealer. drive sales to in during The is and -- demand natural usually I would season. a out always early there The portion and

there's of same out. where if So that. -- with but not momentum gets their so promotions doing and need the equipment, that That's forth. sort replace ships People in muted come to not still they're it we about

that's in of happened spring, guidance they're the their some make there's that they mid-summer. [indiscernible]. as the they're psychology can't make being many inventory. about get these of love didn't but about If factored sell just we the are know of when logical can customers. through of in go standpoint, what completely a in say dealer we immediate And lost we the spring retail kind all the From the do spring, up we our all reorders in going up. so that those retail more managing opportunity for We plus end they into that realistically to be -- But to hesitant

Eric Bosshard

Feels Can apples inventory. good concept. except help the finished to goods to the on just that assume inventory finished work apples I the expand And And and second question, is good desire if back this and you an finished the like presenting again, this here? oranges inventory then backlog, and backlog -- solves but down Okay. increased the we're bit a the oranges and comment little a that logic made increased. you I'm

Richard Olson

Yes.

increase residential is on we about the finished the professional Angie that logic is the side. the in our inventory out, talked so goods and side that on figured -- got the You've backlog

Operator

[ One question. will from our And Ted Northland come question next moment ] Securities. Jackson of for our next

Unknown Analyst

ones. just really ask I'm quick going a to

commentary First, inventory look the back the the beat that assume 'XX to days cash that some of listen been asked drive your horse. kind all the and is free kind see have up or absolute far, is into improved just from -- it free we down to of and so turns an that 'XX fair I of to we questions inventory and half the of go into flow? level, at should number go some If

Angela Drake

Yes.

is expectation that will those inventory to continue will Our terms see and improve that we increase.

channel the segment need question we We have a still on have just to heard that's -- into goods the field that finished largely improved we came from. move as where the before Professional -- or today, our inventory in in area, finished we inventory is residential big the to our goods our but still inventory. As increase

F that's move finished to And to overall, Wip goods. expect progress did enter really Wip. make better in a we 'XX how that opportunity position. into And an We it So looks. in good

Unknown Analyst

cash care mean, I No, about flow. Okay. lot free I a

important pretty a question. it's So

But seen those into I revenue Secondly, will helpful. likelihood we regards and see just with think maybe the on and saying obviously, inflation, the Do lack mean, clearly I we a then year residential? -- historic, you've within more and like to see trends that are you're more this And term, margin. impact 'XX. gross between is there the for continue? margins. of for to When perhaps and you the an professional mix through of is XX% your positioning -- better kind some improvement mean well. having out as we the really price is realization and margins mix catching up maybe XX because come between them a to, in XX% back

Angela Drake

But half talked look We -- going to our our our to second our we margin we guidance, for we although do F improvement, be haven't guided higher second than back yet. initially, be if half 'XX about going first F expect at gross 'XX half.

looking -- we're at Now opposite way. sorry,

Now then to at continuing volume. first we'll what our be based QX. supply in adjustments plants see throughout gross on our our are half looking productivity similar see to to than And due overall we reduced half will really year-over-year for QX improvements to see modest those really margin saw manufacturing higher that second being the improvements output. chain continue our continue improve our as we to and we But

Unknown Analyst

supply through we words putting to chain, of cost roll but just kind words next year mouth, roll X. we in basis. fair catching et cetera, that without environment a sort But or the regards So improving just just in generally for as inflation, things, kind to as on cetera, Toro with your margin putting quarter-by-quarter up like of mouth, generically of speaking, assume et not through better a your it's

Angela Drake

forward. on as expect continue we do 'XX F We long-term we'll margin improvement focus margin to go improvement, and

Unknown Analyst

[weeds] to a contributions In in and And as can now been your something it's some item in finance a and you've quarter. [little] it's flow. forward? per distribution Okay. the statement for real mean, go I should million the you color guidance $X.X cash tune the important just to line it a on and just question the been use cash -- I of kind And for on affiliate, about about cash need relates flow of to you. as statement your provide we of really we that is how think cash deep flow

Julie Kerekes

move ], venture, year. move down and Yes, that Red relates as That up down will our just is kind and this up our and [ of throughout them balances to the Ted Julie. with joint Iron

we that further when So can we discuss talk.

but yes. think yes, I [indiscernible] talking we're

Operator

be Research. our And next next our question. David from for question to a seems moment of follow-up Longbow One Capital MacGregor

David S. MacGregor

of from are offering residential. and And secondly, things. differentiation? the are sources product focusing here. on in sort you the Could getting, backing an based the And I what put competitive What to you you're feedback opportunities give at guess autonomous quarter just here looking on as away guess your and Rick, of expand the the update with I distribution longer-term the more are kind product consumers. front of some with just us in where the on X of early drivers consumers

Richard Olson

Sure.

expanding them, we've volume through contractor thing of of I process, one we've now, talked will context combination availability the be those about robotic of in we that right doing side, the say we're you're what and in forward, would about, specific product converge, the platform and products keeping our of the of of as doing talking and we're and particular solutions going have on these also year see be suite one first a a they would through that of the is think offering the on have residential I in what just we shows, needs trade shown we've Residential they field golf that really this the -- that next solutions side. which other already shown but operating are that landscape in into part the industry And may limited well. we'll out year that as solution configuration

to as tree and ability in with GPS. conditions they like these piece So is to operate that's canopies really see all differentiated from access less impact desirable what things

challenging systems value uses of it our we of its be think believe ultimately, to that, very rate. technical create to provides better environment, advanced We issue. an understanding and -- optical So a customers, able lot it's that a fairly to although satisfaction will that

David S. MacGregor

product products battery you're percentage I overall, of XX% guess, motorized today? and XXXX. And Where that hybrid sales targeting by is Interesting.

Richard Olson

seen, we to exact you've And we electrical percentage a is on have our XXXX. as have our been the all have releasing little and did this a XX% X% public We of I think at north somewhere solutions steady about point. path [indiscernible] -- markets. publish bit be across battery by of been

up in and -- and rides, lithium-ion side, with and walk solutions be revolution keep vehicles Including coming just the movers, fully to will with -- challenged contractor the with with the zero-emission battery we introduced for are products products. golf, people We the demand landscape Exmark golf. utility on the greensmowers, similar

have had up construction residential the the opened [bud] buggy indoors. products, side, steady the We've that's products, platform, to Flex-Force in new electric the us a just battery operate introduction those our even e-Dingo, XX-volt of for Ultra opportunities

So of that products. to getting or consumer extremely and electric electric end battery uptake element is the customer about -- solution. are with percentage the their electric as to the and One acceptance progress excited we battery a

upfront to We offer into and bigger get battery when some will you a continue both economically time, it's more purchase. a categories, and electric solutions in challenged

know we going So there are into decision. the factors that

that. be we've got achieve able absolutely the are doing are we to to We in committed to our solutions our goal, make sure place path and to our to part

David S. MacGregor

just me Great. Last acquisition question for on the is pipeline.

over You've time I of a significant 'XX, and based 'XX, know that number in opens 'XX, of nothing kind factors. window done on fairly so far 'XX. in transactions XXXX, closes

X wondering acquisition Just opportunity next what within the maybe allocation you're the and bigger now thought capital about process like to looks terms X how the right in right pipeline the quarters? thinking now of

Richard Olson

very we've We the M&A those allocation a disciplined and about -- those Acquisition our talked number priorities the and about are priorities we're same. of remain ends. of process process, and capital opportunities times, never it are part

might the So even out that would significant no the amount difference that might sure don't next interest. acquisitions -- say we made. after of that we of It's most are again, process the have opportunities. important the to future. acquisition that there's discipline acquisitions don't there. we in opportunities not the to And we've another people regret regret for be significant continues. of the the And set to make the is I day a talking we that thing be us And in

years. We in the last what done with are few we've delighted

David S. MacGregor

much, Thanks very good and luck.

Richard Olson

you. Thank Okay.

Operator

session. Kerekes, Q&A for remarks. proceed Ms. the concludes This closing please

Julie Kerekes

results. We forward and discuss questions all third Tanya, again The you to you, your fiscal September our Company. for in Toro in to and Thank look thank interest everyone with XXXX quarter talking

Operator

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

now disconnect. may day. You Good

The Toro Company (TTC) 8 Jun 232023 Q2 Earnings call transcript