This summary is based on the first quarter fiscal 2009 earnings call conducted by The Toro Co. (TTC) on February 19, 2009.
Management:
Chairman and CEO: Michael J. Hoffman
VP of Finance and CFO: Stephen P. Wolfe
Key Investor Issues:
- Quarter-to-quarter gross margin dipped from $149.1 million to $118.3 million.
- Q1 EPS decreased to 18 cents from 47 cents in the year ago quarter.
- Full year 2009 revenues are expected to decline by 15% from fiscal 2008 levels.
- Full year net earnings projected to be between $1.75 and $2 per share.
First Quarter Highlights:
The management continues to take corrective action in response to the deteriorating market conditions.
- The company has aligned production schedules for reduced demand and lower inventory.
- The freeze on all open positions initiated early last year remains in place.
- The company has also completed a voluntary retirement program in the past December.
- The company was forced to take additional action to reduce office and salaried work force by approximately 100 employees.
- Combined with previous measures, the company has reduced its overall work force by approximately 15% from the previous year.
The company also remains committed to reducing the working capital needs.
- The resulting improvements to the balance sheet stand out as a positive factor for the company in the difficult business environment.
- The inventory levels are much lower and receivables are considerably down.
- The field inventory levels are down on a year-over-year basis.
- The management remains confident in the strength of brands, products, people and channel partners to effectively compete for customer''s business in the future.
The quarterly net sales were down 16.2% to $340.2 million.
- The worldwide sales declined across most professional categories due to the global recession.
- The declines were offset by stronger orders for snow thrower products and favorable preseason shipments for the redesign lineup of Toro and Lawn-Boy Walk Power mowers.
Net earnings for the quarter were $6.7 million.
- This represents a decrease of 62% on a per share basis versus the same period last year.
- The earnings dip included a pre-tax charge of $1.3 million or 2 cents per share on an after-tax basis to account for the workforce adjustments.
Analysis of Segment Results:
Professional segment:
- The worldwide sales for the quarter were down 22.3% to $229.4 million.
- Shipments declined across most professional product categories due to the challenging market conditions and customers reluctance to place orders amidst economic uncertainty.
- Within the golf market, shipments of turf maintenance equipment and irrigation systems were down significantly as existing courses delayed purchases of new equipment.
- In addition, the number of renovation projects and new golf course under construction slowed considerably.
- The shipments of professionally installed residential and commercial irrigation products declined due to the ongoing pressure in housing and commercial construction.
- The Exmark and Toro products in the landscape contractor category were also down for the quarter.
- Net earnings in the professional segment for the quarter were $30.1 million, down 41.5% from the comparable fiscal 2008 period.
- The decline was primarily due to the significant sales decrease.
- Fixed SG&A expense was spread over lower sales volumes and higher manufacturing variances.
Residential segment:
- The worldwide sales for the quarter were up less than 1% to $107 million.
- Despite the recessionary conditions, consumers’ appetite for personal products remained healthy.
- The worldwide demand for Toro snow throwers improved significantly over the last year due to lower field inventory entering the season.
- The improvement was also due to a powerful product line up and strong early snowfall in Canada and key U.S. markets like the Mid-West and the North-East.
- The shipments of Lawn-Boy products firmed due to expanded placement at the key retailer.
- Toro products experienced increased orders from dealer channel due to better product availability this year.
- The Q1 residential segment results were also impacted by lower international sales, primarily due to the effects of unfavorable currency.
- Net earnings in the residential segment for the first quarter were $4.8 million, up 26.8% from the comparable fiscal 2008 period.
- The improvement was driven by lower SG&A expense due to reduced spending from marketing, warehousing and engineering.
Quarterly SG&A expenses were down $12.6 million or 10.7%.
- As a percent of sales, SG&A expenses increased to 30.7% compared with 28.9% in the first quarter of last year.
- Interest expense was down $500,000 for the quarter due to lower short-term borrowing levels and reduced interest rates.
- The effective tax rate for the quarter was 33.7% versus 35.4% in the first quarter of last year.
- The decline was primarily due to the extension over the federal research and engineering tax credit.
- The management expects fiscal year 2009 tax rate to remain at approximately 33.7%.
