This summary is based on the fourth quarter fiscal 2008 earnings call conducted by The Toro Co. (TTC) on December 9, 2008.
Management:
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Chairman of the Board, President, Chief Executive Officer: Michael J. Hoffman
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Chief Financial Officer, Vice President – Finance: Stephen P. Wolfe
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Treasurer: Tom Larson
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Director, Investor Relations: John Wright
Key Investors Issues
- Net earnings were $119.7 million or $3.10 per share, a decrease of 8.8%.
- Revenues remained flat at $1.89 billion.
Fourth Quarter Highlights
- Net sales were up 2.6% to $341.2 million from $333 million in the prior year.
- Net earnings were $6.5 million or 16 cents a share, down from $142.4 million or $3.40 a share in the prior year.
- The board of directors declared a regular quarterly cash dividend of 15 cents per share.
Full Year Highlights:
- Net earnings were $119.7 million or $3.10 per share, a decrease of 8.8% on a per share basis compared to last year due to pretax charges of $4.7 million due to workforce adjustments as revenues were relatively flat at $1.89 billion.
- Gross margin decreased by 1.3% points to 34.8% as a result of higher commodity and fuel costs and lower production volumes.
- SG&A expense was down slightly, by $400,000.00 and flat at 24.2% of net sales as the firm continues to invest in engineering to grow the business for the long term and incurred costs associated with the workforce adjustment.
Accounts receivable declined $26.9 million or 9.5% and the inventories position is solid with inventories down $44.2 million or 17.6%.
- Additionally, the firm is working closely with channel partners to be more proactive and taking prudent steps to better align purchases and manufacturing with customer demand.
- The firm had a year-end cash balance of nearly $100 million, along with committed bank lines in excess of $225 million and it returned $133 million to shareholders through dividend payments and share repurchases.
- The board of directors declared a regular quarterly cash dividend of 15 cents per share.
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Professional segment Professional segment net sales increased 1% to $1.3 billion as the company saw strong worldwide demand for golf equipment and irrigation systems from the successful introduction of several new products.
- Additionally, incremental sales from the acquisitions of Rain Master(R) and Turf Guard(TM) contributed to the slight increase.
- These gains helped offset declines in domestic sales of professionally-installed residential and commercial irrigation products and landscape contractor equipment.
- Earnings were $234.8 million, down 7.6% compared with the same period last year.
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Residential segment worldwide sales remained essentially flat with fiscal 2007 at $563.9 million and most of the revenue growth came from the international business where all residential categories were up for the year.
- In particular, the Pope branded products saw a healthy increase in demand down under in Australia, while sales for riding products were up in both Canada and Australia.
- Snow thrower shipments were up significantly across North America as a result of lower inventory levels and accelerated demand.
- Net earnings were $33.9 million down 19.1% from the previous year.
Strategic Insights:
- Through solid execution of the global growth objective and by taking advantage of opportunities outside the US to further diversify our portfolio, international sales increased by 12% for the year and now account for 32% of total sales.
- While currency had a favorable impact, the firm experienced strong demand from golf course construction and renovation projects in Asia, Eastern Europe, Africa, and the Middle East.
- At the same time overall growth rates for the micro-irrigation products remained healthy in Europe and Australia.
It continued to make progress on the Lean initiative and improved the working capital position in 2008.
- In October, Toro acquired a versatile line of deep tine aerators from Southern Green to strengthen Toro’s popular offering of pro core aeration equipment.
- The acquisition, albeit small, is strategic for the golf business as cultivation practices become increasingly important to the success of customers.
Product Advancements:
- In late October, the firm unveiled its new platform on next generations commercial Z-mowers at the Green Industry Expo, including the X-Mark Next Lazer Z and the Toro Z Master G3.
- It also introduced the Toro GrandStand, a stand on mower.
- In November, Toro returned from the irrigation show in Anaheim where both the Toro and Irritrol brands introduced several water saving irrigation technologies i.e. the new Precision series spray nozzles.
- In the residential segment, new products include a new platform of Toro and Lawn Boy’s steel deck walk power mowers in two distinct price ranges to compete on a broader pricing scale at the largest retail partner.
Fiscal 2009 Outlook:
- The firm expects fiscal 2009 net earnings to be $2.50 to $2.70 per share on a revenue decline of approximately 5% compared with fiscal 2008.
- For the fiscal first quarter, it expects net earnings of 15 cents to 25 cents per share.
Key questions and answers from the fourth quarter earnings call conducted by The Toro Co. (TTC) on December 9, 2008.
Jim Lucas (Janney Montgomery Scott):
Can you rank order what the biggest impact on the gross margin erosion was?
