This summary is based on the third quarter fiscal 2008 earnings call conducted by The Toro Co. (TTC) on August 21, 2008.
Management:
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Chairman and CEO: Mike Hoffman
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VP, Finance and CFO: Steve Wolfe
Key Investors Issues
- Net sales were up nearly 3% to $492.6 million from $478.7 million in 2007.
- Earnings were $38.2 million or 99 cents per share, down 10% from $42.5 million or $1.05 a share.
Year to Date Highlights:
- Net sales were $1.5 billion, down slightly from $1.54 billion in the prior year.
- The international business was up 12% due to strong demand for golf maintenance and golf irrigation systems along with favorable currency.
- The firm posted net earnings of $119.6 million or $3.06 per diluted share, from $136 million or $3.32 a share in 2007, down 12%.
Third Quarter Highlights
Net sales were up nearly 3% to $492.6 million from $478.7 million in 2007 driven by the strength of the international business as well as increases in shipment snow products, particularly in North America.
- Earnings were $38.2 million or 99 cents per share, down 10% from $42.5 million or $1.05 a share dampened by gross margin at the gross margin level as a result of increased raw material and freight costs and lower production volumes.
- Gross margin decreased by 180 basis points for the quarter due to rising commodity and freight costs and lower production volumes those these were somewhat offset by favorable currency and product mix.
SG&A expenses were up by $300,000, but decreased to 22.5% of net sales, down from 23.1% last year as a result of lower incentive expenses, somewhat offset by higher spending for marketing and engineering investments.
- Interest expense declined by $300,000 largely due to lower interest rates.
- The accounts receivable were down $14.8 million or 3.9% and the cash generated from operating activities increased by $42 million for the first nine months, which was used to repurchase $1.4 million common shares in the quarter.
Segment Results:
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Professional worldwide sales were up 5.9% to $351.6 million as international led the way with strong sales growth in most Professional categories, while domestic Professional sales were down slightly under difficult market conditions.
- A portion of this increase was influenced by price increases that went into effect August 1 for certain products.
Within the golf market, worldwide demand for maintenance equipment and precision irrigation systems remained strong.
- Meanwhile, sales declined significantly for professionally installed residential and commercial irrigation products due to the continuing weakness in the housing market and other economic pressures.
- Earnings were $71.1 million, up slightly from the prior year, attributable to higher sales, product mix, and favorable currency, which was largely offset by rising material costs and freight and lower production volume.
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Residential worldwide sales were down less than 1% to $132.1 million.
- The firm experienced strong worldwide demand for riding products in Europe and Canada, along with increased shipments for the popular Pope branded products in Australia.
- Shipments of snow thrower products in North America were also up, as pre-season orders were stronger due to lower field inventory levels and accelerated demand heading into the upcoming snow season.
- Offsetting some of these gains were lower domestic shipments of Walk Power Mowers due to poor economic conditions.
- Net earnings were $3.4 million, down 58.3% from the previous year.
Update on Initiatives:
- The firm is aggressively pursuing retail through targeted programs and spending.
- With the best distribution network in the business, it is collaborating to drive retail activity, extent the customer base, and strengthen its competitive position.
- The company began shipping the all new 16-foot Groundsmaster 5900 series rotary mower, which retails for over six figures.
- With these new and the existing products, management believes the firm is holding or gaining share in nearly every major category.
Both the inventory here at Toro and the field inventory levels are much improved versus the same time last year as the firm has been more proactive this year and made adjustments sooner to better match customer demand.
- These gains are also a reflection of the increasing focus on inventory management and working capital.
- The firm is taking appropriate measures to drive out waste, control expenses, and improve productivity, without compromising the ongoing investments in marketing and engineering.
Key strategies:
