Toro Marks Another Record Year

BLOOMINGTON, Minn. – The Toro Co. reported record net earnings of $102.7 million, or $4.04 per diluted share, on record net sales of $1,652.5 million for the fiscal year ended Oct. 31. In fiscal 2003, also a record year, the company reported net earnings of $81.6 million, or $3.12 per diluted share, on net sales of $1,496.6 million.

For its fiscal 2004 fourth quarter ended Oct. 31, Toro reported net earnings of $6.9 million, or 28 cents per diluted share, on net sales of $336.9 million. In the comparable 2003 period, the company reported net earnings of $5.6 million, or 21 cents per diluted share, on net sales of $310.3 million.

Kendrick Melrose, chairman and CEO of The Toro Co., said the company's fourth quarter and full year performance benefited from generally favorable market conditions that contributed to continued sales growth in most product categories, as well as the earnings leverage from the company's ongoing profitability improvement and growth initiatives.

"Our record sales and profit performance reflects solid growth in each of our business segments,” Melrose said. “We are extremely pleased to report another strong quarter and record results in a milestone year for our company, marking our 90th year in business."

Melrose noted that in the first year of a planned three-year initiative to accelerate revenue growth and further improve after-tax profit, Toro exceeded both goals. "Our after-tax profit margin increased to 6.2 percent in fiscal 2004 on a 10.4-percent increase in net sales, exceeding the targets of our '6+8' continuous improvement program," Melrose said. "While the company benefited from growth in our major markets, these strong results also attest to the breadth and depth of our companywide commitment to continuous improvement and to the solid foundation we built with our prior profit-improvement initiative."

A significant contributor to the revenue growth for the year was an 18.1-percent increase in international business. This increase gives support to the long-term strategy to build this part of Toro’s business to better balance the company’s portfolio. The company also generated record cash flow from operating activities in fiscal 2004, further strengthening its balance sheet and improving overall asset utilization.

As a result of the company’s success and good future outlook, the Toro board of directors voted to double quarterly dividends to 12 cents per common share, payable Jan. 10, 2005 to shareholders of record on Dec. 20, 2004.

SEGMENT RESULTS. Professional. Full year net sales for Toro’s professional segment totaled $1,028.9 million, up 10.7 percent compared with fiscal 2003. Segment sales increased in nearly all product categories, although U.S. irrigation product sales were lower than expected. Segment earnings for the year were $173.1 million, up 18 percent compared with fiscal 2003.

Compared with the prior year fourth quarter, fiscal 2004 fourth quarter segment sales increased 9.6 percent to $194.8 million. Earnings for the fourth quarter totaled $18.6 million, up 39.7 percent from the same period last year. Earnings for the 2003 period included an impairment charge for certain manufacturing equipment that was phased out in the transition to an improved process.

Residential. For the full year, residential segment sales were $554.3 million, up 9.5 percent compared with fiscal 2003. Most of the increase was attributable to an increase in walk-power mower sales, robust snow thrower demand and expanded retailer placement of electric products. Segment earnings totaled $61.8 million, up 11.4 percent from fiscal 2003. Full year improvement in this segment was primarily due to expense leveraging and a prior year restructuring charge of $2.2 million.

For the fourth quarter, sales totaled $117.4 million, up 6.4 percent from the same period last year. Earnings for the fourth quarter totaled $9.1 million, down 1.7 percent from the 2003 fourth quarter. The decline was primarily due to increased raw material and special consumer product modification costs.

Distribution. For fiscal 2004, distribution segment sales of $152.2 million increased 13.6 percent compared with fiscal 2003. Distribution segment sales for the fiscal 2004 fourth quarter totaled $40.6 million, up 9.9 percent compared with the fiscal 2003 period.
Distribution segment earnings totaled $2.2 million for fiscal 2004 and $0.5 million for the fiscal 2004 fourth quarter compared to losses in the corresponding 2003 periods.

BUSINESS OUTLOOK. “Our employees have enthusiastically embraced our '6+8' profitability improvement initiative,” Melrose said. "Their commitment and performance delivered outstanding results, as was evident in the solid fourth quarter performance. Our industry's outlook continues to be favorable, and we expect the continuing economic recovery will once again boost demand, providing Toro another opportunity to build market share and continue strong revenue growth."

Commenting on the outlook for fiscal 2005, Melrose said the company expects to encounter additional commodity cost pressures and a continued slow pace for new golf course construction. In addition, the company plans to invest more aggressively in innovation and technology, product development, process improvement and overall business and brand development

For fiscal 2005, Toro currently expects to deliver earnings per diluted share growth of 12 to 15 percent on sales growth of 7 to 9 percent. For its fiscal first quarter, typically the smallest revenue period, Toro expects to report diluted earnings per share of 38 to 43 cents.