CHICAGO – Toro Co., a leading maker of turf maintenance equipment, will soon launch a three-year plan to cut costs and expenses in an effort to accelerate profit growth, its chief executive said May 5.
Toro plans to announce the company-wide initiative on May 17 in conjunction with the release of its second-quarter financial results, Toro Chairman and Chief Executive Kendrick Melrose told Reuters in an interview.
"For a company that is a leader in so many markets, you'd expect us to be more profitable," Melrose said.
Bloomington, Minn.-based Toro makes landscape maintenance and irrigation equipment for the home and professional markets. Commercial clients range from top golf courses to Yankee Stadium to Walt Disney Co.
Melrose said the company began finding ways to reduce costs in 1998 after the El Nino weather phenomenon depressed sales of its snow removal and irrigation products to homeowners. The streamlining process laid the groundwork for a recovery the following year that has carried into the first half of 2000.
Net income in the first quarter rose 14.7 percent to 913,000, or 7 cents a share, on net sales of $280.2 million. Last year Toro earned $1.83 in the second quarter, traditionally the company's strongest as it gears up for the summer lawn care season.
Melrose said the new cost-cutting efforts are aimed at driving even more aggressive profit growth.
"The attempt is to grow our earnings significantly faster than we have in the past," Melrose said. "We can grow earnings double-digit, 10-15 percent a year, but that's not good enough when we're lower in terms of earnings yields that we should be."
He declined to disclose specifics on the new initiative, but said a focus would be on reducing selling, general and administrative expenses.
"We're a relatively high SG&A company, and we've probably been remiss in attacking this area, other than squeezing down costs," said Melrose. "We've done that, and now we need to raise it to a different level that creates a more fundamental change that's sustainable."
Melrose said Toro has already exited some low-margin businesses such as hand-held yard trimmers and hinted that other product lines could be up for sale as well. "We could get out of some businesses, we could get out of doing things that aren't adding value," he said.
Melrose is hoping the planned structural changes and a new emphasis on high-tech landscape maintenance applications will impress investors and bolster Toro shares. He said the company is currently testing a robotic lawnmower that will retail for under $1,000 and is set to roll out this summer.
A satellite-based system for monitoring lawn conditions is also in the works, Melrose said.