Toro Reports Record Third Quarter

BLOOMINGTON, Minn. – The Toro Co. today reported record net earnings of $34.4 million, or 74 cents per diluted share, on net sales of $466.9 million for its fiscal third quarter ended July 29, 2005. In the comparable fiscal 2004 period, the company reported net earnings of $34.2 million on net sales of $454 million.

For the nine months ended July 29, 2005, Toro reported net earnings of $107.5 million compared with net earnings of $95.7 million for the first nine months of 2004. Earnings per share figures for all periods reported have been adjusted to reflect the effects of a 2-for-1 stock split effective March 28, 2005.

"Sales growth in international markets helped drive revenues to record levels for the third quarter in both the professional and residential segments, helping to mitigate weather-related softness in our domestic markets," said Michael Hoffman, The Toro Co.'s president and chief executive officer. "Despite a challenging environment, year-to-date consolidated net sales are nearly 10 percent ahead of fiscal 2004's record level."

Executive chairman Kendrick Melrose added, "Our strong performance in the third quarter and year-to-date gives evidence of our ability to sustain solid earnings growth and has us on track to deliver another record year of financial results. We continue to enhance our operating model to reduce the volatility to external factors such as weather, while tenaciously focusing on strategic initiatives that will drive sustainable long-term growth and profitability."

SEGMENT RESULTS. Professional. For the third quarter, professional segment sales increased 5.1 percent to $302.5 million. Shipments were particularly strong throughout our international markets and in golf irrigation driven by the introduction of new products.

Professional segment earnings for the quarter were $59.9 million, up 10.2 percent from $54.3 million in last year's third quarter. For the year to date, professional segment earnings totaled $183.4 million on net sales of $936.8 million compared with earnings of $154.5 million on net sales of $834.1 million in last year's first nine months.

Residential. Residential segment sales for the third quarter totaled $148.6 million, up 3 percent from last year's third quarter. Increased international sales of Hayter products, which Toro acquired in early 2005, and strong snow thrower shipments both domestically and internationally drove third quarter sales growth.

For the year to date, net sales were $472.2 million, up 8.1 percent compared with the first nine months of fiscal 2004. Segment earnings for the quarter totaled $10.1 million, down 42.8 percent from $17.6 million in the same period last year. For the year to date, segment earnings were $43.5 million compared with $52.7 million in the same period last year. The decline in segment earnings for the quarter and year to date were primarily due to higher commodity costs.

REVIEW OF OPERATIONS. Gross margin for The Toro Co.’s third quarter was 35 percent compared with 36.2 percent in the prior year's third quarter. As in the preceding quarters, the decline resulted primarily from the impact of higher commodity costs, as well as the Hayter acquisition.

SG&A expenses for the third quarter were 23.3 percent of net sales, down from 24.6 percent last year, primarily from lower incentive compensation expenses. Interest expense for the third quarter was $4.8 million compared with $3.9 million in the same period last year. The increase was due to higher levels of short-term borrowing to support the company's share repurchase program and the Hayter acquisition.

During the quarter, the full-year effective tax rate was reduced from 33.5 percent to 33.0 percent, resulting from increased credits for the company’s growing foreign export sales.

Accounts receivable at the end of the third quarter totaled $399.9 million, up 4.9 percent. Net inventories at the end of the third quarter were $235.1 million, up 8.2 percent compared with the end of the fiscal 2004 third quarter. The increases in quarter-ending accounts receivable and inventories result primarily from higher currency exchange rates and the Hayter acquisition completed in the fiscal 2005 second quarter.

BUSINESS OUTLOOK. Toro today said that it expects net earnings per diluted share for fiscal 2005 to exceed last year's record levels by 16 to 18 percent on revised sales growth of 7 to 9 percent.

"For the fiscal year, financial performance will benefit from a favorable mix of businesses and strong expense management," said Hoffman. "With sales growth in nearly all professional segment categories and consistent returns from our international growth initiatives we will improve upon last year's record financial performance despite higher materials costs and unfavorable weather."

Hoffman attributed the company's achievements to its 6+8 profit improvement and growth initiative. "Our lean manufacturing and ‘No Waste’ initiatives helped us to preserve strong profitability in the face of rising materials costs," he said. “The efficiencies we are now achieving are sustainable and will continue to benefit our profitability going forward."