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Last week, Toro announced strong first quarter earnings that included more than 6 percent sales growth over last year’s first quarter and $7 million in earnings compared to a loss of nearly $30 million in the first quarter of 2001.
As one analyst told Toro CEO Ken Melrose during his quarterly call with investors, “This is getting to be a nice pattern.” Indeed it is for Toro – sales and the stock price keep climbing.
Melrose attributed the company’s stronger-than-expected fiscal 2003 first quarter performance to “sales growth in both the professional and residential segments coupled with an increase in gross margin resulting from the company’s continued focus on ongoing profit improvement strategies.” And the last three months have made him more confident about the rest of the year.
“Our first quarter results demonstrate the sustainable earnings power we are building at Toro through multiple initiatives to strengthen our business,” he noted. “We are benefiting from demand for new products, better management of inventories, the transfer of certain production to lower cost environments and other elements of our ‘5 by Five’ profit improvement initiatives. We’re more bullish than we were when the year began.”
Professional customers continue driving much of Toro’s growth, with sales to landscape contractors, irrigation professionals and golf courses jumping more than 10 percent to $193.4 million in the first quarter. “Sales of Exmark-branded landscape contractor equipment products were up significantly, reflecting the success of new products in the market as well as lower field inventories entering fiscal 2003,” pointed out Melrose.
“We continue to expect sales growth in our professional and residential segments despite the volatile geopolitical situation and uncertain economic conditions,” he added. “Our outlook would further improve if these uncertainties were resolved. Conversely, this outlook could worsen if these conditions further deteriorate.”
Melrose added that much of the margin improvement and cost containment measures that benefited the company’s first quarter results should continue during 2003. “Our production capacity and inventories are better aligned with demand due to recent facility rationalization and inventory management actions,” he explained. “We expect the impact on earnings from ongoing profit improvement and asset management initiatives to continue as volumes increase during our seasonally strongest quarters.”
Such consistent sales performance equates to an increasingly healthy bank account, leading to questions about how Toro’s growing stockpile of cash will be used. “We have an ongoing policy to buyback shares to cover stock options and other stock use,” Melrose noted. “Or, we could have an opportunity to retire a piece of long-term debt.”
Of more interest, however, are the CEO’s thoughts about acquisitions, which he shared as well. “We have some acquisition candidates, albeit small candidates, that we are looking at,” he confirmed, not identifying any particular companies or product categories that would be targeted. “Those are small opportunities that would benefit our business considerably.”
Wall St. clearly liked what it heard once again. Toro’s stock climbed nearly 2 percent to $68.30 a share on Tuesday, Feb. 25.
Melrose also touched on the company’s recent leadership changes in connection with the company’s recent decision to extend its deadline for selecting a new CEO until October 2005. Originally, the company planned to name its next chief in 2000, but that deadline was pushed back to 2003, anticipation Melrose’s retirement. At this point, the 33-year Toro employee isn’t ready to leave, but he has taken steps toward identifying his replacement, calling both Mike Hoffman and Tim Ford “viable candidates” and promoting them to group vice presidents.
The author is Editor/Publisher for Lawn & Landscape magazine and can be reached at bwest@lawnandlandscape.com.