Toro’s earnings rise in fiscal third quarter, but professional sales fall

Toro (TTC -10.09%)known for its lawn care and landscaping products, released results for the third quarter of fiscal 2024 on September 5. The company reported net sales of $1.156 billion, an increase of 6.9% from $1.081 billion in the same period last year, the management meeting. expectations. Net income of $119.3 million was a change from a loss of $15.0 million in Q3 2023, with adjusted diluted EPS up 24.2% to $1.18. However, the company revised its full-year adjusted EPS guidance to a range of $4.15 to $4.20, from its previous forecast of $4.25 to $4.35.

Source: Guidance from Toro’s fiscal Q2 earnings report, released June 6.

Understanding Toro

Toro offers a wide range of lawn care, irrigation and landscaping products and services. It operates through two main segments: professional and residential.

Recently, Toro has focused on reducing field inventory levels and improving production efficiency. The company’s AMP (Advanced Manufacturing Productivity) initiative will be instrumental in achieving better productivity and operational efficiency. This initiative has begun to yield results, but management has acknowledged that the full benefits will take another two years to unfold.

Quarterly highlights

Fiscal Q3 2024, which ended on August 2, saw major changes in Toro’s financial performance. While net sales rose 6.9% year-over-year, segment performance was mixed. Professional segment net sales decreased 1.7% to $880.9 million, primarily due to lower shipments of compact utility loading snow and ice management products and equipment. This decrease was in line with higher field inventories and production adjustments. The residential segment posted a massive 52.6% increase in net sales to $267.5 million, driven by higher shipments to mass market channels such as Lowe’s (LOW -0.55%).

The company posted net income of $119.3 million — a significant improvement from the loss of $15.0 million in Q3 2023. Adjusted diluted EPS climbed 24.2% to $1.18. Gross margin improved to 34.8% from 34.4% the previous year. These gains were partially offset by higher material and manufacturing costs. In particular, Toro’s effective tax rate was reduced to 17.3%, which contributed to the increase in net earnings.

Despite these positives, management highlighted areas of concern that include manufacturing inefficiencies and production adjustments that continue to affect performance. The AMP initiative has begun to yield productivity benefits, although rising material costs have hurt overall earnings. Toro also made significant progress in reducing dealer inventory of lawn care products, a necessary adjustment to align production with market demand. Strategic partnerships, such as its recent collaboration with Lowe’s, have delivered substantial gains in the residential segment.

Looking ahead

Management’s outlook for fiscal 2024 remains cautious due to macroeconomic uncertainties. Expected net sales growth is approximately 1%, and adjusted diluted EPS guidance was revised to a range of $4.15 to $4.20, from $4.25 to $4.35 previously.

Investors should monitor the company’s efforts to address its manufacturing inefficiencies and reduce inventory levels. As macroeconomic conditions evolve, Toro’s agility in adapting its operations will be crucial to sustaining growth and maintaining financial health.