Strong Fourth Quarter Boosts Toro to Another Record Year
2004 Net Earnings Per Diluted Share Total $4.04 Board Doubles Quarterly Dividend to $0.12 Per Common Share Live Conference Call December 8, 10:00 a.m. CT http://www.thetorocompany.com/invest
BLOOMINGTON, Minn., Dec. 8 /PRNewswire-FirstCall/ -- The Toro Company (NYSE: TTC) today 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 October 31, 2004. 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 October 31, 2004, Toro reported net earnings of $6.9 million, or $0.28 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 $0.21 per diluted share, on net sales of $310.3 million.
Kendrick B. Melrose, The Toro Company Chairman and Chief Executive Officer, said that 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. 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," said Melrose.
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% in fiscal 2004 on a 10.4% increase in net sales, exceeding the targets of our '6+8' continuous improvement program," said Melrose. "While the company benefited from growth in our major markets, these strong results also attest to the breadth and depth of our company-wide 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% increase in the international business. This increase gives support to the long-term strategy to build this part of Toro's business to better balance our portfolio. The company also generated record cash flow from operating activities in fiscal 2004, further strengthening its balance sheet and improving overall asset utilization.
"While we remain mindful of the uncertainties in our markets, we are also increasingly confident in our ability to deliver strong results in spite of the unplanned challenges we may encounter," said Melrose. "Recognizing that the company is well-positioned to sustain continued improvement in our financial performance, the Board of Directors voted to double our quarterly dividend to $0.12 per common share, payable Jan. 10, 2005 to shareholders of record on Dec. 20, 2004."
SEGMENT RESULTS
Segment data is provided in the table following the "Condensed Consolidated Statements of Earnings."
Professional
Full year net sales for the professional segment totaled $1,028.9 million, up 10.7% compared with fiscal 2003. Segment sales increased in nearly all product categories, although irrigation product sales in the U.S. were lower than expected. Segment earnings for the year were $173.1 million, up 18.0% compared with fiscal 2003.
Compared with the prior year fourth quarter, fiscal 2004 fourth quarter segment sales increased 9.6% to $194.8 million. Earnings for the fourth quarter totaled $18.6 million, up 39.7% 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% 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% 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% from the same period last year. Earnings for the fourth quarter totaled $9.1 million, down 1.7% 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% compared with fiscal 2003. Distribution segment sales for the fiscal 2004 fourth quarter totaled $40.6 million, up 9.9% 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.
REVIEW OF OPERATIONS
For the full year, gross margin improved to 35.9% from 35.8% in fiscal 2003 despite significant increases in steel and other commodity costs. Higher material costs were partially offset by production growth in most categories and the company's continuing lean manufacturing initiatives. For the fiscal 2004 fourth quarter, gross margin was 34.8% compared to 34.6% in the same period last year.
For fiscal 2004, selling, general and administrative (SG&A) expenses were 25.9% of net sales, compared to 27.2% in 2003. The decrease was primarily from better management of SG&A, over higher sales volumes, and lower warranty and warehousing expenses. SG&A expenses for the fourth quarter were 30.7% of net sales compared to 31.4% of net sales in the same period last year.
Interest expense for the full year declined approximately $0.8 million compared with 2003 as a result of lower average borrowing levels over the course of the year and the use of earnings to retire debt.
Net inventories as of the end of this fiscal year were $227.2 million, down $1.7 million from $228.9 million as of the end of fiscal 2003. Net receivables as of the end of fiscal 2004 totaled $285.7 million, up only 2% from $280.1 million as of the end of last year despite the 8.6% increase in fourth quarter net sales.
The company generated $185.1 million in cash from operating activities during fiscal 2004, up 56.1% from $118.6 million last year. During fiscal 2004, the company spent $169.8 million to repurchase 2.6 million of its common shares. Cash and cash equivalents as of the end of fiscal 2004 totaled $90.8 million compared with $110.3 million as of the end of fiscal 2003.
BUSINESS OUTLOOK
"Our employees have enthusiastically embraced our '6+8' profitability improvement initiative," said Melrose. "Once again, 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. "There are clearly some uncertainties ahead, but we are now more effective at anticipating and managing through them while delivering steadily improving financial performance for our shareholders," said Melrose. "Our ongoing profitability improvement and revenue growth initiatives position us well for another excellent year in sales and earnings."
For fiscal 2005, Toro currently expects to deliver earnings per diluted share growth of 12 to 15% on sales growth of 7 to 9%. For its fiscal first quarter, typically the smallest revenue period, Toro expects to report diluted earnings per share of $0.38 to $0.43.
The Toro Company is a leading worldwide provider of outdoor maintenance and beautification products for home, recreation and commercial landscapes.
The Toro Company will conduct a conference call and webcast for investors beginning at 10:00 a.m. Central Time (CST) on December 8, 2004. The webcast will be available at http://www.streetevents.com or at http://www.thetorocompany.com/invest . Webcast participants will need to complete a brief registration form and should allocate extra time before the webcast begins to register and, if necessary, download and install audio software.
Safe Harbor
Statements made in this news release, which are forward-looking, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties. These uncertainties include factors that affect all businesses operating in a global market as well as matters specific to Toro. Particular risks and uncertainties facing the company's overall financial position at the present include the threat of further terrorist acts and war, which may result in contraction of the U.S. and worldwide economies; slow growth rate in global and domestic economies, resulting in rising unemployment and weakened consumer confidence; our ability to achieve the goals for the "6+8" growth and profit improvement initiative which is intended to improve our revenue growth and after-tax return on sales; the company's ability to achieve sales and earnings per share growth in fiscal 2005; ability of management to manage around unplanned events; unforeseen product quality problems in the development and production of new and existing products; potential issues with moving production between facilities; fluctuations in the cost and availability of raw materials, including steel; rising cost of transportation; level of growth in the golf market; increased dependence on The Home Depot as a customer for the residential segment; reduced government spending for grounds maintenance equipment due to reduced tax revenue and tighter government budgets; increased competition; elimination of shelf space for our products at retailers; financial viability of distributors and dealers; market acceptance of existing and new products; unforeseen inventory adjustments or changes in purchasing patterns by our customers; the impact of abnormal weather patterns; and the previously disclosed pending litigation against the company and other defendants that challenges the horsepower ratings of lawnmowers, of which the company is currently unable to assess whether the litigation would have a material adverse effect on the company's consolidated operating results or financial condition. In addition to the factors set forth in this paragraph, market, economic, financial, competitive, weather, production and other factors identified in Toro's quarterly and annual reports filed with the Securities and Exchange Commission, could affect the forward-looking statements in this press release. Toro undertakes no obligation to update forward-looking statements made in this release to reflect events or circumstances after the date of this statement.
THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings (Unaudited)
(Dollars and shares in thousands, except per-share data)
Three Months Ended Fiscal Years Ended
October 31, October 31, October 31, October 31,
2004 2003 2004 2003
Net sales $336,864 $310,262 $1,652,508 $1,496,588
Gross profit 117,379 107,296 593,070 535,459
Gross profit percent 34.8% 34.6% 35.9% 35.8%
Selling, general, and
administrative
expense 103,583 97,295 428,527 406,639
Restructuring and
other (income)
expense (368) 350 (682) 1,826
Earnings from
operations 14,164 9,651 165,225 126,994
Interest Expense (4,046) (3,721) (15,523) (16,285)
Other income, net 224 1,562 3,531 10,209
Earnings before
income taxes 10,342 7,492 153,233 120,918
Provision for
income taxes 3,413 1,868 50,567 39,298
Net earnings $6,929 $5,624 $102,666 $81,620
Basic net earnings
per share $0.30 $0.22 $4.21 $3.26
Diluted net earnings
per share $0.28 $0.21 $4.04 $3.12
Weighted average
number of shares
of common stock
outstanding - Basic 23,383 24,997 24,364 24,998
Weighted average
number of shares
of common stock
outstanding - Dilutive 24,421 26,345 25,383 26,149
THE TORO COMPANY AND SUBSIDIARIES
Segment Data (Unaudited)
(Dollars in thousands)
Three Months Ended Fiscal Years Ended
October 31, October 31, October 31, October 31,
Segment Net Sales 2004 2003 2004 2003
Professional $194,811 $177,763 $1,028,941 $929,434
Residential 117,382 110,289 554,334 506,466
Distribution 40,627 36,970 152,234 133,957
Other (15,956) (14,760) (83,001) (73,269)
Total* $336,864 $310,262 $1,652,508 $1,496,588
* Includes
international
sales of $73,074 $58,847 $341,360 $288,998
Earnings (Loss) Before Income Taxes by Segment (Unaudited)
(Dollars in thousands)
Three Months Ended Fiscal Years Ended
October 31, October 31, October 31, October 31,
Segment Earnings (Loss) 2004 2003 2004 2003
Professional(a) $18,632 $13,341 $173,111 $146,756
Residential(b) 9,086 9,245 61,777 55,460
Distribution 518 (82) 2,203 (505)
Other (17,894) (15,012) (83,858) (80,793)
Total $10,342 $7,492 $153,233 $120,918
(a) Includes restructuring and other income of $499 thousand and
$551 thousand for the three-month period and fiscal year ended
October 31, 2004, respectively. Includes restructuring and other
income of $273 thousand and $358 thousand for the three-month period
and fiscal year ended October 31, 2003, respectively.
(b) Includes restructuring and other expense (income) of $131 thousand
and $(131) thousand for the three-month period and fiscal year ended
October 31, 2004, respectively. Includes restructuring and other
expense of $623 thousand and $2,184 thousand for the three-month
period and fiscal year ended October 31, 2003, respectively.
THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
October 31, October 31,
2004 2003
ASSETS
Cash and cash equivalents $90,756 $110,287
Receivables, net 285,736 280,124
Inventories, net 227,200 228,909
Prepaid expenses and other current assets 16,931 12,484
Deferred income taxes 44,552 42,111
Total current assets 665,175 673,915
Property, plant, and equipment, net 164,665 159,116
Deferred income taxes - 1,181
Goodwill and other assets, net 98,907 93,220
Total assets $928,747 $927,432
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt $45 $3,830
Short-term debt 1,099 2,138
Accounts payable 87,147 73,976
Accrued liabilities 252,484 223,192
Total current liabilities 340,775 303,136
Long-term debt, less current portion 175,046 175,091
Long-term deferred income taxes 3,837 -
Deferred revenue and other long-term liabilities 13,475 12,003
Stockholders' equity 395,614 437,202
Total liabilities and stockholders' equity $928,747 $927,432
THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
Fiscal Years Ended
October 31, October 31,
2004 2003
Cash flows from operating activities:
Net earnings $102,666 $81,620
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Non-cash asset impairment (recovery)
write-off (726) 6,814
Equity losses from an investment 781 -
Provision for depreciation and amortization 36,093 34,136
(Gain) loss on disposal of property,
plant, and equipment (216) 259
Decrease in deferred income taxes 2,758 137
Tax benefits related to employee
stock option transactions 9,857 2,642
Changes in operating assets and liabilities:
Receivables, net (10,717) (27,953)
Inventories, net (310) 3,746
Prepaid expenses and other assets (4,392) (1,901)
Accounts payable, accrued expenses,
and deferred revenue 49,354 19,126
Net cash provided by operating activities 185,148 118,626
Cash flows from investing activities:
Purchases of property, plant, and equipment (40,812) (43,265)
Proceeds from disposals of property,
plant, and equipment 2,098 1,702
(Increase) decrease in investment in affiliates (1,278) 1,000
Decrease in other assets 1,118 308
Proceeds from sale of business 578 1,016
Acquisition, net of cash acquired - (1,244)
Net cash used in investing activities (38,296) (40,483)
Cash flows from financing activities:
(Decrease) increase in short-term debt (1,039) 883
Repayments of long-term debt (3,830) (15,846)
Proceeds from exercise of stock options 14,307 8,923
Purchases of common stock (169,821) (18,726)
Dividends on common stock (5,839) (6,005)
Net cash used in financing activities (166,222) (30,771)
Effect of exchange rates on cash (161) 99
Net (decrease) increase in cash
and cash equivalents (19,531) 47,471
Cash and cash equivalents as of
the beginning of the fiscal year 110,287 62,816
Cash and cash equivalents as of
the end of the fiscal year $90,756 $110,287
SOURCE The Toro Company
CONTACT: Investor Relations, Stephen P. Wolfe, Vice President, CFO, 952-887-8076,
or Tom Larson, Assistant Treasurer, 952-887-8449,
or Media Relations, Connie Kotke, Toro Media Relations, 952-887-8984, or pr@toro.com , all of The Toro Company
Web site: http://www.thetorocompany.com/invest
http://www.thetorocompany.com