Toro Posts Double Digit Increase in Third Quarter Net Sales and Earnings
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The Toro Company (NYSE: TTC) today reported net earnings of $21.9 million or $1.68 per diluted share on net sales of $375.6 million for its fiscal third quarter ended August 2, 2002. In the comparable fiscal 2001 period, the company reported net earnings of $16.9 million or $1.30 per diluted share on net sales of $329.7 million. Adjusted to reflect the company's November 1, 2001 adoption of Statement of Financial Accounting Standards no. 142, "Goodwill and other Intangible Assets" (SFAS no. 142), net earnings for the third quarter of 2001 would have been $19.2 million or $1.47 per diluted share.For the nine months ended August 2, 2002, Toro reported net earnings of $30.3 million or $2.34 per diluted share on net sales of $1,123.9 million. Results for the first nine months of fiscal 2002 included the following previously reported three items; a one-time foreign sales corporation tax benefit of $1.8 million or $.14 per share, a non-cash charge of $24.6 million or $1.90 per share, reflecting the cumulative effect of a change in accounting principle related to the adoption of SFAS no. 142, and restructuring and other expense of $6.7 million or $.52 per share. Adjusted to exclude these items, the company's net earnings per diluted share for the first nine months of fiscal 2002 totaled $4.62. In the comparable fiscal 2001 period, the company reported net earnings of $48.3 million or $3.68 per diluted share on net sales of $1,069.7 million. Results for the fiscal 2001 period include a benefit of $0.4 million or $.03 per diluted share related to the reversal of a prior accrual for the closing of a facility. Adjusted to exclude this unusual item and to reflect the company's November 1, 2001 adoption of SFAS no. 142, net earnings for the first nine months of fiscal 2002 was $54.3 million or $4.15 per diluted share.
The following table summarizes the adjustments affecting the period-to- period comparisons.
3rd Quarter 8/2/02 8/3/01 %
Reported diluted earnings per share
1.68 1.30 ---
Non-amortization of goodwill --- .17 ---
Adjusted diluted earnings per share
1.68 1.47 14.3
Year-to-date Nine Months YTD YTD %
8/2/02 8/3/01
Reported diluted earnings per share
2.34 3.68 ---
Foreign sales corporation tax benefit (.14) --- ---
Non-amortization of goodwill --- .50 ---
Cumulative effect of change in
accounting principle 1.90 --- ---
Restructuring and other expense .52 (.03) ---
Adjusted diluted earnings per share
4.62 4.15 11.3
"The quarter's results were most gratifying from the standpoint of growth in
both revenues and earnings," remarked Ken Melrose, chairman and CEO of The Toro
Company. He elaborated to say, "The sales growth of 14 percent was driven
primarily by newly introduced products, coupled with lower costs resulting from
our '5 by Five' initiatives, significantly outpacing our third quarter last
year. Moreover, it was rewarding to see sales pick up so strongly after a
sluggish first half due to unfavorable weather and high beginning inventories
which are becoming in line. Sales in all areas are benefiting from our focus on
introducing new products that deliver meaningful innovations in their
categories. In addition, we have been able to sustain our double-digit earnings
per share growth of 14.3 percent in the quarter in the face of increased profit
pressure through the continued implementation of our '5 by Five' initiatives. As
a result of this strong third quarter performance, we expect, as previously
announced, our diluted earnings per share for the full year to reach $4.85 to
$4.90 before unusual items." Melrose added, "It should also be noted that this
past week Toro was a prominent partner with Hazeltine National Golf Club in the
recently completed PGA Championship in Chaska, Minnesota. Toro provided not only
all the irrigation and mowing equipment, but also our agronomy expertise to help
Hazeltine host a most successful tournament."
Residential sales, up 40 percent for the quarter, were led by new products including the new walk behind mower line, sold through both The Home Depot and Toro dealers, as well as a new electric trimmer and DIY irrigation products. Retail demand for these products continues to be strong. The riding mower products, on the other hand, remain weak, partly because of the steps Toro has taken to reduce inventories in the field. Last year, as a result of strong demand, Toro shipped a large amount of snowthrowers in the fiscal 2001 third and fourth quarters. The mild snow season last year resulted in a larger than expected carryover of inventory. In keeping with its strategies of controlling field inventories, the company did not ship an appreciable amount of snowthrowers in the third quarter this year and will be shipping less in the fourth quarter as compared to last year.
Professional sales were up 6 percent for the quarter. In both grounds and golf, Toro is seeing customers order closer to retail demand reflecting their concerns about inventory. As a direct result of this "just in time" ordering strategy, sales were behind retail levels for most products, but still up in the third quarter. As with the residential areas, these sales increases are being driven by new product introductions for both equipment and irrigation.
The company-owned distributor business has also experienced double-digit revenue growth reflecting the continued turn-around in these markets. At the same time, the earnings increase reflects the increased emphasis on profitability in those operations.
International sales were up significantly for the quarter but remain flat with last year through the first nine-months of fiscal 2002. This reflects the strategy as mentioned before of shipping closer to the retail market, especially in the commercial business.
Gross margins in the quarter were lower than expected due to product mix with higher sales of lower margin residential products and increased manufacturing variances from production cuts in keeping with Toro's inventory management strategy. These pressures were partially offset by the continued emphasis on "5 by Five" initiatives in cost of goods sold.
Selling, general and administration expenses as a percentage of sales are lower than in the previous year reflecting the continued focus on "5 by Five," spreading fixed expenses over more sales and discontinuance of goodwill amortization. While emphasis continues on leveraging expenses, the company experienced higher warranty costs relating to certain products.
Toro's financial position strengthened as net cash provided by operating activities improved to a positive flow of $61.7 million for the first nine months of this year, compared to a negative $25.3 million in the same period last year. Better asset management, especially in the area of inventories, was primarily responsible for the improvement. The company's debt to total capital ratio of 35.8 percent for the third quarter was substantially lower than the 45.2 percent at this time last year. Available cash flow was used for stock repurchasing and to reduce short-term borrowing resulting in lower interest expense.
Toro is very pleased with its double-digit increases for both revenues and earnings for the third quarter. As stated before, Toro has raised its estimates for the year to $4.85 to $4.90. The company is confident that it can reach its estimated earnings for the entire year. The company's outlook beyond fiscal 2002 continues to be positive because of the improved operating fundamentals and market share positions for its businesses.
The Toro Company is a leading worldwide provider of outdoor maintenance and beautification products for home, recreation and commercial landscapes.
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. These forward-looking statements include statements regarding the outlook for the company's professional and residential businesses, benefits from the "5 By Five" profit improvement program; continued acceptance of new products; projected fiscal 2002 financial performance, including projected fiscal 2002 earnings of $4.85 to $4.90 per diluted share and earnings growth into the future; continued strong retail sales; the expected impact of new accounting principles on results of operations; expected change in channel partners field inventory levels and the potential contribution to results of operations of sales to large national retailers and local independent dealers, as well as assumptions underlying any of the foregoing.
Such statements involve risks and uncertainties that may cause results to differ materially from those set forth in those statements. Among other things, earnings and revenue growth could be affected by continued global economic decline that began in 2000; additional economic uncertainty created by the threat of further terrorist acts and war, which may result in heightened security for import and export shipments of components or finished goods; further reductions in consumer spending including spending for travel and golf and unanticipated increased costs; the company's ability to continue to reduce expenses and implement all aspects of the "5 by Five" profit improvement program including expenses necessitated by threats of terrorism or war; the company's ability to achieve fiscal 2002 sales and earnings estimates; continuing problems in the design and manufacturing of irrigation products; whether the company is successful in selling its moderately priced walk power mowers; capital investments for a new production facility to satisfy the expected increase in demand for these products and increased dependence on selected national retailers; inflationary pressures and continued uncertainty and increased costs due to the continued strength for the dollar in foreign currency markets. 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 Nine Months Ended
August 2, August 3, August 2, August 3,
2002 2001 2002 2001
Net sales $375,632 $329,744 $1,123,861 $1,069,707
Gross profit 128,939 118,106 386,299 366,517
Gross profit percent 34.3% 35.8% 34.4% 34.3%
Selling, general, and
administrative expense 92,412 88,115 285,689 277,178
Restructuring and other
expense (income) --- --- 9,953 (679)
Earnings from operations 36,527 29,991 90,657 90,018
Interest expense (4,656) (6,177) (15,224) (17,890)
Other income, net 848 3,062 3,916 4,526
Earnings before income
taxes 32,719 26,876 79,349 76,654
Provision for income taxes 10,797 9,944 24,410 28,362
Net earnings before
cumulative effect of
change in accounting
principle 21,922 16,932 54,939 48,292
Cumulative effect of
change in accounting
principle, net of
income tax benefit of
$509 --- --- (24,614) ---
Net earnings $21,922 $16,932 $30,325 $48,292
Basic net earnings per
share, before cumulative
effect of change in
accounting principle $1.74 $1.34 $4.37 $3.79
Cumulative effect of
change in accounting
principle, net of income
tax benefit --- --- (1.96) ---
Basic net earnings per
share $1.74 $1.34 $2.41 $3.79
Diluted net earnings per
share, before cumulative
effect of change in
accounting principle $1.68 $1.30 $4.24 $3.68
Cumulative effect of
change in accounting
principle, net of income
tax benefit --- --- (1.90) ---
Diluted net earnings per
share $1.68 $1.30 $2.34 $3.68
Weighted average number
of shares of common stock
outstanding - Basic 12,609 12,644 12,568 12,741
Weighted average number
of shares of common stock
outstanding - Dilutive 13,049 13,009 12,960 13,108
Net Sales by Segment (Unaudited)
(Dollars in thousands)
Three Months Ended Nine Months Ended
August 2, August 3, August 2, August 3,
2002 2001 2002 2001
Professional $235,301 $222,569 $701,267 $700,954
Residential 119,907 85,460 381,858 330,338
Distribution 50,452 43,575 118,825 104,088
Other (30,028) (21,860) (78,089) (65,673)
Total* $375,632 $329,744 $1,123,861 $1,069,707
* Includes
international
sales of $60,024 $52,786 $209,398 $205,170
Earnings (Loss) Before Income Taxes by Segment (Unaudited)
(Dollars in thousands)
Three Months Ended Nine Months Ended
August 2, August 3, August 2, August 3,
2002 2001 2002 2001
Professional $34,822 $37,702 $97,119 $105,259
Residential 12,161 5,100 39,938 29,973
Distribution 2,311 192 1,961 (1,117)
Other (16,575) (16,118) (59,669) (57,461)
Total $32,719 $26,876 $79,349 $76,654
THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
August 2, August 3,
2002 2001
ASSETS
Cash and cash equivalents $6 $90
Receivables, net 341,891 335,697
Inventories, net 209,320 245,569
Prepaid expenses and other current assets 10,832 10,544
Deferred income taxes 36,477 45,000
Total current assets 598,526 636,900
Property, plant, and equipment, net 154,515 138,145
Deferred income taxes 9,721 9,883
Goodwill and other assets 93,908 123,800
Total assets $856,670 $908,728
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt $15,824 $471
Short-term debt 8,011 94,384
Accounts payable 67,099 56,096
Other accrued liabilities 216,523 205,481
Total current liabilities 307,457 356,432
Long-term debt, less current portion 178,768 194,431
Other long-term liabilities 7,429 7,263
Stockholders' equity 363,016 350,602
Total liabilities and stockholders' equity $856,670 $908,728
THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
Nine Months Ended
August 2, August 3,
2002 2001
Cash flows from operating activities:
Net earnings $30,325 $48,292
Adjustments to reconcile net earnings to
net cash provided by (used in) operating
activities:
Cumulative effect of change in accounting
principle 24,614 ---
Noncash asset impairment writeoff 4,163 ---
Provision for depreciation and amortization 20,609 26,508
Writedown of investments --- 1,778
Gain on disposal of property, plant, and
equipment (718) (46)
Increase in deferred income tax asset (2,550) (5,286)
Tax benefits related to employee stock option
transactions 1,420 4,501
Changes in operating assets and liabilities:
Receivables, net (70,214) (79,558)
Inventories, net 25,341 (36,792)
Prepaid expenses and other current assets 257 2,147
Accounts payable and other accrued
liabilities 28,431 13,187
Net cash provided by (used in) operating
activities 61,678 (25,269)
Cash flows from investing activities:
Purchases of property, plant, and equipment (32,866) (23,376)
Proceeds from asset disposals 2,055 2,181
Decrease in investment in affiliates --- 154
Increase in other assets (2,847) (3,027)
Acquisitions, net of cash acquired --- (8,549)
Net cash used in investing activities (33,658) (32,617)
Cash flows from financing activities:
(Decrease) increase in short-term debt (26,402) 79,190
Repayments of long-term debt (486) (64)
Increase in other long-term liabilities 280 440
Proceeds from exercise of stock options 11,827 15,548
Purchases of common stock (22,558) (33,559)
Dividends on common stock (4,538) (4,605)
Net cash (used in) provided by financing
activities (41,877) 56,950
Foreign currency translation adjustment 987 48
Net decrease in cash and cash equivalents (12,870) (888)
Cash and cash equivalents at beginning of period 12,876 978
Cash and cash equivalents at end of period $6 $90
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SOURCE The Toro Company
CONTACT: Investors, Stephen P. Wolfe, Vice President, CFO,
+1-952-887-8076, or Stephen D. Keating, Assistant Treasurer, Director,
Investor Relations, +1-952-887-8526, or Media, Shelley Benedict, Media
Relations, +1-952-887-8930, or pr@toro.com , all of The Toro Company
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