Toro Second Quarter Net Earnings Per Share Up 10% To $1.61
Sales Growth and Margin Improvement Benefit Second Quarter Performance
LIVE CONFERENCE CALL May 28, 2003 -- 10 a.m. CDT www.thetorocompany.com/invest
BLOOMINGTON, Minn., May 28 /PRNewswire-FirstCall/ -- The Toro Company (NYSE: TTC) today reported net earnings of $42.0 million, or $1.61 per diluted share, on net sales of $495.8 million for its fiscal 2003 second quarter ended May 2, 2003.
In the comparable fiscal 2002 period, the company reported net earnings of $38.1 million, or $1.46 per diluted share, on net sales of $470.3 million. The results for the fiscal 2002 period included a tax benefit of $1.8 million, or $0.07 per diluted share. Excluding this tax benefit, the company's fiscal 2002 second quarter adjusted net earnings totaled $36.4 million, or $1.39 per adjusted diluted share.
For the six months ended May 2, 2003, Toro reported net earnings of $49.0 million, or $1.89 per diluted share, on net sales of $791.8 million. The first half results include a gain of $0.08 per diluted share resulting from a legal settlement recorded in the fiscal 2003 first quarter. Excluding this gain and restructuring income, the company's adjusted net earnings for the first six months of fiscal 2003 totaled $46.7 million or $1.80 per adjusted diluted share, up 22% from adjusted net earnings per diluted share for the comparable fiscal 2002 period.
Net earnings for the first six months of fiscal 2002 totaled $8.4 million, or $0.33 per diluted share, on net sales of $748.2 million. Adjusted net earnings per diluted share for the first six months of fiscal 2002 totaled $1.47 per adjusted diluted share and excluded the effects of three items: charges for restructuring and other expenses totaling $6.7 million, or $0.26 per diluted share; a net charge of $24.6 million, or $0.95 per diluted share, reflecting the cumulative effects of a change in accounting principle; and a foreign sales corporation tax benefit of $1.8 million, or $0.07 per diluted share.
Earnings per share for the fiscal 2002 periods have been adjusted to reflect the effects of a two-for-one split of the company's Common Stock effective April 1, 2003. To highlight comparability factors between periods the following tables are provided:
2nd Quarter Qtr. Ended Qtr. Ended* % 5/2/03 5/3/02 Reported diluted earnings per share $1.61 $1.46 10% Add (subtract): Foreign sales corporation tax benefit - (0.07) Adjusted diluted earnings per share $1.61 $1.39 16% Year-to-Date Six Months Qtr. Ended Qtr. Ended* % 5/2/03 5/3/02 Reported diluted earnings per share $1.89 $0.33 573% Add (subtract): Cumulative effect of change in accounting principle - 0.95 Restructuring and other (income) expense (0.01) 0.26 Foreign sales corporation tax benefit - (0.07) Legal settlement - patent infringement (0.08) - Adjusted diluted earnings per share $1.80 $1.47 22% * Figures have been adjusted for the 2 for 1 split of the company's common stock effective April 1, 2003.
Kendrick B. Melrose, The Toro Company Chairman and Chief Executive Officer, said the company's second quarter performance benefited from revenue growth, particularly in the Professional segment, as well as continuing favorable effects of the company's ongoing '5 by Five' profit improvement initiative. "Despite the very uncertain environment prevailing during our fiscal second quarter, we are pleased with the strong performance that has us comfortably on track to meet our full-year goals," said Melrose. "New products helped us deliver a 5.4 % increase in revenue which was leveraged into higher earnings from '5 by Five', now in its third and final year. Performance for the quarter and the year to date also benefited slightly from favorable foreign currency exchange effects."
Compared with the fiscal 2002 second quarter, fiscal 2003 second quarter professional segment sales increased 8.2% to $314.1 million. Professional segment volumes for the landscape contractor equipment category increased significantly. Improved field inventory position and new product introductions for Toro wide area mowers and Exmark ZRTs drove strong revenue increases in this segment. Irrigation products, a new line of Toro Groundsmaster products, as well as expansion in retail distribution of Siteworks Systems also contributed to the increase. Operating earnings before restructuring and other income totaled $63.4 million for the quarter, up 19.0% from $53.2 million in the fiscal 2002 second quarter.
Residential segment sales for the fiscal 2003 second quarter totaled a disappointing $172.5 million. After two relatively strong months in the second quarter, a wet, cool April in several key markets slowed the overall growth in this segment. The segment finished the quarter with a modest gain of 1.6% compared to the fiscal 2002 second quarter, largely due to lower sales of walk power mowers and lawn and garden tractors. On the positive side, domestic and international orders for the Timecutter Z riding mowers and sales of new retail irrigation products were both strong. Operating profit before restructuring and other income for the fiscal 2003 second quarter totaled $24.2 million, up 20.8% from the comparable fiscal 2002 period.
Distribution segment sales for the fiscal 2003 second quarter totaled $35.3 million, down 19.9% from the fiscal 2002 second quarter. The decline reflects the sale of a company-owned distributor effective December 31, 2002. This was partially offset by the acquisition of a smaller distributor in the southeast U.S. Operating earnings totaled $0.6 million for the quarter down 65.0% from $1.7 million in the fiscal 2002 second quarter.
REVIEW OF OPERATIONS
Gross margin for the fiscal 2003 second quarter was 35.4%, up from 34.5% in the second quarter of fiscal 2002. Better utilization of manufacturing capacity, increased supply chain efficiencies, heightened productivity and a favorable product mix were the primary drivers of this improvement.
Sales, general and administrative expenses for the fiscal 2003 second quarter grew at approximately the same rate as revenues for the quarter.
Compared with the fiscal 2002 second quarter, fiscal 2003 second quarter interest expense declined by $0.9 million. The decline resulted from lower average borrowing levels, the use of earnings to retire debt and the positive effects of the company's '5 by Five' initiative.
Net inventories at the end of the fiscal 2003 second quarter totaled $260.0 million, up 10.5% from the end of the fiscal 2002 second quarter, when inventories were unusually low as a result of the successful introduction of a new walk power mower line in fiscal 2002. The increase is also attributable to the impact of exchange rates on international inventories and the aforementioned effects of the weather in April.
Melrose said the company's performance through the first half of its fiscal year has Toro well positioned to meet its earnings growth target for the full year. The company currently expects to report fiscal 2003 net earnings per share of $3.00 or better. This includes the $0.08 per diluted share benefit from a legal settlement recorded in the fiscal 2003 first quarter.
"With our second quarter performance, we demonstrated the sustainability of the benefits from our '5 by Five' initiative, as well as our ability to drive revenue growth in a difficult economy by introducing innovative new products," said Melrose. "Moreover, our ongoing improvements in overall operating performance are enabling us to invest more aggressively in new products, brand building, customer care and operations initiatives, therefore strengthening our market position."
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 Daylight Time (CDT) on May 28, 2003. The webcast will be available at www.streetevents.com or at www.thetorocompany.com/invest. Webcast participants will need to complete a brief registration form and should allot extra time before the webcast begins to register and, if necessary, download and install audio software.
Statements made in this news release that 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 continued threat of terrorist acts, which may result in heightened security and higher costs for import and export shipments of components or finished goods, reduced business or leisure travel that negatively affects the travel industry, and the contraction of the U.S. and worldwide economies; continued slowing of growth in global and domestic economies, resulting in rising unemployment and weakened consumer confidence; decline in retail demand for our products; our ability to achieve goals of the "5 by Five" profit improvement program, which is intended to improve our after-tax return on sales; the company's ability to achieve sales growth and strong diluted earnings per share growth in fiscal 2003; unforeseen product quality problems in the development and production of new and existing products, which could result in loss of market share and higher warranty expense; potential issues with opening new production facilities and moving production between facilities; continued slow growth rate in new golf course construction or existing golf course renovations; 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; elimination of shelf space for our products at retailers; changes in raw material costs, including higher oil prices; financial viability of distributors and dealers; market acceptance of existing and new products; and increased and adverse changes in currency exchange rates or raw material commodity prices and the costs we incur in providing price support to international customers and suppliers. 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 Six Months Ended May 2, May 3, May 2, May 3, 2003 2002 2003 2002 Net sales $495,840 $470,314 $791,802 $748,229 Gross profit 175,632 162,052 281,213 257,359 Gross profit percent 35.4% 34.5% 35.5% 34.4% Selling, general, and administrative expense 110,636 104,265 206,500 193,277 Restructuring and other (income) expense (179) - (179) 9,953 Earnings from operations 65,175 57,787 74,892 54,129 Interest expense (4,320) (5,248) (8,412) (10,568) Other income, net 1,787 1,734 6,582 3,068 Earnings before income taxes and cumulative effect of change in accounting principle 62,642 54,273 73,062 46,629 Provision for income taxes 20,671 16,135 24,110 13,612 Net earnings before cumulative effect of change in accounting principle 41,971 38,138 48,952 33,017 Cumulative effect of change in accounting principle, net of income tax benefit of $509 - - - (24,614) Net earnings $41,971 $38,138 $48,952 $8,403 Basic net earnings per share, before cumulative effect of change in accounting principle $1.68 $1.51 $1.96 $1.31 Cumulative effect of change in accounting principle, net of income tax benefit - - - (0.98) Basic net earnings per share $1.68 $1.51 $1.96 $0.33 Diluted net earnings per share, before cumulative effect of change in accounting principle $1.61 $1.46 $1.89 $1.28 Cumulative effect of change in accounting principle, net of income tax benefit - - - (0.95) Diluted net earnings per share $1.61 $1.46 $1.89 $0.33 Weighted average number of shares of common stock outstanding - Basic 25,006 25,194 24,964 25,096 Weighted average number of shares of common stock outstanding - Dilutive 26,021 26,185 25,910 25,838 Shares and per share data have been adjusted for all periods presented to reflect a two-for-one stock split effective April 1, 2003. THE TORO COMPANY AND SUBSIDIARIES Net Sales by Segment (Unaudited) (Dollars in thousands) Three Months Ended Six Months Ended May 2, May 3, May 2, May 3, 2003 2002 2003 2002 Professional $314,116 $290,201 $507,560 $465,966 Residential 172,469 169,735 267,134 261,951 Distribution 35,348 44,144 53,948 68,373 Other (26,093) (33,766) (36,840) (48,061) Total* $495,840 $470,314 $791,802 $748,229 * Includes international sales of $93,555 $86,279 $161,011 $149,374 Earnings (Loss) Before Income Taxes and Cumulative Effect of Change in Accounting Principle by Segment (Unaudited) (Dollars in thousands) Three Months Ended Six Months Ended May 2, May 3, May 2, May 3, 2003 2002 2003 2002 Professional $63,424 $53,217 $91,180 $62,297 Residential 24,349 20,071 33,010 27,777 Distribution 608 1,736 (2,750) (351) Other (25,739) (20,751) (48,378) (43,094) Total $62,642 $54,273 $73,062 $46,629 Condensed Consolidated Balance Sheets (Unaudited) (Dollars in thousands) May 2, May 3, 2003 2002 ASSETS Cash and cash equivalents $26 $62 Receivables, net 483,615 463,886 Inventories, net 259,979 235,366 Prepaid expenses and other current assets 12,003 9,259 Deferred income taxes 39,653 39,200 Total current assets 795,276 747,773 Property, plant, and equipment, net 162,180 150,520 Deferred income taxes 4,196 9,721 Goodwill and other assets 92,567 94,506 Total assets $1,054,219 $1,002,520 LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of long-term debt $64 $16,274 Short-term debt 99,299 130,238 Accounts payable 104,319 90,170 Other accrued liabilities 244,463 221,852 Total current liabilities 448,145 458,534 Long-term debt, less current portion 178,713 178,781 Other long-term liabilities 8,508 7,221 Stockholders' equity 418,853 357,984 Total liabilities and stockholders' equity $1,054,219 $1,002,520 THE TORO COMPANY AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) (Dollars in thousands) Six Months Ended May 2, May 3, 2003 2002 Cash flows from operating activities: Net earnings $48,952 $8,403 Adjustments to reconcile net earnings to net cash used in operating activities: Cumulative effect of change in accounting principle - 24,614 Non-cash asset impairment write-off - 4,163 Provision for depreciation and amortization 14,893 14,067 Gain on disposal of property, plant, and equipment (26) (27) Increase in deferred income tax asset (931) (5,274) Tax benefits related to employee stock option transactions 160 1,245 Changes in operating assets and liabilities: Receivables, net (228,034) (192,209) Inventories, net (33,831) (705) Prepaid expenses and other current assets (1,556) 1,549 Accounts payable and other accrued liabilities 73,799 56,214 Net cash used in operating activities (126,574) (87,960) Cash flows from investing activities: Purchases of property, plant, and equipment (22,795) (20,914) Proceeds from disposal of property, plant, and equipment 1,550 141 Decrease in investment in affiliates 1,000 - Increase in other assets (1,036) (3,185) Proceeds from sale of business 1,016 - Net cash used in investing activities (20,265) (23,958) Cash flows from financing activities: Increase in short-term debt 98,143 95,825 Repayments of long-term debt (15,804) (23) Increase in other long-term liabilities 164 72 Proceeds from exercise of stock options 4,039 10,748 Purchases of common stock (722) (5,311) Dividends on common stock (2,997) (3,017) Net cash provided by financing activities 82,823 98,294 Foreign currency translation adjustment 1,226 810 Net decrease in cash and cash equivalents (62,790) (12,814) Cash and cash equivalents as of the beginning of the period 62,816 12,876 Cash and cash equivalents as of the end of the period $26 $62
SOURCE The Toro Company -0- 05/28/2003 /CONTACT: Investor Relations, Stephen P. Wolfe, Vice President, CFO, +1-952-887-8076, or Steve Keating, Director, Investor Relations, +1-952-887-8526, or Media Relations, Connie Hawkinson, +1-952-887-8984, firstname.lastname@example.org , all of The Toro Company/ /Company News On-Call: http://www.prnewswire.com/gh/cnoc/comp/103025.html/ /Web site: http://www.toro.com / (TTC) CO: The Toro Company ST: Minnesota, California