Toro's 1Q Earnings Exceed Previously Announced Expectations; Company Earns 12 Cents Before Goodwill Write-off and Restructuring Charges; Company Raises Expectations for Full Year
LIVE CONFERENCE CALL 10 a.m. CST www.toro.com/companyinfo/invest.htmlThe Toro Company (NYSE: TTC) today announced results for the first quarter ended Feb. 1, 2002:
-- Net earnings per dilutive share were 12 cents before the effects of previously announced one-time charges for restructuring and other expense, and goodwill write-off. Restructuring and other expense charges were 53 cents per dilutive share, or $10.0 million. Non-cash charges from the goodwill write-off were $1.97 per dilutive share, or $24.6 million. The goodwill write-off was due to the required adoption of new goodwill valuation accounting rules issued by The Financial Accounting Standards Board. The reported net loss per dilutive share of $2.38 or $29.7 million includes the restructuring and other expense charges and the goodwill write-off discussed above. -- Revenues for the first quarter were $277.9 million, compared to $280.4 million during the same period last year."We are very pleased that we were profitable in the first quarter, before one-time charges, despite an economic environment that we thought would cause us to lose money," said Kendrick B. Melrose, chairman and chief executive officer of The Toro Company. "Residential sales, led by the initial shipments of new, moderately priced Toro lawnmowers plus increased sales of blowers, trimmers, and retail irrigation, contributed to our better-than-expected performance. Moreover, a continued focus on operations efficiency helped us partially offset a slight overall sales decline for the quarter as compared to last year."
Melrose said the company is raising its expectations for the year due to a more favorable outlook for its key businesses. "Our momentum is still very good as we enter the important spring season," he explained. "We expect continued growth from both our professional and residential segments this year. The landscape contractor market continues to look healthy, and the prospects for the golf market should improve over last year. Our new consumer lawnmower strategy is off to an excellent start, and we expect it to play a significant part in our growth this year. Our '5 by Five,' profit improvement program is accelerating, and we expect its benefits to increase. As a result, we are raising our full year expectations, before restructuring and other expense and goodwill write-off, to a range between $4.75 and $4.85, with sales growth in the 5 to 7 percent range. We expect second quarter earnings to be between $2.65 to $2.75."
For the quarter just ended, professional segment sales declined to $175.8 million. The decrease was due primarily to field inventory management and is not much of an indicator of spring season sales trends. Commercial equipment, Toro branded turf irrigation, and landscape contractor sales were down, offset somewhat by increased sales from our Irritrol and World Wide Ag irrigation businesses. Operating profit for the professional segment rose to $19.0 million before restructuring and other expense charges of $10.0M. Earlier this month, Toro introduced several new products, services and systems that were well received at the annual Golf Course Superintendents Association of America Conference and Show in Orlando.
Residential segment sales increased to $92.2 million due partially to early season sales of the new line of Toro walk power mowers. Sales of blowers, trimmers and retail irrigation also improved helped by mild autumn weather which extended the season. Operating profit for the segment increased to $7.7 million for the quarter.
Distribution segment sales increased for the first quarter to $24.2 million due to the addition of sales of a company-owned distributor acquired in 2001.
Gross margin for the quarter improved to 34.3 percent from 32.6 percent for the same period last year. The improvement was due to "5 by Five" cost reduction efforts, cost benefits from moving some operations to Mexico, lower tooling costs, and favorable currency rates. Selling, general and administrative expense was up slightly as a percent of sales due principally to the acquisition costs of a company-owned distributor in 2001 and higher levels of bad debt expense somewhat offset by no longer amortizing goodwill.
In December 2001, Toro announced that it would adopt the new goodwill accounting rules issued by The Financial Accounting Standards Board for the first quarter of fiscal 2002. These rules relate to the treatment of goodwill and other intangible assets and require, among other things, that such intangible assets with indefinite useful lives no longer be amortized. The impact of this change is expected to improve Toro's earnings for fiscal 2002 by approximately 61 to 64 cents per dilutive share of which 12 cents occurred in the first quarter. The rules require that goodwill be reviewed periodically for potential impairment under a new valuation approach. The review resulted in the goodwill write-off charge this quarter.
Restructuring and other expense charges for the quarter involve the closing of facilities in Indiana and California. In addition, the company took a pre-tax asset impairment charge during the quarter for patents and non-compete agreements related to the Drip In Irrigation acquisition. The total of these restructuring and other expense charges for the first quarter of fiscal 2002 is $10.0 million. The dilutive EPS effect of these charges is $.53. However, we expect the savings going forward from this restructuring will be approximately $10 million pre-tax annually beginning in fiscal 2003. In the fiscal 2001, first quarter restructuring had a positive per dilutive share effect of 3 cents.
The Toro Company is a leading worldwide provider of outdoor maintenance and beautification products for home, recreation and commercial landscapes.
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, in particular prospects for the landscape contractor and golf markets; benefits from the "5 By Five" profit improvement program; projected fiscal 2002 financial performance, including projected fiscal 2002 earnings; the expected impact of new accounting principles on results of operations; projected future savings from restructuring and other expense charges, and the potential contribution to results of operations of sales to The Home Depot and 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 The Home Depot as a customer; 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 Operations (Dollars and shares in thousands, except per-share data) Three Months Ended February 1, February 2, 2002 2001 Net sales $ 277,915 $ 280,350 Gross profit 95,307 91,381 Gross profit percent 34.3% 32.6% Selling, general, and administrative expense 89,012 87,618 Restructuring and other expense (income) 9,953 (679) (Loss) earnings from operations (3,658) 4,442 Interest expense (5,320) (5,276) Other income, net 1,334 2,903 (Loss) earnings before income taxes (7,644) 2,069 Benefit (provision) for income taxes 2,523 (765) Net (loss) earnings before cumulative effect of change in accounting principle (5,121) 1,304 Cumulative effect of change in accounting principle, net of income tax benefit of $509 (24,614) -- Net (loss) earnings $ (29,735) $ 1,304 Basic net (loss) earnings per share, before cumulative effect of change in accounting principle $ (0.41) $ 0.10 Cumulative effect of change in accounting principle, net of income tax benefit (1.97) -- Basic net loss (earnings) per share $ (2.38) $ 0.10 Dilutive net (loss) earnings per share, before cumulative effect of change in accounting principle $ (0.41) $ 0.10 Cumulative effect of change in accounting principle, net of income tax benefit (1.97) -- Dilutive net (loss) earnings per share $ (2.38) $ 0.10 Weighted average number of shares of common stock outstanding - Basic 12,500 12,753 Weighted average number of shares of common stock outstanding - Dilutive 12,500 13,062 Net Sales by Segment (Dollars in thousands) Three Months Ended February 1, February 2, 2002 2001 Professional $ 175,765 $ 183,614 Residential 92,216 89,327 Distribution 24,229 18,232 Other (14,295) (10,823) * Total $ 277,915 $ 280,350 * Includes international sales of $ 63,095 $ 68,733 (Loss) Earnings Before Income Taxes by Segment (Dollars in thousands) Three Months Ended February 1, February 2, 2002 2001 Professional $ 9,080 $ 18,071 Residential 7,706 6,492 Distribution (2,087) (2,580) Other (22,343) (19,914) Total $ (7,644) $ 2,069 THE TORO COMPANY AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Dollars in thousands) February 1, February 2, 2002 2001 ASSETS Cash and cash equivalents $ 46 $ 636 Receivables, net 302,189 306,497 Inventories, net 274,524 252,233 Prepaid expenses and other current assets 17,415 9,925 Deferred income taxes 34,261 43,912 Total current assets 628,435 613,203 Property, plant, and equipment, net 144,445 135,892 Deferred income taxes 9,721 9,883 Goodwill and other assets 94,946 124,653 Total assets $ 877,547 $ 883,631 LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of long-term debt $ 513 $ 21 Short-term debt 113,938 113,398 Accounts payable 75,656 75,792 Other accrued liabilities 172,744 170,930 Total current liabilities 362,851 360,141 Long-term debt, less current portion 194,553 194,453 Other long-term liabilities 7,091 6,855 Stockholders' equity 313,052 322,182 Total liabilities and stockholders' equity $ 877,547 $ 883,631 THE TORO COMPANY AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Dollars in thousands) Three Months Ended February 1, February 2, 2002 2001 Cash flows from operating activities: Net (loss) earnings $ (29,735) $ 1,304 Adjustments to reconcile net (loss) earnings to net cash used in operating activities: Cumulative effect of change in accounting principle 24,614 -- Noncash asset impairment writeoff 4,163 -- Provision for depreciation and amortization 7,336 7,843 Writedown of investments -- 778 Gain on disposal of property, plant, and equipment (10) (33) Increase in deferred income taxes (334) (4,198) Tax benefits related to employee stock option transactions -- 81 Changes in operating assets and liabilities (84,430) (95,123) Net cash used in operating activities (78,396) (89,348) Cash flows from investing activities: Purchases of property, plant, and equipment (9,245) (8,063) Proceeds from asset disposals 62 2,065 Decrease in investment in affiliates -- 50 Increase in other assets (2,426) (1,154) Acquisition, net of cash acquired -- (6,189) Net cash used in investing activities (11,609) (13,291) Cash flows from financing activities: Increase in short-term debt 79,525 101,811 Repayments of long-term debt (12) (21) (Decrease) increase in other long-term liabilities (57) 32 Proceeds from exercise of stock options 661 1,253 Purchases of common stock (1,415) (146) Dividends on common stock (1,501) (1,529) Net cash provided by financing activities 77,201 101,400 Foreign currency translation adjustment (26) 897 Net decrease in cash and cash equivalents (12,830) (342) Cash and cash equivalents at beginning of period 12,876 978 Cash and cash equivalents at end of period $ 46 $ 636 MAKE YOUR OPINION COUNT - Click Here http://tbutton.prnewswire.com/prn/11690X12668124SOURCE The Toro Company
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