Toro's 2Q Earnings Exceeds Company Estimates; Company Announces One-Time Tax Benefit of 13 Cents for the Quarter; Company Raises Expectations for the Year
LIVE CONFERENCE CALL 10 a.m. CST http://www.toro.com/companyinfo/invest.htmlThe Toro Company (NYSE: TTC) today announced results for its second quarter ended May 3, 2002:
* Net earnings for the second quarter were $36.4 million or $2.78 per dilutive share excluding a one-time tax benefit compared to $32.9 million or $2.49 per dilutive share adjusted for the change in goodwill amortization for the same period last year, an increase of earnings per share 11.6 percent. The tax benefit relates to a $1.8 million federal tax refund related to the company's Foreign Sales Corporation for prior fiscal years, which increased net earnings by 13 cents per dilutive share. * Net sales were $470.3 million for the second quarter and $748.2 million for the first half compared to $459.6 million and $740.0 for the same periods last year, an increase of 2.3 and 1.1 percent respectively. * For the first half net earnings were $37.9 million or $2.93 per dilutive share before one-time charges for restructuring and other expense and goodwill write-off and excluding the one-time tax benefit compared to $35.2 million or $2.67 per dilutive share adjusted for the goodwill amortization change and a one-time benefit for restructuring and other expense, for the first half of fiscal 2001, an increase in earnings per share of 9.7 percent. 2nd Quarter 5/3/02 5/4/01 % Reported dilutive earnings per share 2.91 2.28 Foreign sales corporation tax benefit (.13) -- Non-amortization of goodwill -- .21 Adjusted dilutive earnings per share 2.78 2.49 11.6 Year-to-date Six Months YTD YTD 5/3/02 5/4/01 % Reported dilutive earnings per share .65 2.38 Foreign sales corporation tax benefit (.14) -- Non-amortization of goodwill -- .32 Cumulative effect of change in accounting principle 1.91 -- Restructuring and other expense .51 (.03) Adjusted dilutive earnings per share 2.93 2.67 9.7"We are pleased with our net earnings results for the second quarter," said Kendrick B. Melrose, chairman and chief executive officer of The Toro Company. "Ongoing focus on our '5 by Five' profit improvement opportunities contributed to our continued strong earnings growth. Revenue growth was positive in spite of the forces of economy and weather, but behind our plan. This was because proactive inventory management by Toro's channel partners and retailers curtailed our shipment velocity, even though retail movement in most of our business segments has been strong."
Residential sales, led by new mowers sold through both The Home Depot and Toro dealers, were up 9.1% to $169.7 million. Retail movement of this line exceeded company expectations. Overall rider sales were less than last year, due partially to the pipeline-fill component of last year's successful introduction of the Toro Timecutter Z(TM) mower. The Timecutter Z continues to do well at retail. Home improvement products also declined from a year ago as a result of the unusually cold spring and field inventory reduction, even though retail movement outpaced last year.
Professional sales were down slightly, 1.6% to $290.2 million. Sales were up in both the commercial equipment and irrigation categories due to the successful introduction of new products, such as new rotaries and sprinkler heads, as well as customer sales that were postponed last year. The late spring and higher than expected field inventories entering the season caused a reduction in the landscape contractor business for both Toro and Exmark products. Toro does not believe that all of the shortfall will be recovered and has therefore reduced its forecast for the year's landscape contractor business, even though retail movement of this product continues to be strong.
International sales were up 3.1% to $86.3 million for the second quarter. This was due partially from a stronger than expected golf demand in Japan as a result of investors purchasing local golf courses and modernizing their maintenance equipment. However, Toro's sales results were mixed because of economic uncertainties in certain foreign markets.
Gross margins have improved slightly as "5 by Five" profit improvement initiatives moved forward. Previously announced plant reconfigurations are proceeding on schedule, providing positive cost structure benefits both now and in the future.
SG&A expense increased slightly because of an accrual for two warranty items related to certain professional and residential products. Toro did not experience the same significant negative currency fluctuation in the second quarter this year as compared to last year, which is reflected in the improvement in other income. Interest expense also improved due to paying down debt and lower short-term interest rates.
Toro previously announced the adoption of new goodwill accounting rules issued by The Financial Accounting Standards Board in 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, had it been implemented as of November 1, 2000, would have improved Toro's earnings for fiscal 2001 by approximately 62 cents per dilutive share. The new rules require that goodwill be reviewed periodically for potential impairment under a new valuation approach. That review resulted in a goodwill write-off charge in the first quarter.
Restructuring and other expense charges for the first quarter involved the closing of facilities in Indiana and California. In addition, the company recorded an asset impairment charge during the first quarter for patents and non-compete agreements related to the Drip In Irrigation acquisition.
"As we look to the second half of the year, we expect to show improved profitability. As usual, the market continues to change, and there is much of the selling season ahead, so we remain cautious." Melrose explained. "However, as mentioned before, retail of most of our product lines continues to be strong, and as weather returns to more favorable patterns and inventory adjustments normalize, we expect improved revenue growth in the second half of the year. As a result, per share earnings for the third quarter are estimated to be between $1.55 to $1.65. Given the progress for the first six months, we are raising our estimates for the full year to $4.85 to $4.95 per share before one-time charges for restructuring and other expense and goodwill write-off and including the one-time tax benefit."
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; benefits from plant reconfigurations; continued acceptance of new products; projected fiscal 2002 financial performance, including projected fiscal 2002 earnings; 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 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 Earnings (Unaudited) (Dollars and shares in thousands, except per-share data) Three Months Ended Six Months Ended May 3, May 4, May 3, May 4, 2002 2001 2002 2001 Net sales $470,314 $459,613 $748,229 $739,963 Gross profit 162,052 157,030 257,359 248,411 Gross profit percent 34.5% 34.2% 34.4% 33.6% Selling, general, and administrative expense 104,265 101,445 193,277 189,063 Restructuring and other expense (income) -- -- 9,953 (679) Earnings from operations 57,787 55,585 54,129 60,027 Interest expense (5,248) (6,437) (10,568) (11,713) Other income (expense), net 1,734 (1,439) 3,068 1,464 Earnings before income taxes 54,273 47,709 46,629 49,778 Provision for income taxes 16,135 17,652 13,612 18,418 Net earnings before cumulative effect of change in accounting principle 38,138 30,057 33,017 31,360 Cumulative effect of change in accounting principle, net of income tax benefit of $509 -- -- (24,614) -- Net earnings $38,138 $30,057 $8,403 $31,360 Basic net earnings per share, before cumulative effect of change in accounting principle $3.03 $2.34 $2.63 $2.45 Cumulative effect of change in accounting principle, net of income tax benefit -- -- (1.96) -- Basic net earnings per share $3.03 $2.34 $.67 $2.45 Dilutive net earnings per share, before cumulative effect of change in accounting principle $2.91 $2.28 $2.56 $2.38 Cumulative effect of change in accounting principle, net of income tax benefit -- -- (1.91) -- Dilutive net earnings per share $2.91 $2.28 $.65 $2.38 Weighted average number of shares of common stock outstanding - Basic 12,597 12,827 12,548 12,789 Weighted average number of shares of common stock outstanding - Dilutive 13,093 13,205 12,919 13,150 Net Sales by Segment (Unaudited) (Dollars in thousands) Three Months Ended Six Months Ended May 3, May 4, May 3, May 4, 2002 2001 2002 2001 Professional $290,201 $294,771 $465,966 $478,385 Residential 169,735 155,551 261,951 244,878 Distribution 44,144 42,281 68,373 60,513 Other (33,766) (32,990) (48,061) (43,813) Total* $470,314 $459,613 $748,229 $739,963 *Includes international sales of $86,279 $83,651 $149,374 $152,384 Earnings (Loss) Before Income Taxes by Segment (Unaudited) (Dollars in thousands) Three Months Ended Six Months Ended May 3, May 4, May 3, May 4, 2002 2001 2002 2001 Professional $53,217 $49,485 $62,297 $67,556 Residential 20,071 18,381 27,777 24,873 Distribution 1,736 1,271 (351) (1,309) Other (20,751) (21,428) (43,094) (41,342) Total $54,273 $47,709 $46,629 $49,778 THE TORO COMPANY AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) (Dollars in thousands) May 3, May 4, 2002 2001 ASSETS Cash and cash equivalents $62 $1,191 Receivables, net 463,886 458,822 Inventories, net 235,366 239,443 Prepaid expenses and other current assets 9,259 8,812 Deferred income taxes 39,200 44,960 Total current assets 747,773 753,228 Property, plant, and equipment, net 150,520 137,512 Deferred income taxes 9,721 9,883 Goodwill and other assets 94,506 122,305 Total assets $1,002,520 $1,022,928 LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of long-term debt $16,274 $21 Short-term debt 130,238 178,189 Accounts payable 90,170 77,131 Other accrued liabilities 221,852 227,345 Total current liabilities 458,534 482,686 Long-term debt, less current portion 178,781 194,432 Other long-term liabilities 7,221 7,022 Stockholders' equity 357,984 338,788 Total liabilities and stockholders' equity $1,002,520 $1,022,928 THE TORO COMPANY AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) (Dollars in thousands) Six Months Ended May 3, May 4, 2002 2001 Cash flows from operating activities: Net earnings $8,403 $31,360 Adjustments to reconcile net 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 14,067 16,672 Writedown of investments -- 1,778 Gain on disposal of property, plant, and equipment (27) (51) Increase in deferred income tax asset (5,274) (5,246) Tax benefits related to employee stock option transactions 1,245 4,501 Changes in operating assets and liabilities (135,151) (176,590) Net cash used in operating activities (87,960) (127,576) Cash flows from investing activities: Purchases of property, plant, and equipment (20,914) (16,122) Proceeds from asset disposals 141 2,098 Decrease in investment in affiliates -- 141 Increase in other assets (3,185) (1,372) Acquisition, net of cash acquired -- (6,189) Net cash used in investing activities (23,958) (21,444) Cash flows from financing activities: Increase in short-term debt 95,825 166,602 Repayments of long-term debt (23) (42) Increase in other long-term liabilities 72 199 Proceeds from exercise of stock options 10,748 14,586 Purchases of common stock (5,311) (29,126) Dividends on common stock (3,017) (3,093) Net cash provided by financing activities 98,294 149,126 Foreign currency translation adjustment 810 107 Net (decrease) increase in cash and cash equivalents (12,814) 213 Cash and cash equivalents at beginning of period 12,876 978 Cash and cash equivalents at end of period $62 $1,191 MAKE YOUR OPINION COUNT - 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