The Toro Company (NYSE: NYSE:TTC) announced its full-year fiscal 2023 earnings, reporting a mixed performance with net sales of $4.55 billion and adjusted diluted earnings per share (EPS) of $4.21. The professional segment showed resilience with a 7% sales increase, while the residential segment faced a 20% decline due to weather and macroeconomic challenges. Despite this, Toro anticipates growth opportunities ahead, bolstered by its innovation and productivity strategies, and a new retail partnership with Lowe's (NYSE:LOW). The company forecasts low single-digit net sales growth for fiscal 2024, with an expected increase in both segments' earnings margins.
Key Takeaways
- Professional segment net sales up 7%, driven by demand in specialty construction and golf.
- Residential segment net sales fell 20%, impacted by weather and macroeconomic factors.
- Gross margin for the full year increased to 34.6% from 33.3%.
- Full-year free cash flow was $164.4 million, a 50% conversion of reported net earnings.
- Fiscal 2024 outlook: Low single-digit net sales growth, with residential segment rebounding.
- Adjusted EPS projected to be $4.25 to $4.35 for fiscal 2024.
Company Outlook
- Toro expects low single-digit growth in total company net sales for fiscal 2024.
- Adjusted operating earnings as a percentage of net sales to be slightly higher than the previous year.
- Adjusted gross margin anticipated to improve slightly due to productivity initiatives.
Bearish Highlights
- Residential segment earnings decreased to 3% of net sales, down from 7.8%.
- Higher inventory reserves, unfavorable product mix, and lower sales volume impacted earnings.
- SG&A expenses increased to 23.9% of net sales, primarily due to lower net sales and increased research and engineering investment.
Bullish Highlights
- Toro products to be available in Lowe's stores nationwide, potentially boosting the residential segment.
- Professional segment remains strong with increased net sales.
- Company's focus on innovation, productivity, and partnerships expected to drive growth.
Misses
- Fourth-quarter operating earnings dropped to 9.6% of net sales from 12.8%.
- Interest expense increased due to higher average interest rates.
- Higher material costs and inventory reserves negatively impacted gross margins.
Q&A Highlights
- Toro addresses price sensitivity among landscape contractors, expecting a return to a typical 1-2% price range.
- The Amplify program will involve reinvestment of savings back into the business.
- Production rates ramping up in the professional business to meet market demand.
Macroeconomic and Market Considerations
- Toro remains cautious about the residential segment due to broader economic factors.
- Municipal budgets for green spaces continue to be robust, benefiting Toro's product offerings.
- The company is watching for a return to normal snowfall patterns, which could impact demand for snow management products.
Strategic Initiatives and Investments
- The company is developing innovative solutions like the Vista line of zero exhaust emission vehicles.
- Toro received an EPA WaterSense Award for its water conservation solutions.
- Investments in the AMP (OTC:AMLTF) initiative are expected to drive productivity and margin benefits.
Production and Capacity Planning
- Toro is adding structural capacity in areas with projected growth, such as underground construction.
- Existing capacity will be used flexibly in areas expected to have traditional growth rates.
The Toro Company's earnings call provided a comprehensive view of its fiscal 2023 performance and strategic direction for the coming year. With an emphasis on innovation, productivity, and strategic partnerships, Toro is poised to navigate the challenges and capitalize on the opportunities that lie ahead. The company's leadership, including Julie Kerekes, remains optimistic about the future, with the next earnings call scheduled for March 2024 to discuss the fiscal first-quarter results.
InvestingPro Insights
In the wake of The Toro Company's (NYSE: TTC) recent earnings announcement, investors are keen to understand the underlying financial health and future prospects of the company. According to InvestingPro data, Toro's market capitalization stands at a robust $10.22 billion, reflecting investor confidence in the company's market position. The company's Price/Earnings (P/E) Ratio for the last twelve months as of Q4 2023 is 22.53, which might suggest a higher valuation compared to industry peers. Additionally, the Price/Book (P/B) ratio is 6.77, indicating that the market assigns a premium to the company's book value, potentially due to its strong brand and market share.
InvestingPro Tips highlight that Toro has a history of yielding a high return on invested capital and has raised its dividend for 20 consecutive years, showcasing its commitment to shareholder returns. These factors are particularly relevant to investors looking for stable dividend-paying stocks. Moreover, the company's stockholders receive high returns on book equity, which could be an attractive point for value-oriented investors.
For those interested in further analysis, there are additional InvestingPro Tips available, providing deeper insights into The Toro Company's financial health and stock performance. Subscribers to InvestingPro can access these tips to inform their investment decisions. Currently, InvestingPro subscription is on a special Cyber Monday sale with discounts of up to 60%, and using the coupon code sfy23 can get an extra 10% off a 2-year InvestingPro+ subscription.
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