Bloomington, Minnesota-based The Toro Company (NYSE: TTC) on Wednesday reported results for its fourth quarter and full fiscal year ended Oct. 31, 2019.
“We concluded fiscal 2019 by exceeding the $3 billion revenue milestone and delivering strong gross margin and revenue growth momentum heading into fiscal 2020,” said Richard M. Olson, Toro’s chairman and chief executive officer. “The year was marked by record results, the transformational acquisition of Charles Machine Works and strong demand for snow and ice management products in our professional and residential segments. New product introductions contributed to our growth, such as the stand-on BOSS Snowrator, the redesigned Power Clear snow thrower and the Flex-Force™ lithium-ion battery-powered products with all season capability. I would like to thank our team and channel partners for their dedication, consistent execution, and continued focus on our end customers.”
Fiscal Year 2019 Financial Highlights
- Net sales of $3.13 billion, up 19.8 percent compared to fiscal 2018 net sales of $2.61 billion
- Net earnings of $274.0 million, up 0.8% compared to fiscal 2018 net earnings of $271.9 million; Adjusted net earnings of $324.3 million, up 11.8% compared to fiscal 2018 adjusted net earnings of $290.1 million
- Reported EPS of $2.53 per diluted share, up 1.2% compared to fiscal 2018 reported EPS of $2.50 per diluted share; Adjusted EPS of $3.00 per diluted share, up 12.4% compared to fiscal 2018 adjusted EPS of $2.67 per diluted share
- Returned $116.1 million to shareholders: $96.1 million in dividends and $20.0 million through share repurchases
Fourth Quarter Fiscal 2019 Financial Highlights
- Net sales of $734.4 million, up 36.2% compared to fiscal 2018 net sales of $539.3 million
- Net earnings of $38.3 million, down 2.0% compared to fiscal 2018 net earnings of $39.0 million; Adjusted net earnings of $51.8 million, up 51.5% compared to fiscal 2018 adjusted net earnings of $34.2 million
- Reported EPS of $0.35 per diluted share, down 2.8% compared to fiscal 2018 reported EPS of $0.36 per diluted share; Adjusted EPS of $0.48 per diluted share, up 50.0% compared to fiscal 2018 adjusted EPS of $0.32 per diluted share
Key Performance Highlights
- Charles Machine Works (CMW) acquisition positions the company as a market leader in underground and specialty construction markets, driving less seasonal net sales growth and creating incremental value for shareholders. CMW brands, such as Ditch Witch and American Augers, made significant net sales contributions from equipment that enables the installation and replacement of underground infrastructure from natural gas pipelines and high-voltage electric lines to water systems and 5G wireless networks.
- Strong snow and ice management product demand for the fiscal year was led by BOSS and residential snow throwers for mass retail and dealer channel partners.
- All season Flex-Force lithium-ion battery-powered products, such as snow throwers, walk power mowers and portable power products, had strong introductions in the fiscal year.
- Investments are being made in innovations such as alternative energy, smart-connected products and autonomous technologies designed to enhance productivity and help solve customer challenges such as labor availability.
- Prudent sourcing strategies, productivity and cost improvement initiatives, as well as strategic capital investments and price adjustments, helped to mitigate rising input costs and tariffs for the year.
First Quarter and Fiscal Year 2020 Outlook
“With the first quarter of fiscal 2020 underway, we are encouraged by the retail activity in our professional and residential snow and ice management products. The fundamentals of the business remain strong and we expect to generate higher levels of free cash flow and return value to our shareholders through dividends and share repurchases,” said Olson.
For fiscal 2020, management expects net sales of about $3.6 billion and adjusted EPS in the range of $3.33 to $3.40 per diluted share. For the first quarter, the company expects adjusted EPS of about $0.58 per diluted share. These adjusted diluted EPS estimates exclude the benefit of the excess tax deduction for share-based compensation, acquisition-related costs, and other non-recurring items.
The company expects higher depreciation and amortization as a result of the Charles Machine Works acquisition and are forecasting about $95 million for the year. Capital expenditures are estimated to be about $100 million for the year. We expect an adjusted effective tax rate of about 20.5%.
Professional segment net sales for fiscal 2019 increased 25.5% to $2.443 billion from $1.947 billion last year. For the fourth quarter, professional segment net sales increased 46.9% to $588.2 million from $400.5 million last year. For both periods, the addition of CMW was the main driver of net sales growth. Similarly, strong net sales of BOSS snow and ice management equipment driven primarily by favorable snowfalls earlier in the year and the successful launch of the stand-on Snowrator bolstered the results. For the year, net sales increased in the landscape contractor business primarily due to the introduction of the new Staris stand-on zero-turn riding mower and new lawn solution products from a prior acquisition. The rental and specialty construction portfolio performed well due to the introduction of the Dingo TXL 2000 compact utility loader and continued channel demand for the Dingo TX 1000 compact utility loader.
Professional segment earnings for fiscal 2019 were $380.9 million compared with $399.8 million in the same period last year, largely as a result of the unfavorable impact of purchase accounting adjustments, higher selling, general and administrative expenses, and acquisition and integration expenditures related to the CMW acquisition. Professional segment earnings for the fourth quarter were $61.2 million, essentially flat with the prior-year period.
Residential segment net sales for fiscal 2019 were up 1.0% to $661.3 million from $654.4 million last year, reflecting higher net sales of snow thrower products due to strong retail demand and new product introductions such as the Power Clear and Power Max.
Additionally, the Flex-Force lithium-ion battery-powered snow throwers and walk power mowers bolstered results for the year. For the fourth quarter, residential segment net sales were up 1.9% to $135.7 million from $133.2 million last year, due to strong snow thrower demand and new product introductions, somewhat offset by weaker demand for zero-turn riding and walk power mowers.
Residential segment earnings for fiscal 2019 were up 0.5% to $65.2 million from $64.8 million in the comparable period last year. Residential segment earnings for the fourth quarter were up 104.7% to $13.9 million from $6.8 million last year primarily as a result of pricing and productivity as well as lower commodity costs compared to the fourth quarter of fiscal 2018.
Gross margin for fiscal 2019 was 33.4% compared with 35.9% for fiscal 2018, a decrease of 250 basis points, primarily the result of the unfavorable impact of higher commodity and tariff costs and purchase accounting charges associated with the CMW acquisition. For the fourth quarter of fiscal 2019, gross margin improved to 33.4% from 33.2% in the prior period, driven by pricing and productivity, partially offset by the unfavorable impact of the CMW purchase accounting and acquisition-related charges.
Selling, general and administrative (SG&A) expense as a percent of sales for fiscal 2019 increased 130 basis points to 23.0% versus the comparable period last year, reflecting higher incremental expenses related to the CMW acquisition and increased engineering expense for new product development. For the fourth quarter, SG&A expense as a percent of sales was 27.5%, an increase of 230 basis points from the fourth quarter of 2018 primarily a result of the CMW acquisition.
For fiscal 2019, operating earnings as a percent of net sales were 10.4%, compared with 14.2% in fiscal 2018. Operating earnings as a percent of net sales for the fourth quarter were 5.9%, compared with 8.0% in the same period last fiscal year.
Interest expense for fiscal year 2019 increased year over year by $9.7 million to $28.8 million as a result of higher outstanding borrowings to fund the purchase of CMW.
Other income, net, for fiscal 2019 was $25.9 million, an increase of $7.5 million primarily driven by realized gains on actuarial valuation changes for our pension and post-retirement plans and higher income from our proportionate share in the Red Iron joint venture.
The effective tax rate for fiscal 2019 was 14.9%, compared with 27.0% in fiscal 2018. The effective tax rate for the fourth quarter in fiscal 2019 was 12.4% compared with 10.4% for the fourth quarter in fiscal 2018.
Accounts receivable at the end of the fiscal year were $268.8 million, up 39.1% from last fiscal year. Net inventories were $651.7 million, up 81.9% from last fiscal year. Accounts payable were $319.2 million, up 24.4% from the comparable period last fiscal year. The overall increase in working capital at the end of fiscal 2019 was mainly due to the CMW acquisition.