Investor Relations
Jeremy Steffan
Director, Investor Relations
(952) 887-7962, jeremy.steffan@toro.com
Media Relations
Branden Happel
Senior Manager, Public Relations
(952) 887-8930, branden.happel@toro.com
For Immediate Release
The Toro Company Reports Results for the Third Quarter of Fiscal 2024
Net Sales Growth Driven by Residential Mass Channel, Golf and Grounds, and Underground Construction
Increased Macro Caution in July Drove Lower-Than-Expected Lawn Care Shipments to Dealers
Significant Progress Made in Reducing Dealer Field Inventories of Lawn Care Products
•Third-quarter net sales of $1.16 billion, up 6.9% from $1.08 billion in the same period of fiscal 2023
•Third-quarter reported diluted EPS of $1.14, up from $(0.14) in the same period of fiscal 2023
•Third-quarter *adjusted diluted EPS of $1.18, up 24.2% from $0.95 in the same period of fiscal 2023
•Revises full-year *adjusted diluted EPS guidance to a range of $4.15 to $4.20
BLOOMINGTON, Minn.—(BUSINESS WIRE) — September 5, 2024—The Toro Company (NYSE: TTC), a leading global provider of solutions for the outdoor environment, today reported results for its fiscal third quarter ended August 2, 2024.
“Our team executed with discipline and delivered top- and bottom-line growth in a very dynamic environment,” said Richard M. Olson, chairman and chief executive officer. “We achieved substantial growth in our residential segment driven by our strong mass channel, as expected following aggressive destocking last year, and the strategic addition of Lowe’s this year. For our professional segment’s underground construction, and golf and grounds businesses, we successfully drove increased output and shipments to address the sustained demand and elevated order backlog. In both segments, we saw increased caution from homeowners and lawn care dealers as summer progressed due to macro factors, which resulted in lower-than-expected shipments of residential and professional lawn care products to our dealer channel. Even so, we continued to make significant progress in reducing dealer field inventories of those products.
“Throughout the quarter, we advanced our enterprise strategic priorities, including driving productivity and operational excellence. We are already realizing benefits from our multi-year productivity initiative named AMP, and we expect these benefits to accelerate during the next two years. We remain on track to deliver at least $100 million in annualized run rate savings by fiscal 2027. It remains our intention to reinvest a portion of the savings, to fuel our technology transformation and profitable growth, and drive long-term value for our shareholders."
OUTLOOK
“Our business fundamentals remain strong, and we continue to execute with discipline,” added Olson. “For our professional segment, the demand drivers in our underground construction and golf businesses remain compelling. The projected strength in infrastructure spending for the foreseeable future is a positive outlier in the construction industry, and golf rounds played show no signs of slowing down. For these businesses, the healthy pace of orders has continued to keep backlog elevated and, as such, we are driving increased output to improve lead times. For lawn care products, we expect a heightened level of macro uncertainty will continue to drive near-term caution. Importantly, we have made significant progress in reducing our dealer field inventories of lawn care products and expect to exit the fiscal year in a much better position than last year. We expect enduring benefits from the investments we’ve made in our innovative product line-up, and from the strategic development of our independent dealer networks and mass partnerships.
“We are extremely well positioned in attractive end markets, and look ahead with optimism to fiscal 2025 and beyond. Our team remains laser focused on operating with agility and discipline, driving productivity across the enterprise, and capitalizing on our innovative product portfolio to drive value for our customers, channel partners and shareholders,” concluded Olson.
For fiscal 2024, the company now expects total company net sales growth of about 1%, and *adjusted diluted EPS in the range of $4.15 to $4.20. This guidance is based on current visibility and assumes:
•a continuation of macro factors that have driven increased consumer and channel caution;
•continued strong demand and stable supply for our underground construction, and golf and grounds businesses; and
•weather patterns aligned with historical averages for the remainder of the year.
This guidance also considers:
•remaining adjustments needed to normalize field inventory levels of lawn care products and snow and ice management solutions;
•manufacturing inefficiencies as production and inventory levels continue to be adjusted to market conditions; and
•the net impact across all residential mass channel partners related to our new strategic partnership with Lowe's.
THIRD-QUARTER FISCAL 2024 FINANCIAL HIGHLIGHTS
| Reported | Adjusted* | |||||||||||||||||||||||||||||||||||||
| (dollars in millions, except per share data) | FY24 Q3 | FY23 Q3 | % Change | FY24 Q3 | FY23 Q3 | % Change | ||||||||||||||||||||||||||||||||
| Net Sales | $ | 1,156.9 | $ | 1,081.8 | 7 | % | $ | 1,156.9 | $ | 1,081.8 | 7 | % | ||||||||||||||||||||||||||
| Net Earnings (Loss) | $ | 119.3 | $ | (15.0) | 895 | % | $ | 123.7 | $ | 99.4 | 24 | % | ||||||||||||||||||||||||||
| Diluted EPS | $ | 1.14 | $ | (0.14) | 914 | % | $ | 1.18 | $ | 0.95 | 24 | % | ||||||||||||||||||||||||||
THIRD-QUARTER FISCAL 2024 SEGMENT RESULTS
Professional Segment
•Professional segment net sales for the third quarter were $880.9 million, down 1.7% from $896.3 million in the same period last year. The decrease was primarily driven by lower shipments of snow and ice management products, lawn care equipment, and compact utility loaders, partially offset by higher shipments of golf and grounds products, and underground construction equipment, along with net price realization.
•Professional segment earnings for the third quarter were $165.7 million, up from $13.0 million in the same period last year, and when expressed as a percentage of net sales, 18.8%, compared to 1.5% in the prior-year period. The increase in profitability was primarily due to prior-year non-cash impairment charges of $151.3 million, productivity improvements, product mix, and net price realization, partially offset by higher material and manufacturing costs and lower net sales volume.
Residential Segment
•Residential segment net sales for the third quarter were $267.5 million, up 52.6% from $175.3 million in the same period last year. The increase was primarily driven by higher shipments to our mass channel.
•Residential segment earnings for the third quarter were $32.6 million, up from $3.8 million in the same period last year, and when expressed as a percentage of net sales, 12.2%, up from 2.2% in the prior-year period. The year-over-year increase was largely driven by net sales leverage, productivity improvements, and net price realization primarily due to lower floor plan costs, partially offset by product mix and higher material and manufacturing costs.
OPERATING RESULTS
Gross margin and *adjusted gross margin for the third quarter were 34.8% and 35.4%, respectively, up from 34.4% for both in the same prior-year period. The increase was primarily due to productivity improvements and net price realization, partially offset by higher material and manufacturing costs and product mix.
SG&A expense as a percentage of net sales for the third quarter was 22.0%, compared with 22.2% in the prior-year period. The improvement was primarily driven by net sales leverage and lower marketing costs, partially offset by higher incentive expenses.
Operating earnings as a percentage of net sales were 12.8% for the third quarter, compared with (1.8)% in the same prior-year period. *Adjusted operating earnings as a percentage of net sales for the third quarter were 13.7%, compared with 12.2% in the same prior-year period.
Interest expense was $14.5 million for the third quarter, down $0.5 million from the same prior-year period. This decrease was primarily due to lower average outstanding borrowings.
The reported effective tax rate for the third quarter was 17.3%, compared with 47.6% in the same prior-year period, primarily due to the tax impact related to non-cash impairment charges last year and a more favorable geographic mix of earnings this year. The *adjusted effective tax rate for the third quarter was 18.0% compared with 19.0% in the same prior-year period, primarily due to a more favorable geographic mix of earnings.
*Non-GAAP financial measure. Please refer to the “Use of Non-GAAP Financial Information” for details regarding these measures, as well as the tables provided for a reconciliation of historical non-GAAP financial measures to the most comparable GAAP measures.
LIVE CONFERENCE CALL
September 5, 2024 at 10:00a.m. CDT
www.thetorocompany.com/invest
The Toro Company will conduct its earnings call and webcast for investors beginning at 10:00a.m. CDT on September 5, 2024. The webcast will be available at www.thetorocompany.com/invest. Webcast participants will need to complete a brief registration form and should allocate extra time before the webcast begins to register and, if necessary, install audio software.
About The Toro Company
The Toro Company (NYSE: TTC) is a leading worldwide provider of innovative solutions for the outdoor environment including turf and landscape maintenance, snow and ice management, underground utility construction, rental and specialty construction, and irrigation and outdoor lighting solutions. With net sales of $4.55 billion in fiscal 2023, The Toro Company’s global presence extends to more than 125 countries through a portfolio of brands that includes Toro, Ditch Witch, Exmark, Spartan, BOSS, Ventrac, American Augers, Trencor, Subsite, HammerHead, Radius, Perrot, Hayter, Unique Lighting Systems, Irritrol, and Lawn-Boy. Through constant innovation and caring relationships built on trust and integrity, The Toro Company and its brands have built a legacy of excellence by helping customers work on golf courses, sports fields, construction sites, public green spaces, commercial and residential properties and agricultural operations. For more information, visit www.thetorocompany.com.
Use of Non-GAAP Financial Information
This press release and the related earnings call reference certain non-GAAP financial measures, which are not calculated or presented in accordance with U.S. GAAP, as information supplemental and in addition to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP. The non-GAAP financial measures included within this press release and the related earnings call that are utilized as measures of the company’s operating performance consist of gross profit, gross margin, operating earnings, earnings before income taxes, net earnings, diluted EPS, and the effective tax rate, each as adjusted. The non-GAAP financial measures included within this press release and the related earnings call that are utilized as measures of the company’s liquidity consist of free cash flow and free cash flow conversion percentage.
The Toro Company uses these non-GAAP financial measures in making operating decisions and assessing liquidity because it believes these non-GAAP financial measures provide meaningful supplemental information regarding core operational performance and cash flows, as a measure of the company's liquidity, and provide the company with a better understanding of how to allocate resources to both ongoing and prospective business initiatives. Additionally, these non-GAAP financial measures facilitate the company's internal comparisons for both historical operating results and competitors' operating results by factoring out potential differences caused by charges and benefits not related to its regular, ongoing business, including, without limitation, certain non-cash, large, and/or unpredictable charges and benefits; acquisitions and dispositions; legal judgments, settlements, or other matters; and tax positions. The company believes that these non-GAAP financial measures, when considered in conjunction with the financial measures prepared in accordance with U.S. GAAP, provide investors with useful supplemental financial information to better understand its core operational performance and cash flows.
Reconciliations of historical non-GAAP financial measures to the most comparable U.S. GAAP financial measures are included in the financial tables contained in this press release. These non-GAAP financial measures, however, should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the U.S. GAAP financial measures included within this press release and the company’s related earnings call. These non-GAAP financial measures may differ from similar measures used by other companies.
The Toro Company does not provide a quantitative reconciliation of the company’s projected range for adjusted diluted EPS for fiscal 2024 to diluted EPS, which is the most directly comparable GAAP measure, in reliance on the unreasonable efforts exception provided under Item 10(e)(1)(i)(B) of Regulation S-K. The company’s adjusted diluted EPS guidance for fiscal 2024 excludes certain items that are inherently uncertain and difficult to predict, including certain non-cash, large and/or unpredictable charges and benefits; acquisitions and
dispositions; legal judgments, settlements, or other matters; and tax positions. Due to the uncertainty of the amount or timing of these future excluded items, management does not forecast them for internal use and therefore cannot create a quantitative adjusted diluted EPS for fiscal 2024 to diluted EPS reconciliation without unreasonable efforts. A quantitative reconciliation of adjusted diluted EPS for fiscal 2024 to diluted EPS would imply a degree of precision and certainty as to these future items that does not exist and could be confusing to investors. From a qualitative perspective, it is anticipated that the differences between adjusted diluted EPS for fiscal 2024 to diluted EPS will consist of items similar to those described in the financial tables later in this release, including, for example and without limitation, certain non-cash, large, and/or unpredictable charges and benefits; acquisitions and dispositions; legal judgments, settlements, or other matters; and tax positions. The timing and amount of any of these excluded items could significantly impact the company’s diluted EPS for a particular period.
Forward-Looking Statements
This news release contains forward-looking statements, which are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management’s current assumptions and expectations of future events, and often can be identified by words such as “anticipate,” “believe,” “become,” “can,” “continue,” “could,” “encourage,” “estimate,” “expect,” “forecast,” “goal,” “guidance,” “improve,” “intend,” “likely,” “looking ahead,” “may,” “optimistic,” “outlook,” “plan,” “possible,” “potential,” “pro forma,” “project,” “promise,” “pursue,” “should,” “strive,” “target,” “will,” “would,” “seek,” variations of such words or the negative thereof, and similar expressions or future dates. Forward-looking statements involve risks and uncertainties that could cause actual events and results to differ materially from those projected or implied. Forward-looking statements in this release include the company’s fiscal 2024 financial guidance, expectations regarding demand trends, backlog and field inventory levels, our ability to manufacture products to meet demand, and the AMP initiative, and other statements made under the "Outlook" section of this release. Particular risks and uncertainties that may affect the company’s operating results or financial position or cause actual events and results to differ materially from those projected or implied include: adverse worldwide economic conditions, including inflationary pressures and higher interest rates; the effect of weather; customer, government and municipal revenue, budget spending levels and cash conservation efforts; loss of any substantial customer; inventory adjustments or changes in purchasing patterns by customers; fluctuations in the cost and availability of commodities, components, parts, and accessories, including steel, engines, hydraulics, and resins; the company’s ability to manufacture products to meet demand; disruption at or in proximity to its facilities or in its manufacturing or other operations, or those in its distribution channel customers, mass retailers or home centers where its products are sold, or suppliers; risks associated with acquisitions and dispositions; impacts of the company’s AMP initiative and any future restructuring activities or productivity or cost savings initiatives; the effect of natural disasters, social unrest, war and global pandemics; the level of growth or contraction in its key markets; the company’s ability to develop and achieve market acceptance for new products; increased competition; the risks attendant to international relations, operations and markets; foreign currency exchange rate fluctuations; financial viability of and/or relationships with the company’s distribution channel partners; management of strategic partnerships, key customer relationships, alliances or joint ventures, including Red Iron Acceptance, LLC; impact of laws, regulations and standards, consumer product safety, accounting, taxation, trade, tariffs and/or antidumping and countervailing duties petitions, healthcare, and environmental, health and safety matters; unforeseen product quality problems; loss of or changes in executive management or key employees; the occurrence of litigation or claims, including those involving intellectual property or product liability matters; impact of increased scrutiny on its environmental, social, and governance practices; and other risks and uncertainties described in the company’s most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q and other filings with the Securities and Exchange Commission. The company makes no commitment to revise or update any forward-looking statements in order to reflect events or circumstances occurring or existing after the date any forward-looking statement is made.
(Financial tables follow)
THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings (Loss) (Unaudited)
(Dollars and shares in millions, except per-share data)
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| August 2, 2024 | August 4, 2023 | August 2, 2024 | August 4, 2023 | |||||||||||||||||||||||
| Net sales | $ | 1,156.9 | $ | 1,081.8 | $ | 3,507.8 | $ | 3,570.0 | ||||||||||||||||||
| Cost of sales | 754.1 | 709.4 | 2,307.5 | 2,322.0 | ||||||||||||||||||||||
| Gross profit | 402.8 | 372.4 | 1,200.3 | 1,248.0 | ||||||||||||||||||||||
| Gross margin | 34.8 | % | 34.4 | % | 34.2 | % | 35.0 | % | ||||||||||||||||||
| Selling, general and administrative expense | 254.7 | 240.2 | 776.0 | 760.6 | ||||||||||||||||||||||
| Non-cash impairment charges | — | 151.3 | — | 151.3 | ||||||||||||||||||||||
| Operating earnings (loss) | 148.1 | (19.1) | 424.3 | 336.1 | ||||||||||||||||||||||
| Interest expense | (14.5) | (15.0) | (47.4) | (43.8) | ||||||||||||||||||||||
| Other income, net | 10.6 | 5.5 | 26.6 | 21.3 | ||||||||||||||||||||||
| Earnings (loss) before income taxes | 144.2 | (28.6) | 403.5 | 313.6 | ||||||||||||||||||||||
| Income tax provision (benefit) | 24.9 | (13.6) | 74.5 | 54.2 | ||||||||||||||||||||||
| Net earnings (loss) | $ | 119.3 | $ | (15.0) | $ | 329.0 | $ | 259.4 | ||||||||||||||||||
| Basic net earnings (loss) per share of common stock | $ | 1.15 | $ | (0.14) | $ | 3.16 | $ | 2.48 | ||||||||||||||||||
| Diluted net earnings (loss) per share of common stock | $ | 1.14 | $ | (0.14) | $ | 3.14 | $ | 2.46 | ||||||||||||||||||
| Weighted-average number of shares of common stock outstanding — Basic | 104.0 | 104.3 | 104.2 | 104.5 | ||||||||||||||||||||||
| Weighted-average number of shares of common stock outstanding — Diluted | 104.5 | 104.3 | 104.8 | 105.4 | ||||||||||||||||||||||
Segment Data (Unaudited)
(Dollars in millions)
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| Segment net sales | August 2, 2024 | August 4, 2023 | August 2, 2024 | August 4, 2023 | ||||||||||||||||||||||
| Professional | $ | 880.9 | $ | 896.3 | $ | 2,643.0 | $ | 2,845.7 | ||||||||||||||||||
| Residential | 267.5 | 175.3 | 843.2 | 705.8 | ||||||||||||||||||||||
| Other | 8.5 | 10.2 | 21.6 | 18.5 | ||||||||||||||||||||||
| Total net sales* | $ | 1,156.9 | $ | 1,081.8 | $ | 3,507.8 | $ | 3,570.0 | ||||||||||||||||||
| *Includes international net sales of: | $ | 218.2 | $ | 235.0 | $ | 691.4 | $ | 756.7 | ||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| Segment earnings (loss) before income taxes | August 2, 2024 | August 4, 2023 | August 2, 2024 | August 4, 2023 | ||||||||||||||||||||||
| Professional | $ | 165.7 | $ | 13.0 | $ | 469.2 | $ | 384.6 | ||||||||||||||||||
| Residential | 32.6 | 3.8 | 92.2 | 64.4 | ||||||||||||||||||||||
| Other | (54.1) | (45.4) | (157.9) | (135.4) | ||||||||||||||||||||||
| Total segment earnings (loss) before income taxes | $ | 144.2 | $ | (28.6) | $ | 403.5 | $ | 313.6 | ||||||||||||||||||
THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in millions)
| August 2, 2024 | August 4, 2023 | October 31, 2023 | ||||||||||||||||||
| ASSETS | ||||||||||||||||||||
| Cash and cash equivalents | $ | 221.1 | $ | 147.9 | $ | 193.1 | ||||||||||||||
| Receivables, net | 532.3 | 390.7 | 407.4 | |||||||||||||||||
| Inventories, net | 1,082.0 | 1,112.7 | 1,087.8 | |||||||||||||||||
| Prepaid expenses and other current assets | 78.5 | 80.5 | 110.5 | |||||||||||||||||
| Total current assets | 1,913.9 | 1,731.8 | 1,798.8 | |||||||||||||||||
| Property, plant, and equipment, net | 635.7 | 625.0 | 641.7 | |||||||||||||||||
| Goodwill | 450.2 | 451.3 | 450.8 | |||||||||||||||||
| Other intangible assets, net | 512.4 | 549.2 | 540.1 | |||||||||||||||||
| Right-of-use assets | 113.2 | 116.6 | 125.3 | |||||||||||||||||
| Investment in finance affiliate | 46.4 | 48.5 | 50.6 | |||||||||||||||||
| Deferred income taxes | 38.3 | 41.7 | 14.2 | |||||||||||||||||
| Other assets | 21.3 | 21.8 | 22.8 | |||||||||||||||||
| Total assets | $ | 3,731.4 | $ | 3,585.9 | $ | 3,644.3 | ||||||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
| Current portion of long-term debt | $ | 25.3 | $ | — | $ | — | ||||||||||||||
| Accounts payable | 437.8 | 407.4 | 430.0 | |||||||||||||||||
| Accrued liabilities | 501.6 | 482.3 | 499.1 | |||||||||||||||||
| Short-term lease liabilities | 19.7 | 17.8 | 19.5 | |||||||||||||||||
| Total current liabilities | 984.4 | 907.5 | 948.6 | |||||||||||||||||
| Long-term debt, less current portion | 966.6 | 1,061.3 | 1,031.5 | |||||||||||||||||
| Long-term lease liabilities | 99.1 | 101.2 | 112.1 | |||||||||||||||||
| Deferred income taxes | 0.4 | 0.1 | 0.4 | |||||||||||||||||
| Other long-term liabilities | 44.5 | 38.7 | 40.8 | |||||||||||||||||
| Stockholders’ equity: | ||||||||||||||||||||
| Preferred stock | — | — | — | |||||||||||||||||
| Common stock | 103.1 | 103.8 | 103.8 | |||||||||||||||||
| Retained earnings | 1,576.2 | 1,403.9 | 1,444.1 | |||||||||||||||||
| Accumulated other comprehensive loss | (42.9) | (30.6) | (37.0) | |||||||||||||||||
| Total stockholders’ equity | 1,636.4 | 1,477.1 | 1,510.9 | |||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 3,731.4 | $ | 3,585.9 | $ | 3,644.3 | ||||||||||||||
THE TORO COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in millions)
| Nine Months Ended | ||||||||||||||
| August 2, 2024 | August 4, 2023 | |||||||||||||
| Cash flows from operating activities: | ||||||||||||||
| Net earnings | $ | 329.0 | $ | 259.4 | ||||||||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||||||||
| Non-cash income from finance affiliate | (15.8) | (14.1) | ||||||||||||
| Distributions from finance affiliate, net | 20.0 | 4.9 | ||||||||||||
| Depreciation of property, plant, and equipment | 65.5 | 56.6 | ||||||||||||
| Amortization of other intangible assets | 26.3 | 26.8 | ||||||||||||
| Stock-based compensation expense | 19.5 | 14.4 | ||||||||||||
| Non-cash impairment charges | — | 151.3 | ||||||||||||
| Other | 0.1 | 0.7 | ||||||||||||
| Changes in operating assets and liabilities, net of the effect of acquisitions: | ||||||||||||||
| Receivables, net | (123.5) | (52.8) | ||||||||||||
| Inventories, net | (1.9) | (46.6) | ||||||||||||
| Other assets | 9.6 | (74.3) | ||||||||||||
| Accounts payable | 5.1 | (174.7) | ||||||||||||
| Other liabilities | (4.1) | 3.1 | ||||||||||||
| Net cash provided by operating activities | 329.8 | 154.7 | ||||||||||||
| Cash flows from investing activities: | ||||||||||||||
| Purchases of property, plant, and equipment | (63.6) | (105.7) | ||||||||||||
| Proceeds from insurance claim | 4.3 | 7.1 | ||||||||||||
| Business combinations, net of cash acquired | — | (21.0) | ||||||||||||
| Asset acquisition | (0.8) | — | ||||||||||||
| Proceeds from asset disposals | 0.2 | 0.4 | ||||||||||||
| Proceeds from divestitures | 16.5 | — | ||||||||||||
| Net cash used in investing activities | (43.4) | (119.2) | ||||||||||||
| Cash flows from financing activities: | ||||||||||||||
Net (repayments) borrowings under the revolving credit facility1 | (40.0) | 70.0 | ||||||||||||
| Proceeds from exercise of stock options | 8.6 | 19.4 | ||||||||||||
| Payments of withholding taxes for stock awards | (3.9) | (3.8) | ||||||||||||
| Purchases of TTC common stock | (109.2) | (60.0) | ||||||||||||
| Dividends paid on TTC common stock | (112.6) | (106.5) | ||||||||||||
| Other | (3.4) | (1.5) | ||||||||||||
| Net cash used in financing activities | (260.5) | (82.4) | ||||||||||||
| Effect of exchange rates on cash and cash equivalents | 2.1 | 6.6 | ||||||||||||
| Net increase (decrease) in cash and cash equivalents | 28.0 | (40.3) | ||||||||||||
| Cash and cash equivalents as of the beginning of the fiscal period | 193.1 | 188.2 | ||||||||||||
| Cash and cash equivalents as of the end of the fiscal period | $ | 221.1 | $ | 147.9 | ||||||||||
1 Presentation of prior year revolving credit facility and long-term debt activity has been conformed to the current year presentation. There was no change to net cash used in financing activities.
THE TORO COMPANY AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures (Unaudited)
(Dollars in millions, except per-share data)
The following table provides a reconciliation of the non-GAAP financial performance measures used in this press release and our related earnings call to the most directly comparable measures calculated and reported in accordance with U.S. GAAP for the three and nine month periods ended August 2, 2024 and August 4, 2023:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| August 2, 2024 | August 4, 2023 | August 2, 2024 | August 4, 2023 | |||||||||||||||||||||||
| Gross profit | $ | 402.8 | $ | 372.4 | $ | 1,200.3 | $ | 1,248.0 | ||||||||||||||||||
Acquisition-related costs1 | — | — | — | 0.2 | ||||||||||||||||||||||
Productivity initiative2 | 6.9 | — | 6.9 | — | ||||||||||||||||||||||
| Adjusted gross profit | $ | 409.7 | $ | 372.4 | $ | 1,207.2 | $ | 1,248.2 | ||||||||||||||||||
| Gross margin | 34.8 | % | 34.4 | % | 34.2 | % | 35.0 | % | ||||||||||||||||||
Productivity initiative2 | 0.6 | % | — | % | 0.2 | % | — | % | ||||||||||||||||||
| Adjusted gross margin | 35.4 | % | 34.4 | % | 34.4 | % | 35.0 | % | ||||||||||||||||||
| Operating earnings (loss) | $ | 148.1 | $ | (19.1) | $ | 424.3 | $ | 336.1 | ||||||||||||||||||
Acquisition-related costs1 | — | — | — | 0.5 | ||||||||||||||||||||||
Productivity initiative2 | 10.9 | — | 19.2 | — | ||||||||||||||||||||||
Non-cash impairment charges3 | — | 151.3 | — | 151.3 | ||||||||||||||||||||||
| Adjusted operating earnings | $ | 159.0 | $ | 132.2 | $ | 443.5 | $ | 487.9 | ||||||||||||||||||
| Operating earnings (loss) margin | 12.8 | % | (1.8) | % | 12.1 | % | 9.4 | % | ||||||||||||||||||
Productivity initiative2 | 0.9 | % | — | % | 0.5 | % | — | % | ||||||||||||||||||
Non-cash impairment charges3 | — | % | 14.0 | % | — | % | 4.3 | % | ||||||||||||||||||
| Adjusted operating earnings margin | 13.7 | % | 12.2 | % | 12.6 | % | 13.7 | % | ||||||||||||||||||
| Earnings (loss) before income taxes | $ | 144.2 | $ | (28.6) | $ | 403.5 | $ | 313.6 | ||||||||||||||||||
Acquisition-related costs1 | — | — | — | 0.5 | ||||||||||||||||||||||
Productivity initiative2 | 6.6 | — | 14.9 | — | ||||||||||||||||||||||
Non-cash impairment charges3 | — | 151.3 | — | 151.3 | ||||||||||||||||||||||
| Adjusted earnings before income taxes | $ | 150.8 | $ | 122.7 | $ | 418.4 | $ | 465.4 | ||||||||||||||||||
| Income tax provision (benefit) | $ | 24.9 | $ | (13.6) | $ | 74.5 | $ | 54.2 | ||||||||||||||||||
Acquisition-related costs1 | — | — | — | 0.1 | ||||||||||||||||||||||
Productivity initiative2 | 1.2 | — | 2.9 | — | ||||||||||||||||||||||
Non-cash impairment charges3 | — | 36.7 | — | 36.7 | ||||||||||||||||||||||
Tax impact of share-based compensation4 | 1.0 | 0.2 | 3.5 | 5.0 | ||||||||||||||||||||||
| Adjusted income tax provision | $ | 27.1 | $ | 23.3 | $ | 80.9 | $ | 96.0 | ||||||||||||||||||
| Net earnings (loss) | $ | 119.3 | $ | (15.0) | $ | 329.0 | $ | 259.4 | ||||||||||||||||||
Acquisition-related costs, net of tax1 | — | — | — | 0.4 | ||||||||||||||||||||||
Productivity initiative, net of tax2 | 5.4 | — | 12.0 | — | ||||||||||||||||||||||
Non-cash impairment charges, net of tax3 | — | 114.6 | — | 114.6 | ||||||||||||||||||||||
Tax impact of share-based compensation4 | (1.0) | (0.2) | (3.5) | (5.0) | ||||||||||||||||||||||
| Adjusted net earnings | $ | 123.7 | $ | 99.4 | $ | 337.5 | $ | 369.4 | ||||||||||||||||||
| Net earnings (loss) per diluted share | $ | 1.14 | $ | (0.14) | $ | 3.14 | $ | 2.46 | ||||||||||||||||||
Productivity initiative, net of tax2 | 0.05 | — | 0.11 | — | ||||||||||||||||||||||
Non-cash impairment charges, net of tax3 | — | 1.09 | — | 1.09 | ||||||||||||||||||||||
Tax impact of share-based compensation4 | (0.01) | — | (0.03) | (0.05) | ||||||||||||||||||||||
| Adjusted net earnings per diluted share | $ | 1.18 | $ | 0.95 | $ | 3.22 | $ | 3.50 | ||||||||||||||||||
| Effective tax rate | 17.3 | % | 47.6 | % | 18.5 | % | 17.3 | % | ||||||||||||||||||
Non-cash impairment charges3 | — | % | (27.5) | % | — | % | 1.7 | % | ||||||||||||||||||
Tax impact of share-based compensation4 | 0.7 | % | (1.1) | % | 0.8 | % | 1.6 | % | ||||||||||||||||||
| Adjusted effective tax rate | 18.0 | % | 19.0 | % | 19.3 | % | 20.6 | % | ||||||||||||||||||
1 On January 13, 2022, the company completed the acquisition of Intimidator Group. Acquisition-related costs for the nine month period ended August 4, 2023 represent integration costs.
2 In the first quarter of fiscal 2024, the company launched the "Amplifying Maximum Productivity" or AMP initiative. The company considered the nature, frequency, and scale of this initiative compared to prior productivity initiatives when determining that the expenses associated with AMP, unlike prior productivity initiatives, are not common, normal, recurring operating expenses and are not representative of the company's ongoing business operations. Productivity initiative charges for the three and nine month periods ended August 2, 2024 primarily represent third-party consulting costs, product-line exit costs, asset write-offs, and compensation for fully-dedicated AMP personnel, partially offset by a gain on divestiture.
3 At the end of the third quarter of fiscal 2023, the company recorded non-cash impairment charges within our Professional reportable segment related to the Intimidator Group operating segment.
4 The accounting standards codification guidance governing employee stock-based compensation requires that any excess tax deduction for stock-based compensation be immediately recorded within income tax expense. Employee stock-based compensation activity, including the exercise of stock options, can be unpredictable and can significantly impact our net earnings, net earnings per diluted share, and effective tax rate. These amounts represent the discrete tax benefits recorded as excess tax deductions for stock-based compensation during the three and nine month periods ended August 2, 2024 and August 4, 2023.
Reconciliation of Non-GAAP Liquidity Measures
The company defines free cash flow as net cash provided by operating activities less purchases of property, plant and equipment, net of proceeds from insurance claim. Free cash flow conversion percentage represents free cash flow as a percentage of net earnings. The company considers free cash flow and free cash flow conversion percentage to be non-GAAP liquidity measures that provide useful information to management and investors about the company's ability to convert net earnings into cash resources that can be used to pursue opportunities to enhance shareholder value, fund ongoing and prospective business initiatives, and strengthen the company's Consolidated Balance Sheets, after reinvesting in necessary capital expenditures required to maintain and grow the company's business.
The following table provides a reconciliation of non-GAAP free cash flow and free cash flow conversion percentage to net cash provided by operating activities, which is the most directly comparable financial measure calculated and reported in accordance with U.S. GAAP, for the nine month periods ended August 2, 2024 and August 4, 2023:
| Nine Months Ended | ||||||||||||||
| (Dollars in millions) | August 2, 2024 | August 4, 2023 | ||||||||||||
| Net cash provided by operating activities | $ | 329.8 | $ | 154.7 | ||||||||||
| Less: Purchases of property, plant and equipment, net of proceeds from insurance claim | 59.3 | 98.6 | ||||||||||||
| Free cash flow | $ | 270.5 | $ | 56.1 | ||||||||||
| Net earnings | $ | 329.0 | $ | 259.4 | ||||||||||
| Free cash flow conversion percentage | 82.2 | % | 21.6 | % | ||||||||||
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