TORO CO

RESULTS OF OPERATIONS

Overview

Consolidated net sales for the first quarter of fiscal 2024 were $1,001.9 million, down 12.8 percent compared to $1,148.8 million in the first quarter of fiscal 2023. Professional segment net sales for the first quarter of fiscal 2024 were $756.5 million, a decrease of 14.1 percent compared to $880.7 million in the first quarter of the prior fiscal year. Residential segment net sales for the first quarter of fiscal 2024 were $240.1 million, a decrease of 9.3 percent compared to $264.6 million in the first quarter of the prior fiscal year.

Net earnings for the first quarter of fiscal 2024 were $64.9 million, or $0.62 per diluted share, compared to net earnings of $106.9 million, or $1.01 per diluted share, for the first quarter of fiscal 2023. Adjusted net earnings for the first quarter of fiscal 2024 were $66.5 million, or $0.64 per diluted share, compared to $103.6 million, or $0.98 per diluted share, for the first quarter of fiscal 2023.

We continued our history of paying quarterly cash dividends and increased our cash dividend for the first quarter of fiscal 2024 by 5.9 percent to $0.36 per share compared to $0.34 per share paid in the first quarter of fiscal 2023.

Field inventory levels were higher as of the end of the first quarter of fiscal 2024 compared to the end of the first quarter of fiscal 2023, primarily driven by certain lawn care and snow and ice management products following the adverse weather conditions and macro factors experienced during the second half of fiscal 2023.

Our order backlog represents unfulfilled customer orders at a point in time. Our order backlog (including shipments beyond 12 months) was higher as of the end of the first quarter of fiscal 2024 compared to the end of the fourth quarter of fiscal 2023 due to normal seasonal trends. Our order backlog remains significantly elevated over what the company would consider normal, due to demand for underground and specialty construction and golf and grounds products continuing to outpace production of such products.

Net Sales

Consolidated net sales for the first quarter of fiscal 2024 were $1,001.9 million, down 12.8 percent compared to $1,148.8 million in the first quarter of fiscal 2023. This net sales decrease was primarily driven by lower shipments of both Professional and Residential segment products.

Net sales in international markets decreased by $40.4 million for the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023, primarily driven by lower shipments of both Residential and Professional segment products. Changes in foreign currency exchange rates resulted in an increase in our net sales of approximately $0.8 million for the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023.

The following table summarizes our results of operations as a percentage of consolidated net sales:

Gross Profit and Gross Margin

Gross profit for the first quarter of fiscal 2024 was $344.5 million, down 13.0 percent compared to $395.9 million in the first quarter of fiscal 2023. Adjusted gross profit for the first quarter of fiscal 2024 was $344.5 million, down 13.0 percent compared to $396.1 million for the first quarter of fiscal 2023. Gross margin was 34.4 percent for the first quarter of fiscal 2024 compared to 34.5 percent for the first quarter of fiscal 2023, a decrease of 10 basis points. The slight decrease in gross margin was primarily due to unfavorable product mix within the Residential segment, mostly offset by favorable product mix within the Professional segment.

Selling, General, and Administrative ("SG&A") Expense

SG&A expense decreased $3.6 million, or 1.4 percent, for the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023. As a percentage of net sales, SG&A expense increased 300 basis points for the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023. The increase in SG&A expense as a percentage of net sales for the first quarter comparison was primarily due to lower net sales volume.

Interest Expense

Interest expense increased $2.1 million for the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023. The increase in interest expense was primarily due to higher average interest rates and higher average outstanding borrowings under our debt arrangements.

Other Income, Net

Other income, net decreased $1.3 million for the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023. The decrease was primarily due to a favorable net legal settlement that was recognized in fiscal 2023 and did not repeat in fiscal 2024, partially offset by the favorable impact from derivative instruments and higher income from our Red Iron joint venture.

Provision for Income Tax

The effective tax rate for the first quarter of fiscal 2024 was 19.0 percent compared to 18.6 percent in the first quarter of fiscal 2023, primarily due to lower tax benefits recorded as excess tax deductions for stock-based compensation in the current-year period, partially offset by a more favorable geographic mix of earnings. The adjusted effective tax rate for the first quarter of fiscal 2024 was 20.8 percent compared to an adjusted effective tax rate of 21.4 percent in the first quarter of fiscal 2023, primarily driven by a more favorable geographic mix of earnings.

Net Earnings

The net earnings for the first quarter of fiscal 2024 were $64.9 million, or $0.62 per diluted share, compared to $106.9 million, or $1.01 per diluted share, for the first quarter of fiscal 2023. The decrease in net earnings per diluted share for the first quarter comparison was primarily due to lower Professional and Residential segment earnings. Adjusted net earnings for the first quarter of fiscal 2024 were $66.5 million, or $0.64 per diluted share, compared to $103.6 million, or $0.98 per diluted share, for the first quarter of fiscal 2023, a decrease of 34.7 percent per diluted share.