TORO CO

RESULTS OF OPERATIONS

Overview

Consolidated net sales for the second quarter of fiscal 2024 were $1,349.0 million, up 0.7 percent compared to $1,339.3 million in the second quarter of fiscal 2023. For the first six months of fiscal 2024, consolidated net sales were $2,350.9 million, down 5.5 percent compared to $2,488.2 million from the same period in the prior fiscal year.

Professional segment net sales for the second quarter of fiscal 2024 were $1,005.6 million, a decrease of 5.9 percent compared to $1,068.7 million in the second quarter of the prior fiscal year. For the first six months of fiscal 2024, Professional segment net sales were $1,762.1 million, a decrease of 9.6 percent compared to $1,949.4 million in the prior fiscal year comparable period.

Residential segment net sales for the second quarter of fiscal 2024 were $335.6 million, an increase of 26.3 percent compared to $265.8 million in the second quarter of the prior fiscal year. For the first six months of fiscal 2024, Residential segment net sales were $575.7 million, an increase of 8.5 percent compared to $530.5 million in the prior fiscal year comparable period.

Net earnings for the second quarter of fiscal 2024 were $144.8 million, or $1.38 per diluted share, compared to net earnings of $167.5 million, or $1.59 per diluted share, for the second quarter of fiscal 2023. Net earnings for the first six months of fiscal 2024 were $209.7 million, or $2.00 per diluted share, compared to $274.3 million, or $2.60 per diluted share, in the comparable fiscal 2023 period.

Adjusted net earnings for the second quarter of fiscal 2024 were $147.3 million, or $1.40 per diluted share, compared to $166.4 million, or $1.58 per diluted share, for the second quarter of fiscal 2023. Adjusted net earnings for the first six months of fiscal 2024 were $213.8 million, or $2.04 per diluted share, compared to $270.0 million, or $2.56 per diluted share, in the comparable fiscal 2023 period.

We continued our history of paying quarterly cash dividends and increased our cash dividend for the second quarter of fiscal 2024 by 5.9 percent to $0.36 per share compared to $0.34 per share paid in the second quarter of fiscal 2023. We also repurchased shares of our common stock under our Board authorized repurchase program, thereby reducing our total shares outstanding. As a result of the combination of quarterly cash dividends and share repurchases, we returned $85.1 million of cash to our shareholders during the first six months of fiscal 2024.

Field inventory levels were slightly lower as of the end of the second quarter of fiscal 2024 compared to the end of the second quarter of fiscal 2023, primarily driven by significant reductions of dealer field inventories of lawn care equipment in both the Residential and Professional segments, partially offset by increases from a strong spring sell-in to our mass channel partners.

Our order backlog represents unfulfilled customer orders at a point in time. Our order backlog (including shipments beyond 12 months) was lower as of the end of the second quarter of fiscal 2024 compared to the end of the fourth quarter of fiscal 2023 primarily due to improved manufacturing output. 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 second quarter of fiscal 2024 were $1,349.0 million, up 0.7 percent compared to $1,339.3 million in the second quarter of fiscal 2023. This increase was primarily driven by higher shipments of Residential segment products, partially offset by lower shipments of Professional segment products. For the year-to-date period of fiscal 2024, consolidated net sales were $2,350.9 million, down 5.5 percent compared to $2,488.2 million from the same period in the prior fiscal year. This decrease was primarily driven by lower shipments of Professional segment products, partially offset by higher shipments of Residential segment products.

Net sales in international markets decreased by $8.2 million and $48.5 million for the second quarter and year-to-date periods of fiscal 2024, respectively. The decrease for the second quarter comparison was primarily due to lower shipments of Residential segment products. The decrease for the year-to-date comparison was primarily due to lower shipments of both Residential and Professional segment products.

Changes in foreign currency exchange rates resulted in a decrease in our net sales of approximately $7.6 million and $6.8 million for the second quarter and year-to-date periods of fiscal 2024, respectively.

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

Gross Profit and Gross Margin

Gross profit for the second quarter of fiscal 2024 was $453.0 million, down 5.6 percent compared to $479.7 million for the second quarter of fiscal 2023. Gross margin was 33.6 percent for the second quarter of fiscal 2024 compared to 35.8 percent for the second quarter of fiscal 2023, a decrease of 220 basis points. Gross profit for the year-to-date period of fiscal 2024 was $797.5 million, down 8.9 percent compared to $875.6 million for the same period of fiscal 2023. Gross margin was 33.9% for the year-to-date period of fiscal 2024 compared to 35.2% for the prior year comparable period, a decrease of 130 basis points. The decrease in gross margin for both the second quarter and year-to-date periods of fiscal 2024 was primarily due to product mix and higher material and manufacturing costs, partially offset by productivity improvements.

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

SG&A expense increased $4.5 million, or 1.7 percent, for the second quarter of fiscal 2024 and increased $0.9 million, or 0.2 percent, for the year-to-date period of fiscal 2024 compared to the same respective periods of fiscal 2023. As a percentage of net sales, SG&A expense increased 20 basis points and 130 basis points for the second quarter and year-to-date periods of fiscal 2024, respectively, compared to the same respective periods of fiscal 2023. The increase in SG&A expense as a percentage of net sales for the second quarter comparison was primarily due to slightly higher corporate expenses, mostly offset by lower marketing costs. The increase in SG&A expense as a percentage of net sales for the year-to-date comparison was primarily due to lower net sales volume.

Interest Expense

Interest expense increased $2.0 million and $4.1 million for the second quarter and year-to-date periods of fiscal 2024, respectively, compared to the same respective periods of fiscal 2023. The increase in interest expense for the second quarter comparison was primarily due to higher average outstanding borrowings under our debt arrangements and higher average interest rates. The increase in interest expense for the year-to-date comparison was primarily due to higher average interest rates.

Other Income, Net

Other income, net increased $1.6 million and $0.3 million for the second quarter and year-to-date periods of fiscal 2024, respectively, compared to the same respective periods of fiscal 2023. These increases were primarily due to higher income from our Red Iron joint venture and net gains on divestitures, partially offset by the unfavorable impact from derivative instruments.

Provision for Income Tax

The effective tax rate for the second quarter of fiscal 2024 was 19.2 percent compared to 20.6 percent in the second quarter of fiscal 2023, primarily due to a more favorable geographic mix of earnings. The effective tax rate for the year-to-date period of fiscal 2024 was 19.1 percent compared to 19.8 percent in the same period of fiscal 2023, primarily due to a more favorable geographic mix of earnings, partially offset by lower tax benefits recorded as excess tax deductions for stock-based compensation in the current-year period. The adjusted effective tax rate for the second quarter of fiscal 2024 was 19.8 percent, compared to an adjusted effective tax rate of 21.1 percent in the second quarter of fiscal 2023, primarily driven by a more favorable geographic mix of earnings. The adjusted effective tax rate for the year-to-date period of fiscal 2024 was 20.1 percent, compared to 21.2 percent in the same period of fiscal 2023, primarily driven by a more favorable geographic mix of earnings.

Net Earnings

Net earnings for the second quarter of fiscal 2024 were $144.8 million, or $1.38 per diluted share, compared to $167.5 million, or $1.59 per diluted share, for the second quarter of fiscal 2023. Adjusted net earnings for the second quarter of fiscal 2024 were $147.3 million, or $1.40 per diluted share, compared to $166.4 million, or $1.58 per diluted share, for the second quarter of fiscal 2023, a decrease of 11.4 percent per diluted share. Net earnings for the first six months of fiscal 2024 were $209.7 million, or $2.00 per diluted share, compared to $274.3 million, or $2.60 per diluted share, for the same period of fiscal 2023. Adjusted net earnings for the first six months of fiscal 2024 were $213.8 million, or $2.04 per diluted share, compared to $270.0 million, or $2.56 per diluted share, for the same year-to-date period of fiscal 2023, a decrease of 20.3 percent per diluted share. The decrease in net earnings per diluted share for the second quarter comparison was primarily due to lower Professional segment earnings, partially offset by higher Residential segment earnings. The decrease in net earnings per diluted share for the year-to-date comparison was primarily due to lower Professional segment earnings.