TORO CO

RESULTS OF OPERATIONS

Overview

Consolidated net sales for the third quarter of fiscal 2024 were $1,156.9 million, up 6.9 percent compared to $1,081.8 million in the third quarter of fiscal 2023. For the first nine months of fiscal 2024, consolidated net sales were $3,507.8 million, down 1.7 percent compared to $3,570.0 million from the same period in the prior fiscal year.

Professional segment net sales for the third quarter of fiscal 2024 were $880.9 million, a decrease of 1.7 percent compared to $896.3 million in the third quarter of the prior fiscal year. For the first nine months of fiscal 2024, Professional segment net sales were $2,643.0 million, a decrease of 7.1 percent compared to $2,845.7 million in the prior fiscal year comparable period.

Residential segment net sales for the third quarter of fiscal 2024 were $267.5 million, an increase of 52.6 percent compared to $175.3 million in the third quarter of the prior fiscal year. For the first nine months of fiscal 2024, Residential segment net sales were $843.2 million, an increase of 19.5 percent compared to $705.8 million in the prior fiscal year comparable period.

Net earnings for the third quarter of fiscal 2024 were $119.3 million, or $1.14 per diluted share, compared to a net loss of $15.0 million, or $0.14 net loss per diluted share, for the third quarter of fiscal 2023. Net earnings for the first nine months of fiscal 2024 were $329.0 million, or $3.14 per diluted share, compared to $259.4 million, or $2.46 per diluted share, in the comparable fiscal 2023 period.

Adjusted net earnings for the third quarter of fiscal 2024 were $123.7 million, or $1.18 per diluted share, compared to $99.4 million, or $0.95 per diluted share, for the third quarter of fiscal 2023. Adjusted net earnings for the first nine months of fiscal 2024 were $337.5 million, or $3.22 per diluted share, compared to $369.4 million, or $3.50 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 third quarter of fiscal 2024 by 5.9 percent to $0.36 per share compared to $0.34 per share paid in the third 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 $221.8 million of cash to our shareholders during the first nine months of fiscal 2024.

Field inventory levels were slightly higher as of the end of the third quarter of fiscal 2024 compared to the end of the third quarter of fiscal 2023, primarily due to increased shipments of lawn care equipment to our mass channel partners and increased shipments of construction and golf and grounds products driven by improved manufacturing output, partially offset by significant reductions of dealer field inventories of lawn care equipment in both the Professional and Residential segments.

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 third 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 construction and golf and grounds products continuing to outpace production of such products.

Net Sales

Consolidated net sales for the third quarter of fiscal 2024 were $1,156.9 million, up 6.9 percent compared to $1,081.8 million in the third quarter of fiscal 2023. This increase was primarily driven by higher shipments of Residential segment products and net price realization, partially offset by lower shipments of Professional segment products. For the year-to-date period of fiscal 2024, consolidated net sales were $3,507.8 million, down 1.7 percent compared to $3,570.0 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 $16.8 million and $65.3 million for the third quarter and year-to-date periods of fiscal 2024, respectively. The decreases for the third quarter and year-to date comparisons were 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 $0.5 million and $7.3 million for the third 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 third quarter of fiscal 2024 was $402.8 million, up 8.2 percent compared to $372.4 million for the third quarter of fiscal 2023. Gross margin was 34.8 percent for the third quarter of fiscal 2024 compared to 34.4 percent for the third quarter of fiscal 2023, an increase of 40 basis points. The increase in gross margin for the third quarter comparison was primarily due to productivity improvements and net price realization, partially offset by higher material and manufacturing costs and product mix.

Gross profit for the year-to-date period of fiscal 2024 was $1,200.3 million, down 3.8 percent compared to $1,248.0 million for the same period of fiscal 2023. Gross margin was 34.2 percent for the year-to-date period of fiscal 2024 compared to 35.0 percent for the prior year comparable period, a decrease of 80 basis points. The decrease in gross margin for the year-to-date comparison was primarily due to higher material and manufacturing costs and product mix, partially offset by productivity improvements.

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

SG&A expense increased $14.5 million, or 6.0 percent, for the third quarter of fiscal 2024 and increased $15.4 million, or 2.0 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 decreased 20 basis points for the third quarter of fiscal 2024 and increased 80 basis points for the year-to-date period of fiscal 2024, respectively, compared to the same respective periods of fiscal 2023. The decrease in SG&A expense as a percentage of net sales for the third quarter comparison was primarily due to net sales leverage and lower marketing costs, partially offset by higher incentive expenses. 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 and higher incentive expenses, partially offset by lower marketing costs.

Non-Cash Impairment Charges

We recorded non-cash impairment charges of $151.3 million within our Professional segment related to Intimidator in the third quarter and year-to-date period of fiscal 2023. No impairment charges were recognized in the third quarter or year-to-date period of fiscal 2024.

Interest Expense

Interest expense decreased $0.5 million and increased $3.6 million for the third quarter and year-to-date periods of fiscal 2024, respectively, compared to the same respective periods of fiscal 2023. The decrease in interest expense for the third quarter comparison was primarily due to lower average outstanding borrowings. 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 $5.1 million and $5.3 million for the third quarter and year-to-date periods of fiscal 2024, respectively, compared to the same respective periods of fiscal 2023. The increase in other income, net for the third quarter comparison was primarily due to a net gain on divestiture. The increase in other income, net for the year-to-date comparison was primarily due to net gains on divestitures and higher income from our Red Iron join venture.

Income Tax Provision (Benefit)

The effective tax rate for the third quarter of fiscal 2024 was 17.3 percent compared to 47.6 percent in the third quarter of fiscal 2023, primarily due to the prior year tax impact from non-cash impairment charges and a more favorable geographic mix of earnings in the current fiscal year period. The effective tax rate for the year-to-date period of fiscal 2024 was 18.5 percent compared to 17.3 percent in the same period of fiscal 2023, primarily due to the prior year tax impact from non-cash impairment charges and lower tax benefits recorded as excess tax deductions for stock-based compensation in the current fiscal year period, partially offset by a more favorable geographic mix of earnings in the current fiscal year period. The adjusted effective tax rate for the third quarter of fiscal 2024 was 18.0 percent, compared to an adjusted effective tax rate of 19.0 percent in the third 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 19.3 percent, compared to 20.6 percent in the same period of fiscal 2023, primarily driven by a more favorable geographic mix of earnings.

Net Earnings (Loss)

Net earnings for the third quarter of fiscal 2024 were $119.3 million, or $1.14 per diluted share, compared to a net loss of $15.0 million, or $0.14 net loss per diluted share, for the third quarter of fiscal 2023. Adjusted net earnings for the third quarter of fiscal 2024 were $123.7 million, or $1.18 per diluted share, compared to $99.4 million, or $0.95 per diluted share, for the third quarter of fiscal 2023, an increase of 24.2 percent per diluted share. Net earnings for the first nine months of fiscal 2024 were $329.0 million, or $3.14 per diluted share, compared to $259.4 million, or $2.46 per diluted share, for the same period of fiscal 2023. Adjusted net earnings for the first nine months of fiscal 2024 were $337.5 million, or $3.22 per diluted share, compared to $369.4 million, or $3.50 per diluted share, for the same year-to-date period of fiscal 2023, a decrease of 8.0 percent per diluted share. The increase in net earnings per diluted share for the third quarter comparison was primarily due to the prior year non-cash impairment charges and higher Residential segment earnings in the current fiscal year period. The increase in net earnings per diluted share for the year-to-date comparison was primarily due to the prior year non-cash impairment charges and higher Residential segment earnings in the current fiscal year period, partially offset by lower Professional segment earnings in the current fiscal year period.