TORO CO

RESULTS OF OPERATIONS

Net Sales

Consolidated net sales in fiscal 2024 were $4,583.8 million compared to $4,553.2 million in fiscal 2023, an increase of 0.7 percent. This net sales increase was primarily driven by higher shipments of Residential segment products, partially offset by lower shipments of Professional segment products.

Net sales in international markets were $923.0 million for fiscal 2024 compared to $947.7 million in fiscal 2023, a decrease of 2.6 percent. The international net sales decrease was primarily driven by lower shipments of Residential segment products, partially offset by higher shipments of Professional segment products. Changes in foreign currency exchange rates resulted in a decrease in our net sales of $4.1 million in fiscal 2024.

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

Gross Profit and Gross Margin

Gross profit represents net sales less cost of sales and gross margin represents gross profit as a percentage of net sales. Refer to Note 1, Summary of Significant Accounting Policies and Related Data, of the Notes to Consolidated Financial Statements within the section entitled "Cost of Sales," for a description of expenses included in cost of sales. Gross profit for fiscal 2024 was $1,549.3 million, down 1.8 percent compared to gross profit of $1,577.6 million in fiscal 2023. Gross margin was 33.8 percent in fiscal 2024 compared to 34.6 percent in fiscal 2023, a decrease of 80 basis points. This gross margin decrease 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 $20.4 million, or 2.0 percent, in fiscal 2024 compared to fiscal 2023. Refer to Note 1, Summary of Significant Accounting Policies and Related Data, of the Notes to Consolidated Financial Statements within the section entitled "Selling, General and Administrative Expense" for a description of expenses included in SG&A expense. As a percentage of net sales, SG&A expense was 22.2 percent in fiscal 2024 compared to 21.8 percent in fiscal 2023, an increase of 40 basis points. The increase in SG&A expense as a percentage of net sales was primarily driven by higher corporate 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 in fiscal 2023. No impairment charges were recognized in fiscal 2024.

Interest Expense

Interest expense primarily consists of interest costs incurred on outstanding borrowings related to our fixed and variable interest rate debt arrangements, as well as amortization of the debt issuance costs associated with our debt arrangements. Interest expense for fiscal 2024 increased $3.2 million compared to fiscal 2023. This increase was primarily driven by higher average interest rates, partially offset by lower average outstanding borrowings, in each case during fiscal 2024 compared to fiscal 2023.

Other Income, Net

Other income, net for fiscal 2024 was $41.4 million compared to $28.5 million in fiscal 2023, an increase of $12.9 million. This increase in other income, net was primarily due to net gains on divestitures in fiscal 2024 and higher income from our Red Iron joint venture in fiscal 2024 as compared to fiscal 2023.

Provision for Income Taxes

The effective tax rate for fiscal 2024 was 18.3 percent compared to 17.7 percent in fiscal 2023. The increase in the effective tax rate for fiscal 2024 was primarily due to the impact of non-cash impairment charges in the prior year and lower tax benefits recorded as excess tax deductions for stock compensation in the current year, partially offset by a more favorable geographic mix of earnings in the current year. The adjusted effective tax rate for fiscal 2024 was 18.8 percent, compared to an adjusted effective tax rate of 20.4 percent in fiscal 2023. The decrease in the adjusted effective tax rate was primarily due to a more favorable geographic mix of earnings.

Net Earnings and Net Earnings Per Diluted Share

Fiscal 2024 net earnings were $418.9 million compared to $329.7 million in fiscal 2023, an increase of 27.1 percent. Fiscal 2024 diluted net earnings per share were $4.01, an increase of 28.1 percent from $3.13 per diluted share in fiscal 2023. The increase in net earnings per diluted share for fiscal 2024 was primarily due to the non-cash impairment charges in the prior year and higher Residential segment earnings in the current year, partially offset by lower Professional segment earnings and higher corporate expenses in the current year. Adjusted net earnings for fiscal 2024 were $435.2 million, or $4.17 per diluted share, compared to $443.5 million, or $4.21 per diluted share, in fiscal 2023.