TORO CO

RESULTS OF OPERATIONS

Overview

Consolidated net sales for the first quarter of fiscal 2025 were $995.0 million, down 0.7 percent compared to $1,001.9 million in the first quarter of fiscal 2024. Professional segment net sales for the first quarter of fiscal 2025 were $768.8 million, an increase of 1.6 percent compared to $756.5 million in the first quarter of the prior fiscal year. Residential segment net sales for the first quarter of fiscal 2025 were $221.0 million, a decrease of 8.0 percent compared to $240.1 million in the first quarter of the prior fiscal year.

Net earnings for the first quarter of fiscal 2025 were $52.8 million, or $0.52 per diluted share, compared to $64.9 million, or $0.62 per diluted share, for the first quarter of fiscal 2024. Adjusted net earnings for the first quarter of fiscal 2025 were $65.9 million, or $0.65 per diluted share, compared to $66.5 million, or $0.64 per diluted share, for the first quarter of fiscal 2024.

We continued our history of paying quarterly cash dividends and increased our cash dividend for the first quarter of fiscal 2025 by 5.6 percent to $0.38 per share compared to $0.36 per share paid in the first quarter of fiscal 2024. We also repurchased shares of our common stock under our Board authorized stock repurchase program ("stock repurchase program"), thereby reducing our total shares of common stock outstanding. As a result of the combination of quarterly cash dividends and common stock repurchases, we returned $138.5 million of cash to our shareholders during the first three months of fiscal 2025.

Field inventory levels were higher as of the end of the first quarter of fiscal 2025 compared to the end of the first quarter of fiscal 2024, primarily due to increased balances of golf and grounds, underground construction, and lawn care products, partially offset by reduced balances of snow and ice management products.

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 2025 compared to the end of the fourth quarter of fiscal 2024 primarily due to normal seasonal trends for lawn care products. Although manufacturing output and lead times for underground construction and golf and grounds products have improved, sustained demand for those products continues to keep order backlog significantly elevated over what the company would consider normal.

Net Sales

Consolidated net sales for the first quarter of fiscal 2025 were $995.0 million, down 0.7 percent compared to $1,001.9 million in the first quarter of fiscal 2024. This decrease was primarily driven by lower shipments of Residential segment products and the prior year divestiture of the Pope Products ("Pope") garden watering and irrigation business, partially offset by higher shipments of Professional segment products.

Net sales in international markets increased by $6.4 million for the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024. This increase was primarily due to higher shipments of Professional segment products, partially offset by lower shipments of Residential segment products. Changes in foreign currency exchange rates resulted in a decrease in our net sales of approximately $4.1 million for the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024.

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 2025 was $335.6 million, down 2.6 percent compared to $344.5 million in the first quarter of fiscal 2024. Adjusted gross profit for the first quarter of fiscal 2025 was $339.4 million, down 1.5 percent compared to $344.5 million in the first quarter of fiscal 2024. Gross margin was 33.7 percent for the first quarter of fiscal 2025 compared to 34.4 percent for the first quarter of fiscal 2024, a decrease of 70 basis points. The decrease in gross margin was primarily due to higher material and manufacturing costs, partially offset by productivity improvements.

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

SG&A expense increased $1.9 million, or 0.7 percent, for the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024. As a percentage of net sales, SG&A expense increased 30 basis points for the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024. The increase in SG&A expense as a percentage of net sales for the first quarter comparison was primarily due to higher productivity initiative charges, partially offset by lower marketing costs.

Interest Expense

Interest expense decreased $1.2 million for the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024. The decrease in interest expense was primarily due to lower average outstanding borrowings and lower average interest rates.

Other Income, Net

Other income, net decreased $4.4 million for the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024. The decrease in other income, net was primarily due to the unfavorable impact from derivative instruments.

Income Tax Provision

The effective tax rate for the first quarter of fiscal 2025 was 20.1 percent compared to 19.0 percent in the first quarter of fiscal 2024, primarily due to lower tax benefits recorded as excess tax deductions for stock-based compensation, partially offset by a more favorable geographic mix of earnings. The adjusted effective tax rate for the first quarter of fiscal 2025 was 20.2 percent, compared to 20.8 percent in the first quarter of fiscal 2024, primarily driven by a more favorable geographic mix of earnings.

Net Earnings

Net earnings for the first quarter of fiscal 2025 were $52.8 million, or $0.52 per diluted share, compared to $64.9 million, or $0.62 per diluted share, for the first quarter of fiscal 2024. The decrease in net earnings per diluted share was primarily due to higher productivity initiative charges and lower Residential segment earnings, partially offset by higher Professional segment earnings. Adjusted net earnings for the first quarter of fiscal 2025 were $65.9 million, or $0.65 per diluted share, compared to $66.5 million, or $0.64 per diluted share, for the first quarter of fiscal 2024.