TORO CO

RESULTS OF OPERATIONS

Overview

Consolidated net sales for the second quarter of fiscal 2025 were $1,317.9 million, down 2.3 percent compared to $1,349.0 million in the second quarter of fiscal 2024. For the first six months of fiscal 2025, consolidated net sales were $2,312.9 million, down 1.6 percent compared to $2,350.9 million from the same period in the prior fiscal year.

Professional segment net sales for the second quarter of fiscal 2025 were $1,014.1 million, an increase of 0.8 percent compared to $1,005.6 million in the second quarter of the prior fiscal year. For the first six months of fiscal 2025, Professional segment net sales were $1,782.9 million, an increase of 1.2 percent compared to $1,762.1 million in the prior fiscal year comparable period.

Residential segment net sales for the second quarter of fiscal 2025 were $297.4 million, a decrease of 11.4 percent compared to $335.6 million in the second quarter of the prior fiscal year. For the first six months of fiscal 2025, Residential segment net sales were $518.4 million, a decrease of 10.0 percent compared to $575.7 million in the prior fiscal year comparable period.

Net earnings for the second quarter of fiscal 2025 were $136.8 million, or $1.37 per diluted share, compared to $144.8 million, or $1.38 per diluted share, for the second quarter of fiscal 2024. Net earnings for the first six months of fiscal 2025 were $189.6 million, or $1.88 per diluted share, compared to $209.7 million, or $2.00 per diluted share, in the comparable fiscal 2024 period.

Adjusted net earnings for the second quarter of fiscal 2025 were $141.8 million, or $1.42 per diluted share, compared to $147.3 million, or $1.40 per diluted share, for the second quarter of fiscal 2024. Adjusted net earnings for the first six months of fiscal 2025 were $207.7 million, or $2.06 per diluted share, compared to $213.8 million, or $2.04 per diluted share, in the comparable fiscal 2024 period.

We maintained our tradition of paying quarterly cash dividends and increased our cash dividend for the second quarter of fiscal 2025 by 5.6 percent to $0.38 per share compared to $0.36 per share paid in the second 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 $276.3 million of cash to our shareholders during the first six months of fiscal 2025.

Field inventory levels were higher as of the end of the second quarter of fiscal 2025 compared to the end of the second quarter of fiscal 2024, primarily due to increased balances of lawn care, underground construction, and golf and grounds products.

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 2025 compared to the end of the fourth quarter of fiscal 2024 primarily due to improved manufacturing output. 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 second quarter of fiscal 2025 were $1,317.9 million, down 2.3 percent compared to $1,349.0 million in the second quarter of fiscal 2024. This decrease was primarily driven by lower shipments of Residential segment products and prior year divestitures, partially offset by higher shipments of Professional segment products. For the year-to-date period of fiscal 2025, consolidated net sales were $2,312.9 million, down 1.6 percent compared to $2,350.9 million from the same period in the prior fiscal year. This decrease was primarily driven by lower shipments of Residential segment products and prior year divestitures, partially offset by higher shipments of Professional segment products and net price realization.

Net sales in international markets decreased by $12.6 million and $6.2 million for the second quarter and year-to-date periods of fiscal 2025, respectively. The decrease for the second quarter comparison was primarily due to lower shipments of Professional segment products. The decrease for the year-to-date comparison was primarily due to lower shipments of Residential segment products.

Changes in foreign currency exchange rates resulted in a decrease in our net sales of approximately $2.3 million and $6.4 million for the second quarter and year-to-date periods of fiscal 2025, 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 2025 was $436.7 million, down 3.6 percent compared to $453.0 million for the second quarter of fiscal 2024. Gross margin was 33.1 percent for the second quarter of fiscal 2025 compared to 33.6 percent for the second quarter of fiscal 2024, a decrease of 50 basis points. The decrease in gross margin for the second quarter comparison was primarily due to higher material and manufacturing costs and inventory valuation adjustments, partially offset by product mix and productivity improvements.

Gross profit for the year-to-date period of fiscal 2025 was $772.3 million, down 3.2 percent compared to $797.5 million for the same period of fiscal 2024. Gross margin was 33.4 percent for the year-to-date period of fiscal 2025 compared to 33.9 percent for the prior year comparable period, a decrease of 50 basis points. The decrease in gross margin for the year-to-date comparison was primarily due to higher material and manufacturing costs and inventory valuation adjustments, partially offset by productivity improvements and product mix.

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

SG&A expense decreased $3.5 million, or 1.3 percent, for the second quarter of fiscal 2025 and decreased $1.6 million, or 0.3 percent, for the year-to-date period of fiscal 2025 compared to the same respective periods of fiscal 2024. As a percentage of net sales, SG&A expense increased 10 basis points for the second quarter of fiscal 2025 and increased 30 basis points for the year-to-date period of fiscal 2025 compared to the same respective periods of fiscal 2024. The increases in SG&A expense as a percentage of net sales for the second quarter and year-to-date comparisons were primarily due to lower net sales volume.

Interest Expense

Interest expense decreased $0.9 million and $2.1 million for the second quarter and year-to-date periods of fiscal 2025, respectively, compared to the same respective periods of fiscal 2024. The decreases in interest expense for the second quarter and year-to-date comparisons were primarily due to lower average interest rates.

Other Income, Net

Other income, net increased $1.4 million and decreased $3.0 million for the second quarter and year-to-date periods of fiscal 2025, respectively, compared to the same respective periods of fiscal 2024. The increase in other income, net for the second quarter comparison was primarily due to the favorable impact from derivative instruments, partially offset by prior year net gains on divestitures which did not recur in the current year. The decrease in other income, net for the year-to-date comparison was primarily due to prior year net gains on divestitures which did not recur in the current year, lower income from our Red Iron joint venture, and the unfavorable impact from derivative instruments.

Income Tax Provision

The effective tax rate for the second quarter of fiscal 2025 was 18.9 percent compared to 19.2 percent in the second quarter of fiscal 2024, 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. The effective tax rate for the year-to-date period of fiscal 2025 was 19.3 percent compared to 19.1 percent in the same period 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 second quarter of fiscal 2025 was 18.7 percent, compared to an adjusted effective tax rate of 19.8 percent in the second quarter of fiscal 2024, primarily driven by a more favorable geographic mix of earnings. The adjusted effective tax rate for the year-to-date period of fiscal 2025 was 19.2 percent, compared to 20.1 percent in the same period of fiscal 2024, primarily driven by a more favorable geographic mix of earnings.

Net Earnings

Net earnings for the second quarter of fiscal 2025 were $136.8 million, or $1.37 per diluted share, compared to $144.8 million, or $1.38 per diluted share, for the second quarter of fiscal 2024. Adjusted net earnings for the second quarter of fiscal 2025 were $141.8 million, or $1.42 per diluted share, compared to $147.3 million, or $1.40 per diluted share, for the second quarter of fiscal 2024, an increase of 1.4 percent per diluted share. Net earnings for the first six months of fiscal 2025 were $189.6 million, or $1.88 per diluted share, compared to $209.7 million, or $2.00 per diluted share, for the same period of fiscal 2024. Adjusted net earnings for the first six months of fiscal 2025 were $207.7 million, or $2.06 per diluted share, compared to $213.8 million, or $2.04 per diluted share, for the same year-to-date period of fiscal 2024, an increase of 1.0 percent per diluted share. The decrease in net earnings per diluted share for the second quarter comparison was primarily due to lower Residential segment earnings, partially offset by higher Professional segment earnings. The decrease in net earnings per diluted share for the year-to-date comparison was primarily due to higher productivity initiative charges and lower Residential segment earnings, partially offset by higher Professional segment earnings.