TORO CO

RESULTS OF OPERATIONS

Overview

Consolidated net sales for the third quarter of fiscal 2025 were $1,131.3 million, down 2.2 percent compared to $1,156.9 million in the third quarter of fiscal 2024. For the first nine months of fiscal 2025, consolidated net sales were $3,444.2 million, down 1.8 percent compared to $3,507.8 million from the same period in the prior fiscal year.

Professional segment net sales for the third quarter of fiscal 2025 were $930.8 million, an increase of 5.7 percent compared to $880.9 million in the third quarter of the prior fiscal year. For the first nine months of fiscal 2025, Professional segment net sales were $2,713.7 million, an increase of 2.7 percent compared to $2,643.0 million in the prior fiscal year comparable period.

Residential segment net sales for the third quarter of fiscal 2025 were $192.8 million, a decrease of 27.9 percent compared to $267.5 million in the third quarter of the prior fiscal year. For the first nine months of fiscal 2025, Residential segment net sales were $711.2 million, a decrease of 15.7 percent compared to $843.2 million in the prior fiscal year comparable period.

Net earnings for the third quarter of fiscal 2025 were $53.5 million, or $0.54 per diluted share, compared to $119.3 million, or $1.14 per diluted share, for the third quarter of fiscal 2024. Net earnings for the first nine months of fiscal 2025 were $243.1 million, or $2.42 per diluted share, compared to $329.0 million, or $3.14 per diluted share, in the comparable fiscal 2024 period.

Adjusted net earnings for the third quarter of fiscal 2025 were $122.5 million, or $1.24 per diluted share, compared to $123.7 million, or $1.18 per diluted share, for the third quarter of fiscal 2024. Adjusted net earnings for the first nine months of fiscal 2025 were $330.2 million, or $3.29 per diluted share, compared to $337.5 million, or $3.22 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 third quarter of fiscal 2025 by 5.6 percent to $0.38 per share compared to $0.36 per share paid in the third 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 $403.8 million of cash to our shareholders during the first nine months of fiscal 2025.

Field inventory levels were higher as of the end of the third quarter of fiscal 2025 compared to the end of the third quarter of fiscal 2024, primarily due to increased balances of underground construction products, partially offset by dealer destocking efforts for turf 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 third quarter of fiscal 2025 compared to the end of the fourth quarter of fiscal 2024 primarily due to improved manufacturing output and more normalized order patterns. 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 elevated over what the company would consider normal.

Net Sales

Consolidated net sales for the third quarter of fiscal 2025 were $1,131.3 million, down 2.2 percent compared to $1,156.9 million in the third quarter of fiscal 2024. For the year-to-date period of fiscal 2025, consolidated net sales were $3,444.2 million, down 1.8 percent compared to $3,507.8 million from the same period in the prior fiscal year. The decrease for both the third quarter and year-to-date comparisons 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 $19.0 million and $25.2 million for the third quarter and year-to-date periods of fiscal 2025, respectively. The decrease for both the third quarter and year-to-date comparisons was primarily driven by lower shipments of both Residential and Professional segment products.

Changes in foreign currency exchange rates resulted in an increase in our net sales of approximately $1.1 million and a decrease of approximately $5.3 million for the third 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 third quarter of fiscal 2025 was $381.8 million, down 5.2 percent compared to $402.8 million for the third quarter of fiscal 2024. Gross margin was 33.7 percent for the third quarter of fiscal 2025 compared to 34.8 percent for the third quarter of fiscal 2024, a decrease of 110 basis points. The decrease in gross margin for the third quarter comparison was primarily due to lower net sales volume, higher material and manufacturing costs, and inventory valuation adjustments, partially offset by productivity improvements, net price realization, and product mix.

Gross profit for the year-to-date period of fiscal 2025 was $1,154.1 million, down 3.8 percent compared to $1,200.3 million for the same period of fiscal 2024. Gross margin was 33.5 percent for the year-to-date period of fiscal 2025 compared to 34.2 percent for the prior year comparable period, a decrease of 70 basis points. The decrease in gross margin for the year-to-date comparison was primarily due to lower net sales volume, higher material and manufacturing costs, and inventory valuation adjustments, partially offset by productivity improvements, net price realization, and product mix.

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

SG&A expense decreased $18.8 million, or 7.4 percent, for the third quarter of fiscal 2025 and decreased $20.4 million, or 2.6 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 decreased 120 basis points for the third quarter of fiscal 2025 and decreased 20 basis points for the year-to-date period of fiscal 2025 compared to the same respective periods of fiscal 2024. The decrease in SG&A expense as a percentage of net sales for the third quarter and year-to-date comparisons was primarily due to cost savings measures and lower marketing costs, partially offset by lower net sales volume.

Non-Cash Impairment Charge

We recorded a non-cash impairment charge of $81.1 million within our Professional segment related to the Spartan trade name in the third quarter and year-to-date period of fiscal 2025. No impairment charge was recognized in the third quarter or year-to-date period of fiscal 2024.

Interest Expense

Interest expense increased $0.6 million and decreased $1.5 million for the third quarter and year-to-date periods of fiscal 2025, respectively, compared to the same respective periods of fiscal 2024. The increase in interest expense for the third quarter comparison was primarily due to higher average outstanding borrowings, partially offset by lower average interest rates. The decrease in interest expense for the year-to-date comparison was primarily due to lower average interest rates.

Other Income, Net

Other income, net decreased $2.5 million and decreased $5.5 million for the third quarter and year-to-date periods of fiscal 2025, respectively, compared to the same respective periods of fiscal 2024. The decrease in other income, net for the third quarter comparison was primarily due to prior year net gains on divestitures and current year net losses on divestitures, partially offset by the favorable impact from derivative instruments. The decrease in other income, net for the year-to-date comparison was primarily due to prior year net gains on divestitures, current year net losses on divestitures, and lower income from our Red Iron joint venture, partially offset by the favorable impact from derivative instruments.

Income Tax Provision

The effective tax rate for the third quarter of fiscal 2025 was 7.4 percent compared to 17.3 percent in the third quarter of fiscal 2024, primarily due to the impact of the non-cash impairment charge and 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 16.9 percent compared to 18.5 percent in the same period of fiscal 2024, primarily due to the impact of the non-cash impairment charge and a more favorable geographic mix of earnings, partially offset by lower tax benefits recorded as excess tax deductions for stock-based compensation. The adjusted effective tax rate for the third quarter of fiscal 2025 was 17.3 percent, compared to an adjusted effective tax rate of 18.0 percent in the third 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 18.5 percent, compared to 19.3 percent in the same period of fiscal 2024, primarily driven by a more favorable geographic mix of earnings.

Net Earnings

Net earnings for the third quarter of fiscal 2025 were $53.5 million, or $0.54 per diluted share, compared to $119.3 million, or $1.14 per diluted share, for the third quarter of fiscal 2024. Adjusted net earnings for the third quarter of fiscal 2025 were $122.5 million, or $1.24 per diluted share, compared to $123.7 million, or $1.18 per diluted share, for the third quarter of fiscal 2024, an increase of 5.1 percent per diluted share. Net earnings for the first nine months of fiscal 2025 were $243.1 million, or $2.42 per diluted share, compared to $329.0 million, or $3.14 per diluted share, for the same period of fiscal 2024. Adjusted net earnings for the first nine months of fiscal 2025 were $330.2 million, or $3.29 per diluted share, compared to $337.5 million, or $3.22 per diluted share, for the same year-to-date period of fiscal 2024, an increase of 2.2 percent per diluted share. The decrease in net earnings per diluted share for the third quarter comparison was primarily due to the $81.1 million non-cash impairment charge and 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 the $81.1 million non-cash impairment charge, lower Residential segment earnings, and higher productivity initiative charges, partially offset by higher Professional segment earnings.