TORO CO

RESULTS OF OPERATIONS

Net Sales

Consolidated net sales in fiscal 2025 were $4,510.4 million compared to $4,583.8 million in fiscal 2024, a decrease of 1.6 percent. This net sales decrease was primarily driven by lower Residential segment shipments and prior year divestitures, partially offset by net price realization and higher Professional segment shipments.

Net sales in international markets were $878.3 million for fiscal 2025 compared to $923.0 million in fiscal 2024, a decrease of 4.8 percent. The international net sales decrease was primarily driven by lower shipments of both Residential and Professional segment products. Changes in foreign currency exchange rates resulted in a decrease in our net sales of $4.2 million in fiscal 2025.

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 2025 was $1,504.8 million, down 2.9 percent compared to gross profit of $1,549.3 million in fiscal 2024. Gross margin was 33.4 percent in fiscal 2025 compared to 33.8 percent in fiscal 2024, a decrease of 40 basis points. This gross margin decrease was primarily due to lower net sales volume, higher material and manufacturing costs, inventory valuation adjustments, and higher productivity initiative charges, partially offset by productivity improvements, net price realization, and product mix.

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

SG&A expense decreased $2.2 million, or 0.2 percent, in fiscal 2025 compared to fiscal 2024. 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 22.5 percent in fiscal 2025 compared to 22.2 percent in fiscal 2024, an increase of 30 basis points. The increase in SG&A expense as a percentage of net sales was primarily due to lower net sales volume and higher incentive expenses, partially offset by cost savings measures.

Non-Cash Impairment Charge

We recorded a non-cash impairment charge of $81.1 million within our Other activities in fiscal 2025. 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 2025 decreased $2.8 million compared to fiscal 2024. This decrease was primarily driven by lower average interest rates during fiscal 2025 compared to fiscal 2024.

Other Income, Net

Other income, net for fiscal 2025 was $26.8 million compared to $41.4 million in fiscal 2024, a decrease of $14.6 million in fiscal 2025 as compared to fiscal 2024. This decrease in other income, net was primarily due to prior year net gains on divestitures, current year net losses on divestitures, prior year net favorable legal settlement activity, and lower income from our Red Iron joint venture, partially offset by the favorable impact from derivative instruments.

Provision for Income Taxes

The effective tax rate for fiscal 2025 was 16.3 percent compared to 18.3 percent in fiscal 2024. The decrease in the effective tax rate for fiscal 2025 was primarily due to the impact of the non-cash impairment charge and a more favorable geographic mix of earnings in the current year, partially offset by lower tax benefits recorded as excess tax deductions for stock compensation. The adjusted effective tax rate for fiscal 2025 was 17.8 percent, compared to an adjusted effective tax rate of 18.8 percent in fiscal 2024. 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 2025 net earnings were $316.1 million compared to $418.9 million in fiscal 2024, a decrease of 24.5 percent. Fiscal 2025 diluted net earnings per share were $3.17, a decrease of 20.9 percent from $4.01 per diluted share in fiscal 2024. The decrease in net earnings per diluted share for fiscal 2025 was primarily due to the non-cash impairment charge, higher productivity initiative charges, lower Residential segment earnings, and higher incentive expenses, partially offset by higher Professional segment earnings and lower shares outstanding. Adjusted net earnings for fiscal 2025 were $419.6 million, or $4.20 per diluted share, compared to $435.2 million, or $4.17 per diluted share, in fiscal 2024.