TORO CO

RESULTS OF OPERATIONS

Overview

Consolidated net sales for the second quarter of fiscal 2026 were $1,424.7 million, up 8.1 percent compared to $1,317.9 million in the second quarter of fiscal 2025. For the first six months of fiscal 2026, consolidated net sales were $2,461.0 million, up 6.4 percent compared to $2,312.9 million in the second quarter of fiscal 2025.

Professional segment net sales for the second quarter of fiscal 2026 were $1,106.6 million, up 9.1 percent compared to $1,014.1 million in the second quarter of fiscal 2025. For the first six months of fiscal 2026, Professional net sales were $1,930.6 million, an increase of 8.3 percent compared to $1,782.9 million in the second quarter of the prior fiscal year.

Residential segment net sales for the second quarter of fiscal 2026 were $310.4 million, up 4.4 percent compared to $297.4 million in the second quarter of fiscal 2025. For the first six months of fiscal 2026, Residential net sales were $516.4 million, a decrease of 0.4 percent compared to $518.4 million in the second quarter of the prior fiscal year.

Net earnings for the second quarter of fiscal 2026 were $145.4 million, or $1.50 per diluted share, compared to $136.8 million, or $1.37 per diluted share, for the second quarter of fiscal 2025. Net earnings for the first six months of fiscal 2026 were $213.3 million, or $2.18 per diluted share, compared to $189.6 million, or $1.88 per diluted share, in the comparable fiscal 2025 period.

Adjusted net earnings for the second quarter of fiscal 2026 were $155.4 million, or $1.60 per diluted share, compared to $141.8 million, or $1.42 per diluted share, for the second quarter of fiscal 2025. Adjusted net earnings for the first six months of fiscal 2026 were $228.0 million, or $2.33 per diluted share, compared to $207.7 million, or $2.06 per diluted share, in the comparable fiscal 2025 period.

We maintained our tradition of paying quarterly cash dividends and increased our cash dividend for the second quarter of fiscal 2026 by 2.6 percent to $0.39 per share compared to $0.38 per share paid in the second quarter of fiscal 2025. 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 $360.9 million of cash to our stockholders during the first six months of fiscal 2026.

Field inventory levels were lower as of the end of the second quarter of fiscal 2026 compared to the end of the second quarter of fiscal 2025 as balances approximate appropriate levels across all product categories.

Our order backlog represents unfulfilled customer orders at a point in time. Our order backlog as of the end of the second quarter of fiscal 2026 was similar to the end of the fourth quarter of fiscal 2025 as backlog has largely normalized.

Net Sales

Consolidated net sales for the second quarter of fiscal 2026 were $1,424.7 million, up 8.1 percent compared to $1,317.9 million in the second quarter of fiscal 2025. The increase was primary driven by net price realization, the Tornado acquisition, and higher shipments of both Professional and Residential segment products. For the year-to-date period of 2026, consolidated net sales were $2,461.0 million, up 6.4 percent compared to $2,312.9 million in the second quarter of fiscal 2025. The increase was primarily driven by net price realization, higher shipments of Professional segment products, and the Tornado acquisition, partially offset by lower shipments of Residential segment products.

Net sales in international markets increased by $23.2 million and decreased by $0.7 million for the second quarter and year-to-date periods of fiscal 2026, respectively. The increase for the second quarter comparison was primarily due to higher shipments of Residential and Professional segment products. For the year-to-date period of 2026, net sales outside the US were flat as lower volumes were largely offset by net price realization.

Changes in foreign currency exchange rates resulted in an increase in our net sales of approximately $8.0 million and $12.0 million for the second quarter and year-to-date periods of fiscal 2026, 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 2026 was $482.7 million, up 10.5 percent compared to $436.7 million for the second quarter of fiscal 2025. Gross margin was 33.9 percent for the second quarter of fiscal 2026 compared to 33.1 percent for the second quarter of fiscal 2025, an increase of 80 basis points. The increase in gross margin for the second quarter comparison was primarily due to net price realization and productivity improvements, partially offset by higher material, manufacturing, and freight costs, as well as product mix. Gross profit for the year-to-date period of fiscal 2026 was $819.2 million, up 6.1 percent compared to $772.3 million for the same period of fiscal 2025. Gross margin was 33.3 percent for the year-to-date period of fiscal 2026 compared to 33.4 percent for the prior year comparable period, a decrease of (10) basis points. The decrease in gross margin for the year-to-date comparison was primarily due to higher material, manufacturing, and freight costs and product mix, mostly offset by net price realization and productivity improvements.

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

SG&A expense increased $25.8 million, or 9.9 percent, for the second quarter of fiscal 2026 and increased $17.4 million, or 3.3 percent, for the year-to-date period of fiscal 2026 compared to the same respective periods of fiscal 2025. As a percentage of net sales, SG&A expense increased 40 basis points for the second quarter of fiscal 2026 and decreased 70 basis points for the year-to-date period of fiscal 2026 compared to the same respective periods of fiscal 2025. The increase in SG&A expense as a percentage of net sales for the second quarter was primarily due to higher warranty and incentive expenses, partially offset by net sales leverage and lower warehousing costs. The decrease in the year-to-date comparison was primarily due to net sales leverage, lower warehousing costs, and cost savings measures, partially offset by higher warranty and incentive expenses.

Interest Expense

Interest expense decreased $1.0 million and $1.8 million for the second quarter and year-to-date periods of fiscal 2026, respectively, compared to the same respective periods of fiscal 2025. The decreases in interest expense for the second quarter and year-to-date comparisons were primarily due to lower average interest rates and lower average outstanding borrowings.

Other Income, Net

Other income, net decreased $6.5 million and increased $4.2 million for the second quarter and year-to-date periods of fiscal 2026, respectively, compared to the same respective periods of fiscal 2025. The decrease in other income, net for the second quarter comparison was primarily due to facility exit charges, a less favorable net impact from foreign currency and derivative instruments, and lower income from our Red Iron joint venture. The increase in other income, net for the year-to-date comparison was primarily due to net gains on facility exits, partially offset by lower income from our Red Iron joint venture.

Income Tax Provision

The effective tax rate for the second quarter and year-to date periods of fiscal 2026 was 20.7 percent and 21.1 percent, respectively, compared to 18.9 percent and 19.3 percent, respectively, in the second quarter of fiscal 2025, primarily due to a less favorable geographic mix of earnings. The adjusted effective tax rate for the second quarter and year to date periods of fiscal 2026 was 21.7 percent and 21.6 percent, respectively, compared to an adjusted effective tax rate of 18.7 percent and 19.2 percent, respectively, in the second quarter of fiscal 2025, primarily driven by a less favorable geographic mix of earnings.

Net Earnings

Net earnings for the second quarter of fiscal 2026 were $145.4 million, or $1.50 per diluted share, compared to $136.8 million, or $1.37 per diluted share, for the second quarter of fiscal 2025. Adjusted net earnings for the second quarter of fiscal 2026 were $155.4 million, or $1.60 per diluted share, compared to $141.8 million, or $1.42 per diluted share, for the second quarter of fiscal 2025, an increase of 12.7 percent per diluted share. The increase in net earnings per diluted share for the second quarter comparison was primarily due to higher Professional and Residential segment earnings, partially offset by higher corporate expenses and higher productivity initiative charges. Net earnings for the first six months of fiscal 2026 were $213.3 million, or $2.18 per diluted share, compared to $189.6 million, or $1.88 per diluted share, for the same period of fiscal 2025. Adjusted net earnings for the first six months of fiscal 2026 were $228.0 million, or $2.33 per diluted share, compared to $207.7 million, or $2.06 per diluted share, for the same year-to-date period of fiscal 2025, an increase of 13.1% per diluted share. The increase in net earnings per diluted share for the second quarter comparison was primarily due to higher Professional and Residential segment earnings.