Toro Co.’s (TTC) earnings per share increased an impressive 138% to 19 cents in the fourth-quarter of fiscal 2014 (ended Oct 31, 2014) from 8 cents a share in the year-ago quarter. Earnings came ahead of the Zacks Consensus Estimates of 16 cents per share.
Operational Update
Sales grew 8% year over year to $414 million, beating the Zacks Consensus Estimate of $408 million. Cost of sales rose to $271 million from $254 million in the year-ago quarter. Gross profit increased 11% year over year to $143 million. Gross margin rose 90 basis points (bps) year over year to 34.5%, due to productivity improvements and realized pricing, offset by unfavorable segment mix, currency exchange rates and higher commodity costs to some extent.
Selling, general, and administrative expenses went up 2.7% year over year to $123.5 million. Operating profit grew a whopping 134% year over year to $19.6 million. Operating margin expanded 250 bps year over year to 4.7%.
Segmental Performance
Professional: Net sales for this segment grew 5% year over year to $269 million led by strong retail demand for zero turn mowers and more efficient irrigation solutions for agriculture, increase in global golf sales and introduction of new products. The segment posted earnings of $31.6 million, up 45% from the prior-year quarter.
Residential: This segment reported sales of $139 million, up 19% year over year, attributable to favorable shipments of snow throwers, electric products and fall walk power mower activity. The segment reported earnings of $16.3 million, up 61% year over year driven by favorable product mix and ongoing productivity improvement.
Record Performance in Fiscal 2014
Toro reported a record fiscal 2014 which marked its conclusion of first 100-years in business, as well as successful completion of its four-year Destination 2014 journey. Toro launched Destination 2014 in fiscal 2011, with an aim to achieve $100 million of organic sales growth in each of the four years of the program as well as 12% or better in operating earnings by the end of fiscal 2014.
The company achieved over $128 million of sales growth last year, while for four years it totaled to over $430 million. Toro also achieved operating earnings of 12.1% as of fiscal 2014-end.
Toro reported record earnings of $3.02 per share for fiscal 2014, which rose 15% from $2.62 per share in fiscal 2013. The results also beat the Zacks Consensus Estimate of $2.99 and came ahead of management’s guidance range of $2.94–$2.96 per share.
Sales grew 6.4% year over year to hit a record of $2.173 billion, beating the Zacks Consensus Estimate of $2.166 billion.
Financial Update
Toro had cash and cash equivalents of $315 million at the end of fiscal 2014 compared with $183 million at the end of fiscal 2013. The company generated cash flow from operations of $182.4 million in fiscal 2014 compared with $221.9 million in fiscal 2013.
Long-term debt was $347.3 million as of Oct 31, 2014, down from $223.5 million as of Oct 31, 2013. The debt-to-capitalization ratio was 46.4% as of Oct 31, 2014 compared with 38.4% as of Oct 31, 2013.
Toro’s board approved a 25% increase in its quarterly cash dividend to 25 cents per share from 20 cents per share. The increased dividend will be paid on Jan 12, 2015, to shareholders of record at the close of business on Dec 23, 2014. The company returned almost $150 million to shareholders through the payment of $45 million in dividends and by repurchasing more than 1.6 million shares.
On Nov 14, Toro acquired the BOSS professional snow and ice management business for about $227 million. This acquisition will help in the expansion of product line and in international markets.
Outlook
For full-year fiscal 2015, Toro guided revenue growth of around 8% to 10%. The company forecasts its net earnings per share for the year to be in the range of $3.30–$3.40. For the first quarter of fiscal 2015, the company expects net earnings to be about 47 cents per share.
Toro is well positioned to benefit from new and innovative product offerings and additional product placements with key customers. Contractors will seek productivity-enhancing solutions for maintaining turf and managing snow and ice. Golf course renovations and development will progress in key markets.
Further, transition of customers to more efficient methods of irrigation globally will drive growth. Although, unfavorable weather and uncertain economic conditions remain challenges for business, commercial and residential development and infrastructure improvements will continue.
Our Take
There will be continued growth in construction of golf courses around the world, which bodes well for Toro. Toro has successfully closed a number of equipment packages and distributors open order banks remain strong. Toro will also benefit from improvement in the housing and construction sector. Development of innovative products will also drive growth.
Moreover, the recent acquisition of the BOSS professional snow and ice management business will continue to benefit from strong preseason demand as well as daily onset of cold weather. Toro anticipates its international businesses to benefit from strong snow thrower demand in Canada and continued golf projects.
However, foreign exchange volatility along with social and political unrest, remain e headwinds.
Bloomington, MN-based Toro is a worldwide provider of turf and landscape maintenance equipment as well as irrigation solutions for golf courses, sports fields, public green spaces, commercial and residential properties and agricultural fields. The company operates through two segments: Professional and Residential.
Toro currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in same sector include carries Snap-on Incorporated (SNA), Brown Shoe Co. Inc. (BWS) and Carnival Corp. (CCL). All these stocks carry a Zacks Rank #2 (Buy).
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