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THE TORO COMPANY Q4 2024 EARNINGS RELEASE December 18, 2024
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THE TORO COMPANY2 Q4 2024 EARNINGS RELEASE Safe Harbor This presentation contains forward-looking statements, which are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current assumptions and expectations of future events and often can be identified by words such as "believe," "forward," "future," "goal," "guidance," "improve," "may," "outlook," "plan," "should," "target" and "would," variations of such words or the negative thereof, and similar expressions or future dates. Forward-looking statements in this presentation include our fiscal 2025 financial guidance and expectations regarding demand trends, supply chain stabilization and AMP. Forward-looking statements involve risks and uncertainties that could cause actual events and results to differ materially from those projected or implied. Such risks and uncertainties include: adverse worldwide economic conditions; the effect of abnormal weather patterns; customer, government and municipal revenue, budget spending levels and cash conservation efforts; loss of any substantial customer; inventory adjustments or changes in purchasing patterns by customers; fluctuations in the cost and availability of commodities, components, parts, and accessories; disruption at or in proximity to our facilities or certain third parties; risks associated with acquisitions and dispositions; impacts of our AMP initiative and any future restructuring activities or productivity or cost savings initiatives; and other risks and uncertainties described in our most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q or current reports on Form 8-K, and other filings with the Securities and Exchange Commission. We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances occurring or existing after the date of this presentation. This presentation also contains non-GAAP financial measures and more information about our use of such non-GAAP financial measures, as well as a reconciliation of the most directly comparable historical U.S. GAAP financial measures to the corresponding historical non- GAAP financial measures, which can be found in our related financial filings in the section titled “Non-GAAP Financial Measures”. All financial results contained within this presentation are based on fiscal quarter and fiscal year ending October 31 figures
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THE TORO COMPANYQ4 2024 EARNINGS RELEASE THE TORO COMPANY3 Overview
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THE TORO COMPANYQ4 2024 EARNINGS RELEASE 4 The Toro Company: Built on Strong Relationships and Our Legacy of Excellence OUR PURPOSE To help our customers enrich the beauty, productivity and sustainability of the land. OUR VISION To be the most trusted leader in solutions for the outdoor environment. Every day. Everywhere. OUR MISSION To deliver superior innovation and to deliver superior customer care.
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THE TORO COMPANY 5 Investment Thesis Attractive end markets, customer-centric innovation, and steady replacement cycles drive future organic growth 2 1 Well-positioned to win with deep expertise, leading market share positions, and best-in- class distribution and service networks – all of which create high barriers to entry 3 Building on a foundation of demonstrated consistent financial performance and cash flow generation 4 Financial headroom for strategic investments and disciplined approach to capital allocation enables delivery of value to all stakeholders Q4 2024 EARNINGS RELEASE
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THE TORO COMPANY6 Q4 2024 EARNINGS RELEASE * Non-GAAP Measures: refer to the Appendix of this presentation for additional information and reconciliation Q4 2024 Key Messages Delivered *adjusted diluted EPS in line with the expectations we shared, despite the sales mix headwind of having more residential segment growth and less snow shipments than originally expected 1 2 Successfully drove increased output and shipments for underground construction equipment and golf and grounds products, where sustained strength in demand continues to keep order backlog elevated 3 Increased shipments of lawn care products driven by mass channel in our residential segment and strong dealer demand for new Exmark Laser Z zero turn mower models in our professional segment 4 Introduced full-year fiscal 2025 guidance of *adjusted diluted EPS in the range of $4.25 to $4.40; market leadership positions remain strong across the portfolio; major productivity initiative on track
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THE TORO COMPANYQ4 2024 EARNINGS RELEASE Q4 results reflect sustained strength in key professional markets, successful new product introductions and partnerships, along with continued field rebalancing Q4 2024 Financial Highlights (Year-over-year comparisons below) 9.4% NET SALES GROWTH -130 bps ADJUSTED GROSS MARGIN* +80 bps ADJUSTED OPERATNG EARNINGS MARGIN* Increase primarily driven by higher shipments of golf and grounds products and underground construction equipment, and increased shipments of lawn care products, partially offset by lower shipments of snow and ice management products, and compact utility loaders Decrease primarily due higher material, freight, and manufacturing costs, as we continued to align production to quickly changing demand dynamics, partially offset by productivity improvements Productivity improvements, net sales leverage, lower incentive compensation, and decreased marketing costs more than offset higher material, freight, and manufacturing costs, as well as product mix 7 * Non-GAAP Measures: refer to the Appendix of this presentation for additional information and reconciliation
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THE TORO COMPANYQ4 2024 EARNINGS RELEASE8 Q4 2024 Other Notable Highlights Turf & landscape maintenance The Toro Company is a leading provider of products and solutions for the outdoor environment, including: Snow & ice management Underground utility construction Rental/specialty construction Irrigation Outdoor lighting solutions Early 2025 retail launches of residential, commercial, and golf autonomous solutions Conversion rate* of 112% supported share repurchases of nearly $250M Reflects sustained demand strength for underground construction, golf and grounds businesses $1.2B Backlog Remains Elevated; Making Progress Dividend And Share Authorization Increased Full-Year Free Cash Flow* Up Over $300M Board approved regular dividend payout increase of 6%; additional 4M share repurchase authorization New Product Pipeline As Strong As Ever * Non-GAAP Measures: refer to the Appendix of this presentation for additional information and reconciliation
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THE TORO COMPANYQ4 2024 EARNINGS RELEASE9 Amplifying Maximum Productivity (“AMP”) Significant productivity initiative expected to deliver at least $100M incremental annual cost savings by 2027, a portion of which the company intends to prudently reinvest Supply Base Design to Value Route-to-Market Operational EfficiencyF24 F26 Goal $15M $100M+ Focus Areas for TransformationAnnualized Savings Implemented Program off to strong start, on track to achieve $100M of run-rate savings by 2027
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THE TORO COMPANYQ4 2024 EARNINGS RELEASE10 *Non- GAAP Measures: refer to the Appendix of this presentation for additional information and reconciliation “AMP It Up" Initiative: 2025-2026 Employee initiative focused on driving profitability across the enterprise Employee rewards aligned with stretch goals create engagement at all levels 11.0% 11.5% 12.0% 12.5% 13.0% 13.5% 14.0% 14.5% 2024 2026 Goal Adjusted Operating Earnings Margin *
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THE TORO COMPANYQ4 2024 EARNINGS RELEASE THE TORO COMPANY Financials 11
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THE TORO COMPANYQ4 2024 EARNINGS RELEASE THE TORO COMPANY*Non-GAAP Measures: refer to the Appendix of this presentation for additional information and reconciliation12 Q4 Consolidated Results Strength of businesses with elevated order backlog, along with productivity gains and net sales leverage, drove top- and bottom-line growth REPORTED ADJUSTED* Q4 24 Q4 23 Change from Q4 23 Q4 24 Q4 23 Change from Q4 23 Net Sales $1,076.0M $983.2M +9.4% $1,076.0M $983.2M +9.4% Gross Profit ($) $349.0M $329.6M +5.9% $347.8M $330.8M +5.1% Gross Margin (% of Net Sales) 32.4% 33.5% -110 bps 32.3% 33.6% -130 bps Operating Earnings ($) $109.0M $94.5M +15.3% $117.0M $99.5M +17.6% Operating Earnings Margin (% of Net Sales) 10.1% 9.6% +50 bps 10.9% 10.1% +80 bps Earnings Before Income Taxes $109.3M $86.9M +25.8% $117.5M $91.9M +27.9% Net Earnings $89.9M $70.3M +27.9% $97.7M $74.1M +31.8% Diluted EPS $0.87 $0.67 +29.9% $0.95 $0.71 +33.8% Q4 2024 EARNINGS RELEASE
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THE TORO COMPANYQ4 2024 EARNINGS RELEASE13 Q4 Professional Segment Results $828.9 $913.9 Q4 23 Q4 24 NET SALES (in millions) +10.3% Increase primarily driven by higher shipments of golf and grounds products and underground construction equipment, along with net price realization, partially offset by lower shipments of compact utility loaders and snow and ice management products 15.0% 18.6% Q4 23 Q4 24 SEGMENT EARNINGS RATE (as a percentage of net sales) Increase primarily due to productivity improvements, net sales leverage, net price realization, and product mix, partially offset by higher material and manufacturing costs +360 bps
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THE TORO COMPANYQ4 2024 EARNINGS RELEASE14 Q4 Residential Segment Results $148.4 $155.1 Q4 23 Q4 24 +4.5% Increase primarily driven by higher shipments of lawn care products to mass channel, partially offset by lower shipments of snow products, and higher sales promotions Decrease primarily due to higher material and freight costs, higher warranty and marketing expense, and product mix, partially offset by productivity improvements NET SALES (in millions) SEGMENT EARNINGS RATE (as a percentage of net sales) 3.0% -8.9% Q4 23 Q4 24 -1190 bps* * Timing of production and shipments resulted in quarterly variation that was more pronounced than typical, as we prioritized being a good supplier, while also adjusting to rapidly changing demand dynamics
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THE TORO COMPANYQ4 2024 EARNINGS RELEASE THE TORO COMPANY*Non-GAAP Measures: refer to the Appendix of this presentation for additional information and reconciliation15 Full-Year 2024 Consolidated Results 15th consecutive year of top-line growth in an extremely dynamic operating environment, driven by the strength of our balanced portfolio, and our team’s disciplined execution REPORTED ADJUSTED* F24 F23 Change from F23 F24 F23 Change from F23 Net Sales $4,583.8M $4,553.2M +0.7% $4,583.8M $4,553.2M +0.7% Gross Profit ($) $1,549.3M $1,577.6M -1.8% $1,555.0M $1,579.0M -1.5% Gross Margin (% of Net Sales) 33.8% 34.6% -80 bps 33.9% 34.7% -80 bps Operating Earnings ($) $533.3M $430.7M +23.8% $560.5M $587.4M -4.6% Operating Earnings Margin (% of Net Sales) 11.6% 9.5% +210 bps 12.2% 12.9% -70 bps Earnings Before Income Taxes $512.8M $400.5M +28.0% $535.9M $557.2M -3.8% Net Earnings $418.9M $329.7M +27.1% $435.2M $443.5M -1.9% Diluted EPS $4.01 $3.13 +28.1% $4.17 $4.21 -1.0% Q4 2024 EARNINGS RELEASE
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THE TORO COMPANYQ4 2024 EARNINGS RELEASE16 Full-Year 2024 Professional Segment Results $3,675 $3,557 F23 F24 NET SALES (in millions) -3.2% Decrease primarily due to lower shipments of lawn care equipment, snow and ice management products, and compact utility loaders, partially offset by higher shipments of golf and grounds products and underground construction equipment 13.9% 18.0% F23 F24 SEGMENT EARNINGS RATE (as a percentage of net sales) Increase primarily driven by non-cash impairment charges in the prior year, productivity improvements, and product mix, partially offset by higher material and manufacturing costs and lower net sales volume +410 bps
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THE TORO COMPANYQ4 2024 EARNINGS RELEASE17 Full-Year 2024 Residential Segment Results $854.2 $998.3 F23 F24 +16.9% Increase primarily due to higher shipments to the company's mass channel, partially offset by lower shipments of snow products Change was primarily driven by product mix and higher material and manufacturing costs, partially offset by productivity improvements and net sales leverage NET SALES (in millions) SEGMENT EARNINGS RATE (as a percentage of net sales) 8.1% 7.9% F23 F24 -20 bps
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THE TORO COMPANYQ4 2024 EARNINGS RELEASE *Non-GAAP Measures: refer to the Appendix of this presentation for additional information and reconciliation 18 Strong Balance Sheet and Resilient Free Cash Flow Free Cash Flow Conversion* (Twelve months ended) Gross Debt to EBITDA Ratio* Target Range: 1.0x- 2.0x Significant improvement in free cash flow supported $150M in regular dividends, $246M in share repurchases, and $110M in debt paydown during 2024 Free Cash Flow* (Twelve months ended) In millions Goal: 100% over time 1.3x F24 $164.4 $470.7 F23 F24 F23 F24 49.9% 112.4%
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THE TORO COMPANYQ4 2024 EARNINGS RELEASE19 Effective Capital Deployment Disciplined capital allocation driving long-term value for all stakeholders Capital expenditures supporting organic growth with high returns1 Strategic approach to acquisitions with disciplined process and proven track record 2 Established dividend with increases commensurate with earnings growth 3 Excess cash deployed to repurchase shares with a goal to at least offset dilution over time 4 Invested ~$100M to fund new product investments, advanced manufacturing technologies, and capacity for growth within existing manufacturing footprint Company continues to evaluate potential acquisitions with discipline, with an objective of accelerating profitable growth and driving meaningful value for all stakeholders Returned $149.5M to shareholders via regular dividends, representing a payout increase of 6% year-over-year Returned $245.5M to shareholders via share repurchases Consistent Priorities 2024 Actions
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THE TORO COMPANY20 Q4 2024 EARNINGS RELEASE Net Sales Growth (%) Total Company Similar Professional Segment Up Low Single-Digits Residential Segment Down Mid Single-Digits Adjusted Operating Earnings Margin* (%) Total Company Slightly Lower Segment Earnings Margin (%) Professional Segment Similar to Slightly Higher Residential Segment Slightly Lower Adjusted Diluted EPS* ($) Slightly Lower Q1 2025 Outlook Commentary (All on a year-over-year basis unless noted) *Non-GAAP Measures: refer to the Appendix of this presentation for additional information and reconciliation
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THE TORO COMPANY21 Q4 2024 EARNINGS RELEASE Full-Year 2025 Guidance *Non-GAAP Measures: refer to the Appendix of this presentation for additional information and reconciliation **FCF Conversion Percentage = Free Cash Flow/GAAP Net Earnings See my comment – need to have two columns (see 9 2022 deck for format – I’ve copied that slide and inserted right after this for reference – we bolded any items that changed) Net Sales Growth (%) Up 0% to 1% Adjusted Gross Margin Higher than 2024 Adjusted Operating Earnings Margin* (%) Higher than 2024 Adjusted Diluted EPS* ($) $4.25 to $4.40 Capital Expenditures ($) ~$100M Depreciation & Amortization ($) $125M to $135M Interest Expense ~$54M Adjusted Effective Tax Rate* (%) ~20% Free Cash Flow (FCF) Conversion** (%) ~100%
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THE TORO COMPANYQ4 2024 EARNINGS PRESENTATION 22 Well Positioned to Win 1 Leadership in attractive end-markets 2 Brand heritage delivering excellence and brand recognition creating trust 3 Innovation synergies leveraged across product categories 4 Deep long-term customer and channel relationships 5 Disciplined execution 6 Strong balance sheet
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APPENDIX
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THE TORO COMPANYTHE TORO COMPANY24 Order Backlog This remains elevated compared to historical levels, driven by sustained demand in underground construction, and golf and grounds businesses 2 1 Order backlog (open order book) at the end of 2024 was ~$1.2B 3 Order backlog improved from ~$2B at the end of 2023, driven by our success in driving additional output within our existing manufacturing footprint 4 For specialty construction, which is primarily compact utility loaders, supply and demand came into balance during 2024, as expected; with this, order backlog for these products normalized during 2024 5 For underground construction and golf/grounds businesses, we expect order backlog will be close to normal by the end of 2025 Q4 2024 EARNINGS RELEASE
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THE TORO COMPANYTHE TORO COMPANY25 Accounts Receivable and Floor Plan Financing Majority of US independent dealers and distributors take advantage of inventory floor plan financing programs to fund their purchases, as is customary in our industry 2 1 TTC’s accounts receivable balance consists of sales to mass channel partners, irrigation customers, and many of our international dealers and distributors 3 Red Iron offers financing for the majority of our domestic dealers and distributors of lawn care, snow and ice management, and golf and grounds solutions, as well as Toro-branded specialty construction products 4 Third-party institutions also provide financing for a small portion of US dealers and distributors, some international channel partners, and the majority of our Ditch Witch underground construction distribution partners 5 TTC’s 45% non-controlling ownership stake in the Red Iron JV allows us to recoup a portion of our floor planning costs, and in accordance with GAAP the JV income is reported within “other income” in our income statement Q4 2024 EARNINGS RELEASE
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THE TORO COMPANY32 Q4 2024 EARNINGS RELEASE This presentation contains certain non-GAAP financial measures, which are not calculated or presented in accordance with U.S. GAAP, as information supplemental and in addition to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP. The non-GAAP financial measures included within this presentation, as applicable, consist of gross profit, gross margin, operating earnings, earnings before income taxes, net earnings, net earnings per diluted share and the effective tax rate, each as adjusted, as well as free cash flow, free cash flow conversion percentage, return on average invested capital and return on average equity. Management believes that the presentation of these non-GAAP measures provides useful information to investors and that these measures may assist investors in evaluating our core operational performance and cash flows, as a measure of our liquidity. This Appendix includes a reconciliation of the historical non-GAAP financial measures used in the presentation to the most directly historical comparable GAAP financial measures. Reconciliations of forward-looking non-GAAP guidance to projected U.S. GAAP guidance is not provided because it would require an unreasonable effort to do so. Non-GAAP financial measures have limitations as analytical tools, and should not be considered in isolation, or as a substitute for, our financial measures prepared in accordance with U.S. GAAP. Investors should note that any non-GAAP financial measure we use may not be the same non-GAAP financial measure, and may not be calculated in the same manner, as that of other companies. Non-GAAP Financial Measures
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THE TORO COMPANY37 Gross Debt to EBITDA Ratio Q4 2024 EARNINGS RELEASE ($ millions) Q1 24 Q2 24 Q3 24 Q4 24 Total Gross Debt $1,186.6 $1,016.8 $991.9 $921.8 $921.8 Earnings Before Income Taxes $80.1 $179.2 $144.2 $109.3 $512.8 Interest Expense $16.2 $16.7 $14.5 $14.5 $61.9 Depreciation and Amortization $30.7 $30.2 $30.9 $36.4 $128.2 EBITDA $127.0 $226.1 $189.6 $160.2 $702.9 Leverage Ratio 1.3x