TORO CO Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Net Sales Growth: Delivered net sales of $4.58 billion for full year 2024, up about 1% over last year, marking 15th consecutive year of top-line growth. Strong growth in underground construction, golf and ground solutions, and residential segments, offset by post-pandemic correction in lawn care and below-average snowfall in snow and ice management.
• Product Innovations: Introduced new products like Ditch Witch W8 Warlock Series vacuum excavator, Toro Grounds Master E3200 fully electric upfront rotary mower, and new zero turn mower models; planning wider launches of autonomous mowers in fiscal 2025.
• Productivity Initiatives: On track to deliver $100 million of annualized run rate savings by fiscal 2027 from AMP initiative. Implemented $14.5 million of annualized run rate cost savings in first year. Made portfolio adjustments, including workforce reduction of ~300 salaried employees.
• Market Leadership: Strong market position across businesses; recognized by Lowe's as Vendor of the Year for seasonal and outdoor department.

Segment Performance

• Professional Segment:
  • Fourth Quarter 2024: Net sales were $913.9 million, up 10.3% year-over-year. This increase was driven by higher shipments of golf and grounds products and underground construction equipment, offset by lower shipments of compact utility loaders and snow and ice management products. For the full year, Professional segment net sales decreased 3.2% to $3.56 billion, comprising 78% of total company net sales. Fourth quarter earnings were $169.7 million, up from $124.5 million last year, with earnings as a percentage of net sales at 18.6%. Full-year earnings were $638.9 million, up from $509.1 million in fiscal 2023, and as a percentage of net sales were 18%.
  • Residential Segment:
  • Fourth Quarter 2024: Net sales were $155.1 million, up 4.5% compared to last year, driven by higher shipments of lawn care products to mass channel, offset by lower snow product shipments and higher sales promotions. For the full year, residential segment net sales were $998.3 million, up 16.9% from $854.2 million in fiscal 2023, comprising 22% of total company net sales. The segment reported a loss of $13.8 million compared to a $4.5 million profit last year. Full-year earnings were $78.4 million, up from $68.9 million, with earnings as a percentage of net sales at 7.9%.

Guidance

• Total Company Net Sales: Expect total company net sales growth in range of 0 to 1% for full year 2025, assuming stable demand, macro caution in homeowner markets, and normalization of lawn care and snow product field levels.
• Segment Specifics: Professional segment expected to have low single-digit net sales growth; Residential segment expected to have high-single-digit net sales decline, considering mass partner rebalancing and Pope divestiture impact.
• EPS: Anticipate full-year adjusted diluted EPS in range of $4.25 to $4.40 for 2025. Expect improvement in adjusted gross margin and adjusted operating earnings as a percentage of net sales.

Risks

• Macroeconomic Factors: Industry-wide dynamics affecting lawn care products in dealer channel and macro caution in homeowner markets.
• Weather Impacts: Two consecutive seasons of below-average snowfall affected snow and ice management businesses; weather patterns in 2025 could impact snow and lawn care sales.
• Inventory Adjustments: Need to normalize field inventories of lawn care and snow products, which could affect short-term sales.
• Policy Changes: Potential impacts of tariffs and immigration policies on customers and business operations.

Question and Answer

• Q: Eric Bosshard on Residential profit contraction and Professional segment outlook A: Angela Drake noted Residential had tougher Q4 with less volume, mix, and focus on being a good supplier driving increased freight and programming. Richard Olson discussed Professional segment outlook reflecting caution in homeowner purchases and adjustments in compact utility loaders.
• Q: Mike Shlisky on AMP It Up and autonomous products A: Rick Olson and Julie Kerekes explained AMP It Up is an extension of AMP initiative focusing on profitability. Richard Olson talked about significant launch of autonomous products across golf, commercial, and residential, with higher penetration in golf and commercial, and timing aligned with labor availability concerns.
• Q: David MacGregor on residential business and 2025 guidance A: Richard Olson discussed residential business reflecting third quarter caution, snow field inventory drawdown, and positive product lineup. Angela Drake mentioned 2025 guidance reflects positioning for improved profitability despite flat net sales growth, with snow and lawn care field inventory better in back half.
• Q: Tim Wojs on backlog and normalization A: Richard Olson and Angela Drake discussed normalized backlog targeting south of $600 million, with largest remaining areas being golf and grounds and underground construction, driven by durable demand trends. Mentioned management of backlog to normal run rate with portfolio strength and offsets from correcting markets.
• Q: Ted Jackson on rental market and snow A: Richard Olson discussed caution in rental market, particularly for compact utility loaders, tied to construction and consumer confidence. Mentioned snow impact on field inventory and potential for sales pickup with normalized market conditions.