Toro Co. (TTC) posted earnings of 8 cents per share in the fourth quarter of fiscal 2013 (ended Oct 31, 2013) against break-even results in the prior-year period. The reported figure surpassed the Zacks Consensus Estimate of 2 cents. Results benefited from improved market demand and favorable commodity prices.
Operational Update
Sales grew 13% year over year to $382.4 million in the quarter, beating the Zacks Consensus Estimate of $379 million. The year-over-year growth was led by favorable weather conditions, increased retail activity and improved pre-season demand.
Cost of sales rose to $254 million from $226 million in the year-ago quarter. Gross profit improved 14% year over year to $129 million. Consequently, gross margin expanded 30 basis points (bps) year over year to 33.6% due to realized price, product mix and higher productivity. These were partly offset by unfavorable currency exchange rates.
Selling, general and administrative expense rose 10.5% year over year to $120 million. Operating profit more than doubled to $8.4 million from $4 million in the prior-year quarter. Consequently, operating margin expanded 100 bps year over year to 2.2%.
Segment Performance
Professional: Net sales from this segment climbed 12% year over year to $255.8 million, primarily due to higher sales of golf equipment and irrigation solutions, construction and rental offerings, commercial grounds equipment, and micro-irrigation products. The growth in sales was also driven by strong demand for landscape contractor equipment. The Professional segment posted earnings of $21.8 million, up 5% from the prior-year quarter.
Residential: This segment reported sales of $116.6 million, up 14.4% year over year, attributable to favorable preseason shipment of snow throwers along with increased demand across several spring product categories. Consequently, the Residential segment’s earnings came in at $10.1 million, rising 50.7% year over year.
Financial Update
Toro ended the quarter with cash and cash equivalents of $183 million compared with $126 million at the end of the year-ago comparable period. Cash from operations for the twelve-month period ended Oct 31, 2013, were $222 million, a 19% increase from $186 million in the year-ago comparable period.
Long-term debt was $223.5 million as of Oct 31, 2013, flat compared with as of Oct 31, 2012. The debt-to-capitalization ratio contracted 350 bps to 38.4% as of Oct 31, 2013, from 41.9% a year ago.
Toro also announced a 43% hike in its quarterly dividend to 20 cents per share. The new ividend will be paid on Jan 15, 2014, to shareholders of record as of Dec 30, 2013.
In fiscal 2013, the company paid $32.5 million in dividends and repurchased over 2 million shares, returning more than $130 million in total cash to the shareholders.
Record Fiscal 2013 Performance
Toro delivered record revenues, operating earnings and earnings per share in fiscal 2013. The company posted earnings of $2.62 per share for fiscal 2013 up 22.4% from the year-ago earnings of $2.14. This was driven by introduction of the Tier 4 diesel engine transition and acquisitions in the rental and construction markets. Earnings were ahead of the Zacks Consensus Estimate of $2.55.
Revenues for the full year improved 4.2% year over year to $2,041.4 million from $1,958.7 million. This is historically the company’s highest and it also crossed $2 billion revenue mark. Moreover, it surpassed the Zacks Consensus Estimate of $2,038 million.
Outlook for fiscal 2014
Toro expects revenues to grow about 4%–5% for the full year. Net earnings for the year will be in the range of $2.85–$2.90 per share. The company anticipates depreciation and amortization to be about $50 million. Free cash flow is estimated at approximately $150 million. In addition, the company revised upwards its annual dividend guidance to 30%–40% of its three-year average net earnings per share, from the previous guideline of 20%–30%.
The positive outlook is based on introduction of innovative products and services, continued focus on returning value to shareholders and acquisition opportunities to drive profitable growth.
For the first quarter of 2014, Toro expects net earnings to be about 35 cents per share. According to the company, golf course development is progressing, housing and construction continues to improve and customers are seeking more efficient methods of irrigation around the world.
Furthermore, Toro is well positioned to benefit from recent investments in micro irrigation business facilitating the expansion of its global footprint. Rental and construction market presence are also yielding positive results and will continue to gain momentum. However, foreign exchange volatility and social and political unrest remain headwinds.
Bloomington, Minn.-based Toro Co. is a worldwide provider of turf and landscape maintenance equipment, and irrigation solutions for golf courses, sports fields, public green spaces, commercial and residential properties, and agricultural fields. The company operates through its two segments – Professional and Residential.
Toro Co. currently carries a short-term Zacks Rank #3 (Hold).
Some better-ranked stocks in same sector include Snap-on Inc. (SNA), Simpson Manufacturing Co., Inc. (SSD) and Alamo Group, Inc. (ALG). All these stocks hold a Zacks Rank #2 (Buy).
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TORO CO (TTC): Free Stock Analysis Report
