Toro Company (The) (TTC)

TTC 
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Toro (TTC)

Q2 2013 Earnings Call

May 23, 2013 11:00 am ET

Executives

Kurt Svendsen - Managing Director of Corporate Communications and Investor Relations

Michael J. Hoffman - Chairman, Chief Executive Officer and President

Renee J. Peterson - Chief Financial officer and Vice President of Finance

Analysts

Sam Darkatsh - Raymond James & Associates, Inc., Research Division

Mark Herbek - Cleveland Research Company

Robert A. Kosowsky - Sidoti & Company, LLC

James Barrett - CL King & Associates, Inc., Research Division

Zoran Milling

Presentation

Operator

Good day, ladies and gentlemen and welcome to the Toro Company Second Quarter Earnings Conference Call.

My name is Christie, and I'll be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I'd now like to turn the call over to Kurt Svendsen, Managing Director of Corporate Communications and Investor Relations for the Toro Company. Please proceed.

Kurt Svendsen

Thank you and good morning. Joining me for our second quarter earnings call are Mike Hoffman, Chairman and Chief Executive Officer; Renee Peterson, Chief Financial Officer; Tom Larson, Vice President and Treasurer and Blake Grams, Vice President and Controller.

We begin with our customary forward-looking statement policy. During this call, we will make certain forward-looking statements, which are intended to assist you in understanding the company's results. You are all aware of the inherent difficulties, risks and uncertainties in making predictive statements. The Safe Harbor portion of the company's earnings release, as well as SEC filings detail some of the important risk factors that may cause actual results to differ from those in our predictions. Our earnings release was issued this morning by Business Wire. A copy can be found in the Investor Information section of our corporate website, thetorocompany.com.

I will now turn the call over to Mike.

Michael J. Hoffman

Thank you, Kurt and good morning to all our listeners. Despite challenging weather, including a very late start to spring, we delivered record sales and earnings in our second quarter. Net sales increased 2% for the quarter and net earnings per share grew 17%. We believe these results are noteworthy when compared to last year's second quarter when we enjoyed ideal weather conditions due to an earlier-than-normal start to spring. Highlights for the quarter also include positive sales developments in Europe and Asia, along with continued improvement in profitability.

Following a brief commentary on the state of our business during the first half of the fiscal year, Renee will discuss our financial and operating results in more detail.

Sales results for the first 6 months of the year were primarily fueled by demand for our large professional turf equipment, as well as our irrigation offerings, most notably our golf and micro-irrigation systems. Many of our professional customers are better off today than a year ago. Their enhanced positions have given rise to optimism in the channel that, in turn, helped to generate demand for our products. The late start to spring delayed retail in some markets, which along with the transition to Tier 4, led to increased field inventory.

The residential business, which is always more immediately impacted by weather, was held back by adverse conditions throughout most of our first 6 months. The lack of timely snowfall impeded the residential segment's first quarter results, while spring's very late debut through much of North America and Europe decreased shipments of residential products during the second quarter. In fact, the first week of May saw significant snowfall through the plains in Upper Midwest. The good news is we have enjoyed a recent warming trend in both temperatures and residential shipments that has created strong positive momentum, resulting in some very favorable comparisons to May of 2012. The combined effects of the early spring weather this year and the Tier 4 transition that began last year have created an unusual business flow. Timing and weather aside, the fundamentals of our business remain strong.

As we reported during our first quarter call, our golf equipment business achieved brisk early retail activity. The momentum slowed a little in the quarter due in part to unfavorable weather in most of the United States and Canada. A year ago, we experienced some of the earliest golf course openings on record but 2013 has seen some of the latest. As we also noted in our first quarter call, distributor inventory is higher than normal due to distributors deciding to buy pre-Tier 4 products and hold them in inventory to meet ongoing customer demand. And customer demand is up. Year-to-date, golf retail is tracking well ahead of last year's results. The Tier 4 transition and the optimism generated by the increased revenues golf courses earned in 2012 have motivated customers to increase purchases. These positive trends are also helping the golf irrigation business.

Older system renovations, course redesigns, along with routine system upgrades and replacements are driving sales.

Our landscape contractor businesses continue to benefit from a healthy appetite for our latest high-performance machinery, including a full range of zero-turn riding and stand-on mowing and aeration equipment. In addition, customers are being drawn by the high productivity and ease of operation of our new 30-inch commercial mowers.

Customer demand for increased productivity is also paying off for our sports field and professional ground business. The need to replace aging fleets and maximize the output of their workforce is motivating buyers to take a close look at our latest technological advancements.

The professional rental and construction business has made steady progress during the first 6 months in the integration of our new rental and construction and underground product lines. Many of our new rental and construction products, including motor and cement mixers, compaction equipment and debris handlers are now in production, are shipping and are already being rented and retailed through our business partners. Preparations are on track for our national launch of our underground business at The International Construction and Utility Equipment Exposition in Louisville in early October of this year.

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