Toro Company (The) (TTC)

TTC 
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The Toro Company (TTC)

F1Q2012 Earnings Conference Call

February 23, 2012 11:00 AM ET

Executives

Kurt Svendsen – Managing Director, Investor Relations

Mike Hoffman – Chairman and Chief Executive Officer

Renee Peterson – Chief Financial Officer

Tom Larson – Vice President and Treasurer

Blake Grams – Vice President and Controller

Analysts

Mike Wherley – Janney Capital Markets

[Josh] – Raymond James

Robert Kosowski –Sidoti & Company

Presentation

Operator

Good day, ladies and gentlemen, and welcome to The Toro Company First Quarter Earnings Conference Call. My name is Regina and I will be your coordinator for today.

At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s conference. (Operator instructions) As a reminder, today’s conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today’s conference, Mr. Kurt D. Svendsen, Managing Director of Corporate Communications and Investor Relations for The Toro Company. Please proceed, Mr. Svendsen.

Kurt Svendsen

Thank you and good morning. Joining me for our first 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 and can be found in the Investor Information section on our corporate website, thetorocompany.com.

I will turn the call over to Mike.

Mike Hoffman

Thank you, Kurt. As reported in this morning’s first quarter earnings release, we achieved a solid start to the year based on strong showings in both our professional and residential businesses. Net sales for the quarter increased 10.6% while earnings per share increased 22.6%. Renee will discuss our results in greater details shortly.

Since our last earnings call in December, we announced two acquisitions that will enable us to increase our presence within the golf market and expand into a promising new business. The first announced on December 9th involved a greens roller product line from Graden USA. The practice of rolling greens provides a smooth finish to the grass, thus enhancing the quality and playability of the putting surface, as well as helping to improve the health of the greens.

This acquisition fills an important gap in our golf line and bolsters our leadership in greens maintenance, a position we established back in 1924 with the introduction of our first greens mower. The new lines rollout has been well-received by our distributors and golf course customers.

The second acquisition announced on February 10th included the utility and underground product assets of Astec Industries. This acquisition allows us to offer a new range of Toro products to both current and new customers, and to enter a new category closely aligned to our existing businesses.

The products acquired include horizontal directional drills, trenchers and vibratory plows. The line covers a functional gamut from creating trenches for new residential and professional irrigation systems to installing, repairing or replacing utility lines while minimizing the collateral impact by going underneath landscapes or structures. Potential customers include landscape and irrigation contractors, municipalities, as well as telecommunications and utility companies.

The Astec Products are particularly exciting given the synergy with our site work systems products and an addressable market for horizontal drills and trenches of about $500 million. As a company, we tend to enjoy significant market share in most of our businesses. Just because we have those types of market shares in the turf and irrigation arena, it doesn’t guarantee that we can do it in the ground engaging space.

But if we can execute successfully – and we intend to – this opportunity holds potential market and share growth well in to the future. It will take successful product innovation to take share away from existing competitors, but we have recent examples of where we have done just that.

For both F12 and F13, we anticipate a combined effect from these acquisitions of less than 1% of revenues due to manufacturing transitions and tier-four constraints, and the potential integration and development cost of $0.10 to $0.15 against EPS. However, we believe these additions will be very meaningful in the long run. The integration and development clause include investment and bringing the line into compliance with tier-four emission standards, channel development, product enhancements, and modifications to our manufacturing and testing facilities to accommodate some of the products that are larger than our traditional offerings.

Returning to our existing business, the first quarter offered encouraging signs across both our professional and residential segments. Golfers took advantage of the mild winter leading to an increase in the number of rounds played in November and December according to the National Golf Foundation. While the foundation have not yet reported numbers for January, in December, rounds played increased by more than 30%.

Distributors report excellent preseason activity as golf courses continue replacing ageing equipment. Golf equipment retail is even ahead of last year’s strong activities. Momentum is being generated around a host of new mowing and maintenance products we unveiled in 2011, enabling us to continue to extend our market share lead.

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