Joshua Wilson

Joshua Wilson from Raymond James asked about the current channel inventory levels across Toro Company's various product categories. He also sought quantification of the year-end backlog, given the company's normalized lead times. Furthermore, Wilson inquired about the specific positive and negative factors influencing the professional segment's 2026 margin guidance range of 18.5%-19.5% compared to the 19.4% reported in 2025.

Answer

Chairman and CEO Rick Olson stated that overall channel inventories are in good shape, with residential tied to recovery, snow in a good position, underground slightly below ideal but healthy, and other businesses in a normal range. VP and CFO Angie Drake reported that the year-end backlog improved by $400 million year-over-year, reaching $1.2 billion, reflecting strong demand despite normalized lead times. For the professional segment margin, Drake attributed positives to AMP benefits, offset by a less favorable product mix in 2025. She also noted that the Tornado acquisition, while adding top-line growth, would not be fully accretive to operating margin in its first year due to acquisition and transaction costs, though it is accretive to EBITDA.

Joshua Wilson asked for an update on channel inventory levels across various product categories, the quantification of the company's backlog at year-end, and the positive and negative factors influencing the 2026 Professional segment margin guidance.

Answer

Rick Olson, Chairman and CEO, stated that overall channel inventory is in good shape, with residential tied to recovery, snow in a good position, underground slightly below ideal but healthy, and other businesses in a normal range, reflecting normalized lead times. Angie Drake, VP and CFO, reported that backlog improved by $400 million year-over-year to $1.2 billion, still elevated but reflecting strong demand and improved lead times. Edric Funk, President and COO, noted that Professional segment margin will benefit from AMP initiatives but be partially offset by product mix. Ms. Drake added that the Tornado acquisition will contribute to top-line growth but will not be fully accretive to operating margin in its first year due to acquisition costs, though it is accretive to EBITDA.

Joshua Wilson of Raymond James sought clarification on the fiscal 2025 guidance, asking if the assumption of 'stable conditions' for the landscape contractor market implies flat year-over-year sales for that subsegment.

Answer

CFO Angela Drake and CEO Richard Olson clarified that 'stable' does not necessarily mean flat sales. They are still actively working to reduce field inventories for lawn care products but expect the overall situation to be better year-over-year, positioning them well for when the market normalizes.

Joshua Wilson of Raymond James asked two housekeeping questions: to confirm the full-year corporate expense guidance used in the EBITDA calculation and to explain the year-over-year increase in inventory days.

Answer

EVP & CFO Brian Harris confirmed the corporate guidance remains at $55 million. He explained that inventory levels are higher than desired because a slowdown in consumer demand has caused customers to reduce their orders.

Joshua Wilson of Raymond James Financial asked about the company's updated assumptions for North American market share cadence in the second half and questioned what changed in the environment to catalyze the dividend reduction decision now versus earlier in the year.

Answer

Marc Bitzer, Chairman & CEO, reiterated expectations for healthy market share levels in the second half, driven by new product introductions and the eventual need for competitors to raise prices to cover tariff costs. James Peters, EVP and CFO, explained that the dividend decision was made now after gaining more clarity on the tariff rollout and its impact on the business, deeming it a prudent time to create additional balance sheet capacity for investment and deleveraging.

Joshua Wilson, on behalf of Sam Darkatsh, asked for clarification on the drivers of the implied 6% like-for-like sales growth in Q4 and requested more detail on why cost savings are expected to ramp up sequentially.

Answer

CFO Jim Peters attributed the Q4 revenue inflection to strong industry demand outside the U.S. and a seasonally stronger quarter for the Small Domestic Appliance business. Regarding costs, he explained the Q4 ramp is driven by two main factors: realizing the full run-rate benefit of the organizational simplification actions taken earlier in the year, and improved factory leverage from more normalized production levels following the significant inventory reduction in Q3.