The Toro Company - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 net sales were $995.0M (-1% YoY) and diluted EPS was $0.52; adjusted diluted EPS rose to $0.65 (+2% YoY), with improved Professional segment profitability offsetting a weaker Residential segment amid below-average snowfall.
• Management maintained FY 2025 guidance for total net sales growth of 0–1% and adjusted diluted EPS of $4.25–$4.40, noting the guidance excludes incremental tariffs introduced year to date (except the February China tariff).
• Professional segment earnings margin expanded to 16.5% (from 14.9% YoY) on mix, price, and productivity, while Residential margins contracted to 7.8% on higher costs and promotions; the company repurchased $100M of shares in the quarter.
• Internal bottom-line expectations were exceeded, supported by AMP productivity savings ($64M run-rate to date; $7M realized in Q1) and technology catalysts (autonomous Turf Pro mower, Range Pro ball-picking robot, Intelli360, Lynx Drive, TerraRad soil moisture partnership).

What Went Well and What Went Wrong

What Went Well

• Professional segment margin expansion: “Professional segment earnings … 16.5%, up from 14.9% … primarily due to net sales leverage, product mix, and productivity improvements”.
• Productivity initiatives: “We’ve delivered $64 million in run-rate cost savings to-date, and are on track to deliver $100 million by fiscal 2027…” and “we had $7 million in gross realized savings in the quarter”.
• Innovation momentum: “We showcased our suite of robotic solutions… Toro Turf Pro autonomous mower… Toro Range Pro golf ball picking robot… Intelli360… Lynx Drive… exclusive partnership with TerraRad”.

What Went Wrong

• Residential pressure and snowfall: Residential net sales fell to $221.0M (-8% YoY) and margin declined to 7.8% due to lower shipments of snow products, higher costs/promotions, and the prior-year Pope divestiture.
• Gross margin pressure: Reported gross margin declined to 33.7% (vs. 34.4% YoY) due to higher material/manufacturing costs and higher AMP charges; adjusted gross margin was 34.1%.
• Free cash flow seasonal use: Q1 free cash flow was -$67.7M (conversion -128.2%), reflecting normal seasonal working capital needs ahead of spring.

Transcript

Operator (participant)

Good day, ladies and gentlemen, and welcome to the Toro Company's first quarter earnings conference call. My name is Kevin, and I'll be your coordinator today. At this time, all participants are on a listen-only mode. We'll be facilitating a question-and-answer session towards the end of today's conference. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference, Julie Kerekes, Treasurer and Senior Managing Director of Global Tax and Investor Relations. Please proceed, Ms. Kerekes.

Julie Kerekes (Treasurer and Senior Managing Director of Global Tax and Investor Relations)

Thank you and good morning, everyone. Our earnings release was issued this morning, and a copy can be found in the investor information section of our corporate website, thetorocompany.com. We have also posted a first quarter earnings presentation to supplement our earnings release. On our call today are Rick Olson, Chairman and Chief Executive Officer, Angela Drake, Vice President and Chief Financial Officer, and Jeremy Steffan, Director, Investor Relations. During this call, we will make forward-looking statements regarding our plans and projections for the future. Forward-looking statements are based upon our historical performance and current expectations, and are subject to risks, uncertainties, and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these factors can be found in today's earnings release and in our investor presentations, as well as in our SEC reports.

During today's call, we will also refer to non-GAAP financial measures, which we believe are important in evaluating the company's performance. For more details on these measures, the most comparable GAAP measures, and a reconciliation of the two, please refer to this morning's earnings release and our investor presentations. With that, I will now turn the call over to Rick.

Richard M. Olson (Chairman and CEO)

Thanks, Julie, and good morning, everyone. Fiscal 2025 is off to a solid start as we reported first quarter bottom-line results that exceeded the expectations we shared on our last call. We delivered this result despite below-average snowfall in key markets. This is a testament to our compelling, market-leading lineup of innovative products, the disciplined execution by our talented team, and the extraordinary customer service provided by our best-in-class network of channel partners. For the quarter, we achieved total company net sales of nearly $1 billion, with growth in the professional segment offset by lower shipments, as expected in residential. We drove professional segment growth by successfully increasing output for golf and grounds products. Demand remains robust in golf, coming off another record year of rounds played, and order backlog remains elevated.

We also delivered on strong channel demand for our new contractor-grade Zero Turn mowers ahead of the upcoming spring season. This includes our 30th anniversary Exmark Lazer Z lineup, featuring our exclusive Adapt Technology to enable quick, tool-free adjustments of the deck rake. The residential segment continued to be affected by elevated field inventories of snow products. In addition, last year's first quarter included Pope products, which we divested in Q3 of 2024. Despite the slight reduction in overall sales, we increased adjusted diluted earnings per share to $0.65 on the momentum of our amplifying maximum productivity, or AMP, initiative, along with improved profitability in the professional segment. Professional profitability improvement was driven by favorable mix, positive net price, and prudent expense management, in addition to productivity gains.

Based on our first quarter results and our current visibility, we are maintaining our full-year fiscal 2025 net sales and adjusted diluted earnings per share guidance. Due to the uncertain and rapidly changing tariff environment, this guidance excludes all incremental tariffs introduced year to date, with the exception of the additional tariffs on China imports that came into effect in February. Angela will walk through our guidance details shortly. We continue to take actions to strategically position the enterprise for sustained profitable growth. We expect to drive strong returns by prioritizing innovation that directly addresses our customers' most pressing needs and aligns with key market growth trends. Across all our businesses, we are launching cutting-edge products equipped with the latest technologies, reinforcing our commitment to industry leadership and long-term success.

Our innovation leadership was very apparent at the recent GCSAA Conference and Trade Show, where we showcased our suite of robotic solutions. This included the introduction of our new Toro Turf Pro autonomous mower with GPS RTK technology, ideal for multiple golf course applications as well as sports fields and grounds. The Turf Pro helps customers improve productivity while keeping grounds consistently well-manicured by mowing up to 18 and a half acres three times a week with minimal operator input. Our new Exmark Turf Tracer with XiQ was also on display. With its 60-inch cutting deck, the Turf Tracer with XiQ provides another robotic option for golf customers focused on productivity and efficiency. These solutions are an excellent complement to our Toro GeoLink autonomous fairway mower, which we are rolling out more broadly this spring.

For driving range applications, we introduced our new Toro RangePro golf ball picking robot, also with GPS RTK technology. The RangePro is capable of collecting over 15,000 balls in 24 hours. This is a game changer for our customers looking to free up time and labor while simultaneously maintaining a clean range for golfers. We also showcased several industry-leading advancements in smart connected solutions that meaningfully increase efficiency and improve results for golf course superintendents. These include our all-new Intelli360 web-based digital toolkit to streamline turf equipment management, as well as our renewed Lynx Drive platform for full mobile irrigation control. These tools are designed to give superintendents the real-time information and flexibility they need to make proactive decisions anytime and anywhere. Another highlight of the golf show was our announcement of an exclusive partnership with TerraRad, a leader in advanced soil moisture mapping technology.

Together, we are introducing the first of its kind, data-driven soil moisture sensing and management software. This software, called Spatial Adjust, will integrate exclusively with our Toro Lynx Central Control platform. It will provide real-time moisture mapping while mowing, along with individual irrigation head adjustment recommendations that can be made with a click of a button. By eliminating the need for manual soil probing and streamlining irrigation scheduling, this groundbreaking technology will allow superintendents to optimize turf health while at the same time reducing water consumption and operating costs. Like golf, another key market opportunity is in underground construction. We recently filled an important gap in our strategic underground product portfolio with the acquisition of ProKASRO Services USA. They are the exclusive U.S. distributor of Germany's ProKASRO Mechatronik's industry-leading UV Cured-in-Place pipelining and robotics equipment.

These trenchless solutions are used for the inspection and rehabilitation of water, wastewater, and stormwater mainline pipes. They perfectly complement our market-leading blue light LED product for the lateral light cure market. We see the opportunity to capture early market adoption in the U.S. in this fast-growing space. By partnering with the proven brand leader in Europe on current and future products, we're capitalizing on synergies with our HammerHead product portfolio. In addition to driving innovation and adding strategic products to our portfolio, we continue to make progress, enhancing productivity and profitability with our AMP initiative. During the first quarter, we implemented nearly $50 million in run rate savings, bringing our total to date to $64 million. The savings implemented in Q1 were primarily driven by headcount actions we took in December to better align our organizational structure with our long-term strategic priorities.

We also continue to make progress in driving savings with our supply-based transformation. We remain on track to deliver $100 million of annualized run rate savings by fiscal 2027 from AMP. As we've discussed, we intend to prudently reinvest up to half of the savings to further accelerate innovation and long-term growth. Importantly, everything we are doing with AMP helps fuel our enterprise strategic priorities of accelerating profitable growth, driving productivity and operational excellence, and empowering our people. We remain confident in our ability to generate consistent, strong cash flow and deliver positive financial results into the future. This was demonstrated by our repurchase of $100 million in shares during the quarter, following nearly $250 million in repurchases last year. With that, I'll turn the call over to Angela.

Angela Drake (VP and CFO)

Thank you, Rick, and good morning, everyone. We were pleased to deliver Adjusted Diluted EPS growth in the quarter, driven by improved profitability. Consolidated net sales for the quarter were $995 million, down slightly from Q1 last year. Note that Q1 last year included net sales from the Pope products business, while the current year does not. Reported EPS was $0.52 per diluted share, compared to $0.62 last year. Adjusted EPS was $0.65 per diluted share, up from $0.64. Now to the segment results. Professional segment net sales for the first quarter were $768.8 million, up 1.6% year-over-year. This increase was primarily driven by three factors. First, higher shipments of golf and grounds products as a result of increased output to address the sustained demand that has kept order backlog elevated. Second, increased shipments of Zero Turn Mowers.

This is a reflection of strong channel demand for new models and improved field inventory levels. And third, net price realization. These positive factors were partially offset by lower shipments of compact utility loaders, as expected, following last year's channel replenishment and this year's increased macro caution. Professional segment earnings for the first quarter were $127.2 million on a reported basis, up 13% from $112.8 million last year. When expressed as a percentage of net sales, earnings for the segment were 16.5%, up from 14.9%. The positive 160 basis points change in profitability was primarily due to net sales leverage, product mix, and productivity improvements. This was partially offset by higher material manufacturing and freight costs. Residential segment net sales for the first quarter were $221 million, down as expected from $240 million last year.

The decrease was primarily driven by lower shipments of snow products, given elevated field inventory heading into the season, lower shipments of portable power products, the Pope divestiture last year, and higher sales promotions and incentives. These factors were partially offset by higher shipments of Zero Turn and Walk Power Mowers. Residential segment earnings for the quarter were $17.2 million, compared to $23.5 million last year. When expressed as a percentage of net sales, earnings for the segment were 7.8%, compared to 9.8% last year. The decrease was largely due to higher material manufacturing and freight costs, higher sales promotions and incentives, and product mix with less snow product. These were partially offset by productivity improvements. Turning to our operating results for the total company. Our reported and adjusted gross margins were 33.7% and 34.1%, respectively, for the quarter.

This compares to 34.4% for both in the same period last year. The reported gross margin reflects higher AMP charges compared to last year. Additional changes on both a reported and adjusted basis were primarily due to higher material and manufacturing costs, partially offset by productivity improvements. SG&A expense as a percentage of net sales for the quarter was slightly higher at 25.9%, from 25.6% a year ago. The change was primarily driven by the higher AMP charges and was partially offset by lower marketing costs. Operating earnings as a percentage of net sales for the quarter were 7.8%, down from 8.8% in the same period last year. On an adjusted basis, operating earnings as a percentage of net sales were 9.4%, a 20 basis point improvement from 9.2% in the first quarter a year ago. Interest expense for the quarter was $15 million, down from $16.2 million last year.

The decrease was primarily due to lower average outstanding borrowings and lower average interest rates. The reported effective tax rate for the first quarter was 20.1%, compared with 19% last year. The increase was primarily due to lower tax benefits recorded as excess tax deductions for stock-based compensation in the current year period. This was partially offset by a more favorable geographic mix of earnings this year. The adjusted effective tax rate for the first quarter was 20.2%, compared with 20.8% a year ago, primarily driven by the geographic mix of earnings. Turning to our balance sheet, accounts receivable were $494 million, up slightly from $489 million a year ago, primarily driven by increased international shipments. This was partially offset by lower mass channel shipments, as expected.

Inventory at the end of Q1 was $1.14 billion, down about 3% compared to last year, and higher sequentially from the fourth quarter, as is typical due to the normal seasonal flow. The year-over-year improvement was primarily driven by lower balances related to lawn care products. This was partially offset by higher levels of compact utility loaders, as expected. Accounts payable were $447 million, up 6% from last year, primarily driven by higher material purchases. Free cash flow in the quarter was a $67.7 million use of cash, an improvement over last year. The use is a reflection of our normal seasonal working capital needs heading into the spring selling season. As a reminder, the majority of our operating cash flow is typically generated in the second half of our fiscal year. Importantly, our balance sheet remains strong and provides financial flexibility.

We continue to target a gross debt-to-EBITDA leverage ratio in the range of one to two times. This, along with our investment-grade credit ratings, provides the financial flexibility to fund investments that drive long-term sustainable growth. Our disciplined approach to capital allocation remains unchanged, with key priorities of making strategic investments in our business to drive long-term profitable growth, both organically and through acquisition, returning cash to shareholders through dividends and share repurchases, and maintaining our leverage goals. Examples of how we are acting on these priorities in fiscal 2025 include: first, our plan to fund $100 million in capital expenditures to support new product investments, advanced manufacturing technologies, and capacity for growth, second, our recent acquisition in the trenchless underground space, third, paying our regular dividend with an increase of 6% over fiscal 2024, and finally, executing on share repurchases, including $100 million in the first quarter.

We have continued repurchasing shares in the second quarter, a reflection of the confidence we have in our future financial performance and cash flows. As we look ahead to the remainder of the year, in our professional segment, we continue to expect benefits from the sustained strength in demand and elevated order backlog for underground construction equipment and golf and grounds products. We also continue to expect backlog will be closer to normal by the end of fiscal 2025. Importantly, we expect the sustained strength in these businesses will help avoid a significant gap as demand and supply normalize. We also expect the continued field inventory normalization of lawn care and snow products to provide some offset. Speaking of field inventories, we are entering the spring turf season with dealer field inventories of lawn care products in a better position compared to where we were a year ago.

This has been driven by the work we have done over the past year to decrease shipments into the channel, coupled with retail sales through that has outpaced those shipments. This, along with the strength of our brand, channel, and new product introductions, sets us up well as homeowner markets eventually return to normal strength. For snow products, field levels remain elevated heading into the second quarter but are trending in the right direction. While snowfall activity has improved compared to last year, year-to-date snowfall totals have still been meaningfully below historical averages in many key U.S. markets. We will be watching to see how late-season storm activity clears the channel. In any event, we expect field levels of snow products to be in a better position compared to last year heading into our second half pre-season sell-in.

Our guidance considers the below-normal snowfall so far this winter, as well as the incremental China tariffs that came into effect in February. Due to the uncertain and rapidly evolving trade policy environment, this guidance excludes the impacts of all other incremental tariffs. We are prepared to take operational and pricing actions as appropriate to mitigate any new tariffs, with the continued goal of being a good supplier while protecting our market leadership and profitability. As a reminder, we have significantly reduced our exposure to China supply since the initial round of tariffs in 2018. In addition, the vast majority of our manufacturing production takes place in the U.S., particularly for our higher-margin professional segment. We do have production facilities in Mexico, primarily for residential and irrigation products. With this backdrop, we are maintaining the full-year net sales and Adjusted Diluted EPS guidance we shared on our last earnings call.

This includes total company net sales growth in a range of 0%-1% for the full year, which assumes continued strong demand and stable supply for our businesses with elevated backlog, a continuation of the macro caution we have seen in markets connected to homeowners, and weather patterns aligned with historical averages for the remainder of the fiscal year. It also considers the additional adjustments needed to normalize field levels of lawn care and snow products. For the professional segment, we continue to expect full-year net sales to be up low single digits. For the residential segment, we continue to expect net sales to be down high single digits, which considers the continued rebalancing of our dealer partners as well as the full-year impact of last year's Pope divestiture.

Looking at profitability, for the full year, we continue to expect improvement in both adjusted gross margins and adjusted operating earnings as a percentage of net sales. We also continue to expect both the residential and professional segment earnings margins to be higher than last year. With this, we continue to anticipate full-year Adjusted Diluted EPS in the range of $4.25-$4.40. Additionally, for the full year, we continue to expect depreciation and amortization of about $125 million-$135 million, interest expense of about $54 million, an adjusted effective tax rate of about 20%, and a free cash flow conversion rate of about 100% of reported net income. Turning to the second quarter of fiscal 2025, we anticipate total company net sales to be similar year-over-year.

We expect professional segment net sales to be up low single digits and residential segment net sales to be down mid-single digits compared to the same period last year. Looking at profitability, for the second quarter, we expect total company adjusted operating margin to be slightly lower year-over-year. We expect the professional segment earnings margins to be similar to the same period last year and the residential segment earnings margin to be slightly lower. Overall, we expect our second quarter fiscal 2025 Adjusted Diluted EPS to be slightly lower than last year's $1.40.

We continue to execute with discipline and are excited about the momentum we are gaining with our customer-centric technology investments. This includes our robust new product pipeline aimed at driving success for our customers and for the Toro Company. We are also confident in our ability to unlock significant benefits and opportunities with our AMP productivity initiative as we continue to build our business for long-term profitable growth. With that, I'll turn the call back to Rick.

Richard M. Olson (Chairman and CEO)

Thank you, Angela. As I mentioned from the outset of the call, we are pleased with our bottom-line performance to begin the year in what is a very dynamic operating environment. We continue to expect benefits from our market leadership and strong fundamentals, the ongoing success of our AMP initiative, and the essential nature and regular replacement cycle of our products. With this and the continued agility and dedication of our team, we have confidence in our ability to deliver positive financial results into the future. We recognize the high degree of uncertainty that exists in the current macro environment. This includes the economy, consumer, and business confidence, and the geopolitical environment.

We are closely monitoring the risks and benefits associated with potential policy and regulatory changes, including tariff developments. The situation is rapidly evolving and changing, and we will remain nimble. We are prepared to quickly make adjustments to our operations and pricing as appropriate. I'd like to emphasize once again why we are confident and excited about our future. First, the near and long-term prospects for our underground construction business remain extremely compelling. This is supported by rapidly growing demand for data communication infrastructure, data center build-out, and energy grid modernization, as well as the global focus on replacing aging infrastructure. In terms of the aging water infrastructure, recent surveys point to more than $630 billion in spending needed over the next 20 years to ensure safe drinking water in the U.S., with most of those dollars expected to go to clean water distribution.

Outside of the U.S., a sprawling network of 30,000 miles of hydrogen gas pipeline is planned across Europe. These are just a few examples of many that support the widespread need and positive runway for infrastructure investments. We are very well positioned to capitalize on this runway for growth as a worldwide market leader with the most comprehensive equipment and brand lineup in the industry and our best-in-class channel. The strength of demand, combined with our deep relationships and our technology and innovation leadership, make this an extremely attractive space for us and our shareholders. Second, the near and long-term prospects for our golf business are also extremely compelling. Data continues to support the sustained strength of this market. U.S. participation in on-course golf exceeded 28 million players in 2024, marking the seventh consecutive annual increase.

Last year's net increase of approximately 1.5 million golfers was the biggest single-year jump since the year 2000. At the same time, total U.S. golf participation, including both on- and off-course players, rose 5% and was up 38% when compared to pre-pandemic 2019 data. All of this points to an extremely healthy end market with more new course development than any time since 2011. We are uniquely positioned to capitalize on this market as the only company to offer both equipment and irrigation solutions and as the clear market leader in both. As you could hear from my earlier remarks, the strength of our innovation pipeline for this market is unmatched, with our steady introduction of solutions that drive enhanced performance, productivity, and efficiency for our golf customers.

Third, we enjoy multi-brand leadership in the important Zero Turn mower space, which is the largest single turf care category for both our professional and residential segments. As these markets return to more normal strength, we are extremely well positioned to benefit from the share gains that we've realized with investments in our product lineup and the strategic actions that we've taken to strengthen our independent dealer networks and mass partnerships. Fourth, our proven ability to leverage technology and innovation investments across our broad portfolio enhances the durability of our competitive advantage and market leadership.

This leverage enables the accelerated development of new products aligned with market trends that help our customers with their most pressing needs, such as addressing labor challenges, be it shortages or skill requirements, conserving scarce resources such as water while at the same time reducing costs, and improving outcomes with access to the most up-to-date technology advancements, and finally, it comes down to the strength of our agile organization, which has been resilient through many macro cycles.

Our talented team is equipped and determined to capitalize on the many opportunities in front of us as we build on our 15th consecutive year of top-line growth, and we have a best-in-class network of strategically aligned channel partners focused on going above and beyond to serve our customers every day. All of this positions us extremely well to drive value for all stakeholders in both the near and long term. With that, we will open up the call for questions.

Operator (participant)

Ladies and gentlemen, if you wish to ask a question, please press star followed by one, one on your touch-tone telephone. If your question has been answered or you wish to withdraw your question, please press star followed by one, one again. Please stand by for our first question. Our first question comes from David MacGregor with Longbow Research. Your line is open.

David MacGregor (President)

Yes, good morning, everyone. Thanks for taking my questions. Hey, Rick. I wanted to start by just asking about AMP, and clearly there's a very good level of progress being made here. But I just want to be clear around kind of the movement and some of the numbers here. You talked about a $64 million run rate in cost savings to date. $50 million of that occurred in the first quarter, which is off to a great start. I guess how much of this reached the bottom line in the first quarter, if any at all?

You talked about trying to redirect a portion of that into investment, some portion of it falls to the bottom line. Try to help us understand just how much of that might have benefited 1Q. And then just the cadence on these AMP benefits and the dropped earnings over the remaining three quarters of 2025 would be really helpful. Thanks.

Richard M. Olson (Chairman and CEO)

Yeah, sure, David. You know the timing of our emphasis on productivity could not have been better in the current environment. And Angela is leading this initiative, so maybe I'll let Angela. Do you want to review some of those basics?

Angela Drake (VP and CFO)

Sure. Yeah, first I'll address your question on kind of the savings that we saw in the quarter. So you'll see later with the 10-Q that we had $7 million in gross realized savings in the quarter. And remember that we had mentioned that we will reinvest a portion of that. So not all of that necessarily drops to the bottom line. But everything that we have done and everything that we have reinvested, we considered in our full-year outlook and included in our guidance. To your point on how we expect to see this play out over the rest of the year, we did see that $49 million run rate savings in Q1, which gets us to $64 million in run rate savings to date. The majority of that did come from the restructuring events that we did in December.

And if you'll remember last year, we mentioned that we would expect to see the majority of the rest of what we have left in that $100 million run rate to be achieved in F25. So we still have some opportunity with other things like supply base, route to market, the things that we had mentioned, our working capital and efficiencies to play out for the rest of the year. However, we haven't defined that exactly by quarter. Okay. So what we are confident delivering that $100 million in 2027.

David MacGregor (President)

Okay. And just to be clear on the numbers here, when you talk about a $49 million run rate and $7 million of gross realized savings, are you suggesting that it was $42 million in expenses and the gross difference is the $7 million? I just want to be clear on the math.

Angela Drake (VP and CFO)

No, the $49 million run rate just means that those savings will be into the future. So the $7 million is what was realized in Q1.

David MacGregor (President)

Okay. It's a run rate, of course. All right. Okay. Thanks for that. And secondly, can you just talk about pro snow? I know in the residential snow, you talked about volumes were down and the inventory dynamic in the channel. But on the pro side with BOSS, where are dealer inventories here? And how should we read through to landscape contractor in the season ahead, given everything we're hearing through our channel checks are that these guys had a pretty good plow season, which puts cash in their pocket. And there's obviously been deferred spending in LCE. So I'm just trying to think through the read from pro snow in this quarter to what DTR pro grade ZTR could look like this summer.

Richard M. Olson (Chairman and CEO)

Sure. Be happy to answer that. First of all, if you just look at the context of the winter, I know there were some kind of headline-grabbing snow events, but honestly, the snow in Florida or Georgia does not really drive a lot of our snow product sales, so overall, across the U.S., snow relative to average was down about 13.5%, and if you look at the major snow markets, it was down more than 50%. I think here in Minnesota, we're down roughly two-thirds. We just had a snow event in the last couple of days that may have taken a little bit off of that, but roughly well over half reduction from norm, but the different markets respond a little bit differently.

And on the residential side, it tends to be heavy major events, heavy snow, major events that drive a lot of the business early in the season. From a contractor perspective, the ideal event is a lighter snow event that's plowable because it can be done efficiently. And if you cover the ground that you need to clear, you get paid for that job. So a plowable snow might be one or two inches. That's kind of ideal. And we did have a decent amount of those. So it helped to drive some of the business relative to the residential business a little bit better on the pro side. So field inventories, we are down a little bit year- over-year based on the winter was a little bit better than last year.

So in spite of my comments, it was a little bit better than last year, but still higher than we would have expected. But we've included all of that in our guidance at this point, including the knowledge of where the inventories are. The good news is with the facts that I mentioned, a little bit better, quite a few snowable or plowable events in many markets. Contractor budgets, we believe, are going into the spring in better shape, in fact, good shape at this point. So that is a positive. So kind of a complicated answer, but there's a few details that kind of are different depending on which part of the business we're talking about.

David MacGregor (President)

No, that's helpful. Thank you for that. Just last question for me. It'd be interesting to get your updated price cost expectations for this year. You talked about raw materials being a bad guy in the first quarter. Just how are you thinking about the price cost spread here through the balance of the year?

Angela Drake (VP and CFO)

Yeah. For Q1, we had slight price increase. So our price was up. Our cost was up more. And that was really due to higher manufacturing and freight costs and some inflation. There was also variability in timing, but productivity improvements did offset that some. We didn't guide for Q2 on price costs, but for the full year, we do expect to return to a more normal 1%-2% price based on those areas that is before tariffs. I do want to say that that's before those tariffs, but especially for the businesses where demand remains stronger and we believe we can get price.

David MacGregor (President)

Very good. Thank you very much.

Richard M. Olson (Chairman and CEO)

One moment. Thank you.

Operator (participant)

One moment for our next question. Our next question comes from Tim Wojs with Baird. Your line is open.

Timothy Wojs (Senior Research Analyst)

Hey, everybody. Good morning. Maybe just the first question on some of the moving pieces on tariffs. Could you just remind us kind of how much of your COGS are related to kind of Mexico manufacturing and China supply chain? And then is there how big is Canada? And I guess, do you produce in Canada or do you produce in the U.S.? Just if you could run through a couple of those kind of exposure-related kind of items, I think that'd be helpful.

Richard M. Olson (Chairman and CEO)

Yeah, sure. Tim, as you can fully understand, it's a very dynamic situation. We've had a task force in place since last fall with a scenario for every possibility that you could imagine. And it seems to be changing by on short notice. So we're working that very closely. Just to give you some overall picture of tariff exposure, first of all, the vast majority of our products are made in the United States.

The backlog products that we've talked a lot about over the last couple of years, the golf and grounds and underground businesses are virtually 100% built in the United States. So very little exposure on the professional side. We do have operations in Mexico, and they would be producing some of our residential products and irrigation products. So that's kind of the Mexico exposure in the residential and irrigation areas. But again, vast majority of overall products in the U.S. We do not produce products in Canada. We do have customers in Canada from that perspective as we do part of our global business.

Then back to, I think, the first part of the question for China exposure. We've talked about that that exposure has been significantly, vastly reduced from what it was back in 2017 and 2018 when we last had these conversations. And it's low single digits kind of % of COGS. And we've built into our guidance the first round of the China tariffs that were implemented in February. We've had a chance to process that, and we'll be offsetting those within our year. That's been included in our guidance. So those are probably the major areas. It gets more complicated when you start talking about any reciprocal tariffs, those kinds of things. Those are on the board, but we don't have information to be able to respond to those.

Timothy Wojs (Senior Research Analyst)

Okay. Okay. And I guess if tariffs on China are 20% or the incremental 10% on China and then the 25% on Canada and Mexico, does it stay intact? Is there a ballpark figure in terms of what the gross impact would be for Toro in those situations?

Richard M. Olson (Chairman and CEO)

Yeah. I said it's a moving target right now. So we're working through that process. But with regards specifically to China, we're currently determining what portion we could offset through negotiation with our suppliers. We have the option to strategically move products, sources, and so forth. So that process is in process right now. But we go through the normal process of, first of all, try to minimize the impact of tariffs by making sure we're represented with our industry groups.

We try to mitigate the tariffs with offsetting by changing locations of sources or manufacturing, offsetting with cost savings, negotiating with our suppliers. Then ultimately, the rest of that gets passed through in price. All of those discussions are taking place. We just haven't been able to process that relative to incremental planned tariffs at this point. The key thing for us, Tim, is that we want to, as a market leader, make sure we support our customers and at the same time protect our own business at the same time.

Angela Drake (VP and CFO)

Okay. Just as a reminder, as we said in our remarks, we have included those February enacted Chinese tariffs in our best estimates in the guidance.

Timothy Wojs (Senior Research Analyst)

Okay. Okay. I understand. On the field channel inventory, just in kind of the pro kind of grounds business, landscape contractor business, Rick, where are you relative to normal at this point in kind of the year? And I guess, what's the sentiment like when you talk to your distributor and dealers just around expectations for sales and just how much kind of inventory they're kind of willing to kind of hold?

Richard M. Olson (Chairman and CEO)

I think the areas that we've talked about where we've been working down our inventory on the pro landscape contractor side, especially the products that typically get sold to homeowners in that category, we're pretty much where we left off when we started talking about this in the latter part of last year. We're a little bit higher than we would like to be typically, but vastly improved over a year ago at this time.

It's really when you get into the key selling season where we'll have another opportunity to reset that even further as we get into the spring. But we are in position to be able to do that. The great thing is, I think we mentioned our Exmark Lazer Z introduction. New products really help to fuel demand that help us move that product faster. So we're a little bit higher than we'd like to be, much better than last year, and in position for the spring in that landscape contractor area. The underground business, for example, is still well under where we should be with our field inventory. We feel good about where we are with the golf products. So it's really kind of isolated to landscape contractor.

As a result of a little bit less snow, we do have higher snow inventories, but that's been built into our projection for the rest of the year as well. It just means a little bit less pre-season ship in, but that's been built in now to our plan.

Timothy Wojs (Senior Research Analyst)

Okay. And then just the last one. On underground, I mean, it's been mentioned as a growth driver for the past several quarters. I guess it wasn't kind of mentioned as one in pro this quarter. So just given what you just said about the fact that field inventory could be higher there, and I assume there was still a backlog there, is it a timing issue there? Just trying to understand kind of what happened with the underground business in the quarter.

Richard M. Olson (Chairman and CEO)

Yes. I think you pretty much outlined it. We continue to see very, very strong demand in the underground space and feel very positive about that business. It just didn't rise to some of the other categories that we talked about as we go through the process of our comments. We also are introducing new products in that area. So there's a little bit of a ramp-up taking place. It's a timing factor strictly. Still very positive, still strong driver of our future.

Timothy Wojs (Senior Research Analyst)

Okay. Okay. Sounds good. Thanks for the time.

Richard M. Olson (Chairman and CEO)

Yeah. Thank you.

Operator (participant)

One moment for our next question. Our next question comes from Ted Jackson with Northland. Your line is open.

Ted Jackson (Managing Director and Senior Equity Research Analyst)

Oh, thanks very much. Actually, I had three questions to ask, and two have been hit, but I do have a kind of a nuanced one on going back into tariffs. With regards, so I know it's your favorite topic, Rick, but with regards to going back, you said you didn't have anything with retaliatory tariffs. But how much? Two parts. One is, how much product do you actually make here in the States that actually is exported that could come at risk if there were retaliatory tariffs?

And then going back to Mexico and the products that you make there, how hard would it be for you to shift production and bring some of that stuff into the U.S.? Is it something that you would think would be worthwhile to do, or is it the kind of thing where you just have to deal with the tariffs and that's it? That'd be basically my question for you. Thanks.

Richard M. Olson (Chairman and CEO)

Okay. Sure. First of all, on the first part, it would really be the ratio that we're looking at is 80% of our sales are in the U.S., and the vast majority of our products are produced in the U.S. So it would be the net difference that we sell. The 20% that we sell internationally could be subject to whatever retaliatory measures might be there. With regard to the residential products, we do have flexibility to move that product around. Some of it's easier to move than others, but it's really primarily focused on kind of the cost-competitive type of product. So it's a core of our residential business, not 100% of our residential business that's in Mexico.

Ted Jackson (Managing Director and Senior Equity Research Analyst)

Okay. And then actually, can I ask just quickly, what would have been, how much was Pope in the last quarter? Just to kind of get a sense in terms of the dynamic with its impact on kind of the year-over-year for you. And then I'm done. Thanks.

Angela Drake (VP and CFO)

Yeah. The Pope piece for Q1 was probably about $7.5 million in sales. Oh, minor.

Ted Jackson (Managing Director and Senior Equity Research Analyst)

Okay.

Angela Drake (VP and CFO)

Last year. Yeah. Yeah. Last year.

Ted Jackson (Managing Director and Senior Equity Research Analyst)

Right. So thanks very much.

Richard M. Olson (Chairman and CEO)

Okay. Thanks, Ted.

Operator (participant)

And I'm not showing any further questions at this time. This concludes the question-and-answer session. Ms. Kerekes, please proceed with closing remarks.

Julie Kerekes (Treasurer and Senior Managing Director of Global Tax and Investor Relations)

Thank you, Kevin. And thank you, everyone, for your questions and interest in the Toro Company. We look forward to talking with you again in June to discuss our fiscal 2025 second quarter results.

Operator (participant)

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.