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TC

TORO CO (TTC)·Q1 2025 Earnings Summary

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 .

Financial Results

Consolidated trend (quarters ordered oldest → newest)

MetricQ3 2024Q4 2024Q1 2025
Net Sales ($USD Millions)$1,156.9 $1,076.0 $995.0
Diluted EPS ($)$1.14 $0.87 $0.52
Adjusted Diluted EPS ($)$1.18 $0.95 $0.65
Gross Margin (%)34.8% 32.4% 33.7%
Adjusted Gross Margin (%)35.4% 32.3% 34.1%
Operating Margin (%)12.8% 10.1% 7.8%
Adjusted Operating Margin (%)13.7% 10.9% 9.4%
Interest Expense ($USD Millions)$14.5 $14.5 $15.0
Effective Tax Rate (%)17.3% 17.7% 20.1%
Adjusted Effective Tax Rate (%)18.0% 16.9% 20.2%

Year-over-year vs Q1 2024

MetricQ1 2024Q1 2025YoY Δ
Net Sales ($USD Millions)$1,001.9 $995.0 -1%
Diluted EPS ($)$0.62 $0.52 -$0.10
Adjusted Diluted EPS ($)$0.64 $0.65 +$0.01
Gross Margin (%)34.4% 33.7% -70 bps
Adjusted Gross Margin (%)34.4% 34.1% -30 bps
Operating Margin (%)8.8% 7.8% -100 bps
Adjusted Operating Margin (%)9.2% 9.4% +20 bps

Segment breakdown (Q1)

SegmentNet Sales ($USD Millions)Segment Earnings ($USD Millions)Segment Earnings Margin (%)Period
Professional$756.5 $112.8 14.9% Q1 2024
Professional$768.8 $127.2 16.5% Q1 2025
Residential$240.1 $23.5 9.8% Q1 2024
Residential$221.0 $17.2 7.8% Q1 2025
Other$5.3 ($56.2) N/AQ1 2024
Other$5.2 ($78.3) N/AQ1 2025

KPIs and cash flow

KPIQ1 2025Q1 2024
International Net Sales ($USD Millions)$211.4 $205.0
Cash from Operating Activities ($USD Millions)($48.6) ($92.2)
Free Cash Flow ($USD Millions)($67.7) ($111.3)
FCF Conversion (%)-128.2% -171.5%
Inventory ($USD Millions)$1,143.1 $1,177.1
Share Repurchases ($USD Millions)$100.0 $0.0
Backlog at prior quarter-end ($USD Billions)$1.2 (Q4 FY24) N/A

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Company Net Sales GrowthFY 20250%–1% 0%–1% Maintained
Adjusted Diluted EPS ($)FY 2025$4.25–$4.40 $4.25–$4.40 Maintained
Professional Segment Net SalesFY 2025Up low single digits Up low single digits Maintained
Residential Segment Net SalesFY 2025Down high single digits Down high single digits Maintained
Adjusted Gross & Operating MarginFY 2025Improve YoY Improve YoY Maintained
Interest Expense ($)FY 2025~$54M ~$54M Maintained
Adjusted Effective Tax RateFY 2025~20% ~20% Maintained
Free Cash Flow ConversionFY 2025~100% of net income ~100% of net income Maintained
Capital Expenditures ($)FY 2025~$100M ~$100M Maintained
Adjusted Diluted EPS (Q2)Q2 2025N/ASlightly lower than last year’s $1.40 New quarterly color
DividendQ1 & Q2 2025N/A$0.38/share declared Mar 18 and May 20 Announced

Note: Guidance explicitly excludes the impact of incremental tariffs introduced year to date, except for additional China tariffs effective in February .

Earnings Call Themes & Trends

TopicQ3 2024 (Q-2)Q4 2024 (Q-1)Q1 2025 (Current)Trend
AMP productivitySupplier summit, rebranding actions; reiterated $100M by FY27 Workforce reduction, larger revolver; backlog $1.2B; margin ambitions (AMP It Up) $64M run-rate; $7M realized in Q1; continued supply-base transformation Strengthening execution
Autonomous/techGroundsmaster e3200, innovation focus Broader autonomous launches planned in FY25 (Haven, Turf Tracer XiQ, GeoLink) Turf Pro mower, Range Pro robot, Intelli360, Lynx Drive; TerraRad Spatial Adjust software Expanding deployments
Supply chain/inventoryDealer field inventories ~80% normalized; CULs replenished Backlog $1.2B; target “south of $600M”; field inventories better positioned heading into turf/snow seasons Lawn care and snow field inventories still elevated but improving; professional inventories better Normalizing, still in progress
Tariffs/macroMacro caution in homeowner markets; El Niño/La Niña commentary Guidance excludes un-enacted policy changes; majority US manufacturing Guidance excludes incremental tariffs (except Feb China); China COGS exposure low single digits; Mexico production primarily residential/irrigation Policy uncertainty heightened
Product performanceProfessional: golf/underground strength; residential mass strong Pro: 18.6% margin; residential loss on mix/costs; new Exmark Lazer Z Pro growth (golf, zero-turns) offset by residential snow weakness Mix favorable to Professional
Regional trendsInternational net sales cadence and mass channel impact International receivables up; Canada customers only; not producing in Canada International net sales $211.4M; no production in Canada; Mexico exposure noted Stable; limited China exposure

Management Commentary

  • “Fiscal 2025 is off to a solid start as we exceeded our first-quarter bottom-line expectations… the continued momentum of our AMP initiative, and the improvement of our professional segment earnings margin” (Rick Olson, CEO) .
  • “We introduced our new Toro Turf Pro autonomous mower… Toro Range Pro golf ball picking robot… all-new Intelli360… renewed Lynx Drive… exclusive partnership with TerraRad… data-driven soil moisture sensing… Spatial Adjust” .
  • “We’ve delivered $64 million in run-rate cost savings to-date… on track to deliver $100 million by fiscal 2027” .
  • “Due to the uncertain and rapidly changing tariff environment, this guidance excludes all incremental tariffs… with the exception of the additional tariffs on China imports… in February” .

Q&A Highlights

  • AMP savings cadence: $7M gross realized savings in Q1; $49M run-rate implemented in Q1; $64M run-rate to date; reinvestment of a portion; majority of remaining run-rate targeted in FY25 .
  • Tariffs exposure: Majority of products built in U.S.; Mexico production mainly residential/irrigation; China COGS exposure low single digits; guidance includes Feb China tariffs; mitigation via supplier negotiation, sourcing shifts, cost savings, and pricing .
  • Snow inventory dynamics: Overall U.S. snowfall ~13.5% below average; major snow markets down >50%; Pro snow field inventories slightly lower YoY but still higher than desired; contractor budgets healthy heading into spring .
  • Price/cost: Slight price increases, but costs up more on manufacturing/freight; productivity offsets some; full-year price gain expected ~1–2% before tariffs (no Q2 guide) .
  • Pope divestiture impact: Prior-year Q1 Pope revenue was ~$7.5M .

Estimates Context

  • Wall Street consensus (S&P Global) could not be retrieved due to an API limit error. As a result, we cannot provide formal EPS/revenue comparison vs consensus for Q1 2025 here. Management noted bottom-line exceeded internal expectations, but that is not a proxy for a Street beat/miss .
  • Future updates should incorporate S&P Global consensus to assess estimate revisions and beat/miss once access is available.

Key Takeaways for Investors

  • Professional segment margin expansion and mix shift are offsetting residential snow weakness; expect continued strength in golf/underground with backlog normalization over FY25 .
  • Productivity (AMP) is a real earnings lever; $64M run-rate to date with $7M realized in Q1 supports guidance resilience despite macro/tariff uncertainty .
  • Technology pipeline (autonomous and connected solutions) is a secular catalyst across golf and commercial turf; watch early adoption and margin impact in FY25–26 .
  • Guidance is conservative on tariffs (excludes most new increments) and assumes normalized weather; monitor policy developments and snowfall trajectory into 2H .
  • Seasonal cash use in Q1 is normal; FCF conversion targeted ~100% for FY25; share repurchases and dividend ($0.38/qtr) signal cash confidence .
  • Inventory/channel health continues to improve; dealer field levels for lawn care/snow should be better positioned heading into the turf season and 2H pre-season .
  • Near-term trading: mix-driven margin tailwinds and tariff headlines likely to drive sentiment; medium-term thesis: backlog normalization, AMP savings realization, and autonomous/tech differentiation underpin margin improvement and EPS delivery .