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TC

TORO CO (TTC)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 revenue of $1,317.9M declined 2% year over year and missed S&P Global consensus ($1,352.1M*), while adjusted EPS of $1.42 rose 1% YoY and beat consensus ($1.395*) .
  • Guidance cut: FY 2025 adjusted EPS lowered to $4.15–$4.30 (from $4.25–$4.40), and net sales now “flat to down 3%,” citing homeowner caution and late spring; management also set Q3 expectations (flat-to-slightly up sales, EPS slightly above last year’s $1.18) .
  • Professional segment strength (sales +0.8% YoY; margin 19.9%, +90 bps) offset Residential weakness (sales -11.4% YoY; margin 5.4%) .
  • Tariffs and materials costs are headwinds; management plans dollar-for-dollar mitigation via pricing, AMP productivity, and supply chain actions; tariff exposure estimated at ~3% of COGS and ~$90M in FY25 .
  • Capital returns: $200M YTD share repurchases and $0.38 dividend declared in May; management remains opportunistic on buybacks given cash generation .

What Went Well and What Went Wrong

What Went Well

  • Professional segment profitability improved: earnings $202.1M and margin 19.9% (+90 bps YoY), driven by product mix and productivity .
  • Adjusted EPS beat internal expectations and S&P consensus: $1.42 vs $1.395*; AMP program run-rate savings reached $70M, supporting cost mitigation .
  • Product innovation pipeline continued in alternative power and smart/autonomous solutions (e.g., HyperCell system, EDingo TX750, BOSS Cold Front smart system) .

What Went Wrong

  • Residential segment underperformed: net sales -11.4% YoY to $297.4M, margin fell to 5.4%, impacted by higher costs, lower volume, and inventory valuation adjustments; battery adoption running ~7% vs a 20% target referenced in sustainability discussion .
  • Gross margin compressed: reported 33.1% vs 33.6% YoY; adjusted 33.4% vs 33.6% YoY, with higher material/manufacturing costs and valuation adjustments .
  • FY25 outlook reduced due to homeowner caution and weather timing; Q2 revenue missed consensus and total company FY revenue now guided flat to down 3% .

Financial Results

MetricQ2 2024Q4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$1,349.0 $1,076.0 $995.0 $1,317.9
Reported Diluted EPS ($)$1.38 $0.87 $0.52 $1.37
Adjusted Diluted EPS ($)$1.40 $0.95 $0.65 $1.42
Gross Margin % (Reported)33.6% 32.4% 33.7% 33.1%
Gross Margin % (Adjusted)33.6% 32.3% 34.1% 33.4%
Operating Margin % (Reported)13.9% 10.1% 7.8% 13.3%
Operating Margin % (Adjusted)14.2% 10.9% 9.4% 13.7%
Consensus Revenue ($USD Millions)$1,089.8*$1,004.98*$1,352.1*$1,352.1*
Consensus EPS ($)$0.951*$0.627*$1.395*$1.395*

Estimates marked with * retrieved from S&P Global.

Segment breakdown

MetricQ2 2024Q1 2025Q2 2025
Professional Net Sales ($MM)$1,005.6 $768.8 $1,014.1
Professional Segment Earnings ($MM)$190.7 $127.2 $202.1
Professional Segment Margin (%)19.0% 16.5% 19.9%
Residential Net Sales ($MM)$335.6 $221.0 $297.4
Residential Segment Earnings ($MM)$36.1 $17.2 $16.1
Residential Segment Margin (%)10.8% 7.8% 5.4%

KPIs

KPIQ4 2024Q1 2025Q2 2025
Interest Expense ($MM)$14.5 $15.0 $15.8
Effective Tax Rate (%)17.7% 20.1% 18.9%
Free Cash Flow ($MM, YTD)—$(67.7) (Q1) $84.7 (six months)
FCF Conversion (%)—(128.2)% (Q1) 44.7% (six months)
Share Repurchases YTD ($MM)—$100 $200

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Company Net Sales GrowthFY 20250% to 1% Flat to down 3% Lowered
Adjusted Diluted EPSFY 2025$4.25–$4.40 $4.15–$4.30 Lowered
Net SalesQ3 2025N/AFlat to slightly up YoY New
Adjusted Diluted EPSQ3 2025N/ASlightly above last year’s $1.18 New
Adjusted Operating MarginQ3 2025N/ASimilar YoY; Pro up slightly, Res down New
Interest ExpenseFY 2025N/A~$59M New
Adjusted Effective Tax RateFY 2025N/A~19% New
Dividend per ShareQ2 2025N/A$0.38 (payable Jul 11, 2025) Maintained cadence

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024, Q1 2025)Current Period (Q2 2025)Trend
Tariffs/MacroFY25 guide excluded most new tariffs (except China Feb); macro caution noted Tariff exposure ~3% of COGS; ~$90M FY25; plan dollar-for-dollar mitigation via pricing, AMP, sourcing; steel/aluminum also headwinds Intensifying headwind; mitigation actions accelerating
Supply Chain/ManufacturingOutput improved for underground/golf; backlog reduction targeted by year-end FY25 Mexico footprint rationalization; USMCA exemptions; majority of pro products US-made; targeted pricing actions Strategic repositioning to offset tariffs/costs
Product Innovation/AutonomyAnnounced Haven robotic mower, Range Pro golf ball picker, partnerships; pipeline robust HyperCell electric equipment, EDingo TX750, BOSS Cold Front smart systems; ongoing tech differentiation Continued expansion; technology-led differentiation
Residential DemandElevated snow inventory into Q1; promotions higher in F24; macro caution noted Homeowner caution, trade-down behavior, late spring; inventory valuation adjustment; battery adoption ~7% vs 20% discussed Softer; margin pressure persists
Underground ConstructionStrong end-market runway, elevated backlog (Q4) Demand remains strong; Q2 down due to dealer sales, SKU rationalization, product startups; backlog normalized by FY26 Underlying demand healthy; temporary factors in Q2
Capital AllocationFY24 FCF up, dividend increased; buybacks ~$250M in FY24 $200M YTD buybacks; opportunistic posture; no change to CapEx outlook Ongoing returns; flexibility maintained

Management Commentary

  • “We exceeded our adjusted earnings per share expectation for the quarter… despite a dynamic macroeconomic environment and unfavorable regional weather that pressured top-line growth in some businesses.”
  • “Professional segment earnings margin was 19.9%, up from 19%... due to product mix and productivity improvements.”
  • “Tariff exposure… we estimate in fiscal 2025 to be approximately 3% of our annual cost of goods sold… about that $90 million-ish for 2025 only… we plan to mitigate virtually all of that.”
  • “Battery adoption rates… we talk about battery being 20% of our business. Today, that's somewhere around 7%.”
  • “We repurchased $200 million year-to-date… we will take an opportunistic approach to our share repurchases.”

Q&A Highlights

  • Residential softness drivers: homeowner caution, trade-down to entry-level, late spring; inventory valuation adjustment was a primary margin headwind; amount not disclosed .
  • Tariff mitigation strategy: offset dollar-for-dollar via pricing, AMP productivity, and supply chain optimization; largest exposures from China and steel/aluminum .
  • Underground construction: Q2 decline driven by dealer transactions and SKU rationalization; underlying demand strong with long runway; backlog normalization expected by FY2026 .
  • Pricing/promotions: targeted price increases and surcharges implemented in May; promotions lower vs last year’s comp but still utilized to drive sell-through .
  • Working capital: finished goods a bit higher due to late spring; WIP trending lower; continued focus on inventory and field levels .

Estimates Context

  • Q2 2025: Adjusted EPS $1.42 vs consensus $1.395* (beat); revenue $1,317.9M vs consensus $1,352.1M* (miss) .
  • Q1 2025: Adjusted EPS $0.65 vs $0.627* (beat); revenue $995.0M vs $1,004.98M* (miss) .
  • Q4 2024: Adjusted EPS $0.95 vs $0.951* (in line); revenue $1,076.0M vs $1,089.8M* (miss) .
    Estimates marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • The quarter’s narrative is EPS over delivery and revenue underperformance, driven by Residential weakness; expect near-term sentiment to hinge on guidance reset and Q3 execution .
  • Professional segment strength and margin expansion underpin the thesis; continue to track golf and grounds demand and underground backlog reduction pace .
  • Watch tariff developments: management plans full mitigation; any favorable policy change could be upside to margins and FY25 EPS trajectory .
  • Residential recovery hinges on consumer confidence and battery adoption normalizing; management highlighted 7% battery mix vs 20% long-term notion—implications for mix and margins .
  • Capital returns remain supportive: $200M YTD buybacks and $0.38 dividend; cash generation expected to improve into second half seasonality .
  • Q3 setup: flat-to-slightly up sales with EPS slightly above $1.18; monitor promotions, pricing realization, and inventory management to sustain margins .
  • AMP productivity is a key lever ($70M run rate to date); continued execution should offset input inflation and support margin resilience .