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TC

TORO CO (TTC)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 FY2024 delivered year-over-year top and bottom-line growth: net sales rose 9% to $1.08B and adjusted diluted EPS increased 34% to $0.95; reported diluted EPS was $0.87 .
  • Sequentially, net sales and EPS were lower versus Q3 (seasonal), as mix skewed more toward lower-margin Residential and snow shipments were lighter; consolidated gross margin declined to 32.4% (adjusted 32.3%) from 33.5% (adjusted 33.6%) in Q4 FY2023 .
  • Full-year free cash flow surged to $470.7M with 112.4% conversion, funding ~$250M of share repurchases and a dividend increase to $0.38; Board authorized an additional 4M shares for buybacks, and TTC refinanced credit facilities to expand revolver capacity .
  • FY2025 guidance: net sales growth of 0%–1% and adjusted diluted EPS of $4.25–$4.40; management targets higher adjusted gross and operating margins and aims to normalize elevated backlog (~$1.2B exiting FY2024) by year-end while rolling out autonomous products across residential, commercial, and golf .

What Went Well and What Went Wrong

  • What Went Well

    • Strength in Professional: Q4 Professional net sales +10.3% to $913.9M and segment margin rose to 18.6% on productivity, price, and mix; underground construction and golf & grounds saw sustained demand and higher output .
    • Residential mass channel momentum (Lowe’s): residential net sales +4.5% to $155.1M driven by mass channel shipments; management cited “exceptional top-line growth” in residential with successful new zero-turn products and Lowe’s partnership (“Vendor of the Year”) .
    • Cash generation and capital returns: free cash flow reached $470.7M (112.4% conversion), enabling ~$245.5M in repurchases and dividend increase to $0.38; revolver upsized to $900M to enhance flexibility .

    Management quotes:

    • “We delivered our 15th consecutive year of net sales growth in what remained an extremely dynamic environment.”
    • “Adjusted diluted EPS [Q4] was in line with our expectations.”
    • “We were extremely pleased to deliver a significant increase in free cash flow… just over $470 million… conversion rate of 112.4%.”

  • What Went Wrong

    • Residential profitability pressure: Q4 Residential recorded a loss of $13.8M (−8.9% margin) on higher material/freight, warranty/marketing expenses, and mix (lower snow, more entry-level zero-turns) .
    • Margin compression: consolidated gross margin fell to 32.4% (adjusted 32.3%) due to higher material/freight/manufacturing costs; operating margin was 10.1% (adjusted 10.9%) .
    • Elevated field inventories in lawn care and snow: management continues to work down dealer field inventory; snow shipments remained lower, with normalized inventories and in-season replenishment dependent on more typical snowfall .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Revenue ($USD Millions)$983.2 $1,156.9 $1,076.0
Diluted EPS (Reported) ($)$0.67 $1.14 $0.87
Diluted EPS (Adjusted) ($)$0.71 $1.18 $0.95
Gross Margin (%)33.5% 34.8% 32.4%
Gross Margin (Adjusted, %)33.6% 35.4% 32.3%
Operating Margin (%)9.6% 12.8% 10.1%
Operating Margin (Adjusted, %)10.1% 13.7% 10.9%
Effective Tax Rate (%)19.1% 17.3% 17.7%
Effective Tax Rate (Adjusted, %)19.3% 18.0% 16.9%

Segment breakdown (net sales and earnings):

SegmentQ4 2023 Net Sales ($MM)Q3 2024 Net Sales ($MM)Q4 2024 Net Sales ($MM)
Professional$828.9 $880.9 $913.9
Residential$148.4 $267.5 $155.1
Other$5.9 $8.5 $7.0
SegmentQ4 2023 Earnings Before Tax ($MM)Q3 2024 Earnings Before Tax ($MM)Q4 2024 Earnings Before Tax ($MM)
Professional$124.5 $165.7 $169.7
Residential$4.5 $32.6 $(13.8)
Other$(42.1) $(54.1) $(46.6)

KPIs and balance sheet (chronological columns shown):

MetricQ4 2023Q4 2024
Accounts Receivable ($MM)$407.4 $459.7
Inventories ($MM)$1,087.8 $1,038.9
Cash and Equivalents ($MM)$193.1 $199.5
Long-term Debt ($MM)$1,031.5 $911.8
Free Cash Flow ($MM, FY)$164.4 (FY2023) $470.7 (FY2024)
FCF Conversion (%)49.9% (FY2023) 112.4% (FY2024)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent/ActualChange
Adjusted Diluted EPSFY2024$4.25–$4.35 (reaffirmed Q2) $4.15–$4.20 (revised Q3) Lowered in Q3
Adjusted Diluted EPSFY2024$4.15–$4.20 (Q3 guide) $4.17 (Actual) Delivered within revised range
Net Sales GrowthFY2024Low single-digit (Q2) ~1% (Q3 update) Narrowed to ~1%
Net Sales GrowthFY2025—0%–1% New guide
Adjusted Diluted EPSFY2025—$4.25–$4.40 New guide
Adjusted Op. MarginFY2025—Higher YoY (qualitative) Raised (qualitative)
Adjusted Gross MarginFY2025—Higher YoY (qualitative) Raised (qualitative)
Adjusted Effective Tax RateFY2025—~20% New guide
D&AFY2025—$125–$135M New guide
Interest ExpenseFY2025—~$54M New guide
FCF ConversionFY2025—~100% of reported net income New guide
Segment Net SalesFY2025—Professional: up low single digits; Residential: down high single digits New segment guide
Q1 Adjusted EPSFY2025 Q1—Slightly lower YoY New quarterly color
DividendFY2025 Q1$0.36 prev.$0.38 (raised Dec 10, 2024) Raised
Buyback AuthorizationFY2025 entry~4M outstanding+4M shares added Increased authorization

Earnings Call Themes & Trends

TopicQ2 FY2024 (Prior-2)Q3 FY2024 (Prior-1)Q4 FY2024 (Current)Trend
AMP Productivity & MarginsLaunched AMP; on track for ≥$100M run-rate savings by FY2027; reaffirmed FY2024 adj. EPS guide AMP progress; supplier summit; portfolio actions; FY2024 adj. EPS revised to $4.15–$4.20 “AMP It Up” employee initiative targeting ≥14% adjusted operating margin by FY2026; FY2025 margins guided higher Strengthening execution
Backlog & OutputElevated backlog in underground & golf; output ramp within footprint Backlog down YoY/seq but still elevated; normalization targeted by end of FY2025 Backlog ~$1.2B; “south of $600M” considered normal; target near-normal by end FY2025 Normalizing through FY2025
Residential Mass Channel (Lowe’s)26% Residential growth; Lowe’s partnership supporting mass channel Residential +53%; homeowner caution in dealer channel; continued field inventory reduction Q4 growth +4.5%; profitability pressured; Lowe’s momentum continues Mixed: sales solid, margins soft
Snow & Ice ManagementExpect reduced preseason sell-in due to last winter Elevated field inventory; watch La Niña and in-season orders Snow shipments lower; expect better second-half FY2025 with normalized field levels Cautious near-term; potential H2 uplift
Autonomous/Tech InitiativesFocus on alternative power, smart connected, autonomous; product pipeline highlighted Continued innovation emphasis in key tech areas Early-2025 launches: Toro Haven, Exmark Turf Tracer XiQ, GeoLink autonomous fairway mower Accelerating commercialization
Tariffs/MacroMonitoring macro; reaffirming guide; working capital improvements Macro caution in homeowner markets; guide cut; watch rates/election Tariffs not in guidance; most production U.S./Mexico; China risk reduced since 2016 Managed exposure
Inventory Financing (Red Iron)Red Iron DSO −46 days Q/Q; recoup portion of floor plan via JV Progress toward normal field inventory by year-end DSO ticked up seasonally but improved YoY; channel remains financially sound Stabilizing

Management Commentary

  • Strategic positioning: “Our market leadership positions across our portfolio remain strong… elevated order backlog [underground, golf]… expect demand will remain robust” .
  • Margin ambition: “AMP It Up… goal to achieve a total company adjusted operating earnings margin of at least 14% by full year fiscal 2026.”
  • Autonomous roadmap: “Upcoming retail launches of autonomous products across our portfolio… Toro Haven robotic mower, Exmark Turf Tracer with XiQ technology, GeoLink Solutions autonomous fairway mower.”
  • Capital allocation: “We invested nearly $250 million in fiscal 2024 to repurchase about 2.8 million shares… Board authorized an additional 4 million shares… increased dividend 6%.”
  • Supply/macro: “We expect backlog will be close to normal by the end of fiscal 2025… expect to be positioned much better than last year as we head into the upcoming turf season and snow pre-season.”

Q&A Highlights

  • Residential profitability: Q4 Residential loss was anticipated given lower volume, snow mix, and higher freight/warranty/marketing; full-year Residential margin ~8% .
  • Revenue outlook moderation: Despite tailwinds in Pro, caution among homeowners and weaker snow weighed on the FY2025 total outlook (0%–1% growth) versus earlier discussions of higher growth .
  • Backlog normalization target: Year-end FY2025 backlog “south of $600M” considered normal; current backlog ~$1.2B .
  • AMP It Up details: Two-year employee initiative focused on profitability and productivity; internal goal, not guidance .
  • Tariffs and production footprint: Tariffs not embedded in guidance; majority of Professional produced in U.S.; some production in Mexico; China risk substantially reduced since 2016 .

Estimates Context

  • Wall Street consensus (S&P Global) was unavailable due to data access limits; as a result, a formal beat/miss vs consensus cannot be provided. Management indicated Q4 adjusted diluted EPS was “in line with our expectations,” but this refers to company outlook rather than Street consensus .

Key Takeaways for Investors

  • Professional strength offsets consumer caution: Underground and golf remain structurally robust with elevated demand and improving output—key drivers for margin expansion under AMP, while homeowner-linked channels normalize inventory through FY2025 .
  • Mix headwinds likely near term: Expect continued margin variability from Residential and snow; FY2025 guide implies flat topline but higher adjusted margins—watch execution on AMP savings and product mix .
  • Cash returns supported by FCF: Free cash flow acceleration (112% conversion) underpins dividend increases and expanded repurchases; revolver upsizing adds balance sheet flexibility .
  • Backlog normalization path reduces 2026 “air-pocket” risk: Management aims to avoid a shipment cliff by balancing output with durable demand in underground/golf and recovery in lawn care/snow .
  • Autonomous launches could be a multi-year catalyst: Early-2025 launches across residential, commercial, and golf align with labor constraints; monitor adoption curves and margin impact .
  • Near-term trading: Sentiment likely sensitive to winter snowfall and Q1 EPS (guided slightly lower YoY), plus any macro rate changes affecting homeowner demand .
  • Medium-term thesis: Margin expansion via AMP It Up and normalization of inventory/backlog, combined with innovation leadership and channel strength (Lowe’s), support improving profitability into FY2026 .