Business Overview and History Toro was founded in 1914 in Bloomington, Minnesota, initially focused on the manufacture of steam-powered traction engines and farm tractors. Over the decades, the company has strategically expanded its product portfolio and geographic reach, transforming into a diversified provider of professional turf maintenance equipment, irrigation systems, landscaping equipment, snow and ice management products, and residential yard care solutions.
In the 1950s and 1960s, Toro continued its growth trajectory, making strategic acquisitions and expanding internationally. The company was an early pioneer in the development of automatic sprinkler systems, entering the irrigation business in the 1960s. This move laid the foundation for Toro's later dominance in the professional and residential landscaping and irrigation markets.
Despite facing challenges in the 1970s and 1980s, including a major restructuring in the late 1970s, Toro successfully rebounded and maintained its position as a leading manufacturer of outdoor power equipment and irrigation systems. The company's resilience and adaptability during this period demonstrated its ability to navigate industry challenges effectively.
Throughout its history, Toro has pursued a strategy of growth through acquisitions, consistently broadening its product portfolio and distribution channels by acquiring competitors and complementary businesses. This approach has allowed the company to strengthen its market position and expand its offerings across various segments of the outdoor environment solutions industry.
Financial Performance and Ratios Toro's financial performance has been strong, with the company consistently reporting solid revenue and profitability metrics. In its most recent fiscal year ended October 31, 2024, the company reported net sales of $4.58 billion and net income of $418.9 million, representing a net profit margin of 9.1%.
The company's balance sheet remains healthy, with a current ratio of 1.90 and a debt-to-equity ratio of 0.67 as of January 31, 2025, indicating a well-managed capital structure. Toro's return on equity (ROE) stood at 25.8% in fiscal 2024, showcasing the efficient utilization of shareholder capital.
In the first quarter of fiscal 2025, Toro reported revenue of $995 million, a slight decrease of 0.7% compared to the same period in the previous year. Net income for the quarter was $52.8 million, representing a decrease of 18.7% year-over-year. The company's adjusted diluted earnings per share (EPS) for the quarter was $0.65, up from $0.64 in the same period last year.
Operational Efficiency and Cash Flow Toro's commitment to operational excellence is evident in its cash flow generation. In fiscal 2024, the company reported operating cash flow of $569.9 million and free cash flow of $466.4 million, representing a strong conversion rate of 111.3% of net income. This robust cash flow profile enables Toro to fund its growth initiatives, maintain a disciplined capital allocation strategy, and provide returns to shareholders through dividends and share repurchases.
Segment Performance Toro operates in two reportable business segments: Professional and Residential.
The Professional segment includes products and services used primarily in the professional market, such as turf maintenance equipment, irrigation systems, snow and ice management products, and agricultural irrigation systems. In the first quarter of fiscal 2025, the Professional segment reported net sales of $768.8 million, up 1.6% compared to the prior year period. This increase was driven primarily by higher shipments of golf and grounds products and zero-turn mowers, along with net price realization, partially offset by lower shipments of compact utility loaders. The segment's earnings increased 12.8% compared to the first quarter of fiscal 2024, with the earnings margin improving to 16.5% from 14.9%.
The Residential segment includes products used primarily in the residential market, such as lawn mowers, snow throwers, residential zero-turn mowers, and related accessories. In the first quarter of fiscal 2025, Residential segment net sales decreased 8.0% to $221.0 million compared to the first quarter of fiscal 2024. The decrease was primarily driven by lower shipments of snow and portable power products, the prior year divestiture of the Pope garden watering and irrigation business, and higher sales promotions and incentives, partially offset by higher shipments of zero-turn and walk power mowers. The segment's earnings decreased 26.8% compared to the first quarter of fiscal 2024, with the earnings margin declining to 7.8% from 9.8%.
International Performance Toro's international net sales increased by $6.4 million in the first quarter of fiscal 2025 compared to the same period in fiscal 2024. This growth was primarily attributed to higher shipments of Professional segment products, partially offset by lower shipments of Residential segment products.
Innovative Product Pipeline and Market Leadership Toro's success is underpinned by its focus on innovation and the development of cutting-edge solutions for its customers. The company's research and development efforts have yielded a strong pipeline of new products, including advancements in robotic mowing, smart irrigation systems, and sustainable equipment for the golf and grounds care markets.
Toro's market leadership is particularly evident in its Professional segment, which accounts for approximately 77% of the company's total revenue. The segment's strong performance in the most recent quarter, driven by demand for golf and grounds maintenance equipment and the successful launch of new zero-turn mower models, underscores the company's continued dominance in professional markets.
The Residential segment, while facing some near-term headwinds related to elevated field inventories and lower snowfall, remains a crucial part of Toro's diversified business model. The company's focus on delivering innovative and user-friendly solutions for homeowners has helped it maintain its position as a leading provider in the lawn and garden equipment market.
Sustainability and Environmental Stewardship Sustainability is a core component of Toro's business strategy, with the company integrating environmental considerations into its product development and manufacturing processes. Toro's efforts in this area include the introduction of battery-powered equipment, water-saving irrigation systems, and the use of recycled materials in its products.
The company's commitment to sustainability has been recognized through various industry awards and partnerships, further solidifying its reputation as a responsible corporate citizen. Toro's focus on environmental sustainability aligns with the growing demand from both professional and residential customers for eco-friendly outdoor solutions.
Risks and Challenges As with any industry, Toro faces a range of risks and challenges that could impact its future performance. These include:
1. Macroeconomic conditions: The company's sales are influenced by broader economic trends, consumer confidence, and factors such as interest rates and housing market activity.
2. Competitive landscape: Toro operates in a highly competitive industry, with the need to continuously innovate and maintain its technological edge.
3. Supply chain disruptions: The company's operations can be affected by supply chain challenges, including raw material availability and logistics bottlenecks.
4. Regulatory and legislative changes: Evolving regulations related to environmental standards, emissions, and safety requirements can impact Toro's product development and compliance costs.
5. Weather volatility: The company's sales of snow and ice management products are susceptible to fluctuations in weather patterns, which can create demand volatility.
Toro's management team has demonstrated the ability to navigate these challenges through strategic initiatives, operational agility, and a strong focus on customer needs. The company's diversified product portfolio, global reach, and commitment to innovation continue to position it well for long-term success.
Financials The Toro Company's financial performance has been consistently strong, as evidenced by its solid revenue growth and profitability metrics. In the fiscal year 2024, the company reported net sales of $4.58 billion, representing a year-over-year increase. The net income for the same period stood at $418.9 million, translating to a healthy net profit margin of 9.1%.
Toro's gross margin has remained robust, reflecting the company's ability to manage costs effectively and maintain pricing power in competitive markets. The company's operating margin has also shown resilience, indicating efficient operational management and cost control measures.
In the first quarter of fiscal 2025, Toro reported revenue of $995 million and net income of $52.8 million. While these figures represent slight decreases compared to the same period in the previous year, the company's adjusted diluted EPS showed a modest improvement, increasing from $0.64 to $0.65.
Liquidity Toro maintains a strong liquidity position, which is crucial for supporting its ongoing operations, funding growth initiatives, and navigating potential market uncertainties. As of January 31, 2025, the company reported a current ratio of 1.90 and a quick ratio of 0.76, indicating its ability to comfortably meet short-term obligations.
The company's cash and cash equivalents stood at $171.3 million as of January 31, 2025. Additionally, Toro had $712.8 million in available borrowing capacity under its $900 million revolving credit facility. This combination of cash on hand and available credit provides ample liquidity to support its operational needs and strategic investments.
Toro's strong cash flow generation, with an operating cash flow of $569.9 million in fiscal 2024, further enhances its liquidity profile and financial flexibility. The company's total debt of $1.04 billion and total equity of $1.55 billion as of October 31, 2024, results in a debt-to-equity ratio of 0.67, indicating a well-balanced capital structure.
Guidance and Future Outlook For the full year fiscal 2025, Toro is maintaining its previously provided guidance. The company expects total company net sales growth in a range of 0-1%, with the Professional segment net sales projected to increase in the low-single digits and the Residential segment net sales anticipated to decrease in the high-single digits. Adjusted diluted EPS is expected to be in the range of $4.25 to $4.40.
For the second quarter of fiscal 2025, Toro anticipates total company net sales to be similar year-over-year, with Professional segment net sales up in the low-single digits and Residential segment net sales down in the mid-single digits. Adjusted diluted EPS for the second quarter is expected to be slightly lower than the prior year's $1.40.
It's important to note that this guidance excludes the impact of any new tariffs, except for the additional tariffs on China imports that came into effect in February.
Conclusion The Toro Company's rich history, industry-leading position, and focus on sustainable innovation make it a compelling investment opportunity in the outdoor equipment and solutions market. With a track record of consistent financial performance, a robust cash flow profile, and a clearly defined growth strategy, Toro appears well-positioned to capitalize on the evolving needs of both professional and residential customers worldwide.
The company's ability to maintain strong performance in its Professional segment, while navigating challenges in the Residential segment, demonstrates its resilience and adaptability. As Toro continues to innovate and expand its product offerings, particularly in areas such as sustainable and smart technologies, it is likely to reinforce its market leadership and drive long-term growth.