The Toro Company (TTC) Q3 2024 earnings summary

Executive summary

• Q3 net sales rose 6.9% year-over-year to $1.16 billion, driven by strong residential mass channel, golf/grounds, and underground construction, with adjusted EPS up 24% to $1.18 per share and reported EPS at $1.14, reflecting productivity gains and improved profitability.

• Residential segment surged 52.6% due to mass channel shipments and Lowe's partnership; professional segment saw growth in underground construction and golf, offset by lower snow and lawn care shipments.

• Order backlog remains elevated, especially in golf and underground construction, with strong demand and record production output, while dealer field inventories of lawn care equipment were significantly reduced.

• AMP productivity initiative is underway, targeting $100M+ in annualized savings by 2027, with non-recurring costs recognized in Q3.

• Macroeconomic caution among homeowners and dealers led to trade-down activity and purchase deferrals, impacting shipments and contributing to a modest full-year outlook.

Financial highlights

• Q3 net sales: $1,156.9M (+6.9% YoY); adjusted gross margin up to 35.4%; adjusted operating margin improved to 13.7%.

• Adjusted diluted EPS grew 24.2% to $1.18; reported EPS was $1.14, up from a loss of $0.14 last year; adjusted net earnings reached $123.7M.

• Professional segment Q3 net sales declined 1.7% to $880.9M; residential segment Q3 net sales jumped 52.6% to $267.5M.

• Free cash flow for nine months reached $270.5M, up from $56.1M last year; cash flow from operations was $329.8M.

• Gross debt to EBITDA ratio improved to 1.4x; leverage ratio within 1–2x target; investment-grade credit ratings maintained.

Outlook and guidance

• Fiscal 2024 net sales growth expected at about 1%, with Professional segment sales down low single digits and Residential segment outpacing company average.

• Adjusted diluted EPS guidance revised to $4.15–$4.20; adjusted gross and operating margins expected slightly lower than last year due to mix.

• Q4 2024: Total company net sales expected up low double digits year-over-year; professional segment up mid-teens, residential segment down low single digits.

• Adjusted effective tax rate revised to ~19.5%.

• Continued strong demand and backlog in underground construction and golf/grounds expected into fiscal 2025.