TORO CO Q1 FY2025 earnings call

1. Fiscal 2025 started on a solid note with first quarter bottom line results exceeding expectations despite below-average snowfall in key markets. 2. Total company net sales were nearly $1 billion, with professional segment growth driven by increased output for golf and grounds products and strong channel demand for new contractor-grade zero-turn mowers, while residential segment was affected by elevated field inventories of snow products and the divestiture of Pope Products. 3. The AMP initiative achieved nearly $50 million in run rate savings in the first quarter, with a total to date of $64 million, and is on track to deliver $100 million of annualized run rate savings by fiscal 2027. 4. Showcased innovative products at trade shows, including robotic solutions for golf and advancements in underground construction with the acquisition of ProKASRO Services USA. 5. Focus on innovation to address customers' pressing needs and align with market growth trends, with a commitment to reinvesting up to half of AMP savings to accelerate innovation and long-term growth.

Professional segment net sales for the first quarter were $768.8 million, up 1.6% year-over-year, accounting for approximately 77.3% of the total net sales of $995 million. Its earnings were $127.2 million, representing 16.5% of net sales. Residential segment net sales were $221 million, down from $240 million in the same period last year, accounting for about 22.2% of total net sales. Its earnings were $17.2 million, representing 7.8% of net sales.

Maintaining the full year net sales guidance of 0 to 1% growth and adjusted diluted EPS of $4.25 to $4.40. For the second quarter, total company net sales are expected 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. Expect improvement in adjusted gross margin and operating earnings as a percentage of net sales, and higher earnings margins for both residential and professional segments compared to last year. Guidance considers below-normal snowfall so far this winter and the February China tariffs, excluding the impacts of other incremental tariffs.

1. Uncertain and rapidly changing tariff environment, which could impact profitability and market leadership. 2. Below-normal snowfall in key markets affecting snow product sales and field inventories, which may impact future sales and inventory management.

Q: Good morning, everyone. Thanks for taking my question. Hey, Rick, I want to start by just asking about AMP. And clearly, there's a very good level of progress being made here. But I just want to be clear around kind of the movement in some of the numbers here. You talked about $64 million run rate in cost savings to date, $50 million of that occurred in the first quarter, which is off to a great start. I guess, how much of this reached the bottom line in the first quarter, if any at all? You talked about trying to redirect a portion of that into investment, some portion across the bottom line. Trying to help us understand just how much of that might have benefited 1Q? And then just the cadence on the AMP benefits and the drop to earnings over the remaining three quarters of '25 would be really helpful. Thanks.

A: Yeah. Sure, David. The timing of our emphasis on productivity could not have been better in the current environment. And Angie is leading this initiative. So maybe I'll let Angie, do you want to review? Angie Drake : First of all, address your question on kind of the savings that we saw in the quarter. So you'll see later with the 10-Q that we have $7 million in gross realized savings in the quarter. And remember that we had mentioned that we will reinvest a portion of that. So not all of that necessarily drops to the bottom line. But everything that we have done and everything that we have reinvested, we considered in our full year outlook and included in our guidance. To your point on how we expect to see this play out over the rest of the year, we did see that $49 million run rate savings in Q1, which gets us to $64 million in run rate savings to date. The majority of that did come from the restructuring events that we did in December. And if you'll remember last year, we mentioned that we would expect to see the majority of the rest of what we have left in the $100 million run rate to be achieved in FY '25. So we still have some opportunity with other things like supply base, route to market. The things that we have mentioned are working capital and efficiencies to play out for the rest of the year. However, we haven't defined that exactly by quarter. So what we are confident -- delivering the $100 million.

Q: Good morning, everyone. Maybe just a first question on some of the moving pieces on tariffs. Could you just remind us kind of how much of your COGS are related to kind of Mexico manufacturing and China supply chain? And then is there -- how big is Canada? And I guess do you produce in Canada? Or do you produce in the U.S.? Just -- if you could run through a couple of those kind of exposure related kind of items, I think that would be helpful.

A: Yeah. Sure, Tim. As you can fully understand, it's a very dynamic situation. We've had a task force in place since last fall with a scenario for every possibility that you can imagine, and it seems to be changing by -- on short notice. So we're working that very closely. Just to give you some overall picture of tariff exposure, first of all, the vast majority of our products are made in the United States. The backlog products that we've talked a lot about over the last couple of years, the golf and grounds and underground businesses are virtually 100% built in the United States, so very little exposure on the professional side. We do have operations in Mexico, and they would be producing some of our residential products and irrigation products. So that's kind of the -- that's the Mexico exposure in the residential and irrigation areas. But again, vast majority of overall products in the U.S. We do not produce products in Canada. We do have customers in Canada from that perspective as we do part of our global business. And then back to, I think, the first part of the question for China exposure, we've talked about that that exposure has been significantly vastly reduced from what it was back in 2017 and '18, and we last had these conversations. And it's low-single digits kind of percent of COGS. And we've built into our guidance the first round of the China tariffs that were implemented in February. We've had a chance to process that. And we'll be offsetting those within our year that's been included in our guidance. So those are probably the major areas. It gets more complicated when you start to talk about any reciprocal tariffs, those kinds of things. Those are on the board, but we don't have information to be able to respond to those.

Q: Hi thanks very much. Actually, I had three questions to ask, and two of them have been hit, but I do have a kind of a nuanced one on going back into tariffs. With regards -- so I know it's your favorite topic, Rick. But with regards to -- going back, you said you did a thing with retaliatory tariffs, but is there -- how much -- two parts. One is there -- how much product do you actually make here in the States that actually is exported that could come at risk if there were retaliatory tariffs? And then going back into kind of the Mexico and the products that you make there, how hard would it be for you to shift production and bring some of that stuff into the U.S.? Is it something that you would think would be worthwhile to do? Or is it the kind of thing where you just have to deal with the tariffs and that's it? That would be my -- basically my question for you. Thanks.

A: Okay. Sure. First of all, on the first part, it would really be the ratio that we're looking at is 80% of our sales either in the U.S. and the vast majority of our products are produced in the U.S., so it would be the net difference that we sell, the 20% that we sell internationally could be subject to whatever retaliatory measures might be there. With regard to the residential products, we do have flexibility to move that product around. Some of it's easier to move than others. But it's really primarily focused on the kind of the cost competitive type of product. So it's an orphan of our residential business, not 100% of our residential business that's in Mexico.

Q: Actually, can I ask just quickly like what would have been like -- how much was Pope in the last quarter? Just to kind of get a sense in terms of the dynamic with its impact on kind of the year-over-year for you. Then I'm done. Thanks.

A: Yes. The Pope piece for Q1 was probably about $7.5 million. Last year, yes. Yeah, last year.