The Toro Company Q4 FY2025 earnings call

• The team leveraged diverse portfolio, delivered better-than-expected fourth quarter sales and adjusted EPS. - Achieved full-year professional segment earnings margin of 19.4%. - Generated record free cash flow of $578 million, conversion rate 146%, returned $441 million to shareholders. - Increased AMP savings target to $125 million by end of 2026. - Acquired Tornado Infrastructure Equipment, a leading manufacturer of vacuum excavation and industrial equipment. - Launched innovative products like autonomous GeoLink fairway mower and Toro Grandstand Multiforce. - Implemented productivity actions including facility closures, workforce reduction, divestitures, and supply chain strategies.

Professional segment: Fourth quarter net sales were $910 million, virtually equal to the prior year's strong performance. Full-year professional segment net sales rose 1.9% to $3.62 billion, which comprises about 80% of the total company. Fourth quarter earnings were $174.7 million, up 2.9% year-over-year with a margin of 19.2%. Full-year professional segment earnings were $702.5 million with a margin of 19.4%. Residential segment: Fourth quarter net sales were $147 million, 5.1% lower than prior year but exceeded expectations due to net price realization and higher snow product shipments. Full-year residential segment net sales were $858.4 million, down 14% from prior year, with full-year earnings of $35.8 million, 4.2% of segment net sales.

• Fiscal 2026 total company net sales expected to rise 2% to 5%, with professional segment sales growing mid-single digits and residential segment sales declining low to mid-single digits. - Adjusted gross margin expected to improve in 2026. - Full-year 2026 adjusted earnings per diluted share expected in range of $4.35 to $4.50. - First-quarter 2026 total company net sales expected to be slightly up from prior year, professional segment sales up mid-single digits, residential segment sales down high teens. - Quarterly adjusted earnings per diluted share expected flat to slightly lower than prior year's first quarter. - Raised quarterly dividend from $0.38 to $0.39 and authorized repurchase of up to 6 million additional shares.

• Macro factors including inflation, interest rates, and consumer confidence that may pressure residential segment. - Variability in tariffs which could impact margins. - Uncertainty in residential segment recovery rate influenced by macroeconomic environment and consumer sentiment.

Q: David MacGregor asked about guidance, AMP program, and raw material costs.

A: Rick Olson and Angie Drake discussed that growth is a mix of Tornado acquisition, pro segment strength, and cautious residential outlook; AMP savings target increased due to progress in supply, value, route to market, and operational efficiency; raw material costs expected to have inflation early in 2026 then settle.

Q: Joshua Wilson asked about channel inventories, backlog, and 2026 margin guidance.

A: Rick Olson and Angie Drake responded that channel inventories are in good shape, backlog improved by $100 million year-over-year, and 2026 professional margin range is due to AMP benefits, mix, and Tornado acquisition impact.

Q: Ted Jackson asked about incentive comp and tariffs.

A: Angie Drake said incentive comp is back to normal rate; Rick Olson discussed tariff breakdown for 2026, including steel/aluminum, China-related, and general tariffs, and that variability is built into guidance.