The Toro Company reported record fiscal second quarter net earnings of $70.1 million, or $1.56 per diluted share, on record net sales of $659 million for the quarter ended May 5, 2006. In the comparable fiscal 2005 period, the company reported net earnings of $62 million, or $1.33 per diluted share, on net sales of $628.4 million.
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For the six months ended May 5, 2006, Toro reported record net earnings of $84.4 million, or $1.87 per diluted share, on record net sales of $1,028.6 million. In the comparable fiscal 2005 period, the company reported net earnings of $73.1 million, or $1.55 per diluted share, on net sales of $975.4 million.
Michael J. Hoffman, The Toro Company's chairman and chief executive officer, says growth in world-wide professional segment sales helped offset slower sales in the residential segment, which were particularly strong last year due to early season shipments to retailers. "With our continued focus on improving operating effectiveness and profitability, we increased our second quarter earnings despite challenges posed by lower residential segment volume and increasing commodity costs," Hoffman says.
SEGMENT RESULTS
Segment data are provided in the table following the "Condensed Consolidated Statements of Earnings."
Professional
Professional segment sales for the fiscal 2006 second quarter increased 12.9 percent to $439.1 million. Sales grew in nearly all product categories due to healthy demand for new products, with particularly strong contributions from landscape contractor equipment and international sales. "Ongoing investments to deliver customer-valued and innovative new products continue to drive strong performance and market share growth in our professional businesses," said Hoffman.
Professional segment earnings for the fiscal 2006 second quarter totaled $104.2 million, up 23.1 percent from $84.6 million in the fiscal 2005 second quarter.
For the year to date, professional segment earnings totaled $145.8 million on a 9.2 percent increase in net sales to $692.7 million compared with earnings of $123.5 million on net sales of $634.3 million in the first half of fiscal 2005.
Residential
Residential segment sales for the fiscal 2006 second quarter totaled $210.3 million, down 7.7 percent compared with the fiscal 2005 second quarter. Domestic sales of riding mowers increased sharply in the quarter due to strong acceptance of new products. However, the growth in riding mower shipments was more than offset by declines in world-wide sales of walk power mowers, primarily due to a large domestic retailer holding less inventory through the first-half of the fiscal year.
Residential segment earnings for the fiscal 2006 second quarter totaled $18.1 million compared with $29 million in the fiscal 2005 second quarter. The decline in residential segment earnings compared to the fiscal 2005 second quarter resulted from lower volumes and the mix of products sold in the 2006 second quarter.
For the year to date, residential segment earnings totaled $23.3 million on net sales of $318.5 million compared with earnings of $33.4 million on net sales of $323.6 million in the first half of fiscal 2005.
REVIEW OF OPERATIONS
Gross margin for the fiscal 2006 second quarter was 34.9 percent, up from 34.5 percent compared with the fiscal 2005 second quarter, primarily due to product mix and the impact of price increases. For the year to date, gross margin improved to 35.2 percent from 34.7 percent in the same period last year.
Selling, general and administrative (SG&A) expenses as a percentage of net sales showed a slight improvement compared with the prior year's second quarter at 18.9 percent versus 19 percent in the 2005 second quarter. As a result of the company's ongoing initiatives to better leverage expenses, the growth in SG&A was held to less than the rate of revenue growth.
Interest expense for the second quarter totaled $5.2 million, up from $4.9 million in the fiscal 2005 second quarter.
The effective tax rate in the 2006 second quarter was 32.1 percent, compared with 33.5 percent in the same period last year, due to tax refunds from prior years' tax returns.
Accounts receivable at quarter end totaled $546.4 million, up only 1.3 percent on the second quarter's 4.9 percent increase in net sales.
Quarter-ending inventory totaled $248.1 million, down $8.8 million or 3.4 percent, compared with the end of the fiscal 2005 second quarter.
BUSINESS OUTLOOK
The company is reaffirming its full year guidance for sales growth of approximately 8 percent for fiscal 2006, assuming the continuation of seasonally normal weather patterns. Despite lower-than-expected sales growth in the first half, Toro is on track to achieve its expectations for earnings growth with a good portion of the retail selling season still ahead.
Given the company's first half performance and current expectations for second half results, Toro now expects fiscal 2006 earnings per share to increase 14 to 17 percent.
