Toro Q3 2003 Earnings Conference Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Jim Lucas - Janney Montgomery & Scott - Analyst : Good morning, guys. It is actually Jim Lucas calling in. How is everyone?

Question: Jim Lucas - Janney Montgomery & Scott - Analyst : Thank you. A couple of questions. I apologize, I missed the first half of the presentation. The question is centered around the balance sheet. If you look inside some of the inventory build going into the fourth quarter, more specifically, the debt to cap continues to come down as you guys have generated cash flow. Can you talk about what the use of that cash might be?

Question: Jim Lucas - Janney Montgomery & Scott - Analyst : Hi, Steve.

Question: Jim Lucas - Janney Montgomery & Scott - Analyst : Okay. And the acquisition environment, is it lack of properties you're seeing or is it more a function of valuations still being a little higher than what you're willing to pay?

Question: Jim Lucas - Janney Montgomery & Scott - Analyst : Okay. From a longer term perspective, you talked about the process improvement. Clearly, that's shown up in the gross margin line. 5x5 has proven to be successful for you and, clearly those continuance improvement mindset continues to develop at the company. Now it seems like gross margins, the low hanging fruit, has been harvested here, but now it seems SG&A is the next area to tackle. Can you talk a little bit about what you're doing to make those improvements going forward?

Question: Jim Lucas - Janney Montgomery & Scott - Analyst : Okay. Well, congratulations on a good quarter. Keep up the good work. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Chris Hanrahan - Sigma Capital - Analyst : Hi, there. You mentioned foreign currency effect. I was wondering if you could quantify that. I know your topline was up 5%. What was the foreign currency benefit?

Question: Chris Hanrahan - Sigma Capital - Analyst : 2 to 3 cents, and then 3.5% to 4% on the topline growth, ex-foreign currency?

Question: Chris Hanrahan - Sigma Capital - Analyst : Okay. Point and a half. Okay. Goodwill and other assets just on the balance sheet up a couple million sequentially. Did you guys do any small acquisitions during the quarter?

Question: Chris Hanrahan - Sigma Capital - Analyst : Can you quantify the topline impacts on the quarter from that acquisition?

Question: Chris Hanrahan - Sigma Capital - Analyst : Okay. I wanted to ask about the whole inventory receivables, just kind of where they're at, with your day's inventory up ten year-over-year, your receivables up about twice the clip as your rate of sales. You mention something at the end of the quarter last -- a push. It sounds like a sell into the channel. Can you explain to me what happened there again?

Question: Chris Hanrahan - Sigma Capital - Analyst : Okay. So can you dove-tail that into your cash flow expectations, obviously, that's affected cash flow for year-to-date. What do you expect for the full year?

Question: Chris Hanrahan - Sigma Capital - Analyst : So the full year '03 numbers will be 75% to 80% of '02 on an operating cash flow?

Question: Chris Hanrahan - Sigma Capital - Analyst : Okay. I spoke with Steve on this. I wanted to ask you. Going through your last 10-Q you mentioned reversing warranty reserves. Did you guys do any of that this quarter?

Question: Chris Hanrahan - Sigma Capital - Analyst : Could you quantify that, Steve?

Question: Chris Hanrahan - Sigma Capital - Analyst : Okay. Thank you.

Question: Dick Henderson - Pershing LLC - Analyst : Hi, guys. Good quarter. Ken, a couple things. First of all, your sales have kind of been up in the 5% area in the last couple of quarters. Granted currency, 1%. So, let's say 4. How would the 4% compare with the markets?

Question: Dick Henderson - Pershing LLC - Analyst : In other words, were you gaining market share, or was there mix in there? It is kind of a gut feel kind of question.

Question: Dick Henderson - Pershing LLC - Analyst : How about the trend in pricing? Could you comment on what you see there? Is it getting better, the same, or worsening, your pricing flexibility?

Question: Dick Henderson - Pershing LLC - Analyst : Right. What's your sense, Ken, with your friends from Deere have made substantial progress in turning their business around? Is that a good thing, bad things, or what?

Question: Dick Henderson - Pershing LLC - Analyst : Right. The other question I had was at the three-quarter poll excluding all items, you're at 287. You indicated that you'd probably do the 308 to 310 for the year. So let's take 309. I think I heard you say you've got new products. You're doing well. You're gaining share. You expect incremental improvement from your 5x5 program. You're going to start focusing on your SG&A. The economy has picked up. Obviously, we don't know what's going to happen with the weather. I see numbers out there that give you a credit for growth next year of anywhere between 4% to 8%. Is there something I'm missing that is kind of operational that's going to hit you or hurt your earnings next year that would suggest that those estimates are realistic? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Dick Henderson - Pershing LLC - Analyst : Right. But how can -- if the economy does pick up and with all these adverse things, you know, that have happened, you're able to generate 4% or so revenue growth and, you know, it looks like we're going to have an improved environment next year, and your margins are expanding and your free cash flow is high, which means your debt should continue to drop or your share count should continue to decline. Why would you only get a 4% increase in earnings and consider that realistic?

Question: Dick Henderson - Pershing LLC - Analyst : Yeah. I'm just commenting that, if you're correct --

Question: Dick Henderson - Pershing LLC - Analyst : No, no. I'm not trying to box you in a corner to get it -- to get a forecast. All I'm saying is, it seems to me that those numbers are too low.

Question: Dick Henderson - Pershing LLC - Analyst : I just wanted to know whether or not, in my earnings model, am I missing something that somebody else knows that is going to -- that would be kind of a cost or something like this that, perhaps, would hurt your earnings next year. What I'm hearing you say is that you don't know what's going to happen, but you don't know of anything that's going to happen.

Question: Dick Henderson - Pershing LLC - Analyst : Would hurt your earnings?

Question: Dick Henderson - Pershing LLC - Analyst : Yeah. That's not in your control.

Question: Dick Henderson - Pershing LLC - Analyst : Right. With normal leverage.

Question: Dick Henderson - Pershing LLC - Analyst : Okay. Ken, last question. When do you think you'll have a firm outline on this post-5x5 program that you can kind of talk to us about?

Question: Dick Henderson - Pershing LLC - Analyst : Okay. Thanks a lot.