Toro Co Q3 2024 Earnings Call Summary

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

Question: Tim Wojs - Robert W. Baird & Co. - Analyst : Hey, everybody. Good morning. Maybe just my first question on the backlog. If you could maybe give us just a little bit of context. I know you probably won't give us a specific number, but just maybe a little bit of context kind of relatively where the backlog exited the quarter? And then any sort of kind of context around orders like this book-to-bill over one within golf, underground, those types of things.

Question: Tim Wojs - Robert W. Baird & Co. - Analyst : Okay. No, that's helpful. Thanks. And then just on the lawn and garden or the landscape business, could you just help us tie the comments together around just kind of increased macro caution there, but also kind of getting through the channel inventory? I guess, do you think you're going to land kind of in the same inventory position exiting the season and you're just taking production down to get there? Or is it hey, we'll probably have a little bit higher channel inventory exiting the year, but it's still a lot more manageable to next year? Just trying to kind of marry those two things together.

Question: Tim Wojs - Robert W. Baird & Co. - Analyst : Okay. And I guess within Pro in the quarter, was the shortfall kind of relative to your guidance, specifically the landscape business? And was it really kind of tied to the weaker July shipments?

Question: Tim Wojs - Robert W. Baird & Co. - Analyst : Okay, great. I'll hop back in queue. Thanks for the time.

Question: Samuel Darkatsh - Raymond James Financial, Inc. - Analyst : Good morning, Rick. Good morning, Angie How are you. Just a follow-on question to what Tim asked. I don't know if it was directly answered, but I think you all were looking to have normalized field inventories and ostensibly Red Iron DSOs by the end of the fiscal year. Are you still on track to do that specifically? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 3:00PM, TTC.N - Q3 2024 Toro Co Earnings Call

Question: Samuel Darkatsh - Raymond James Financial, Inc. - Analyst : Got you. And then last quarter, Rick, you indicated at least an early expectation for kind of mid-single-digit organic sales growth for next year. I know you're not going to be formally giving guidance for next year for a bit. But if you could update us at least on what your thinking is for next year's sales growth and how to unpack that, maybe give a more specific framework as to what gives you confidence in your projections as it stands?

Question: Samuel Darkatsh - Raymond James Financial, Inc. - Analyst : Thank you for that answer. My final question, real quick, again, related to your original expectations for the quarter, maybe this is too fine a point, but the change in tax rate from 21% to 19.5%, I guess that implies that the international business was considerably less robust than you thought. Was that the primary driver of the negative variance, Rick? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 3:00PM, TTC.N - Q3 2024 Toro Co Earnings Call

Question: Samuel Darkatsh - Raymond James Financial, Inc. - Analyst : So international business was not materially different than your plan?

Question: Samuel Darkatsh - Raymond James Financial, Inc. - Analyst : Got it. Thank you very much. Appreciate it.

Question: Michael Shlisky - D.A. Davidson. & Co. - Analyst : Yes. Hi, good morning. Thanks for taking my questions. I think you mentioned, if I heard this correctly, 500 courses in 88 countries are pursuing projects to improve their facilities on the golf side. Could you maybe share with us whether that is a mix -- there's a large mix of irrigation in there? Or are they pages of both combined or just the equipment? Just give us a sense as to the kind of opportunity that Toro could get versus, let's say, how this looked to last year with the combination of irrigation and equipment projects.

Question: Michael Shlisky - D.A. Davidson. & Co. - Analyst : Fantastic. And then just on capital allocation, it wasn't really mentioned much in your prepared comments. But could you just update us on how the M&A market is looking these days? Are there assets for sale? Maybe just kind of -- just what you're looking at, size wise and industry wise, that would be helpful. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 3:00PM, TTC.N - Q3 2024 Toro Co Earnings Call

Question: Michael Shlisky - D.A. Davidson. & Co. - Analyst : Just to follow up there, Rick, are there any of the deals looking at in the tech space like a Left Hand again or other similar products? Or are they all [equipment hired]?

Question: Michael Shlisky - D.A. Davidson. & Co. - Analyst : Sure. Thanks. I appreciate that. I'll pass it along.

Question: David MacGregor - Longbow Research, LLC - Analyst : Thanks, and good morning, everyone. Rick, you made repeated reference to the slowdown in July. So I guess it kind of begs the question about August. And if you can help us with kind of what we're seeing in August and how that weakness in July may have flowed forward?

Question: David MacGregor - Longbow Research, LLC - Analyst : Right. Thanks for that. I guess I wanted to ask you about productivity because that's starting to come up in discussion more frequently. And we guess at this stage of the game, we're far enough along the AMP program that maybe the benefits are exceeding the upfront sort of investment costs. But if you look at the professional segment, adjusting for the year-ago non-cash impairment charge, of course, your margins were actually up 50 basis points despite a pretty weak top-line performance. So I guess just given the magnitude of the volume decrementals and the higher raw material costs and productivity improvements, most have been pretty substantial. Can you just talk about where you are on AMP and where you are in productivity, and how we should be modeling that going forward [as a good guy]?

Question: David MacGregor - Longbow Research, LLC - Analyst : Right. Great, okay. Maybe I'll follow up with you a little more on that offline, but just one more if I could. And just -- you talked about material costs were higher in the quarter in both segments. Obviously, you've still got some higher contracted steel prices coming off the balance sheet and the P&L. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 3:00PM, TTC.N - Q3 2024 Toro Co Earnings Call But can you help us understand just on the timing of the P&L benefits from lower steel costs? When do we start to see that? Is it -- are we waiting for a contract reset at the beginning of the year and then a 90-day lag for it to come off the balance sheet, or just how should we be thinking about timing around that, please?

Question: David MacGregor - Longbow Research, LLC - Analyst : Right. But I guess what I'm trying to really understand is just the timing. And so let's stand back from whether it's up or down and just whatever it is. The timing, do we see that kind of a contract reset at calendar first of the year and then it's 90 days to come off the balance sheet, or can you just help us with the timing?

Question: David MacGregor - Longbow Research, LLC - Analyst : Okay. Great. Thanks very much and good luck.

Question: Eric Bosshard - Cleveland Research Company - Analyst : Thank you. Good morning. Just a bit of clarity on the change in the revenue guide. As I listen, you walked through all this, and there's a lot of strength in backlog and the turf-growing season. There's a whole number of things going well. It seems like narrowly this is dealer sell-through and dealer orders that are homeowner driven. Is that the right way to narrow it, or would you narrow it differently than that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 3:00PM, TTC.N - Q3 2024 Toro Co Earnings Call

Question: Eric Bosshard - Cleveland Research Company - Analyst : Okay. And this was an area that was -- this homeowner piece of the business has been different and worse than expected the last 15 months. Is it incrementally worse now? Was there an assumption that it was stabilizing or getting better? I'm just trying to figure out, this is the first time we've heard about that piece of the business. I'm just trying to figure out what's different now here in the back half than either the trend or the expectation and why

Question: Eric Bosshard - Cleveland Research Company - Analyst : Okay. [That's all of my questions.] Thank you.

Question: Ted Jackson - Northland Capital Markets - Analyst : Good morning. Thanks for taking the questions. I want to circle around inventory on the balance sheet and just kind of move around it for a bit. You're doing a good job in terms of kind of working through that. When I think about your inventory on the balance sheet and play that out over the next 12 to 18 months -- and first of all is, I would expect it to eventually trend itself down to a more normal level. So my first question is, when you look at your inventory, let's say, turns or days basis, what would your definition of normal be? And then behind that is, am I correct to assume that glove in hand in terms of bringing down that inventory level on your balance sheet is you bringing down the backlog that you have with regards to underground construction and golf, point being that you're seeing such strength in orders that you have this amount of inventory because you've got all those businesses you've got to kind REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 3:00PM, TTC.N - Q3 2024 Toro Co Earnings Call of work through. And then behind that, even as kind of -- at what point do you think you get to where that kind of normalized level is based upon, say, terms or days? And so that's my question.

Question: Ted Jackson - Northland Capital Markets - Analyst : And then if I could ask one more question -- and it's really more not even a question, it's just more of a -- some commentary. This morning, Callaway and Topgolf announced there's kind of a separation. And the rationale behind it is that Topgolf has had some, call it, performance issues as we moved past COVID-19. And I know that the golf business for you is exceptionally strong, and you continue to comment yourself that rounds played are up and everything. But in the past, it's also been commented that what one of the underlying drivers of that is the bringing in of new golfers through something like Topgolf. Is there anything to read with regards to what's going on, on that side of the business with regards to Topgolf in terms of kind of a longer-term? Just figured I'd ask. That's it for me.

Question: Ted Jackson - Northland Capital Markets - Analyst : Well, thanks for taking my questions. And by the way, congratulations on the cash flow generation for the quarter. It was impressive.