Toro Co Q4 2011 Earnings Conference Call Transcript

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

Question: Jim Lucas - Janney Montgomery Scott - Analyst : Thanks, good morning all. Renee, I guess we'll put you on the spot on your first call here. Just, I would be interested in how the first few months, your impressions, any takeaways you could share with us of how you see Toro.

Question: Jim Lucas - Janney Montgomery Scott - Analyst : Okay, thanks. And on that front, working capital has seen some very nice improvement the last couple of years. And if you look, 2010 was an exceptionally strong cash flow year. Cash flow 2011 -- I guess if we balance the two, would be more reflective of what the cash generating power of Toro is. But if you look at what some might say was sub-par free cash generation in 2011, how should we think about the cash-generating capabilities of Toro going forward?

Question: Jim Lucas - Janney Montgomery Scott - Analyst : Okay. That's helpful. And on the housekeeping side, what are your initial plans for CapEx and D&A for 2012? 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: Jim Lucas - Janney Montgomery Scott - Analyst : Okay. That's helpful. And then, other housekeeping question, FX for the top line for the quarter overall and by segment?

Question: Jim Lucas - Janney Montgomery Scott - Analyst : All right. And will be roughly the same for both segments?

Question: Jim Lucas - Janney Montgomery Scott - Analyst : All right. And then one other follow-up on -- when you were talking about potential material inflation in 2012, I mean commodity prices have obviously been all over the place. Does it have more to do with the timing of the component purchases? Just a little shocked with the pullback in commodity prices that you're actually looking for material inflation in your '12 budget.

Question: Jim Lucas - Janney Montgomery Scott - Analyst : Okay, great. Thank you. 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: Jim Lucas - Janney Montgomery Scott - Analyst : 1.5 points. Thank you.

Question: Sam Darkatsh - Raymond James & Associates - Analyst : Good morning, Mike, Renee. Now that Jim has established the fact that we can all ask eight or nine questions, I'll do the same. So first, Renee, why in 2012 will SG&A not leverage given your prospective sales growth?

Question: Sam Darkatsh - Raymond James & Associates - Analyst : But it doesn't sound like a continuation of prior -- you had some really nice leverage in 2011, and then all of a sudden it seems like -- are you stepping it up fairly dramatically? Or -- and where is it? Is it more in engineering? Is it more marketing? I'm trying to get a sense of why that would be occurring this year and not in '11 as much.

Question: Sam Darkatsh - Raymond James & Associates - Analyst : So when you say similar, then, are you seeing similar in dollars or similar in percent of sales?

Question: Sam Darkatsh - Raymond James & Associates - Analyst : Okay. Second question, when you're talking about your 5% sales growth expectation for the year, can you talk about how that might be broken down pro versus residential, and specifically what you believe the favorable impact might be of the pre-buy in the field ahead of the 2013 new emissions standards?

Question: Sam Darkatsh - Raymond James & Associates - Analyst : What percentage of your professional business is potentially impacted by the emission standards?

Question: Sam Darkatsh - Raymond James & Associates - Analyst : Okay.

Question: Sam Darkatsh - Raymond James & Associates - Analyst : Two more quickies and I'll defer to others. What are you seeing in Europe, would be my one question. And secondly, how are you looking at share repurchase versus the acquisition pipeline for 2012? What should we anticipate for your cash flow usage?

Question: Sam Darkatsh - Raymond James & Associates - Analyst : Tom, I'm guessing, though, your guidance excludes the share repurchase to come, though. Is that correct?

Question: Sam Darkatsh - Raymond James & Associates - Analyst : So what share count should we peg -- I promise my last question. What share count should we peg for 2012 then?

Question: Sam Darkatsh - Raymond James & Associates - Analyst : Thank you.

Question: Mark Herbek - Cleveland Research Company - Analyst : Good morning, everyone. On the pro side of the business, real strong growth in the first half, still good growth in the second half but a little bit slower than prior trend. Can you kind of talk about the pro piece of the business, what you're seeing within the US and what you're seeing outside the US? I think you mentioned during the conference call that the consumer sales outside the US were very strong in the quarter, which would imply that LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. the pro business has slowed quite a bit outside the US. I'm just curious what you're seeing in the pro business from 20% growth earlier in the year to more like mid single-digit growth in the back half.

Question: Mark Herbek - Cleveland Research Company - Analyst : The 5% sales growth forecast for 2012, I guess that compares to 11% to 12% the prior two years. What's changed? Is it that the pro business is going to grow slower, particularly outside the US? Or what has changed to forecast 5% growth versus the 11% to 12% that we've seen over the past couple of years?

Question: Mark Herbek - Cleveland Research Company - Analyst : And does the 5% growth forecast -- does that include your estimate for Tier 4 pull forward, or is there no impact in that 5% from Tier 4? 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: Mark Herbek - Cleveland Research Company - Analyst : And so the 5% growth would include your best guess for Tier 4, as well as any benefit that you're expecting from the lawn solutions and unique lighting acquisitions?

Question: Mark Herbek - Cleveland Research Company - Analyst : And then just last question on the snow side, any snow benefits to arrive in the first quarter? Have you gone back into production? You talked about significant increases in the US market. Is that benefit going to continue for you in the first quarter or are you done for the season?

Question: Mark Herbek - Cleveland Research Company - Analyst : Great. Thank you.

Question: Robert Kosowsky - Sidoti & Company - Analyst : Good morning, everyone. yes, just a quick clarification -- Renee, did you say the gross margin is going to be up 40 basis points expected next year? And I just wanted to confirm that 20 basis points of that should be rework rolling off because that was a negative headwind this past year?

Question: Robert Kosowsky - Sidoti & Company - Analyst : Okay. So 20 basis points of basic pricing and cost cuts.

Question: Robert Kosowsky - Sidoti & Company - Analyst : Okay. And then as you look at the pricing strategy, do you expect to see more -- are you more aggressive on the professional side or parts of the professional side or residential side into next year? Any more color on that? I know some of that is kind of sensitive information. And then also I'm just kind of trying to triangulate too because we did see some marginal weakness on the professional side in the back half of this year, and I am wondering if you're going to be targeting that to get the margins back up there.

Question: Robert Kosowsky - Sidoti & Company - Analyst : And then just as you look to get to the 12% operating margin goals, is there any -- can you give us any more color on how you're going to get the gross margins higher to be able to get to that 12% operating margin? Or is it just going to be volume going through and leveraging the plants a little bit better?

Question: Robert Kosowsky - Sidoti & Company - Analyst : Okay. That's helpful. As far as the Romanian plant (technical difficulty) this past year?

Question: Robert Kosowsky - Sidoti & Company - Analyst : Okay. I was just -- it was very modest or immaterial?

Question: Robert Kosowsky - Sidoti & Company - Analyst : And then also, just wondering if you can talk about I guess the ramp up of it, the current capacity utilization, if you can give that out versus what you want to see a year or two down the road, and how the profitability of the plant is turning, and just kind of let us know how that's going.

Question: Robert Kosowsky - Sidoti & Company - Analyst : Okay, yes. I was just kind of curious about the Romanian plant in particular as well and how the capacity utilization is looking there and the profitability of that.

Question: Robert Kosowsky - Sidoti & Company - Analyst : Okay. Thank you very much, and good luck with this year.

Question: Jim Barrett - CL King & Associates - Analyst : Good morning, everyone. Mike, your key competitor in golf recently indicated that its turf and utility products would be up slightly in North America. Would you concur with that market outlook, as your 5% growth I assume is skewed overseas? Or do you see somewhat better than slight growth in North America?

Question: Jim Barrett - CL King & Associates - Analyst : Understood. And to get back to the Tier 4 regulations, 5%, 10% of your sales might be affected. How much of a price increase will the new regulations require? Can you give us any focus on that?

Question: Jim Barrett - CL King & Associates - Analyst : Right. Okay. And then finally, Japanese golf -- is -- any thoughts on how that market is recovering as we look into 2012?

Question: Jim Barrett - CL King & Associates - Analyst : Okay. Well, thank you very much.