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Toro Company (TTC)

F2Q12 Earnings Call

May 24, 2012 11:00 AM ET


Kurt Svendsen - Managing Director of Corporate Communications and IR

Mike Hoffman - Chairman and CEO

Renee Peterson - CFO


Eric Bosshard - Cleveland Research

Michael Worley

Josh - Raymond James

Leah Villalobos - Longbow Research

Robert Kosowsky - Sidoti & Company

Jim Barrett - CL King & Associates



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Good day, ladies and gentlemen, and welcome to The Toro Company Second Quarter Earnings Conference Call. My name is Clarissa and I will be your coordinator for today.

At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today’s conference, Mr. Kurt Svendsen, Managing Director of Corporate Communications and Investor Relations for The Toro Company. Please proceed, Mr. Svendsen.

Kurt Svendsen

Thank you and good morning. Joining me this morning for our second quarter earnings call are Mike Hoffman, Chairman and Chief Executive Officer; Renee Peterson, Chief Financial Officer; Tom Larson, Vice President and Treasurer; and Blake Grams, Vice President and Controller.

We begin with our customary forward-looking statement policy. During this call we will make certain forward-looking statements which are intended to assist you in understanding the company’s results. You are all aware of the inherent difficulties, risks and uncertainties in making predictive statements. Safe Harbor portion of the Company’s earnings release, as well as SEC filings detail some of the important risk factors that may cause actual results to differ from those in our predictions.

Our earnings release was issued this morning by Business Wire, a copy can be found in the Information section of our investor site,

I will turn the call over to Mike.

Mike Hoffman

Thank you Kurt and good morning to all our listeners. Favorable weather conditions across much of the United States helped fuel the retail and continued the shift in momentum we reported during our first quarter call. We achieved record second quarter revenues and earnings per share. Net sales for the quarter grew 9.5% with earnings per share up 20%. For the first six months, net sales increased nearly 10% while earnings per share rose 21%. Renee will discuss our financial and operating results in more detail later in the call.

As reported in our earnings release earlier this morning, the strength of our second quarter and year-to-date performance led to our raising guidance for the year. In addition, the board has declared a two for one stock split. This is the third stock split declared by our board since we launched five by five, the first in a series of corporate initiatives to focus the enterprise on driving growth and efficiencies and thus add shareholder value. That effort continues with our current initiative, destination 2014.

Domestically while the economy still prevents mixed signals, the unseasonably warm weather and ample moisture are driving end user purchases across our residential landscape and golf businesses. In fact, we are enjoying strong results around the world with exception of Europe where economic conditions have slowed sales.

Golf courses across the United States are enjoying a resurgence of player activity. The National Golf Foundation or NGF's latest report shows rounds played in March grew by 30%, raising the 2012 calendar year to date growth rate to over 20%. Most regions in United States are reporting increased sales with the most significant growth coming from the large core markets of California, Arizona, Florida and the Carolinas which were all hard hit by the economic downturn. The NGF attributes these games to a lessening of recessionary effects on the game and an upward trend in golfer confidence. Whether also contributed to an early start to the golf season generating better than expected cash flow for golf course operations. In response to the increased activity, many courses are investing in new equipment, both to replace worn machinery and to capitalize on the innovation and productivity, our latest advancements deliver. We continue to win a significant share of large golf equipment packages. Our greensmower and rollers have been especially well received. New hybrid technology, featured on our greensmowers showed particular promise for future growth. As many of you witnessed firsthand, these and our many other cutting edge equipment, precision golf irrigation product and services kept our booth packed with customers during the National Golf Industries show in late February.

As we discussed in our first quarter call, new golf course irrigation projects have slowed overseas due to economic issues in Europe and China's ongoing review of development policies. However, continued renovation of existing courses is generating sales. Furthermore we are seeing increased golf purchases in Japan as the nation continues its recovery from the devastating earthquake and Tsunami that brought golf business to a halt in March of 2011.

Our global position in golf remains very strong. We were pleased to host many international customers most notably from Asia at the previously mentioned National Golf Industries show. We also enjoyed an enthusiastic turnout of golf decision makers at the Beijing Golf Show.

Moving to our landscape contractor businesses, scales rose at a healthy pace due to strong retail activity in the interest in our new products like the Z Master 2000 Commercial Series and our Stand-On Aerators. Our landscape contractor teams are also reporting growing demand for our zero turn products powered by electronic fuel injected engines commonly referred to as EFI. Although they demand a premium price, EFI systems delivered greater fuel efficiency, cleaner operation and require less maintenance. While they cost a bit more at the point of purchase, the cost of operation and thus the contractor's cost of doing business can be reduced. As the industry's utilization of EFI has grown, so has contractor awareness of the technology's potential to improve their bottom line. We are well positioned to continue to capitalize on this important trend. Our professional grounds business remains somewhat flat compared to a year ago. However, it's important to remember the business achieves strong growth during the first six months of last year and we're pleased to report it as kept pace with this robust F11 performance. As we suggested last call, some areas of the country are seeing unused snow removal monies being reallocated to the purchases of mowing products. However, we have also seen some hazardous being related to tighter municipal budgets and uncertainty associated with the upcoming elections.

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