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Category: Stock Market and The Toro Company
Date: 25 August 2019 Stock Price: $71.07 We take a look at the 3rd quarter 2019 financial results of The Toro Company, the company that is a leading provider of solutions for the outdoor environment including but not limited to garden maintenance, irrigation, snow and ice management
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About The Toro Company
With roots dating back to 1914, The Toro Company was built on a tradition of quality and caring relationships. Today, the company is a leading worldwide provider of innovative solutions for the outdoor environment including turf and landscape maintenance, snow and ice management, underground utility construction, rental and specialty construction, and irrigation and outdoor lighting solutions. Through a strong network of professional distributors, dealers, rental stores and retailers in more than 125 countries, we proudly offer a wide range of products across a family of global brands to help golf courses, professional contractors, underground construction professionals, groundskeepers, agricultural growers, rental companies, government and educational institutions, and homeowners – in addition to many leading sports venues and historic sites around the world.
Other brands that belong to the group include:
DitchWitch:
Ditch Witch invented the underground utility construction industry and today designs, manufactures and markets the most complete line of directional drills, vacuum excavators, trenchers, mini-skid steers and performance parts. These products are supported by a Ditch Witch dealer network with over 175 locations worldwide.
eXmark:
Exmark is the leading manufacturer of commercial mowers and equipment for the landscape professional. Exmark mowers are trusted 2-to-1 over the next best-selling brand of zero-turn mowers by landscape professionals. All Exmark products are designed to help customers increase productivity, while delivering unmatched quality.
Boss snowplow:
BOSS is a leader in the snow and ice management business with a growing lineup of plows for trucks, UTVs and ATVs, salt and sand spreaders, and box plows built for the snow and ice management professional, as well as the homeowner. With a focus on uncompromising quality and high-level craftsmanship, BOSS has grown to be a leader in the sale of truck plows.
American Augers:
American Augers builds the largest horizontal directional drills in the industry, and a full range of auger boring machines. With the rugged user in mind, American Augers rigs are built to last and backed by 24-hour worldwide support.
Subsite Electronics:
Subsite Electronics provides underground construction professionals the most comprehensive suite of electronic products in the industry, including Horizontal Directional Drilling (HDD) guidance equipment, utility locators, utility inspection systems, and equipment machine controls.
HammerHead:
HammerHead delivers a unique combination of rehabilitation, replacement and installation equipment and consumables for the underground construction market. Offering unmatched field support and project consultation to customers worldwide, HammerHead sells and services products in more than 60 countries.
Trencor:
Trencor, manufactured by American Augers, specializes in hard rock trenching and surface mining. Their rock-solid structure makes them the longest lasting underground equipment line in the world. Many active machines in the field today have logged more than 40,000 hours. Trencor is known for longevity and backed by worldwide, 24-hour service and support.
Unique Lighting Systems:
Unique Lighting Systems has provided leadership and distinguished itself as innovators in the low-voltage outdoor lighting industry. Unique Lighting provides a fully integrated and wide range of distinctive lighting fixtures, transformers, high-efficiency lamps, wireless controls and accessories for both residential and commercial markets.
Irritrol:
Irritrol is a leading manufacturer of professional irrigation products for residential and commercial applications. Established in 1967, Irritrol has grown to a full line of solid, dependable, contractor-friendly products including controllers, sensors, valves, spray heads and rotors.
Hayter
Hayter has been designing premium quality lawn care products used by homeowners and professionals in United Kingdom since 1946. With a choice of electric and petrol products in a range of sizes, there’s a Hayter mower suitable for most gardens. Hayter is proud to be part of the ‘Made in Britain’ campaign and to have held the Royal Warrant for supply of horticultural equipment to Her Majesty the Queen since 1960.
Pope:
Founded in 1925, the Pope brand is now synonymous with creating and maintaining beautiful gardens right across Australia and New Zealand. With a broad range of garden watering and irrigation products, there’s a watering solution for every garden. And with the growing need for water conservation, Pope continues to innovate with a wide array of products to meet the changing demands of Australian gardeners.
Lawn-Boy:
Lawn-Boy has a long-standing tradition of helping homeowners care for their yards. Pioneered with determination and imagination, Lawn-Boy mowers have been revered for their quality through the decades. Since 1932, Lawn-Boy has met the toughest mowing challenges with easy-to-use, reliable mowers that frequently get passed from one generation to the next.
MTI Equipment:
MTI Equipment is the most trusted global distributor of used HDD equipment worldwide, maintaining the largest inventory of reconditioned HDD equipment for all major brands. Every machine MTI resells goes through an extensive inspection process and is reconditioned to a customer’s specifications.
Other brands that belong to the group include:
DitchWitch:
Ditch Witch invented the underground utility construction industry and today designs, manufactures and markets the most complete line of directional drills, vacuum excavators, trenchers, mini-skid steers and performance parts. These products are supported by a Ditch Witch dealer network with over 175 locations worldwide.
eXmark:
Exmark is the leading manufacturer of commercial mowers and equipment for the landscape professional. Exmark mowers are trusted 2-to-1 over the next best-selling brand of zero-turn mowers by landscape professionals. All Exmark products are designed to help customers increase productivity, while delivering unmatched quality.
Boss snowplow:
BOSS is a leader in the snow and ice management business with a growing lineup of plows for trucks, UTVs and ATVs, salt and sand spreaders, and box plows built for the snow and ice management professional, as well as the homeowner. With a focus on uncompromising quality and high-level craftsmanship, BOSS has grown to be a leader in the sale of truck plows.
American Augers:
American Augers builds the largest horizontal directional drills in the industry, and a full range of auger boring machines. With the rugged user in mind, American Augers rigs are built to last and backed by 24-hour worldwide support.
Subsite Electronics:
Subsite Electronics provides underground construction professionals the most comprehensive suite of electronic products in the industry, including Horizontal Directional Drilling (HDD) guidance equipment, utility locators, utility inspection systems, and equipment machine controls.
HammerHead:
HammerHead delivers a unique combination of rehabilitation, replacement and installation equipment and consumables for the underground construction market. Offering unmatched field support and project consultation to customers worldwide, HammerHead sells and services products in more than 60 countries.
Trencor:
Trencor, manufactured by American Augers, specializes in hard rock trenching and surface mining. Their rock-solid structure makes them the longest lasting underground equipment line in the world. Many active machines in the field today have logged more than 40,000 hours. Trencor is known for longevity and backed by worldwide, 24-hour service and support.
Unique Lighting Systems:
Unique Lighting Systems has provided leadership and distinguished itself as innovators in the low-voltage outdoor lighting industry. Unique Lighting provides a fully integrated and wide range of distinctive lighting fixtures, transformers, high-efficiency lamps, wireless controls and accessories for both residential and commercial markets.
Irritrol:
Irritrol is a leading manufacturer of professional irrigation products for residential and commercial applications. Established in 1967, Irritrol has grown to a full line of solid, dependable, contractor-friendly products including controllers, sensors, valves, spray heads and rotors.
Hayter
Hayter has been designing premium quality lawn care products used by homeowners and professionals in United Kingdom since 1946. With a choice of electric and petrol products in a range of sizes, there’s a Hayter mower suitable for most gardens. Hayter is proud to be part of the ‘Made in Britain’ campaign and to have held the Royal Warrant for supply of horticultural equipment to Her Majesty the Queen since 1960.
Pope:
Founded in 1925, the Pope brand is now synonymous with creating and maintaining beautiful gardens right across Australia and New Zealand. With a broad range of garden watering and irrigation products, there’s a watering solution for every garden. And with the growing need for water conservation, Pope continues to innovate with a wide array of products to meet the changing demands of Australian gardeners.
Lawn-Boy:
Lawn-Boy has a long-standing tradition of helping homeowners care for their yards. Pioneered with determination and imagination, Lawn-Boy mowers have been revered for their quality through the decades. Since 1932, Lawn-Boy has met the toughest mowing challenges with easy-to-use, reliable mowers that frequently get passed from one generation to the next.
MTI Equipment:
MTI Equipment is the most trusted global distributor of used HDD equipment worldwide, maintaining the largest inventory of reconditioned HDD equipment for all major brands. Every machine MTI resells goes through an extensive inspection process and is reconditioned to a customer’s specifications.
Financial overview
Numbers the group's management highlighted:
• Strength of Charles Machine Works drives third quarter sales increase of 27.9 percent to $838.7 million
• On track to achieve acquisition integration and synergy targets
• Reported quarterly EPS of $0.56; adjusted quarterly EPS of $0.83
• Full-year adjusted EPS guidance narrowed to about $2.92 to $3.00 from about $2.90 to $3.00
Numbers we are interested in: (for the quarter)
Segmental sales
• Strength of Charles Machine Works drives third quarter sales increase of 27.9 percent to $838.7 million
• On track to achieve acquisition integration and synergy targets
• Reported quarterly EPS of $0.56; adjusted quarterly EPS of $0.83
• Full-year adjusted EPS guidance narrowed to about $2.92 to $3.00 from about $2.90 to $3.00
Numbers we are interested in: (for the quarter)
- Net sales $ 838.7 million (up 27.9% from $ 655,8 million for the same quarter of the previous year)
- Gross profit: $265.9 million (up 13.4% from $ 233,6 million for the same quarter of the previous year)
- Gross margin: 31.7% (down from 35.6% for the same quarter of the previous year)
- Net earnings: $ 60.6 million (down -23.3% from $ 79.0 million for the same quarter of the previous year)
- Diluted net earnings per share of common stock: $ 0.56 (down 23.3% from $ 0.73 for the same quarter of the previous year)
- Weighted-average number of shares of common stock outstanding — Diluted 108.253 million a slight increase from 108.07 a year ago
- Cash and cash equivalents: $ 143.317 million (down -42.3% from $ 250.871 million for the same quarter of the previous year)
- Cash and cash equivalents per share: $1.32 (or 1.8% of the group's share price)
- Receivables, net: $ 312.239 million (up 42.3% from $219.47 million for the same quarter of the previous year).
- Inventories, net: $620.6 million (up 70% from $364.5 million for the same quarter of the previous year)
- Total stockholders’ equity: $ 843.8 million (up 29.8% from $650,2 million for the same quarter of the previous year)
- Net asset value per share: $7.80 a share
- Cash generated from operations: $ 235.7 million
- Cash generated from operations per share: $2.17 a share
Segmental sales
- Professional $ 676,756 $ 482,494
- Residential 148,234 166,513
- Other 13,723 6,814
The Toro Company management commentary on the results and earnings guidance
BLOOMINGTON, Minn. (August 22, 2019) - The Toro Company (NYSE: TTC) today reported net earnings of $60.6 million, or $0.56 per share, on a net sales increase of 27.9 percent to $838.7 million for its third quarter ended August 2, 2019. In the comparable fiscal 2018 period, the company delivered net earnings of $79.0 million, or $0.73 per share, on net sales of $655.8 million.
Adjusted 2019 third quarter net earnings were $89.8 million, or $0.83 per share, compared to adjusted net earnings of $73.5 million, or $0.68 per share in the comparable 2018 period, an increase of 22.1 percent. For the first nine months, Toro reported net earnings of $235.7 million, or $2.18 per share, on a net sales increase of 15.6 percent to $2,403.7 million. For the first nine months, adjusted net earnings were $272.4 million, or $2.52 per share, compared to adjusted net earnings of $255.9 million, or $2.35 per share, in the comparable 2018 period, an increase of 7.2 percent.
"Third quarter revenue growth was driven by the addition of the Charles Machine Works portfolio as integration continues to progress as planned," said Richard M. Olson, Toro's chairman and chief executive officer. "The entire team has been collaboratively working to optimize the combined enterprise, with a focus on consistent execution, an unwavering commitment to innovation and a focus on customer relationships. I am proud of our team's progress to date." "As mentioned earlier this month, we have launched a new strategy for our underground businesses, which will enable us to satisfy customer needs more effectively, while also capturing manufacturing and operational efficiencies. This is one example of many, where we have been able to move quickly and decisively to eliminate redundancies and align priorities. Integration continues to go well, and we are encouraged by the progress we have made since we announced the acquisition earlier this year.”
Adjusted 2019 third quarter net earnings were $89.8 million, or $0.83 per share, compared to adjusted net earnings of $73.5 million, or $0.68 per share in the comparable 2018 period, an increase of 22.1 percent. For the first nine months, Toro reported net earnings of $235.7 million, or $2.18 per share, on a net sales increase of 15.6 percent to $2,403.7 million. For the first nine months, adjusted net earnings were $272.4 million, or $2.52 per share, compared to adjusted net earnings of $255.9 million, or $2.35 per share, in the comparable 2018 period, an increase of 7.2 percent.
"Third quarter revenue growth was driven by the addition of the Charles Machine Works portfolio as integration continues to progress as planned," said Richard M. Olson, Toro's chairman and chief executive officer. "The entire team has been collaboratively working to optimize the combined enterprise, with a focus on consistent execution, an unwavering commitment to innovation and a focus on customer relationships. I am proud of our team's progress to date." "As mentioned earlier this month, we have launched a new strategy for our underground businesses, which will enable us to satisfy customer needs more effectively, while also capturing manufacturing and operational efficiencies. This is one example of many, where we have been able to move quickly and decisively to eliminate redundancies and align priorities. Integration continues to go well, and we are encouraged by the progress we have made since we announced the acquisition earlier this year.”
The Toro Company (NYSE:TTC) stock price history
The image below shows the stock price history obtained from Google of The Toro Company (NYSE:TTC) for the last 5 years. As the image shows the growth in the stock price of The Toro Company has been significant over the last 5 years, with it increasing from around $30 a share in 2015 to over $70 where it is trading at now. The group's stock price has more than doubled in the last 5 years, which is pretty strong returns provided to investors.
The Toro Company (NYSE:TTC) stock valuation
So what do we value the group's shares at considering their latest financial results. What is worrying us is the fact that sales grew strongly while net earnings declined and this can be seen by the decline in their gross margin from 35% to 31.7%. So margins are under pressure. Another concern is the sharp increase in their receivables (money owed to the group) which increased by 42.3% compared to a year ago. Another concern is their inventories which increased by 70% compared to a year ago, So either they are struggling to move stock and this is leading to inventories not being drawn down fast enough which lead to the increase in the value of their inventory holdings, or the group is busy stocking up in the believe and hope that there will be increased demand for their products and they would be able to meet demand due to their inventories being fully stocked up. So potential and actual investors in the group should keep these issues in mind when looking at TTC shares.
But its not all bad news. Guidance provided for the full year shows the group expects EPS to come in at close to $3 a share. Shareholders equity increased strongly compared to the prior year. Based on the current financial results we value the group's shares at $63.30 a share. We therefore believe the groups's stock is overvalued at its current price.
But its not all bad news. Guidance provided for the full year shows the group expects EPS to come in at close to $3 a share. Shareholders equity increased strongly compared to the prior year. Based on the current financial results we value the group's shares at $63.30 a share. We therefore believe the groups's stock is overvalued at its current price.