管理層發言
Good day, ladies and gentlemen, and welcome to the Toro Company Second Quarter Earnings Conference Call. My name is Joshua, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. 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, Heather Lilly, Vice President, Corporate Affairs and Investor Relations. Please proceed, Ms. Lilly.
Good morning, everyone, and thank you for joining us for The Toro Company Second Quarter 2026 Earnings Conference Call. I am Heather Lilly, Vice President of Corporate Affairs and Investor Relations. On the line with me today are Rick Olson, Chairman and Chief Executive Officer; Edric C. Funk, President and Chief Operating Officer; and Angie Drake, Vice President and Chief Financial Officer. Rick, Edric and Angie will provide an overview of our second quarter results, which were released earlier this morning, and discuss our priorities and outlook for the remainder of fiscal 2026. Following their remarks, we will open the phone lines for a question-and-answer session. Before we begin, please note that any forward-looking statements made today are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks are detailed in our earnings release, investor presentation, and our most recent filings with the SEC. During our remarks, we will also reference certain non-GAAP financial measures. We believe these metrics provide useful insight into the company's performance. Reconciliations to the most directly comparable GAAP measures can be found in this morning's press release. Both the release and our second quarter supplemental presentation are available in the Investor Information section of our corporate website. With that, I will now turn the call over to Rick.
Thank you, Heather, and good morning, everyone. The Toro Company continued its strong start to the year, exceeding expectations with second quarter top-line growth of 8% and adjusted EPS of $1.60. This is the second consecutive quarter of double-digit earnings growth driven by strong demand and improving margins. We remain focused on our key strategic priorities: accelerating profitable growth, driving productivity and operational excellence, and empowering people. This disciplined approach is delivering results. Demand was broad-based across our portfolio. Residential net sales grew 4% and professional net sales grew by 9%. Within professional, we drove mid-single-digit sales growth in golf and grounds, high-single-digit sales growth in landscape contractor, and we are particularly excited to have achieved low-double-digit organic sales growth in underground and specialty construction. A key highlight in underground construction continues to be the JT 21 horizontal directional drill. Designed for maximum uptime, it features advanced capabilities that enhance operator efficiency and job site safety. It is built to handle long bores and difficult terrain with ease, and customer response has been strong with a robust and growing order pipeline. At CONEXPO in March, we highlighted another example of customer-driven innovation. Orange Intel is a customizable fleet management and job site intelligence system. It provides Ditch Witch customers with the ability to optimize productivity, manage maintenance and uptime, enhance security, and integrate all this information across the full job life cycle. We are helping our customers leverage job site data as a critical enabler to improve their productivity and profitability. Our integration of Tornado is progressing well. Growth is slightly better than anticipated, contributing over two percentage points to top-line sales. We see a long runway of growth for this business as the need for soft excavation is significant and growing. The increasing number of states and countries that have requirements around safely uncovering underground utilities is a tailwind. We expect this trend to continue as the ability to mitigate infrastructure damage during excavation gains awareness. Moving on to landscape contractor: after a more normal snow season, they entered Q2 in a healthy position. This helped drive strength across our Toro, Exmark, and Ventrac brands. Spring conditions were more typical this year, which provided a favorable year-over-year comparison to the late spring last year, where some second quarter sales fell into the third quarter due to delayed timing of spring. In golf, strength continues to come from our core products: greens mowers, fairway mowers and contour rotary mowers. While we are still in the early stages of growth with our autonomous portfolio, customers continue to recognize how our suite of solutions complements their existing fleets, increases productivity, and unlocks new efficiencies in their labor force. Looking at the results across our portfolio, it was particularly impressive that the team achieved our second quarter performance despite macroeconomic and geopolitical headwinds and increased inflationary pressures. In this dynamic environment, we continue to strengthen our capabilities with a specific focus on productivity and operational excellence. As a result, in Q2, residential margins significantly improved to nearly 10%, and pro margins improved to over 20%. At the center of this improvement is our AMP program. Launched at the beginning of fiscal 2024, AMP continues to exceed expectations, reinforcing a productivity mindset across the company. We accomplished all of this while reducing our field inventory, which remains healthy in the professional segment with underground and golf largely normalized. Inventory levels for landscape contractor and residential are somewhat below our desired levels as we work to meet pockets of elevated demand, particularly for zero-turn mowers. Taking everything into account — healthy demand, improved lead times, normalized field inventories, and expanding margins — we are raising our full-year guidance. We now expect full-year sales growth in the range of 4% to 6.5% and adjusted EPS in the range of $4.50 to $4.62. Our performance in the first half of 2026 increases our confidence in our ability to deliver strong results for the full year even in a dynamic external environment. With that, I will turn the call over to Angie for more details on the quarter and our outlook.
Thank you, Rick. The team's strong execution in the second quarter drove better-than-expected results. Top-line sales were $1.42 billion, up 8.1% or 5.7% organically. This growth, combined with our focus on productivity and operational excellence, drove adjusted operating margins of 14.4%, up 70 basis points. This represents our highest operating margin in the past 12 quarters and reflects the impact of our AMP productivity program. Our strategic facility closures, reductions in salaried workforce, and divestitures of non-core businesses and product lines have contributed to this strong margin improvement. As we reduce costs and improve efficiencies through AMP, we are also investing in the business. One example is our new paint system at the Perry, Oklahoma facility, which will increase efficiency and capacity to support the strong demand in the underground construction market. Working capital improvements drove free cash flow of $266 million, an increase of $181 million year-over-year, primarily due to lower inventory levels. Free cash flow conversion was 125%. This continues our strong track record of cash generation and enabled us to return $361 million to shareholders through share repurchases and dividends in the first half of the year. Finally, our second quarter adjusted tax rate was 21.7%, 300 basis points higher than last year, driven by the geographic mix of earnings. As a net result, for the second quarter, we increased adjusted EPS 13% to $1.60. This strong result was better than expected and driven by professional segment volume and profitability. Now let me dive deeper into each segment. Professional segment net sales in the second quarter were $1.1 billion, up 9.1% or 6% organically. Professional segment earnings were $224 million at a margin of 20.3%, up 40 basis points. This was driven by volume, productivity, and net price realization, partially offset by material costs. Residential segment net sales in the second quarter were $310 million, up 4.1% organically. Residential segment earnings were $30 million, and margins were up 34 basis points to 9.8%. This was driven by net price realization, productivity, and volume, partially offset by material, manufacturing, and freight costs. In addition to strong operational execution across both segments, our financial management of the balance sheet continues to provide us with optionality, as demonstrated by our leverage ratio of 1.4x. Looking forward, we will continue to focus on driving top-line growth and productivity as we navigate the uncertain macroeconomic and geopolitical environment. Our strong performance in the second quarter gives us the confidence to raise our guidance. We now expect top-line growth of 4% to 6.5% versus our prior guidance of 3% to 6.5%. This reflects strength in our professional segment, which we now expect to grow in the range of 5% to 7% for the year. After a strong second quarter, the outlook for full-year residential sales growth has improved and we expect it to be about flat, even as consumer confidence and inflation continue to be challenging. We are raising full-year adjusted earnings per share to be in the range of $4.50 to $4.62, up from the prior range of $4.40 to $4.60. This tighter range and higher midpoint reflect our outperformance in the first half of the year and reduced downside risk. Let me take a moment to share the drivers of this increase by walking from our previous guidance midpoint of $4.50 to our new guidance midpoint of $4.56. We are flowing through our second quarter beat of $0.10 per share and factoring in new headwinds from material and fuel inflation. We estimate the impact from inflation will be approximately $0.16 per share. This is offset by planned productivity and pricing actions driving approximately $0.16 of favorability. In addition, tax is trending higher for the year due to our geographic mix of earnings, for an approximate $0.04 impact to EPS. All of these factors result in the $0.06 increase to our midpoint. We have also evaluated the impact of the April 6 changes for Section 32 tariffs and the benefit of anticipated tariff refunds. Since the vast majority of our manufacturing occurs within the United States, the net impact of these two items would be negligible to our full-year guidance. We continue to evaluate the most recent changes to the tariff landscape, including the news from earlier this week. For the third quarter, we expect total company sales to be up mid-single digits. We expect professional to be up mid-single digits and residential to be up low-single digits. Keep in mind that year-over-year comparisons are impacted by a late spring last year that shifted sales from Q2 into Q3. Also, Q2 is typically our peak margin quarter as it has the highest volume, best factory utilization, and a favorable sales mix. We anticipate normal seasonality this year with Q3 total company margins lower than Q2. Pressures from inflation and tariffs will be more acute in Q3 as the mitigation actions we are taking will not be fully in place until Q4. We are monitoring weather conditions across the country, where a strong start to spring has given way to potential drought conditions in some key markets. As a result of these factors, we expect third quarter total company adjusted EPS up mid-single digits. The main driver for this adjusted EPS growth rate is a higher year-over-year tax rate and the comparison versus a strong Q3 last year. The team is executing well. We are driving productivity through our AMP initiative and taking advantage of strong demand across the portfolio. For the full year, we now expect high-single-digit adjusted EPS growth and free cash flow conversion of at least 120%. Now, I will turn the call over to Edric to highlight the progress we are making on operational excellence.
Thank you, Angie. As you heard, we delivered our highest level of operating margin in three years through a relentless focus on productivity and operational excellence. We will continue to drive meaningful gains through our AMP program by leveraging lean principles, Kaizen events, and continuous improvement projects. Our AMP program remains on track to deliver $125 million in run-rate savings by the end of this fiscal year. But AMP is about even more than cost savings. Another critical element is the manner in which our teams are leveraging technology to enhance capabilities and drive innovation. Last month, we held our annual technology forum, a dynamic platform to accelerate product innovation and technical excellence by connecting subject matter experts and thought leaders across the company. This event featured the next generation of technological advancements in electrification, smart connected products, autonomous solutions, AI, and manufacturing efficiency. Examples range from leveraging industrial collaborative robots to using AI-enabled vision systems and machine learning tools to verify component accuracy. Further upstream, we are using augmented reality to quickly verify weld specifications and completeness. All of this ensures consistency, reduces the risk of delays, and continues to enhance overall product quality. There is more we can and will do to continue driving efficiency and innovation. Delivering consistent results in this environment requires us to constantly ask ourselves, how can we do this better? It is a question we never stop asking.
The rate of change at The Toro Company cannot be overstated. Our technological advances are building off a foundation more than 10 years in the making. We continue to make incredible progress in shaping our future and advancing our core products through innovations in electric, smart connected, and autonomous solutions. We see the use of AI accelerating our capabilities across all our platforms — from enhancing autonomous vehicle navigation systems to more sophisticated R&D prototyping and simulation, as well as back-office process efficiencies in procurement, legal, and finance. We are empowering our team to think differently about how we work and how we help our customers succeed in their work. I want to thank the team and our channel partners for their customer focus and our strong operational execution in the first half. This performance and our ability to capitalize on our opportunities give me confidence that we will deliver on our second-half expectations. With that, we will take your questions.
分析師問答
Thank you. To withdraw your question, please press 1-1 again. Our first question comes from David MacGregor with Longbow Research.
Yes. Good morning, and congratulations on a really strong performance. My first question is just on the seasonal sell-in and you entering 2026 with leaner channel inventories than was the case in recent years. As a result, if a dealer was buying in to reach their typical seasonal stocking targets, they would have needed to buy in more units than we have seen over the past few years. So how did that dynamic contribute to Q2 unit growth? And how much of an offset were maybe extended lead times on Mexican manufacturing products or any other drivers or factors that would be included there?
I would say the best way to describe it, David, is that we were back to a more normal situation. As you recall, in the last couple of years we had higher field inventory that we were working through. We had maybe just a little tail of that left as we entered the spring season, but we were in good shape to supply the demand. Demand was even beyond what we expected, but we had good flow coming out of all of our facilities. Any change in flow from Mexico or anywhere else was normal distribution flow within our system. So think of the best way to describe it as a pretty normal quarter from a residential standpoint, particularly.
Okay. Let me just follow up with a question on Ditch Witch, if I could.
And I know there has been a lot of work done there recently around productivity. Can you just talk about shipment growth at Ditch Witch and how that compares to growth in orders, the book-to-bill, if you will? Also, as shipments pick up and begin to normalize, what are your expectations for growth in the parts and service business? Can you grow parts and service penetration in a way that moves the needle on total Ditch Witch margin contribution to the pro segment? And do you feel you have dealer support, the channel inventory, and pro appropriately staged to grow your parts and service market share?
Thanks. As we talked about, the Ditch Witch business and the underground business in general was a very strong contributor to the quarter. Low-double-digit growth contribution from a top-line standpoint was a combination of two things: first, incredible sustained demand, which we see well out into the future; secondly, the operations teams and the plants that have determined how to, in some cases, double our production to be able to meet the demand. We see strength across the entire line, but the two products that we have talked about recently continue to be extremely popular. The JT21 is the more recent one; that is actually a small compact horizontal directional drill that you might see in your neighborhood installing fiber to the home. With all the work taking place there, demand is extreme. We are replacing the de facto standard in the marketplace already, but we have made it better. It has smart features that are great for new operators and so forth. It is connected through Orange Intel, which is really a great example of the technology areas we have been working on. It has been extremely well received. The JT120 is the largest drill in its category — 120,000 pound-force pullback — used on broader projects: cross-country, power utility, broadband, fiber optic projects going under rivers, etc. Demand is very strong and we continue to see that. Data centers are driving demand — not just work at the data center itself, but the work to get power and fiber to the data center. There is an incredible amount of fiber and power work. So it is everything to feed the data center: power, fiber, and water. Very strong demand, great products, payoff for the innovation investments, and a very strong runway into the future.
Right. And can you just talk about the parts and service business and the opportunity to grow parts and service with it?
One of the things that the team has been focused on is making sure that we increase parts as a percentage of total sales. We see more opportunity to accelerate that. We get a good share today, but we see even more opportunity to grow in that area. It is an important contributor to our profitability and helps us invest in future innovations.
Great. Last question for me is just on the prosumer and the landscape contractor equipment. What are you seeing in demand change from that aspirational consumer reaching up into the pro segment?
We actually had a discussion about that yesterday. There is an element with a traditional homeowner that they are probably buying down a bit; they may be hitting the lower end of our range a little more. When you get into homeowners that are buying professional landscape contractor grade products, the higher-end purchases are not affected as much. Those buyers still go out and buy the product that they want. At the lower end where people are reaching into that range, they are a little more cautious at this point. The good news with the landscape contractor — which contributed high single digits to our growth in the quarter — is that true contractors have been healthy throughout the entire cycle and continue to be very strong today. They entered the season off of a strong snow season, so they came in a healthy position. Many contractors do both snow and landscape, and we see that playing out in demand, with a great response to investments in technology and new products.
Great. Thanks very much. Congratulations.
Thank you.
Our next question comes from Bobby Shultz with Baird. You may proceed.
Just curious on the updated tariff assumptions. Is there any way to frame the annualized impact from tariffs given the $120 million gross assumption for 2026?
Great question, Bobby. There's the opportunity to make this really complicated, so I'll do my best to keep it relatively simple, and then Angie can chime in with what it ultimately means flowing through to our guidance.
While the environment remains dynamic, the punchline is that when it is all said and done, there is minimal impact to our current fiscal year. If we rewind to when we talked a quarter ago, we were only a couple of weeks removed from the Supreme Court decision that ultimately led to the termination of the IEPA tariffs. At that time, we did not have visibility to the refund process, and so we were not counting on any refunds within the fiscal year. We also made the assumption that the use of Section 122 and other trade laws would largely offset whatever went away. When it was all said and done, our gross tariff estimate at that time remained at $100 million, and we did not make any other net adjustments. Since then, the Section 32 tariffs were restructured on April 6. That had a modest unfavorable impact, but not a significant number. The combination of that, plus some additional indirect impacts related to products for which we are not the importer of record, and an increase in our sales, netted to about $20 million, which is why you are now seeing the gross estimate of $120 million. We have also received more clarity on the refund process — more clarity, not complete clarity. For us, being largely U.S.-based in manufacturing, the IEPA tariffs were not as big of an impact. All in, we do anticipate about a $20 million refund during the course of this fiscal year.
A couple of new announcements this week related to agricultural and industrial equipment tariff reduction do not have any direct impact on us as currently drafted. The HTS codes that apply to our products are not on that list, so that is generally neutral. The most recent changes related to Section 301 would potentially have a small unfavorable impact. But as Angie said in the prepared remarks, the impact on our full year all-in is really negligible. The $20 million increase is offset by the $20 million refund, so grand total, relatively unchanged.
I would also add that the $20 million in additional tariffs is expected to carry through in our run rate. As we look forward, we would expect the run rate to be about $120 million in total tariff expenses going forward. Regarding the refund, our expectation is to accrue about $8 million of that anticipated refund in Q3 and the remainder to come in Q4.
Awesome. Appreciate the detail there. If we could talk about sell-through, what are you seeing in the landscape contractor and residential businesses? Did you see any impact from weather? We have heard it has been a pretty dry spring in the Southeast. I am just curious if you saw any impact from that.
With regard to sell-through, we saw very strong sell-through. As a result, field inventories are in great shape at this point. We are actually a little bit lower than we would like to be in some categories; residential Zs are a little off our target and we are still working on that. Edric, do you want to comment on weather?
We are paying attention to areas with drought. Ironically, when you look at our complete portfolio, even if drought has the potential to drag on some residential and contractor activity, that same lack of rain means better weather for other activities. Rounds played on golf courses are tracking about 5% above last year, which was another record. So while there is potential for a drag in one area, it is probably driving additional opportunity in another area, and there is less disruption to jobs in specialty construction. All in, we are not seeing anything that has us overly concerned, but we are absolutely paying attention.
Got it. I will leave it there. Thanks for the color.
Thank you.
Our next question comes from Samuel Darkatsh with RJF. You may proceed.
Good morning, Rick, Angie, Edric. A couple of clarification questions on the tariff commentary. First, can I recognize that you have $120 million in total gross tariffs in fiscal 2026? Can you give us a sense based on your current thinking what that might be for fiscal 2027?
Yes. You can think of that as a status quo run rate, assuming generally steady state in terms of tariff regulations and our actions. We are constantly assessing what we might do differently — related to sourcing or manufacturing — so right now we would expect the run rate to be higher than it was 90 days ago, but we will be working to offset it over time.
Gotcha. Related to that, the $20 million in refunds — it sounds like that will be included within adjusted EPS. Does that get accounted for within the individual segment P&Ls or is it in corporate? How does that translate when you ultimately report it?
Great question. Yes, the $20 million refund will be included in EPS and the guidance we provided today, and it will be reflected in the P&L individually. We expect the pro segment to take about 70% of that tariff refund based on their volumes and the tariffs paid, and the rest would go to residential.
Got it. International was a particular bright spot in the quarter, especially compared to last quarter where it was down sharply. Can you point to something that switched to the positive in the fiscal second quarter internationally?
Yes. The positive factor was the impact of Tornado, which has been at or ahead of our plan for the year. Canada is part of the international calculation and was greater than we would have expected without Tornado. We still see softness in Europe, particularly on the residential side, which reduced our residential results specifically in Europe. The biggest positive in international was Tornado, which we continue to see very strong demand for. That business splits about 50% Canada and 50% United States.
Got it. My last question: on third-quarter residential margin expectations, are we looking at double-digit margins realistically in the third quarter?
What we guided to is that margins would be higher than last year, and we continue to see improved margins driven by price realization, productivity, and volume recovery. Q2 is typically our larger quarter, so Q3 will be lower than Q2. We expect a similar year-over-year improvement in residential margins as you saw in the second quarter, adjusting for the lower base last year, but not as high as Q2 this year. Sustainability of improved margins will continue to be based on ongoing productivity and pricing in this competitive market.
So a similar bump year-over-year as what you saw in the second quarter, adjusted for the lower margin last year?
Yes, that is correct.
Our next question comes from Mike Shlisky with D.A. Davidson. You may proceed.
Good morning, and thanks for taking my questions. Looking at the new outlook for residential being relatively flat for the full year, and considering that some pandemic purchases from 2020 will be seven years old in 2027, do you think after this year there may be pent-up demand that just needs some minor macro improvement to create tailwinds for residential in 2027?
Some of that has yet to play out, but you are right; products purchased back in 2020 are reaching replacement age for some customers, so that should at least stop being a headwind. Taking the whole cycle into account, we are back to a more normal longer-term growth rate for residential. We are back on the rails of that growth rate and see opportunities for growth as the market shakes out. First, we are focused on restoring profitability to sustainable levels, and then opportunities to get back to normal growth rates or a bit better.
Great. Then I wanted to turn to autonomous products in your golf business. You sounded promising there. There are other smaller startups demoing autonomous products on golf courses. Do you think you have a good chance to maintain or increase market share with autonomous solutions compared to ICE mowers you already have out there?
That is a great question. Over the last couple of quarters we have introduced new autonomous products and are seeing more demos and starting to see retail flow-through. We have tempered expectations for immediate revenue as customers figure out how to incorporate autonomous solutions into overall operations. Qualitatively, we are seeing more enthusiasm. We are optimistic but cautious not to put too much weight on immediate adoption while we see how it plays out.
Thank you.
Our next question comes from Ted Jackson with Northland. You may proceed.
Thanks very much, and echo the congrats on the quarter. It is nice to hear someone talk about inventories being below where they would like them to be. A couple of questions: with the more normalized winter and the drawdown in excess snow inventory, do you view the channel inventory in snow as now at a normalized level? Is there any more work that needs to be done when we get to the next season?
We do view the field inventory for snow to be at a normal level. We are coming off a good season last year. Professional stocking typically takes place in our third quarter with some residential stocking in the fourth quarter. Timing can vary, but we expect a normal stock level in the latter half of the year, and that is built into our guidance.
Thanks. A second question: you are a regular acquirer of businesses and Tornado looks like a great acquisition. When you look at the opportunity funnel, where are you most excited to grow — construction side given Tornado and Ditch Witch, or more on turf and golf? Could you give a little color on how you think about strategic focus if you had your druthers?
We have a disciplined approach to acquisitions. We always have many opportunities, but they must be the right fit and at the right price. We focus on areas where we already play and win. Tornado is a perfect example: products that are on our job sites for horizontal directional drills and where we have existing relationships. It was a logical extension and opens up new business opportunities. We focus on businesses we know, that have opportunities to expand markets, and that have a strong runway and profit picture. We also invest in technology to leverage across markets. We remain open to opportunities but keep our core teams focused on where we can win.
Thanks, Rick. One additional note: I imagine you are more likely to pursue acquisitions on the professional side, as you have mentioned before.
Yes, that is correct.
Our next question comes from Eric Bosshard with Cleveland Research. You may proceed.
Hi. Thanks. On the golf business, any sense you can give on backlog and order trends, what you are seeing from dealers and customers in that business?
As we said a quarter ago, we have been pleasantly surprised at demand and the orders coming in. We had asked whether there could be an air gap after so much growth, and we really have not seen that. Demand on the equipment side is a bit above expectations. On the irrigation side we have talked about a long pipeline of projects that continues to be true. We are really happy with demand within golf and also seeing good demand in high-end grounds applications that extend beyond golf.
Secondly, you talked about record levels of profitability for the business. Considering $120 million of tariffs, have you offset all the tariffs and sustained this level of profitability, and how much is AMP contributing?
It has been the combination of actions we have discussed. Angie and the team started AMP before some of these tariffs or inflationary factors materialized. The timing of AMP could not have been better; it has been an incredible benefit. We have been able to offset tariffs in most cases and improve productivity more broadly. The work over the last few years — AMP, restructuring, portfolio pruning — has been hard but it is paying off now in improved margins and cash flow. You can see it in the 125% free cash flow conversion for the quarter and our ability to return cash to shareholders. Having the productivity machine in motion when these costs hit us has been incredibly helpful.
Thank you.
This concludes the question-and-answer session. Ms. Lilly, please proceed to closing remarks.
Thank you, everyone, for your questions and interest in The Toro Company. We look forward to talking with you again in September to discuss our third quarter 2026 results.
Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.