The Toro Company Reports Record Third-Quarter Fiscal 2022 Results

Highlighted by Strong Professional Segment Performance and Increased Profitability

• Record third-quarter net sales up 18.8% year over year to $1.16 billion

• Record third-quarter reported diluted EPS of $1.19; *adjusted diluted EPS of $1.19

• Operational execution drives gross margin and operating earnings margin expansion

• Raises full-year *adjusted diluted EPS guidance

The Toro Company (NYSE: TTC) today reported results for its fiscal third-quarter ended July 29, 2022.

“We delivered record results while advancing our strategic initiatives during the third quarter,” said Richard M. Olson, chairman and chief executive officer. “Our ability to achieve this performance despite the broader macro uncertainty is a testament to the strength of our portfolio, disciplined execution, and collaborative approach. Our team continued to demonstrate resiliency and agility in this unique operating environment, while making progress in restoring historic margin levels and maintaining a sharp focus on serving our customers.

“Professional segment demand remained robust and broad-based. Our biggest challenge continued to be our ability to fulfill heightened order levels in this time of constrained supply. Residential segment demand was solid, moderating as expected on top of the higher base we have built with the past two years of double-digit growth, and aligned with more typical seasonal trends.

“During the quarter, we continued to invest for the long-term and prioritized the key technology areas of alternative power, smart-connected, and autonomous solutions. Our focus on technology leadership dovetails with our enterprise-wide commitment to environmental, social, and governance best practices. We were excited to introduce goals and metrics in our latest sustainability report, which should help us drive change in a meaningful way for all stakeholders.”

THIRD-QUARTER FISCAL 2022 FINANCIAL HIGHLIGHTS

• Net sales of $1,160.6 million, up 18.8% from $976.8 million in the third quarter of fiscal 2021.

• Net earnings of $125.2 million, up 29.9% from $96.3 million in the third quarter of fiscal 2021; *adjusted net earnings of $125.1 million, up 25.8% from $99.4 million in the third quarter of fiscal 2021.

• Reported diluted EPS of $1.19 versus $0.89 in the third quarter of fiscal 2021; *adjusted diluted EPS of $1.19 versus $0.92 in the third quarter of fiscal 2021.

YEAR-TO-DATE FISCAL 2022 FINANCIAL HIGHLIGHTS

• Net sales of $3,342.7 million, up 11.5% from $2,998.9 million in the first nine months of fiscal 2021.

• Net earnings of $325.8 million, down 6.9% from $349.8 million in the first nine months of fiscal 2021; *adjusted net earnings of $327.0 million, down 1.8% from $333.0 million in the first nine months of fiscal 2021.

• Reported diluted EPS of $3.08 versus $3.21 in the first nine months of fiscal 2021; *adjusted diluted EPS of $3.09 versus $3.06 in the first nine months of fiscal 2021.

OUTLOOK

“We continue to see solid demand for our innovative solutions across our end markets and are well-prepared to capitalize on growth opportunities,” continued Olson. “Orders in our professional segment remain strong, including exceptional momentum in underground construction and golf. For solutions geared to landscape contractors and residential customers, demand remains favorable and, as expected, retail patterns are beginning to normalize.

“On a macro basis, we are keeping a close eye on the mixed signals we are seeing in the economy. We are also watching the broader supply chain environment, which continues to show signs of improvement. Importantly, our team is driving operational efficiencies that put us in a favorable position as we close out our fiscal year and set us up as an even more productive and agile organization."

The company is updating its full-year fiscal 2022 guidance and now expects total net sales growth of about 14% and *adjusted diluted EPS in the range of $4.07 to $4.17. This guidance is based on management’s current visibility in what continues to be a dynamic macro environment, and reflects expectations for more normal residential demand patterns and continued operational execution, as well as modest accretion from the company’s Intimidator Group acquisition.

THIRD-QUARTER FISCAL 2022 SEGMENT RESULTS

Professional Segment

• Professional segment net sales for the third quarter were $886.2 million, up 23.3% from $718.5 million in the same period last year. The increase was driven primarily by net price realization, higher shipments of zero-turn and stand-on mowers, and incremental revenue from the company’s fiscal 2022 Intimidator Group acquisition, partially offset by lower volume in certain key product categories due to product availability constraints.

• Professional segment earnings for the third quarter were $166.2 million, up 35.9% from $122.3 million in the same period last year, and when expressed as a percentage of net sales, 18.8%, up from 17.0% in the prior-year period. The increase was primarily due to net price realization, productivity improvements, and net sales leverage, partially offset by higher material, freight, and manufacturing costs, and the addition of the Intimidator Group at a lower initial margin than the segment average.

Residential Segment

• Residential segment net sales for the third quarter were $270.0 million, up 7.1% from $252.1 million in the same period last year. The increase was primarily driven by net price realization and higher shipments of zero-turn riding mowers and snow products, partially offset by lower sales of walk-power mowers and portable-power products.

• Residential segment earnings for the third quarter were $26.3 million, down 16.5% from $31.5 million in the same period last year, and when expressed as a percentage of net sales, 9.8%, down from 12.5% in the prior-year period. The decrease was largely driven by higher material, freight, and manufacturing costs, partially offset by increased net price realization, productivity improvements, and favorable product mix.

OPERATING RESULTS

Gross margin for the third quarter was 34.5%, compared with 33.9% for the same prior-year period. The increase in gross margin was primarily due to net price realization and productivity improvements, partially offset by higher material, freight and manufacturing costs, as well as the addition of the Intimidator Group at a lower initial gross margin than the company average.

SG&A expense as a percentage of net sales for the third quarter was 20.5% compared with 21.4% in the prior-year period. The improvement was primarily due to the impact of a one-time legal settlement in the prior-year period and increased net sales leverage, partially offset by higher indirect marketing expenses.

Operating earnings margin was 14.0% for the third quarter, compared with 12.5% in the same prior-year period. *Adjusted operating earnings margin for the third quarter was 14.1%, compared with 13.1% in the same prior-year period.

Interest expense was up $2.2 million for the third quarter to $9.2 million, driven by incremental borrowing to fund the company’s acquisition of the Intimidator Group, as well as higher average interest rates.

The reported effective tax rate for the third quarter was 20.3%, compared with 18.0% for the same prior-year period. The reported effective tax rate increase was primarily due to less favorable one-time adjustments in the current-year period, as well as lower tax benefits recorded as excess tax deductions for stock compensation in the current-year period. The *adjusted effective tax rate for the third quarter was 20.7%, compared with 19.3% in the third quarter of 2021. The increase was primarily due to less favorable one-time adjustments in the current-year period.

*Non-GAAP financial measure. Please refer to the “Use of Non-GAAP Financial Information” for details regarding these measures, as well as the tables provided for a reconciliation of historical non-GAAP financial measures to the most comparable GAAP measures.

LIVE CONFERENCE CALL

September 1, 2022 at 10:00 a.m. CDT

www.thetorocompany.com/invest

The Toro Company will conduct its earnings call and webcast for investors beginning at 10:00 a.m. CDT on September 1, 2022. The webcast will be available at www.thetorocompany.com/invest. Webcast participants will need to complete a brief registration form and should allocate extra time before the webcast begins to register and, if necessary, install audio software.

About The Toro Company

The Toro Company (NYSE: TTC) 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. With sales of $4.0 billion in fiscal 2021, The Toro Company’s global presence extends to more than 125 countries through a family of brands that includes Toro, Ditch Witch, Exmark, Spartan Mowers, BOSS Snowplow, Ventrac, American Augers, Trencor, Pope, Subsite Electronics, HammerHead, Radius HDD, Perrot, Hayter, Unique Lighting Systems, Irritrol, and Lawn-Boy. Through constant innovation and caring relationships built on trust and integrity, The Toro Company and its family of brands have built a legacy of excellence by helping customers work on golf courses, sports fields, construction sites, public green spaces, commercial and residential properties and agricultural operations. For more information, visit www.thetorocompany.com.

Use of Non-GAAP Financial Information

This press release and our related earnings call reference certain non-GAAP financial measures, which are not calculated or presented in accordance with U.S. GAAP, as information supplemental and in addition to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP. The non-GAAP financial measures included within this press release and our related earnings call that are utilized as measures of our operating performance consist of gross profit, gross margin, operating earnings, earnings before income taxes, net earnings, diluted EPS, and the effective tax rate, each as adjusted. The non-GAAP financial measures included within this press release and our related earnings call that are utilized as measures of our liquidity consist of free cash flow and free cash flow conversion percentage.

The Toro Company uses these non-GAAP financial measures in making operating decisions and assessing liquidity because it believes these non-GAAP financial measures provide meaningful supplemental information regarding core operational performance and cash flows, as a measure of the company's liquidity, and provide the company with a better understanding of how to allocate resources to both ongoing and prospective business initiatives. Additionally, these non-GAAP financial measures facilitate the company's internal comparisons for both historical operating results and competitors' operating results by factoring out potential differences caused by charges and benefits not related to its regular, ongoing business, including, without limitation, certain non-cash, large, and/or unpredictable charges and benefits; acquisitions and dispositions; legal judgments, settlements, or other matters; and tax positions. The company believes that these non-GAAP financial measures, when considered in conjunction with the financial measures prepared in accordance with U.S. GAAP, provide investors with useful supplemental financial information to better understand its core operational performance and cash flows.

Reconciliations of historical non-GAAP financial measures to the most comparable U.S. GAAP financial measures are included in the financial tables contained in this press release. These non-GAAP financial measures, however, should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the U.S. GAAP financial measures included within this press release and the company’s related earnings call. These non-GAAP financial measures may differ from similar measures used by other companies.

The Toro Company does not provide a quantitative reconciliation of the company’s projected range for adjusted diluted EPS for fiscal 2022 to diluted EPS, which is the most directly comparable GAAP measure, in reliance on the unreasonable efforts exception provided under Item 10(e)(1)(i)(B) of Regulation S-K. The company’s adjusted diluted EPS guidance for fiscal 2022 excludes certain items that are inherently uncertain and difficult to predict, including certain non-cash, large and/or unpredictable charges and benefits; acquisitions and dispositions; legal judgments, settlements, or other matters; and tax positions. Due to the uncertainty of the amount or timing of these future excluded items, management does not forecast them for internal use and therefore cannot create a quantitative adjusted diluted EPS for fiscal 2022 to diluted EPS reconciliation without unreasonable efforts. A quantitative reconciliation of adjusted diluted EPS for fiscal 2022 to diluted EPS would imply a degree of precision and certainty as to these future items that does not exist and could be confusing to investors. From a qualitative perspective, it is anticipated that the differences between adjusted diluted EPS for fiscal 2022 to diluted EPS will consist of items similar to those described in the financial tables later in this release, including, for example and without limitation, certain non-cash, large, and/or unpredictable charges and benefits; acquisitions and dispositions; legal judgments, settlements, or other matters; and tax positions. The timing and amount of any of these excluded items could significantly impact the company’s diluted EPS for a particular period.

Forward-Looking Statements

This news release contains forward-looking statements, which are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management’s current assumptions and expectations of future events, and often can be identified by words such as “expect,” “strive,” “looking ahead,” “outlook,” “guidance,” “forecast,” “goal,” “optimistic,” “encourage,” “anticipate,” “continue,” “plan,” “estimate,” “project,” “target,” “improve,” “believe,” “become,” “should,” “could,” “will,” “would,” “possible,” “promise,” “may,” “likely,” “intend,” “can,” “seek,” “pursue,” “potential,” “pro forma,” variations of such words or the negative thereof, and similar expressions or future dates. Forward-looking statements involve risks and uncertainties that could cause actual events and results to differ materially from those projected or implied. Forward-looking statements in this release include the company’s fiscal 2022 financial guidance, and expectations for more normal Residential demand patterns and continued operational execution, as well as modest accretion from the company’s Intimidator Group acquisition. Particular risks and uncertainties that may affect the company’s operating results or financial position include: COVID-19 related factors, risks, and challenges; adverse worldwide economic conditions, including inflationary pressures; disruption at or in proximity to its facilities or in its manufacturing or other operations, or those in its distribution channel customers, mass retailers or home centers where its products are sold, or suppliers; fluctuations in the cost and availability of commodities, components, parts, and accessories, including steel, engines, hydraulics and resins; the effect of abnormal weather patterns; the effect of natural disasters, social unrest, war and global pandemics; the level of growth or contraction in its key markets; customer, government and municipal revenue, budget, spending levels and cash conservation efforts; loss of any substantial customer; inventory adjustments or changes in purchasing patterns by customers; the company’s ability to develop and achieve market acceptance for new products; increased competition; the risks attendant to international relations, operations and markets; foreign currency exchange rate fluctuations; financial viability of and/or relationships with the company’s distribution channel partners; risks associated with acquisitions and dispositions, including the company's acquisition of Intimidator Group; impairment of goodwill or other intangible assets; impacts of any restructuring activities; management of alliances or joint ventures, including Red Iron Acceptance, LLC; impact of laws, regulations and standards, consumer product safety, accounting, taxation, trade, tariffs and/or antidumping and countervailing duties petitions, healthcare, and environmental, health and safety matters; unforeseen product quality problems; loss of or changes in executive management or key employees; the occurrence of litigation or claims, including those involving intellectual property or product liability matters; impact of increased scrutiny on its environmental, social, and governance practices; and other risks and uncertainties described in the company’s most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q, or current reports on Form 8-K, and other filings with the Securities and Exchange Commission. The company makes no commitment to revise or update any forward-looking statements in order to reflect events or circumstances occurring or existing after the date any forward-looking statement is made.

(Financial tables follow)

THE TORO COMPANY AND SUBSIDIARIES

Reconciliation of Non-GAAP Financial Measures (Unaudited)

(Dollars in thousands, except per-share data)

The following table provides a reconciliation of the non-GAAP financial performance measures used in this press release and our related earnings call to the most directly comparable measures calculated and reported in accordance with U.S. GAAP for the three and nine month periods ended July 29, 2022 and July 30, 2021:

Reconciliation of Non-GAAP Liquidity Measures

The company defines free cash flow as net cash provided by operating activities less purchases of property, plant and equipment. Free cash flow conversion percentage represents free cash flow as a percentage of net earnings. The company considers free cash flow and free cash flow conversion percentage to be non-GAAP liquidity measures that provide useful information to management and investors about the company's ability to convert net earnings into cash resources that can be used to pursue opportunities to enhance shareholder value, fund ongoing and prospective business initiatives, and strengthen the company's Consolidated Balance Sheets, after reinvesting in necessary capital expenditures required to maintain and grow the company's business.

The following table provides a reconciliation of non-GAAP free cash flow and free cash flow conversion percentage to net cash provided by operating activities, which is the most directly comparable financial measure calculated and reported in accordance with U.S. GAAP, for the nine month periods ended July 29, 2022 and July 30, 2021:

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The Toro Company delivered record Q3 results highlighted by strong professional segment performance and increased profitability. This is a testament to the strength of our portfolio, disciplined execution, and the resiliency and agility of our teams.