The Toro Company (NYSE: TTC) — FY2021 Form 10-K
Reporting period: Fiscal year ended October 31, 2021. This is an annual report, not a standalone fourth-quarter report. Toro designs and sells professional turf, irrigation, landscaping, construction, snow-management, and residential outdoor equipment. Professional generated 74.0% of FY2021 sales; Residential generated 25.5%.
Financial results and position
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $3,959.6 million | $3,378.8 million |
| Gross margin | 33.8% | 35.2% |
| Operating earnings | $518.3 million | $426.4 million |
| Net earnings | $409.9 million | $329.7 million |
| Diluted EPS | $3.78 | $3.03 |
| Operating cash flow | $555.5 million | $539.4 million |
| Capital expenditures | $104.0 million | $78.1 million |
| Non-GAAP free cash flow | $451.5 million | $461.3 million |
Revenue grew 17.2%; net earnings rose 24.3%. The gross-margin decline of 140 basis points reflected inflation in commodity, component, and freight costs, partly offset by pricing, productivity, and mix. SG&A fell to 20.7% of sales from 22.6%, helped by sales leverage and a favorable net legal settlement. The GAAP effective tax rate was 18.0%, versus 19.0%.
Professional sales rose 16.1% to $2,929.6 million, with segment earnings of $507.3 million (17.3% margin, up from 16.9%). Residential sales increased 23.1% to $1,010.1 million, but segment earnings margin declined to 12.0% from 13.8%, chiefly due to cost inflation.
Cash and cash equivalents were $405.6 million. Total long-term debt was $691.2 million, down from $791.1 million; debt-to-capitalization was 37.5%, versus 41.5%. Available liquidity was $1,002.5 million, including $596.9 million of unused revolving-credit capacity. Operating cash flow increased 3.0%; free cash flow declined as capital spending rose. The company returned $414.7 million to shareholders through dividends and repurchases.
Material changes and unusual items
- Demand was strong across both segments, but supply constraints limited production and deliveries. Backlog reached approximately $1,575.9 million at year-end, up from $370.9 million; it is a gross order measure and may be delayed, changed, or cancelled.
- International sales increased 22.0% to $827.6 million; currency movements contributed $19.3 million to consolidated sales growth.
- Fiscal 2021 GAAP results included net litigation-settlement benefits. Exmark received a $33.65 million settlement from Briggs & Stratton; after related legal fees and another patent-settlement charge, net litigation settlements were $11.325 million at operating-earnings level. Non-GAAP results exclude specified litigation, acquisition, management-action, and tax items.
- The company acquired Turflynx and Left Hand Robotics assets to support autonomous turf and snow solutions, paid the remaining $24.9 million Venture Products holdback, and sold its Northeastern U.S. distribution company.
- A new $270 million variable-rate term loan and a renewed $600 million revolving facility were established in October 2021. The revolver had no borrowings at year-end; the term loan matures in 2026.
Outlook, risks, and contingencies
Management expected strong demand across Professional and Residential in FY2022, with pricing and productivity initiatives supporting sales and margins. However, supply-chain disruption, inflation, and constrained production were expected to continue; management said quarterly sales timing could depend more on product availability than customary seasonality. The company expected FY2022 capital expenditures of $150 million to $175 million. Its “Drive for Five” employee initiative targets more than $5 billion in sales through organic growth by the end of FY2024. The filing provides no clear numerical FY2022 sales or EPS forecast in the text presented.
- Key risks include COVID-19 and variants, supplier and labor availability, higher input and freight costs, and the ability to fulfill backlog and replenish inventory.
- Demand is exposed to weather, seasonality, construction and golf activity, consumer spending, channel inventory, and changing regulations, including emissions requirements and California’s expected 2024 restrictions on sales of certain small-engine equipment.
- One Residential-segment customer represented 10.6% of consolidated gross sales in FY2021. The company also had contingent inventory repurchase obligations of up to $96.8 million under dealer-financing arrangements, though historical repurchases were immaterial.
- Management reported compliance with debt covenants and sufficient liquidity for anticipated needs over at least the next 12 months. Debt ratings were BBB from S&P and Baa3 from Moody’s.
- Management stated that existing environmental matters and litigation were not expected to materially affect results, financial position, or cash flows; outcomes remain uncertain. Goodwill and indefinite-lived intangibles were not impaired in FY2021.
Most important facts for investors to verify
- Whether supply constraints ease and the record backlog converts to sales without significant delays or cancellations.
- Whether price increases and productivity can offset inflation, freight costs, and potential unfavorable product mix.
- Customer concentration, channel inventory and financing exposure, including the $96.8 million repurchase exposure.
- The assumptions behind FY2022 demand, production capacity, capital spending, and the FY2024 sales target.
- The composition and recurrence of litigation and other items excluded from non-GAAP results, and the sensitivity of cash flow to working-capital needs.