The Toro Company (TTC) — Q1 Fiscal 2022 Form 10-Q
Reporting period: Three months ended January 28, 2022; comparable period ended January 29, 2021. Toro designs, manufactures, and sells professional and residential outdoor equipment, irrigation systems, and related products. Results are seasonal and the company cautions that this quarter should not be annualized.
Financial performance
| Metric | Q1 FY2022 | Q1 FY2021 | Change |
|---|---|---|---|
| Net sales | $932.7 million | $873.0 million | +6.8% |
| Gross profit / margin | $300.5 million / 32.2% | $315.0 million / 36.1% | Margin down 390 basis points |
| Operating earnings | $91.6 million | $141.5 million | Down 35.2% |
| Net earnings | $69.5 million | $111.3 million | Down 37.5% |
| Diluted EPS | $0.66 | $1.02 | Down 35.3% |
| Operating cash flow | $(90.0) million | $95.0 million | Decrease of $185.1 million |
| Capital expenditures | $11.9 million | $10.5 million | |
| Free cash flow, company-defined non-GAAP | $(101.9) million | $84.5 million |
Sales growth reflected price increases and stronger Residential shipments, partly offset by supply constraints in parts of the Professional business. Higher commodity and component costs, supply-related manufacturing inefficiencies, and unfavorable product mix pressured gross margin. Pricing and productivity partially offset those headwinds. SG&A rose 20.3%, including higher engineering and sales and marketing costs and the absence of a prior-year legal settlement benefit.
Segments and material changes
- Professional: Sales increased 3.5% to $672.9 million; segment earnings declined 20.2% to $93.3 million. Pricing and irrigation/ag-irrigation growth were offset by product availability constraints and cost pressures.
- Residential: Sales increased 17.3% to $255.4 million, led by pricing and mower shipments ahead of the selling season. Segment earnings decreased 1.1% to $31.8 million as inflation and mix offset pricing, productivity, and higher volume.
- Intimidator acquisition: Acquired January 13 for preliminary cash consideration of $398.9 million, subject to customary adjustments and up to $15 million of possible contingent consideration tied to qualifying tax changes. The acquisition added $155.6 million of preliminary goodwill and $185.9 million of intangible assets; its Q1 operating contribution was immaterial. Purchase accounting remains preliminary.
- Prior-period item: Q1 FY2021 included a net benefit of $17.1 million from the Exmark/Briggs & Stratton patent litigation settlement. This did not recur. Non-GAAP diluted EPS was $0.66 versus $0.85, also reflecting inflation and supply-related costs.
Cash, debt, liquidity, and capital returns
- Cash and cash equivalents were $193.0 million at January 28, 2022, versus $405.6 million at October 31, 2021. Operating cash use reflected lower earnings, inventory investment, and payment timing for liabilities outstanding at fiscal year-end.
- Total debt was $1.09 billion, compared with $691.2 million at October 31, 2021, primarily following $400 million of revolving-credit borrowings used in part to fund the acquisition. The company classified $100 million of revolver borrowings as current because it intends to repay that amount within 12 months.
- Reported available liquidity was $387.4 million: $193.0 million cash and $194.4 million of revolver availability. Toro said it expects existing liquidity, financing availability, and operating cash flows to cover anticipated needs for at least 12 months. It reported compliance with debt covenants.
- Cash dividends were $0.30 per share, up 14.3% year over year. The company repurchased 738,632 shares under its authorization and returned $106.5 million through dividends and repurchases during the quarter.
Outlook, risks, and contingencies
The filing provides no quantified full-year revenue or earnings guidance. Management described strong demand but said first-quarter shipments were driven more by production capacity than historical demand patterns. It expected commodity, component, and related costs for the remainder of FY2022 to remain significantly above the prior-year comparable period. Continued supply-chain disruption may constrain production and limit the company’s ability to adjust output.
Key disclosed risks include inflation and supplier availability, COVID-19-related disruption, labor and logistics constraints, foreign exchange and interest-rate exposure, and acquisition integration and execution. Toro expects to complete Intimidator financial-control integration during FY2023 and said it does not expect to include Intimidator in its October 31, 2022 internal-control assessment. The company disclosed contingent inventory repurchase commitments of up to $172.3 million under certain financing arrangements; actual repurchases in the quarter were immaterial. Management stated that ordinary-course litigation liabilities, if any, were not expected to materially affect results, financial position, or cash flows.
Important facts for investors to verify
- Whether pricing and productivity can offset the expected persistence of inflation and supply-chain costs, and support recovery in gross margins.
- Whether production and inventory can meet demand, particularly in constrained Professional product lines, while working capital remains elevated.
- Final Intimidator purchase-price adjustments, contingent consideration exposure, integration progress, and realization of expected growth and synergies.
- Repayment of the $100 million current revolver portion and debt levels following the acquisition; confirm continued covenant compliance and liquidity.
- Potential financial exposure from dealer/distributor inventory repurchase arrangements if retail demand or channel-partner financial health weakens.