The Toro Company (NYSE: TTC) — Fiscal 2023 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended October 31, 2023; it is not a standalone fourth-quarter earnings report. Toro designs and sells professional turf, landscaping, irrigation, construction, snow and ice management, and residential outdoor equipment. Professional generated 80.7% of fiscal 2023 sales and Residential 18.8%.
Financial performance
| Metric | Fiscal 2023 | Fiscal 2022 |
|---|---|---|
| Net sales | $4,553.2 million | $4,514.7 million |
| Gross margin | 34.6% | 33.3% |
| Operating earnings | $430.7 million | $575.7 million |
| Net earnings | $329.7 million | $443.3 million |
| Diluted EPS | $3.13 | $4.20 |
| Adjusted net earnings and diluted EPS (non-GAAP) | $443.5 million; $4.21 | $444.2 million; $4.20 |
| Cash from operating activities | $306.8 million | $297.2 million |
| Free cash flow (non-GAAP) | $164.4 million | $153.7 million |
| Long-term debt | $1,031.5 million | $990.8 million |
Gross profit increased 4.9%. Gross-margin improvement reflected pricing and productivity, partly offset by higher material costs. SG&A rose to 21.8% of sales from 20.5%, reflecting higher corporate, marketing, warranty, and research and engineering costs. Interest expense increased $23.0 million to $58.7 million, principally due to higher average rates. The effective tax rate was 17.7%, versus 19.8%.
Cash and cash equivalents were $193.1 million at year-end. Available liquidity was $750.5 million, including $557.4 million of unused revolving-credit capacity. Capital expenditures were $149.5 million. Debt-to-capitalization was 40.6%, down from 42.3%; the company reported compliance with debt covenants. The board raised the quarterly dividend to $0.34 per share during fiscal 2023 and announced a fiscal 2024 first-quarter dividend of $0.36.
Material changes and notable items
- Professional sales increased 7.1% to $3,674.6 million, while segment earnings fell to $509.1 million from $584.0 million. Results benefited from higher construction and golf/grounds shipments and pricing, but included impairment charges and higher material costs.
- Residential sales fell 20.1% to $854.2 million and segment earnings declined 38.9% to $68.9 million, amid lower shipments, weaker homeowner demand, and unfavorable mix.
- Fiscal 2023 included $151.3 million of non-cash Intimidator-related impairment charges: $133.3 million for goodwill and $18.0 million for the Spartan trade name. The filing cites weaker-than-expected retail demand, weather, higher interest rates, economic uncertainty, and channel replenishment. Adjusted results exclude these and other specified items; they are non-GAAP measures.
- Order backlog declined $343.4 million to $1,965.7 million, primarily due to improved manufacturing output, but remained elevated relative to the company’s normal level.
- Operating cash flow was $306.8 million, up from $297.2 million. Investing cash use narrowed substantially from fiscal 2022, when the company acquired Intimidator. Financing activities used $147.5 million, including $60.0 million of share repurchases and $141.9 million of dividends.
Outlook, management commentary, and risks
Management’s “Drive for Five” initiative targets more than $5.0 billion in sales through organic growth by fiscal 2024. The AMP initiative targets annualized cost savings exceeding $100 million by fiscal 2027, with a portion expected to be reinvested in innovation and growth. These are goals, not assurances; the filing does not provide a specific fiscal 2024 revenue or earnings forecast in the supplied text.
Management said supply-chain conditions were beginning to stabilize and expected available liquidity and projected operating cash flows to meet anticipated needs for at least the next 12 months. Principal risks include economic weakness and reduced consumer spending, weather and seasonality, supply and labor disruptions, commodity and financing costs, channel inventory and customer credit, competition and product execution, foreign-exchange movements, acquisitions and impairment risk, cybersecurity, and changing emissions and climate-related regulation. A restructuring program initiated in October 2023 was expected to conclude by the end of fiscal 2024’s first quarter.
Potential contingencies include repurchase obligations for certain repossessed dealer inventory, up to $32.2 million at year-end, and ordinary-course litigation. Management stated that litigation liabilities, if any, were not expected to materially affect consolidated results, financial position, or cash flows. The auditor issued unqualified opinions on the financial statements and internal controls; the audit identified sales-promotion accruals and Intimidator valuation as critical audit matters.
Important facts for investors to verify
- Track Residential sell-through, channel inventory, and Professional demand, especially given elevated backlog and the Intimidator impairment.
- Assess whether pricing and productivity can sustain margins as material, labor, and financing costs evolve.
- Monitor debt, variable-rate exposure, scheduled maturities, liquidity, and covenant headroom.
- Evaluate progress and costs against the fiscal 2024 sales goal and AMP’s fiscal 2027 savings target.
- Review the assumptions supporting goodwill and trade-name valuations, sales-promotion accruals, and dealer inventory repurchase exposure.