Toro Company (The)

Ladies and gentlemen, thank you for standing by, and welcome to the Toro Company fourth quarter and fiscal year 2020 earnings conference call. At this time, all participant lines are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I will now hand the conference over to Nicholas Rose, Managing Director of Investor Relations. Please go ahead.

Thank you, Sarah, and good morning. Our earnings release was issued this morning, and a copy can be found in the investor information section of our corporate website, thetorocompany.com. On our call today are Rick Olson, Chairman and Chief Executive Officer, and Renee Peterson, Vice President, Treasurer, and Chief Financial Officer. We begin with our customary forward-looking statement policy. During this call, we will make forward-looking statements regarding our business and future financial and operating results. You are all aware of the inherent difficulties, risks, and uncertainties in making predictive statements. On our earnings release, as well as our SEC filings, detail some of the important risk factors, including those related to COVID-19, that may cause our actual results to differ materially from those in our predictions. Please note that we do not have a duty to update our forward-looking statements. In addition, during this call we will reference certain non-GAAP financial measures. Reconciliations of historical non-GAAP financial measures to reported GAAP financial measures can be found on our earnings release or on our website. We believe these measures may be useful in performing meaningful comparisons of past and present operating results to understand the performance of our ongoing operations and how management views the business. Non-GAAP financial measures should not be considered superior to or a substitute for the GAAP financial measures presented in our earnings release and this call. With that, I will now turn the call over to Rick.

Thanks, Nick, and good morning. We are pleased to report robust results for fiscal 2020, highlighted by professional segment growth, primarily from incremental contributions from Charles Machine Works and Venture Products, a record performance from our residential segment. We owe our successful performance to our team, which demonstrated perseverance and ingenuity in this challenging year. We navigated COVID-induced manufacturing inefficiencies, including social distancing and workforce fluctuations. At the same time, we provided innovative solutions to meet demand from our retailers and end customers. Our employees manage these changes admirably while working in significantly modified production environments or at home as they balance personal challenges resulting from the pandemic. I am beyond proud of our team and will remember this year as one that highlighted the way we lived our values while caring for one another and serving our customers with determination. Thank you to the entire team for your perseverance and ongoing commitment to work safely to drive our business forward. And to our channel partners, as essential businesses, you served our customers with dedication and passion. Together, we persevered to maintain and gain market share in key product categories with existing and new customers. Execution in this challenging year continued to be guided by our enterprise strategic priorities of accelerating profitable growth, driving productivity and operational excellence, and empowering people. In addition, we enhanced our commitment to the well-being of our employees, service to our customers, and support for our communities. Ultimately, staying true to our values enabled us to deliver for our stakeholders. For fiscal 2020, highlights include record growth in the residential segment, successful introduction of new battery-powered products for residential and professional applications, increased investment in research and development in key technology areas, strong free cash flow, the continued return of value to shareholders via dividends, and the launch of our Sustainability Endures platform that documents our progress aligned with long-held values and objectives, and profiles our continued efforts to address environmental, social, and governance priorities. I'll now provide some commentary regarding key results by segment for the full year and fourth quarter, and Renee will go into more detail. For fiscal 2020, professional segment net sales were up 3% year-over-year and earnings were up 12%. Residential sales were up 24% and earnings were up 75%. For the fourth quarter, professional segment net sales were up 10% versus the same prior year period and earnings were up 70%. Residential net sales were up 39% and earnings were up 90%. I'll now provide some insight into the demand environment for the quarter. In the residential segment, we experienced a continuation of trends seen throughout much of fiscal 2020. Stay-at-home directives and the expansion and strength of our channel were key contributors to high demand for walk power mowers and zero-term riding mowers. Innovative features, refreshed brand presence, and extended season sales provided additional momentum. In the professional segment, we drove growth with increased demand for our landscape contractor, snow and ice management, golf irrigation, rental and specialty construction, and ag irrigation products. Strong product offerings, favorable weather, and stay at home trends drove retail demand throughout the quarter and provided momentum going into fiscal 2021. The Toro Company is sustainably strong. The pandemic year of 2020 proved that by focusing on our enterprise strategic priorities and living our enduring values, we're able to deliver strong results. Our performance this year was only possible because of the resilience and flexibility of our team, the manner in which our operations and businesses resourcefully responded to customer demands, and the dedication of our channel partners. As a result, I'm optimistic about our momentum going into the new fiscal year. With that, I will turn the call over to Renee for a more detailed discussion of our financial results.

Thank you, Rick, and good morning, everyone. During the fourth quarter, we continued to build on our sales momentum in both the residential and professional segments while executing well operationally and investing in innovation to position the Toro Company for long-term growth. We did so in a challenging and unpredictable environment. We grew fourth quarter net sales by 14.5% to $841 million. Reported EPS was 66 cents and adjusted EPS was 64 cents per diluted share. This compares with reported EPS of 35 cents and adjusted EPS of 48 cents per diluted share for the comparable quarter of last year. For the full year, net sales increased 7.7%. to $3.38 billion. Reported EPS was $3.03 per diluted share, up from $2.53 last year. Full year adjusted EPS was $3.02 per diluted share, up from $3 a year ago. Now to the segment results. Residential segment net sales for the fourth quarter were up 38.5%. to $187.9 million, mainly driven by strong retail demand for walk power and zero turn riding mowers. Full year fiscal 2020 net sales for the residential segment increased 24.1% to $820.7 million. The increase was mainly driven by incremental shipments of zero turn riding and walk power mowers as a result of our expanded mass channel as well as strong retail demand for these products due to new and enhanced product features, favorable weather, and stay-at-home trends. Residential segment earnings for the quarter were up 90.2% to a record $26.4 million. This reflects a 390 basis point year-over-year increase to 14.1% when expressed as a percentage of net sales. This improvement was largely driven by productivity and synergy initiatives and SG&A expense reduction and leverage on higher sales volume. For the year, residential segment earnings increased 74.5% to a record $113.7 million. On a percent of net sales basis, segment earnings increased 390 basis points to 13.8%. This was a record-setting year for the residential segment, and the team deserves well-earned recognition. Professional segment net sales for the fourth quarter were up 9.5% to $644 million. This increase was primarily due to growth in shipments of landscape contractor, zero-turn riding mowers, and snow and ice management equipment, annual pricing adjustments, and lower floor plan costs. as well as incremental sales from the venture products acquisition. For the full year, professional segment net sales increased 3.3% to $2.52 billion. Professional segment earnings for the fourth quarter were up 70.2% to $104.2 million, and what expressed as a percent of net sales increased 580 basis points to 16.2%. This increase was primarily due to annual pricing adjustments and lower floor plan costs, lower acquisition related charges, and benefits from productivity and synergy initiatives. This was partially offset by product mix. For the full year, professional segment earnings increased 12% compared to fiscal 2019. When expressed as a percent of net sales, segment earnings increased 130 basis points to 16.9% from last year. Turning to our operating results, we reported gross margin for the fourth quarter of 35.7%, an increase of 230 basis points over the prior year period. Adjusted gross margin was 35.7%, up 120 basis points over the prior year. The increases in gross margin and adjusted gross margin were primarily due to the benefits from productivity and synergy initiatives and net price realization, mainly within the professional segment. This was partially offset by product mix. Reported gross margin was positively affected by lower acquisition-related charges compared with the prior year period. For the full year, reported gross margin was 35.2%. up 180 basis points compared with 33.4% in fiscal 2019. Adjusted gross margin was 35.4% up from 35.1% in fiscal 2019. SG&A expense as a percent of net sales decreased 290 basis points to 24.6% for the quarter. This decrease was primarily due to restructuring costs in the prior year period that did not repeat and cost reduction measures, including decreased salaries and indirect marketing expense. This was partially offset by increased warranty costs in certain professional segment businesses. For the full year, SG&A expense as a percent of net sales was 22.6%, down 40 basis points from fiscal 2019. Operating earnings as a percent of net sales for the fourth quarter increased 520 basis points to 11.1%. Adjusted operating earnings as a percent of net sales increased 270 basis points to 11.1%. For fiscal 2020, operating earnings as a percent of net sales were 12.6%, up 220 basis points compared with 10.4% last year. Adjusted operating earnings as a percent of net sales for the full year were 12.8%, compared with 12.9% a year ago. Interest expense of $8 million for the fourth quarter was flat compared with a year ago. Interest expense for the full year was $33.2 million, up $4.3 million over last year, driven by increased borrowings as a result of our professional segment acquisitions. The reported effective tax rate was 18.5% for the fourth quarter, and the adjusted effective tax rate was 21.9%. For the full year, the reported effective tax rate was 19%, and the adjusted effective tax rate was 20.9%. Turning to the balance sheet and cash flow, at the end of the year, our liquidity was $1.1 billion, This included cash and cash equivalents of $480 million and full availability under our $600 million revolving credit facility. We have no significant debt maturities until April of 2022. Accounts receivable totaled $261.1 million, down 2.8% from a year ago. Inventory was flat with a year ago at $652.4 million. We had planned to build inventory in the fourth quarter to partially mitigate potential supply chain and manufacturing constraints. Instead, the additional production allowed us to fulfill stronger than expected retail demand and satisfy customer needs. Accounts payable increased 14% to $364 million from a year ago. Full year free cash flow was $461.3 million with a reported net earnings conversion ratio of 140%. This positive performance was primarily due to favorable net working capital, the increase in reported net earnings, and reduced capital expenditures. Given our strong cash generation in fiscal 2020, we have already paid down $50 million of debt in November. We also expect to resume share repurchases in fiscal 2021. In fiscal 2020, our disciplined capital allocation strategy continued to include investing in organic and M&A growth opportunities, maintaining an effective capital structure, and returning cash to shareholders. We also focused on near-term liquidity. For fiscal 2021, our capital priorities remain the same and include reinvesting in our businesses to support sustainable long-term growth, both organically and through acquisitions, returning cash to shareholders through dividends and share repurchases, and repaying debt to maintain or leverage gold. In addition to the $50 million debt pay down in November, we also recently increased our quarterly cash dividend by 5%. We are providing full-year fiscal 2021 guidance at this time based on current visibility, Note that there continues to be considerable uncertainty given the potential effects of COVID-19. This includes potential effects on demand levels and timing, our supply chain, and the broader economy. I will share the guidance highlights and Rick will cover the macro trends and key factors that we will be watching throughout the fiscal year. For fiscal 2021, we expect net sales growth in the range of 6 to 8%. This includes four months of incremental sales from the venture products acquisition. We expect continued recovery in professional segment end markets. The strongest growth will be in the second and third quarters as those comparable periods last year were most impacted by the pandemic. We expect residential segment end markets to return to low single digit growth following an exceptionally strong fiscal 2020. We anticipate a stronger first half than second, given our fiscal 2020 performance. Looking at profitability, we expect moderate improvement in fiscal 2021 adjusted operating earnings as a percent of net sales compared with fiscal 2020. This assumes continued productivity and synergy benefits and lower COVID-related manufacturing inefficiencies. We expect these benefits to be partially offset by material, wage, and freight inflation, as well as the reinstatement of salary, incentive, and discretionary employer-related costs that were reduced or eliminated in fiscal 2020. In the professional segment, we expect earnings as a percent of net sales to improve versus fiscal 2020 due to better volume leverage. In the residential segment, we expect earnings as a percent of net sales to be similar to fiscal 2020 on comparable volumes. We expect full-year adjusted EPS in the range of 335 to 345 per diluted share. This adjusted EPS estimate excludes the benefit of the excess tax deduction for share-based compensation. Based on current visibility, we anticipate adjusted EPS to be higher in the first half of fiscal 2021 versus the year ago period. The majority of the increase will be in the second quarter. For the second half of fiscal 2021, we expect adjusted EPS to be comparable with the same period of fiscal 2020. We expect depreciation and amortization for fiscal 2021 of about $95 million. We anticipate capital expenditures of about $115 million as we continue to invest in projects that support our enterprise strategic priorities. We anticipate fiscal 2021 free cash flow conversion in the range of 90 to 100% of reported net earnings. In fiscal 21, we'll continue to execute and adapt to changing environments as we maintain a balance of focusing on the short term while never losing sight of our long-term strategic priorities. We look forward to capitalizing on many exciting growth opportunities in fiscal 21 and beyond. I will now turn the call back to Rick.

Thanks, Renee. Looking ahead, we'll be watching a number of macro trends, such as the trajectory and duration of COVID-related impacts, including potential global supply chain disruptions and continuing social distancing restrictions impacting production, global economic recovery factors driving general consumer and business confidence and commodity trends, and weather patterns for the winter and spring seasons. As these trends evolve, we are well positioned for growth within our specific market categories and are closely watching a number of key drivers. For our residential and certain professional businesses, customer interest in home investments. For landscape contractors, improvement in business confidence. For snow and ice management, demand within our new and refreshed product categories. For golf, the anticipation of another strong year for rounds played and the return of food and beverage and event revenue. For grounds equipment, the budgets of municipal and other tax supported entities and their impact on capital equipment purchases. For underground, the funding of 5G and broadband build out and critical need infrastructure rehab and replacement. And for rental and specialty construction, the resumption of fleet upgrades and replacements. We have a strong and innovative portfolio of products to address these market opportunities. Some recently introduced products that will continue to drive our business include Titan, Z-Master, and Time Cutter Zero-Turn Riding Mowers for homeowners and contractors. The FlexForce 60-volt lithium-ion suite of products including our Watt Power Mower, Snow Thrower, Edge Trimmer, Chainsaw, and Power Shovel. The Boss Snow Raider. and Ventrac Sidewalk Snow Vehicle, the Greensmaster E-Triflex All-Electric and Hybrid Riding Greensmowers, the Ditch Witch JT24 Horizontal Directional Drill, the Toro E-Dingo Electric and Dingo TXL2000 Stand-On Skid Steers, and the Ditch Witch SK3000 Stand-On Skid Steer. The enthusiastic customer response to these products demonstrates the success of our innovation efforts, and we will continue to focus on key technologies like alternative power, smart, connected, and autonomous products. Lastly, we have concluded our three-year Vision 2020 employee initiative. For fiscal 2021, we have implemented a new one-year employee initiative. Our stretch enterprise-wide performance goals include net sales of $3.7 billion and adjusted operating earnings of at least $485 million. In closing, for fiscal 2021 and beyond, we believe our diverse portfolio of businesses and strong customer relationships position us to grow. Our productivity and synergy initiatives will drive profitability and fund investments. Our investments in innovative products and emerging technologies will enable us to meet the evolving needs of our customers, and more than ever, our team is the key to the Toro Company's continued success. Thank you to our people for your continued dedication and resilience. and to our channel partners, customers, and shareholders for your continued support. With that, Renee and I will take your questions.

Thank you. As a reminder to ask a question, you will need to press star then one on your telephone. To withdraw your question, please press the pound key. Our first question comes from the line of Mike Sliske with Collier Securities. Your line is now open.

Good morning, everybody. Good morning, Mike. Hey, I didn't hear it mentioned much in your comments, but can you give us any feel for the target market for acquisitions for 2021? You've got plenty of capital available to you, it seems. Are you seeing good targets out there at decent valuations, or is this not the right time to be buying somebody in your sector?

Good question, Mike. And really, our approach continues to be the same with acquisitions. It's a continuous process for us. So even after we completed some of the recent acquisitions, that didn't stop us from continuing conversations with potential future opportunities. And I would say we are incredibly pleased with the last two acquisitions, Charles Machine Works and BPI. We continue to look for similar opportunities. I don't know that the environment is any different, notably, than it has been over the last few years. But it's really just a matter of us finding the opportunities and aligning with the desires of those companies to do something. So it's really a continuation of the same process. We continue to actively look for opportunities within our capital deployment policy.

Okay, great. And you had also mentioned some tailwind from the weather. I didn't hear if it was a professional or not. We had a pretty big hurricane season this past season here in the U.S. It was a record season. Did you get any additional business or interest in either Ditch Witch or other, you know, rental business, at least regionally, for some projects that came about post-hurricanes?

You know, there would be a minor effect from the hurricanes themselves, but what happens is the hurricanes actually bring moisture into the south, and that's a very common pattern for us to extend our selling season into the fall, is where we have continued growing temperatures in the south and plenty of moisture. So that contributed to the, especially the retail for for residential and for our contractor businesses, just because there was a lot of growing grass in the south that extended our season and contributed to the results for the fourth quarter.

Okay. And then maybe turning to residential again, over the last month or two, we've been seeing additional lockdowns. Parts of the world have been gradually shifting in and out of having people stay at home more firmly than they had in prior months. Is there any way, can you tie that back? Are you seeing any increased, you know, retail sell-through in places where the lockdowns are getting more intense, where everyone's got to stay home and focus on their homes? Or is it different when we're in the colder weather months when this happened compared to the, you know, spring-summer when you had some pretty decent organic results last time around?

We haven't necessarily tied it to specific areas where there are more or less restrictive directives in place. We do know that you know in the fourth quarter and we continue to see the momentum there is a benefit from continues to be a benefit from the stay at home directives that again is on top of the things that we've done internally so it's really a balance between those factors, both external and what we've done with the product line, with the channel expansion, and with just everything like brand messaging and those types of initiatives are getting some really nice traction. And we see that continuing. We've built into the plan for 2021 the tapering off of those effects and going back to a more typical growth rate for residential, but that's on top of a new base. So we'll continue to capture the gains that we experienced this last year.

Got it. That makes sense. Thanks so much, guys. Happy holidays.

Thank you. Our next question comes from the line of Tim Wojcic with Robert W. Baird. Your line is now open.

Yeah. Hey, everybody. Good morning. Good morning. Just a couple questions for me, I guess first, I don't know if it's easier to go around by business, but Rick, if you could just kind of run through where you see channel inventories right now as you kind of exit 20 and head into 2021 in the preseason. Sure.

Channel inventories just in general are in very good shape. You might think in some of the areas if there were challenges on the pro side that those would be areas where you might have higher field inventory. In fact, we are in great shape pretty much across the board. If anything, there are some categories where we would prefer to have higher field inventory. I think we expected that to be the case in the fourth quarter. We expected to build that a little bit, but the fact that we were building additional product allowed us to meet additional retail demand. And we'll continue to work on getting those inventories where we'd like to see them, probably through the first half of 2021. Okay.

Okay, that's helpful. And then in terms of the kind of 6% to 8% growth that you outlined, is there a way to frame – what your expectation would be around price capture, just acknowledging that raw materials and some input costs are going to be higher this year than they have the last couple years?

Yeah, we always continue to price to market, not to cost, and we would anticipate a kind of normal range of pricing adjustments. I would say, you know, 1% to 2% is the normal. It might be a little bit probably balanced from that perspective. More of that certainly in the pro residential. Normally we do not see that type of price adjustment.

Okay. Okay. And then just the last one for me, just you're giving full your guidance here, obviously, you know, a lot of moving parts and uncertainty, I guess. When you step back, where do you feel like you're trying to be more conservative or cautious and I guess if current trends would continue, where would you see any source of potential upside relative to your expectations?

Yeah, maybe I can start, Rick, and if you want to add on to it. As we looked at it, we tried to provide kind of a balanced perspective. You're right, there's a lot of moving pieces. We thought we had good momentum in Q4 and coming into the year, so that helps to provide a good base of some optimism. But we recognize there's still a lot, especially in the first half of the year, related to COVID and the impacts it could have on us and also on our supply base. So I think, you know, residential had a fantastic year. As we talked about, we do expect that to normalize but continue to grow from that new base and professional coming back strong, you know, as we go through the year. So, I mean, some of those variables could change and either we could be, you know, a little bit lower or a little bit higher. But what we try to do with our guidance is provide, you know, a balanced perspective.

Okay. Okay. Okay, great. Well, nice job on the finish here, and good luck on 21. Thank you.

Thank you. Our next question comes from the line of Eric Bouchard with Cleveland Research. Your line is now open.

Good morning. Good morning. A follow-up on residential, certainly agree that it would characterize 2020 as a great year. Curious in your visibility and conviction in growing from a exceptional year of growth, what gives you confidence against tough comparisons in a unique year that you're on a path to be able to grow that business?

I think it ties back to the earlier comments, which some of the factors are external, but many of the factors that drove the growth this last year are internal and the results of that team and the work that they've done. So we've got, you know, we have a new distribution partner or channel with Tractor Supply. And the biggest one across the board is the new products that we've introduced and everything that goes along with that. I think it's interesting if you look at 2020, the growth was quite balanced across the channels. So it was not strictly, you know, just purely incremental of tractor supplies, for example, but we grew our distributor business as well, our dealer business. And for our longtime partner, the Home Depot, we had a terrific year with the Home Depot. They continue to be great partners, and we see more opportunities going forward. And it's, you know, keep in mind it's a very large market, and it's largely replacement-oriented, so there are just

every year there's opportunities to continue to uh to replace product that's been on the field for a long time um and then thank you that's that's helpful and then secondly in terms of the covid costs in 20 in 21 obviously you had spending that you deferred this year and i think you spoke to incentives and some other factors from a net standpoint as you all work through the numbers did you you know, did you end up spending more in 20 or less in 20? And then how does that compare? How should we think about that compare for how it influences margins in 21?

Yeah, from a COVID standpoint, we did experience some manufacturing inefficiencies in fiscal 20. And we do expect that those will be less in 21. You know, primarily, you know, in the second half, we should see that improvement with some of the restrictions and social distancing and other things we are assuming. will become more relaxed. However, it's important to note also that we did take some cost actions quickly in fiscal 20 when we saw the pandemic develop. Some of those will, you know, have been reinstated as we go into fiscal 21, such as, you know, salaries, everyone together, we all took a salary reduction that's been reinstated. We would reset incentives to a more normal level and, you know, there'll be some resumption of travel and, you know, different trade shows and things like that. However, you know, Eric, we'll continue our focus on synergy and productivity and trying to drive those cost actions, and as we talked about, you know, market-based pricing. So all of that's kind of included in our guidance as we look forward, but there are some pluses and minuses that we've tried to call out so that you're aware of the changes.

Perfect. That's great. Thank you.

Thank you.

Thank you. Our next question comes from the line of Sam Darkesh with Raymond James. Your line is now open.

Good morning, Rick. Good morning, Renee. How are you?

Good morning, Sam. We're doing well.

A couple of follow-up questions, if I could. And, Renee, if you mentioned this in your prepared remarks and I missed it, I apologize. I was scribbling as fast as I could. Did you give sales and EPS expectations specific to the first quarter?

We did not. Given some of the variability that we're seeing, we wanted to provide guidance, so we gave guidance for the full year, but we did not specifically break out anything for the first quarter. We think there's still going to be some, as there is with 4-0 on any time, some variability between quarters, and just encourage people to look at it over the whole year. We do feel, like I said, good about the momentum that we saw in Q4 coming into the quarter, so we would We did talk about that we would expect EPS to be stronger in the first half, in part because, Sam, that's where we saw the biggest impact in Q2 of COVID, and that we would expect, you know, second half EPS to be comparable and somewhat comparable sales volume.

Helpful. And then terrific operational performance in the fourth quarter in both the pro and resi segment. From a corporate overhead standpoint, it was higher than at least I had. I don't know about others on the call. Was there something going on in that line item that caused a little bit of a higher overhead expense in the quarter, and how should we look at overhead specific to fiscal 21?

Yeah, I think this may be part of what's causing the variance from your perspective is in fiscal Q4 of fiscal 2019, we had about a $6 million post-retirement benefit that we saw that would have flowed through other. And so that is a large factor within that particular line item. And then as we have talked about, this would be consistent throughout the year for fiscal 20. But we saw some favorability in our negotiated floor plan rates that we saw as an improvement in revenue and gross margin. That was offset in part by a decline in other income that also would flow through that other area. So those would be probably the two factors. Going forward, that pension or that post-retirement was a one-time situation, and we've gone through the change as far as the red iron floor plan, so you would see that continue in the same way that you saw it in fiscal 20. We will see some reinstatement of some costs still flowing through other, and that would be related to some of the items we talked about with salary increases, the return of incentives to a more normal level, and we have some benefit in healthcare. I think as people kind of deferred some of those discretionary items that we would assume would start to return in 21. So, those would be some items to consider as well.

So, if I could ask a specific question then. So, where should we, from a modeling standpoint, look at corporate overhead as a cost excluding other income and interest expense, which you fold into the line item, obviously?

It would be, up year over year, again, driven by some of the cost actions that we took that would be reinstated. It's really the return of the salary and the incentives, and then, again, the health care would flow through that area as well.

Okay, so up perhaps a similar rate as sales to give a rough estimate?

Yeah, we didn't give guidance specifically on that, but those are the factors that would be driving it.

Got it. And then last question for me, if I could. I think last quarter you indicated expectations of roughly, you know, call it 25% incremental margins in fiscal 21. My math might be suspect, but it looks like your guidance presumes something a little bit lower than that, including your stretch goal, which I think is coming in at somewhere in the high teens. Help me understand why or what sort of factors have influenced that besides normal conservancy as to why incrementals might be a little bit below normal 25%, especially if you were thinking that would be the case just a few months ago.

Yeah, as we look at kind of our guidance, we would consider, you know, certainly the mix with professional we think will be a stronger growth rate than residential, but residential continuing at a great performance level. We'll continue our focus on productivity and synergy initiatives. We do expect to have still some manufacturing inefficiencies, although, you know, they'll be lower. We anticipate year over year. We do have the reinstatement of some of the costs that we just talked about being salaries, incentives, and healthcare. And then we are expecting to be in a more inflationary environment as well. You know, steel is one of the areas that every time you open up the newspaper, you read more about it. We're also anticipating some inflation in resins and in freight costs that we've built in. And then we talked about pricing already. So that all factors into our guidance. And there is a level of uncertainty, so as I said earlier, we're trying to give a balanced perspective with our guidance, but recognize there are still a lot of moving pieces, at least for the first half of the year, and we'll see about the second half.

Very helpful. Everybody stay safe, be well, and have a terrific holiday season.

Thank you, Sam, you too. Thank you.

Thank you. Our next question comes from the line of David McGregor with Longville Research. Your line is now open.

Yes, good morning, everyone. I wonder if you could just walk us through, Rick, through the various businesses within the professional segment and just talk, if you could, about what you're seeing in terms of improving forward visibility. Which segments are you seeing maybe a little more evidence of progress, which are maybe a little more uncertain at this point? And I've got a couple of follow-ups.

Sure, I can do that. First of all, I mean, let's just talk about golf. Golf has had an incredible year from a player standpoint. If you look at August through October, rounds played were up 20, 25, and 30% in October. Now standing at year-to-date rounds played being up about 10.7% and headed towards probably 12 or 13%. This will be probably the second largest increase year over year of golf playership in the history of record keeping. So that has to be a positive for golf even longer term. But we also know that as restrictions are released Some of that play will drop off, but there have been a lot of new golfers introduced to the game, and there will definitely be a residual effect of some of them continuing to play. So bottom line, the basis for golf is very strong. The pieces that have yet to come back would be the question marks surrounding municipal golf. resort golf and then just continued confidence to resume capital acquisitions and that started. So bottom line, golf is coming back, it's not fully back yet and there's a few questions yet to answer there. From a LCE standpoint, landscape contractor, Gaining really good momentum that came back nicely and it's on a track to continue doing so have a strong fourth quarter and good momentum going into the year rental. In 2020 it was all about independent rental companies, a lot of home projects small contractors that rented equipment for those for homeowners. And now we see the national accounts coming back into the buying cycle as well, largely driven by growing construction trends right now as well. So let's see, go through a few others. Charles Machine Works, the communications business is back very strong, has snapped back Now, really, I would say at full level at this point, driven by the factors that we've talked about before, 5G, broadband build-out, and even repair and replacement of infrastructure as well, some of those projects that have resumed. Oil and gas is the portion of that business that is a little bit more of a question mark, but just within the last couple weeks, we've seen some positive signs of that coming back as well. Irrigation had a strong year in 2020. We expect that to continue. Some of it was tied to stay-at-home initiatives and home investments, but the golf business was very strong, didn't really miss a beat. Even projects that were canceled were quickly backfilled by projects that were in queue. business continues to be very strong. We're looking at, if you're all watching the weather, we're all very interested in Winter Storm Gale, I believe it's called, and that'll be the largest storm, I think, in the Northeast in the last probably five years. That's good for BOSS, and it's good for our residential business. We have product that is staged there and more products headed to the area. And so that's looking good. And I think I hit most of the areas, but if I missed something, please let me know and I'll comment on it.

No, that was a great run through. Thanks for that. Very helpful. Within the pro, you talked about revenue growth of 9.5%. It seems like organic, would organic have been something closer to maybe a 6% number? And if so, how much of that organic growth was price versus volume?

Yeah, for the quarter, I think organic was right around that level that you said, maybe a little bit lower than that. And for any particular quarter, it's hard to measure the specifics for us around price. We would say, again, for the year, it was in the normal range between one and two points, close to the middle of that range. But that would be more consistent throughout.

And one to two percent was for the full year, you're saying?

For the full year, yeah.

Right, right. Okay, thanks for that. And then just golf, if we could zero in on that just for a second. And thanks for the color, Ricky. But within your comments, you noted that municipal and resort golf was still, from a CapEx standpoint, lagging a little behind. What would those two segments represent as a percentage of your overall golf business? Can you give us some approximation or some context there?

Yeah, we don't usually break it down that specifically. It would be in the, if you, this is a rough estimate on my part, it's in the probably 10% range. Okay, great.

That's what I got. Thanks very much. Have a great holiday.

You too. Thank you.

Thank you.

Thank you. There are no further questions at this time. I will now turn the call back to Nick Rose for closing remarks.

Thanks for your questions and interest in the Toro Company, and our best wishes for a happy holiday to each of you. We look forward to talking again in March to discuss our results for the first quarter. Thanks, everybody.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.