Toro Company (The)

Good day, ladies and gentlemen, and welcome to the Toro Company fourth quarter and full year fiscal 2024 earnings conference call. My name is Marvin, and I'll be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of today's conference. As a reminder, this conference has been recorded for replay purposes. I'll now turn the presentation over to your host for today's conference, Julie Karagas, Treasurer and Senior Managing Director of Global Tax and Investor Relations. Please proceed, Ms. Karagas.

Thank you and good morning, everyone. Our earnings release was issued this morning, and a copy can be found in the investor information section of our corporate website, thetoralcompany.com. We have also posted a fourth quarter earnings presentation to supplement our earnings release, along with an updated general investor presentation. On our call today are Rick Olson, Chairman and Chief Executive Officer, Angie Drake, Vice President and Chief Financial Officer, and Jeremy Steffen, Director, Investor Relations. During this call, we will make forward-looking statements regarding our plans and projections for the future. Forward-looking statements are based upon our historical performance and current expectations and are subject to risks, uncertainties, and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these factors can be found in today's earnings release and in our investor presentations, as well as in our SEC report. During today's call, we will also refer to non-GAAP financial measures, which we believe are important in evaluating the company's performance. For more details on these measures, the most comparable gap measures, and a reconciliation of the two, please refer to this morning's earnings release and our investor presentations. With that, I will now turn the call over to Rick.

Thanks, Julie, and good morning, everyone. During fiscal 2024, we delivered net sales growth in an extremely dynamic operating environment, enhanced our best-in-class distribution network, and began to successfully execute on our major productivity initiative we call AMP. And we introduced exciting new products that help our customers succeed with innovations they value. As we close out the year, our market leadership position across all our businesses remains strong. Our innovative product lineup is extremely compelling, and we are confident in our ability to deliver value to our shareholders into the future. Looking at our full-year financial performance, we reported net sales of $4.58 billion, which were up about 1% over last year. This marks our 15th consecutive year of top-line growth and demonstrates the strength of our balanced portfolio, as well as the disciplined execution by our talented team. We delivered exceptional net sales growth for underground construction products and golf and ground solutions. Our team substantially increased production within our manufacturing footprint as we strategically managed output to address strong end market demand and satisfy our customers. This sustained demand continues to keep order backlog elevated for these businesses. Top line growth for the fiscal year was also exceptional in our residential segment. This was driven by successful new product introductions that exceeded expectations, along with the strength of our mass channel, including the first 10 months of our new strategic partnership with Lowe's. This relationship is off to a fantastic start, highlighted by our respective leadership in the Zero Turn More category. We were honored to be recognized by Lowe's as Bender of the Year for their seasonal and outdoor department. The strength in these areas helped offset industry-wide dynamics affecting other parts of our portfolio. These dynamics included the post-pandemic correction and macro caution we're navigating with lawn care products in our dealer channel, as well as two consecutive seasons of below average snowfall for our snow and ice management businesses. Turning to profitability, we delivered adjusted diluted earnings per share of $4.17 for the full year, in line with our expectations. Our margins were affected by product mix given the outsized growth in our residential segment and reduced shipments of higher margin snow products. However, on a full year basis, productivity and net price benefits offset inflation, including the costs of adjusting production throughout the year as demand patterns continue to shift. We're extremely pleased to deliver an increase of more than $300 million in free cash flow for the year. This enabled us to return nearly $400 million to shareholders, including share repurchases of about $250 million and an increase in our regular dividend payout. These actions demonstrate our confidence in our ability to generate strong, free cash flow and deliver positive financial results into the future. Turning to the fourth quarter, net sales increased 9.4% over last year, driven by increased outputs and shipments for our underground construction equipment and golf and grounds products, as expected. We also saw growth in shipments of lawn care products to our mass channel and strong dealer demand for our newly launched Exmark Laser Z professional-grade zero-turn mowers. These new models raise the bar for reliability, cut quality, and productivity and offer Exmark's exclusive Adapt technology to quickly adjust the deck rake without tools. This enables optimum performance on any turf in any conditions. As Exmark celebrates 30 years of leadership, it's no surprise that Exmark mowers are preferred two-to-one by landscape professionals over the next best-selling brand. Adjusted diluted earnings per share for the fourth quarter increased 34% to 95 cents. This result was in line with the outlook we shared on our third quarter call. Similar to the full year, sales mix was a margin headwind during the quarter, with more residential growth and less snow shipments than originally expected. Even so, our team executed with discipline to prudently manage expenses and drive the best possible outcomes. Throughout the year, we advanced our three enterprise strategic priorities of accelerating profitable growth, driving productivity and operational excellence, and empowering people. I'll highlight examples of each. First, we continue to leverage innovation breakthroughs across our businesses. Innovation is the lifeblood of our company and key to driving long-term profitable growth. During the year, we introduce new products aligned with market growth trends and the productivity needs of our customers. Some examples include the Ditch Witch W8 Warlock Series Vacuum Excavator for underground construction, which provides maximum performance in a compact footprint. This enables underground contractors to safely and efficiently expose, install, and make repairs to utility infrastructure, even in congested areas. The Toro Groundsmaster E3200 fully electric outfront rotary mower for golf and grounds. This machine leverages our proprietary hypercell battery system to increase productivity with significantly quieter operation, zero exhaust emissions, and no compromise on cut quality. And we launched new and improved zero-turn mower models across all three of our brands, Exmark, Toro, and Spartan. We also continue to advance our autonomous solutions and are planning wider launches of residential and professional autonomous mowers in fiscal 2025. Second, our team did an outstanding job of delivering productivity gains this year in a quickly changing environment. We remain on track to deliver $100 million of annualized run rate savings by fiscal 2027 from our multi-year productivity initiative named AMP for amplifying maximum productivity. As we've discussed, we intend to prudently reinvest up to half of the savings to further accelerate innovation and long-term growth. In its first year, our team implemented $14.5 million of annualized run rate cost savings, slightly ahead of our expectations. We also made targeted portfolio adjustments to further position the company for profitable growth, including divestitures and brand consolidations. Earlier this month, we implemented additional adjustments to better align our organizational structure for our long-term strategic priorities. This resulted in the difficult action to reduce our workforce by approximately 300 primarily salaried employees. Obviously, this wasn't a decision we took lightly. And third, we ensured our employees and channel partners were aligned and empowered to deliver superior customer care in what was once again a very dynamic operating environment. Our team remained agile and never wavered from our commitment to doing business the right way. In doing so, they successfully strengthened our market leadership and are attractive in markets. I'd like to reiterate the high confidence we have in our ability to capitalize on future growth opportunities while simultaneously driving profitability improvement. With that, I'll turn the call over to Angie.