Toro Company (The)

Good day, ladies and gentlemen, and welcome to the Thorough Company's third quarter 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, Heather Lilly, Managing Director, Corporate Affairs. Please proceed, Ms. Lilly.

Good morning, everyone, and thank you for joining us for the Toro Company's third quarter 2025 earnings conference call. I'm Heather Hilly, head of investor relations. On the line with me today are Rick Olson, chairman and chief executive officer, Edric Funk, who was recently named president and chief operating officer, and Angie Drake, vice president and chief financial officer. Rick, Edric, and Angie will provide an overview of our third quarter results, which were released earlier this morning and discuss our priorities and outlook for the remainder of the year. Following their remarks, we'll open the phone lines for a question and answer session. As a reminder, any forward-looking statements that we make this morning are subject to risks and uncertainties, including those described in today's earnings release, investor presentation, and most recent SEC filings, and may cause actual results to differ materially from those contemplated by these statements. Also in our remarks, we'll refer to certain non-GAAP financial measures which we believe are important in evaluating the company's performance. Reconciliations of all non-GAAP numbers to the most directly comparable GAAP number are included in this morning's press release, which along with a third quarter presentation containing supplemental information is posted in the investor information section of our corporate website. With that, I will now turn the call over to Rick.

Thanks, Heather, and good morning, everyone. We delivered third quarter adjusted earnings that exceeded our expectations, though persistent headwinds in our residential segment require us to take a prudent approach to our full year outlook. As a leader in innovative solutions for the outdoor environment, we are well positioned to benefit from powerful secular growth trends, including record golf participation and multi-year infrastructure investment cycles. The benefit of these trends is enhanced by our focus on leveraged technology investments and operational excellence, which we believe will drive significant value for our customers and shareholders. Our third quarter results reflect this strong positioning. We strategically capitalize on continued momentum within our professional segments, especially for our underground construction and golf and ground solutions. where robust demand for innovative products and net price realization drove 6% year-over-year growth, with margins expanding 250 basis points year-over-year. Total consolidated net sales in the quarter were $1.13 billion, down 2.2% from the same period a year ago. Half of this decline was due to prior year strategic divestitures of non-core assets. While impacted by headwinds in our residential segment, our commitment to operational excellence and strength in professional enabled us to achieve adjusted earnings per share in the quarter of $1.24, exceeding our expectations. While our full-year guidance reflects near-term consumer caution and residential market pressures, which Angie will detail shortly, I am confident in the Toro Company's trajectory. We're seeing sustainable margin improvement in our professional segment, demonstrating our ability to drive profitability even in a mixed demand environment. Channel inventory is clearing meaningfully, particularly in residential, setting up a cleaner foundation for the 2026 selling season. Our order books remain healthy in key professional categories, and we continue to launch innovative products that resonate with our customers. Most importantly, the secular trends driving our golf and infrastructure businesses remain intact with multi-year visibility that supports our growth investments. These factors combined with our productivity initiatives position us to emerge stronger as markets normalize. To support this trajectory, we've further intensified our operational improvements to control costs and identify additional opportunities for greater efficiency. We moderated the impact of higher material and manufacturing costs through initiatives that drove productivity improvement and realization of net pricing gains. We also continue to benefit from our AMP productivity program, which has now delivered $75 million in annualized cost savings and remain on track to deliver at least $100 million by 2027. Additionally, although supply chain strategies we began implementing in 2018 are limiting our exposure in the current global tariff environment, we continue to monitor and respond to their impact on our business. While we are protecting our profit margins through thoughtful and selective price increases as necessary, we're also working diligently to ensure our products remain competitive by offsetting the effects of tariffs through productivity improvements. Within golf, growing participation levels are sustaining already strong momentum and driving incremental equipment and irrigation investments. And underground construction is benefiting from a compelling runway of infrastructure projects. By maintaining our position at the forefront of innovation and alternative power, smart connected products, and autonomous solutions, we continue to drive significant customer value and differentiate our offerings. Our professional businesses continue to capture share in markets experiencing structural growth. At the recent BMW Championship, we showcased our innovative Toro Spatial Adjust irrigation control software paired with Turfrad moisture sensing technology. Industry professionals experienced these groundbreaking precision turf management solutions firsthand. Following the event, attendees expressed strong enthusiasm for these cutting-edge advancements and their potential to transform off-course maintenance through meaningful water usage reductions. During the third quarter, we began shipping the all-new Ventrac 45RC, offering dual operation modes for steep terrain, whether seated on the tractor or operating remotely from up to 500 feet away. This advanced system combines intuitive controls with industrial-grade durability to enhance the remote operation experience in demanding environments. We launched two new specialty construction products, Attract eDingo and Attract Electric Ultra Buggy, establishing the most comprehensive fully electric material handling and compact utility loader portfolio in the market. We continue to build on the strong performance of our underground construction portfolio with steady improvements in outputs and favorable customer response to new directional drills and vacuum excavators, including the innovative JT21 drill, the ATJT120, and the W8 Hydrovac. We have invested in R&D and capacity while divesting non-core construction assets to sharpen our focus and effectively meet demand. The innovation and superior quality of our Exmark branded equipment, combined with favorable weather in key regions, drove higher than anticipated landscape contractor orders during the third quarter. Customers valued the performance and durability of the Laser-Z lineup and productivity-enhancing features, including our exclusive Adapt technology for quick, tool-free deck adjustments. Before turning the call over to Angie, I'd like to acknowledge the participation of Edric Funk on this call and hope you will join me in welcoming him today and in the future. A 29-year veteran of the Toro Company, most recently as Group Vice President of Golf, Grounds, and Irrigation, Edric has been appointed President and Chief Operating Officer and has assumed responsibility for all global businesses and our integrated supply chain operations. I'm excited to be collaborating with Edric in his new capacity and know his leadership will propel our company's profitable growth and competitive position. I want to thank our employees and channel partners for their ingenuity and resourcefulness in advancing the product innovations and technology-driven solutions that enhance our customers' productivity. These advancements are critical drivers of our profitable growth and reinforce our confidence in the Toro Company's future. Now Angie will provide additional details and insights on our third quarter results and outlook for the remainder of the year.