Toro Company (The)

Good day, ladies and gentlemen, and welcome to the Toro Company's fourth quarter earnings conference call. My name is Gigi, and I'll be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-answer session towards the end of today's conference. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference, Heather Helle, Vice President, Corporate Affairs and Investor Relations. Please proceed, Ms. Helle.

Good morning, everyone, and thank you for joining us for the Toro Company's fourth quarter and year-end 2025 earnings conference call. I'm Heather Helle, Head of Investor Relations. On the line with me today are Rick Olson, Chairman and Chief Executive Officer, Edric Funk, President and Chief Operating Officer, and Angie Drake, Vice President and Chief Financial Officer. Rick, Edric, and Angie will provide an overview of our fourth quarter and full year results, which were released earlier this morning, and discuss our priorities and outlook for fiscal 2026. 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 filing, 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 numbers are included in this morning's press release. which along with a fourth quarter presentation containing supplemental information is posted in the investor information section of our corporate website. With that, I'll turn the call over to Rick.

Thanks, Heather, and good morning, everyone. Our team remains focused on leveraging our diverse portfolio of leading brands, controlling what we can control, and driving operational excellence. In doing so, we delivered fourth quarter sales and adjusted EPS that exceeded our expectations. achieved full-year professional segment earnings margin of 19.4%, demonstrating the resilience and quality of our core businesses that represent about 80% of our portfolio, generated record free cash flow of $578 million, a conversion rate of 146%, returned $441 million to shareholders through dividends and share repurchases, increased our AMP savings target to $125 million by the end of 2026, and continued investing in technology and innovation that enhance our customer productivity. We beat our sales expectation for the fourth quarter, reporting consolidated net sales of $1.07 billion. Fourth quarter professional segment margin grew to 19.2%. This increase was driven by sustained momentum in the underground construction business and better-than-anticipated growth in snow and ice management. Adjusted diluted earnings per share for the fourth quarter were 91 cents. This reflected year-over-year earnings improvement in both segments, offset by a higher expense related to the restoration of employee incentive compensation. For the full year, we hit the higher end of our net sales guidance. reporting total consolidated net sales of $4.5 billion. That was down 1.6% from fiscal 2024, with a significant portion of this decrease attributable to the strategic divestitures of company-owned dealers and our pulp product line. We delivered adjusted earnings per diluted share of $4.20, beating both our current year EPS guidance of about $4.15, and $4.17 reported last year. These results were incredibly strong, given the challenging environment of the past two years. Through our focus on key growth markets and deliberate actions to improve productivity, we are strengthening our competitive position and accelerating our performance. Specifically, we continue to invest in our golf and grounds and underground and specialty construction businesses, reflecting the multi-year secular growth trajectory we anticipate for those markets. Our acquisition of Tornado Infrastructure Equipment, which closed last week, is a great example of the strategic investments we are making to better serve customers facing complex infrastructure projects. Tornado is a leading manufacturer of vacuum excavation and industrial equipment solutions for the underground construction, power transmission, and energy markets. Their products are designed to safely excavate around critical infrastructure to minimize the risk of damage. We're excited to expand our geographic presence and product portfolio as we welcome Tornado to the Toro Company. Additionally, we continue to protect both our profit margins and market competitiveness through significant productivity improvement and thoughtful net price realization. Our multi-year Amplifying Maximum Productivity, or AMP, program has already delivered annualized run rate cost savings of $86 million. Some of the actions that are driving these savings include strategic facility closures, reducing our operational footprint by more than 1 million square feet, a reduction in salaried workforce of nearly 15 percent, and divestitures of non-core businesses and product lines totaling approximately $60 million in revenue. These actions combined with thoughtful supply chain strategies and selective price increases enabled us to mitigate the effect of tariffs and maintain strong margins in fiscal 2025. Additionally, we are pleased to announce that we are increasing our AMP run rate savings target to $125 million or more by the end of 2026, up from our original target of at least $100 million. We're also carefully managing inventory levels across the spectrum from raw materials to finished goods. As our lead times have recovered to more normal levels, customers are ordering closer to need, positioning us for a clean start as we enter 2026. Largely due to improvement in working capital, Our free cash flow for the year was a record $578 million. This resulted in a free cash flow conversion rate of 146%. And we continue to launch products at the forefront of innovation and alternative power, smart connected products, and autonomous solutions that differentiate our offerings and drive significant customer value. Our autonomous GeoLink fairway mower is receiving very positive reviews. It's another excellent example of our expanding technology portfolio. In particular, golf course and commercial customers who are facing labor shortages and budget constraints have expressed their excitement about the tremendous efficiencies inherent in the mower's autonomous capabilities. Customers are also enthusiastic about our Toro Grandstand Multi-Force, a stand-on mower that allows them to attach a plow, power broom, and bagging system. The result is higher productivity across all seasons. And for landscapers and homeowners with acreage, we recently introduced our X-Mark Radius, a zero-turn mower with product styling and features that mirror the highly successful laser seating. Collectively, our actions are enhancing our customer productivity, strengthening our operations and market-leading position, and sustaining our profitable growth. I want to thank our employees and channel partners for their diligence in advancing our product innovations and technology-driven solutions and supporting our efficiency initiatives. Now, Angie will share additional insights for our fourth quarter and full-year results and provide our outlook for 2026.