Q1 2021 Toro Co Earnings Call
[music].
Good day, ladies and gentlemen, and welcome to the tire companies first quarter earnings Conference call. My name is Joelle and I will be your coordinator for today at this time all participants on a listen only mode. We will be facilitating a question and answer session towards the end of todays conference if at any time during the call you.
Require assistance. Please press star followed by zero and a coordinator will be happy to assist you. 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.
Nicholas Rhoads, managing director of Investor Relations for the Toro Company. Please proceed Mr. Rhoads.
Thank you 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 the Toro company.
Tom.
On our call today are Rick Olson, Chairman and Chief Executive Officer, Renee Peterson, Vice President Treasurer, and Chief Financial Officer, Julie characters Senior managing director Global tax and Treasury.
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 were all aware of the inherent difficulties risks and uncertainties in making predictive statements.
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 on 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 in 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.
On a personal note I'd like to take this opportunity to announce that Julie characters will be assuming my responsibilities as senior managing director of Investor Relations working with Auger continued growth.
It has been a pleasure working with each of you in this capacity over the last year.
Julie and Orca are not new to the IR function at the Toro company and you will find the transition to be seamless and their leadership of the IR efforts with that I will now turn the call over to Rick.
Thanks, Nick and good morning.
I'd like to begin by extending my personal thanks to Nick and congratulate Joey on her expanded role.
During the past year, Nick has helped advance our investor relations focus, including having all go to the team at.
I've enjoyed working with Nick and I look forward to continuing to enhance our external communications under Julies leadership.
We reported very strong results for the first quarter of fiscal 2021 with continued momentum across our professional and residential businesses.
Double digit growth in this dynamic environment is a testament to our focus on innovation operational execution and the perseverance of our team and channel partners.
To share highlights of the quarter net sales were up 14% year over year and up 11% organically.
Professional segment net sales were up 9% a continuation of the growth trend for this segment.
Higher shipments of landscape contractor zero turn riding mowers led the growth along with incremental sales from venture products.
Residential segment net sales were up 31% setting another record.
We saw broad based demand across our segment with snow equipment driving significant growth due to favorable weather and enhanced mass retail placement.
Mentum also continued for our all season Flex force 60 volt lithium ion products and demand remained strong for walk power mowers.
The introduction of our innovative new products, coupled with effective marketing and expanded mass retail channels has further strengthened our brand. During this recent period of heightened residential growth.
From a segment earnings perspective professional segment grew 14% and residential increased 49%.
We generated strong free cash flow in the quarter, which allowed us to pay down $90 million in debt and resume share repurchases.
We also continued to make investments in key technology areas like alternative power.
Smart connected and autonomous to drive sustained long term growth.
Notably, we recently acquired turf links and left hand robotics, both of which are technology accelerators.
Finally.
We believe the critical path forward and emerging from the pandemic and balls worldwide vaccinations.
We have developed specific plans for each of our sites to take full advantage of vaccination opportunities.
In addition, we launched our new so we can campaign to provide education and encourage employees to get vaccinated against COVID-19 as soon as they are able.
As we prepare for the broader distribution on vaccines. Our team has remained diligent and navigating the continued pandemic environment.
They are keeping health and safety in the forefront while meeting surging demand from our retailers and customers.
Thank you to the entire team as well as our channel partners for your perseverance and ongoing commitment.
Three underlying elements standout this quarter as we delivered favorable results in a dynamic environment.
The first is the strength of our residential segment.
Coming off a record setting year the team delivered another record quarter.
These results were driven by expanded distribution and new products complemented by stay at home trends and favorable weather.
The second element is the productivity story in our business, we continue to drive productivity and synergy benefits enterprise wide. This has helped to mitigate factors such as inflation and COVID-19 related manufacturing inefficiencies.
The third element is our unwavering commitment to innovation.
The success of new products across our businesses in the first quarter highlights the strong return on innovation investments.
For example battery powered products now represent a growing and important part of our business.
This commitment to innovation and reflects our dedication to constantly provide new solutions for customers ever evolving needs.
<unk> of the market environment or macro economy.
Our enterprise strategic priorities of accelerating profitable growth driving productivity and operational excellence and empowering people guided our strong execution in the quarter.
I am optimistic about our momentum as we head further into 2021, given our continued investments in technology and new products excellent relationships with our channel partners strong financial position and effective operational and capital deployment capabilities.
With that I will now turn the call over to Renee for a more detailed discussion of our financial results.
Thank you Rick and good morning, everyone.
We reported a very strong first quarter as our professional businesses continue to recover in a meaningful way and we continued to capitalize on robust residential demand.
We grew net sales by 13, 7% to $873 million.
Reported EPS was $1 on coupons.
And adjusted EPS was <unk> 85 cents per diluted share.
This compares with reported EPS of <unk> 65.
And adjusted EPS on 64 cents per the comparable quarter last year.
Now to the segment results.
Professional segment net sales for the quarter were up nine 3% to $652 million.
This increase was primarily due to.
Higher shipments on landscape contractor zero turn riding mowers and incremental sales from the venture products acquisition.
Partially offset by decreased sales on underground construction equipment to oil and gas markets and the timing of international shipments on golf and grounds equipment.
Professional segment earnings for the quarter were up 14% to $116 $8 million.
When expressed as a percentage of net sales segment.
Segment earnings increased 80 basis points to 18%.
This increase was primarily due to sales volume leverage.
Productivity.
Synergy initiatives and net price realization.
Partially offset by manufacturing cost pressures and product mix.
Residential segment net sales for the quarter were up 31 three per cent.
<unk> $217 $7 million.
The increase was primarily due to strong retail demand for snow products Jim.
Given the favorable weather and expanded mass retail placement.
Flex force battery powered products and <unk>.
<unk> of walk power mowers ahead on the key selling season.
Residential segment earnings for the quarter were up 48, 9% to a record $32 $1 million.
This reflects a 170 basis point year over year increase to 14, 7%.
When expressed as a percentage of net sales.
The same drivers.
On offsets that affected professional segment earnings also affected residential segment earnings.
Turning to our operating results.
Reported gross margin for the quarter of 36, 1%.
A decrease of 140 basis points from the prior year.
Adjusted gross margin was also $36 one per cent.
Down on 150 basis points.
The decreases in gross margin and adjusted gross margin were primarily due to manufacturing cost pressures and product mix.
Actually offset by productivity and synergy initiatives and net price realization.
SG&A expense as a percentage of net sales decreased 570 basis points to 19, 9% for the quarter.
This decrease was primarily due to sales volume leverage a favorable one time legal settlement and lower indirect marketing expenses.
Operating earnings as a percentage of net sales for the quarter increased 430 basis points to 16, 2%.
Adjusted operating earnings as a percentage of net sales increased 210 basis points to 14, 2%.
Interest expense of $7 $5 million was down approximately 600000, compared with a year ago, driven by lower interest rates.
The reported effective tax rate was 18, 1% for the first quarter.
On the adjusted effective tax rate was 21, 5%.
Turning to the balance sheet and cash flow.
At the end of the quarter, our liquidity was just over $1 billion.
This included cash and cash equivalents of $433 million.
And full availability under our $600 million revolving credit facility.
We have no significant debt maturities until April of 2022.
Accounts receivable totaled $306 $9 million.
Down four 5% from a year ago due to channel mix and the timing of write error in receivables.
Inventory was down eight 6% from a year ago to $675 $3 million.
This decrease was due to lower inventory and certain professional segment businesses as well as the result of increased demand for our products.
Accounts payable increased four 7% to $364 $4 million from a year ago.
This was due to increased purchases of component inventories as well as incremental payables from the venture products acquisition.
First quarter free cash flow was $84 $5 million with a reported net earnings conversion ratio of 76%.
This positive performance was primarily the result of higher earnings.
The favorable one time legal settlement and lower working capital, mainly due to reduced inventories as compared with the first quarter of last year.
Our disciplined capital allocation strategy includes investing in organic and M&A growth opportunities.
Maintaining an effective capital structure and returning cash to shareholders.
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 our leverage goals.
During the first quarter, we paid down $90 million in debt and returned $59 $8 million to shareholders.
With $28 $4 million in regular dividends and $31 $4 million in share repurchases.
We are reaffirming our full year fiscal 2021 guidance.
Demand remains high across our businesses and our guidance is based on current visibility and certain potential effects of COVID-19.
Additionally, we are actively managing a dynamic supply chain and cost inflation environment.
I'll share the guidance highlights and Rick will cover the macro trends and key factors will be watching throughout the remainder of the year.
For fiscal 2021, we continue to 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.
The strongest growth in the professional segment will be in the second and third quarters as those comparable periods last year were most impacted by the pandemic.
We expect full year residential segment net sales growth to be in the low to mid single digits.
Following an exceptionally strong fiscal 2020 and first quarter 2021.
We anticipate strong retail demand to continue throughout the year.
Given the comparison to record setting performance last year and potential supply chain constraints.
We expect year over year residential segment net sales growth to moderate for the remainder of the year.
Looking at overall profitability.
We expect moderate improvement in fiscal 2021, adjusted operating earnings as a percent of net sales.
Paired with fiscal 2020.
This assumes continued productivity and synergy benefits net price realization and lower COVID-19 related manufacturing inefficiencies.
Partially offset by potential supply chain constraints.
And an expected inflationary environment.
In the professional segment, we expect earnings as a percentage 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.
We expect full year adjusted EPS in the range of $3 35 to $3 45 per diluted share.
This estimate includes the effects of recently announced the acquisition.
It excludes the benefit on the excess tax deduction for share based compensation and the favorable one time legal settlement.
Based on current visibility, we anticipate adjusted EPS to be higher in the first half of fiscal 2021 versus the prior year period.
For the second half of fiscal 2021, we expect adjusted EPS to be comparable with the same period of fiscal 2020.
Looking to the rest of the year, we're excited about the robust near term demand environment as we continue to execute on our long term strategic priorities and invest in innovation to capitalize on future growth opportunities I will now turn the call back to Rick.
Thanks Renee.
Looking ahead, we will be watching several macro trends to provide us with additional insights into the remainder of the year.
These include the ongoing effects of COVID-19, including its impact on manufacturing efficiencies and potential global supply chain disruptions.
Other patterns, including the timing of spring in northern climates, and global economic recovery factors, driving general consumer and business confidence as well as the related commodity and inflationary effects.
From an end market perspective demand trends are positive and we're well positioned for further growth.
Recent strong retail demand is reduced field inventory in many of our channel partners are seeking to replenish given the improved outlook.
We're watching a number of key end market drivers for our residential and certain professional businesses continuing customer interest in home investments.
For landscape contractors improved business confidence leading to the resumption of capital investments along with catch up purchases of prior deferrals.
For golf, a strong start to the season in northern markets and increase in international of course, reopening and the expected return of travel a resort golf.
All leading to another great year for rounds played.
For grounds equipments increased spending on outdoor space maintenance and improvement projects by municipal and other tax supported entities.
For underground increased funding for five G and broadband buildout and critical need infrastructure rehab and replacement.
For rental and specialty construction continued upgrades and replacement of fleets by independent rental companies and national accounts.
And for Snow and ice management channel response to lower end of season inventory levels as a result of recent snow events.
We continue to be excited about our innovative suite of products that are well positioned to capitalize on these market opportunities and these products directly address customer trends.
For the focus on home improvements a complete line of residential products from walk in Z mowers to irrigation and lighting solutions, including the zero emission all season Flex Force 60 volt lithium ion suite of products.
Additionally, our professional line of maintenance and renovation products.
For the growing interest in professional battery electric solutions, the Greens Master E <unk> and hybrid riding Greens mowers.
The Toro E dingo compact utility loader and the expanding line of lithium ion Workman Gtx utility vehicles.
For increased productivity solutions, the Toro Dingo, TX all of 2000 and ditch Witch SK 3000 stand on skid steers.
Toro X Mark invent track high capacity bars, a new line of ditch witch horizontal directional drills, the boss drag pro rear mounted truck flow and Boston Ven track sidewalk snow and ice management equipment.
It's because of our deep commitment to innovation strong customer relationships exceptional sales and service through our channel partners and stellar product lineup that we are seeing significant momentum across our businesses with world class partners.
Two exciting examples and golf are our new partnerships with PGA, Frisco and Pebble Beach resorts.
We're honored that every 2021 major championship tournament will be played on a course serviced by Toro branded turf equipment.
And we are the official Ryder Cup turf equipment and irrigation provider for the remainder of the decade.
In closing we are optimistic as we head into our peak selling season, while the environment remains dynamic as we manage through COVID-19 related manufacturing and supply chain challenges, we have a number of factors working in our favor.
A diverse portfolio of businesses and strong customer relationships productivity.
The initiatives to drive increased profitability and operational excellence continued investments in innovative products and emerging technologies and as always our team is the key to the Toro company's continued success.
Thank you to our employees for your dedication and resilience into our channel partners customers and shareholders for your continued support.
With that Renee and I will take your questions.
Ladies and gentlemen, if you have a question. Please press star followed by one on your Touchtone telephone. If your question has been answered or you wish to withdraw your question Kurt.
Sounds simple.
To begin please standby for your first question.
And your first question comes from Tim <unk> with Baird. Your line is now open.
Hey, Hey, everybody. Good good morning, Thanks for the details and congrats Julie and Nicola will Miss working with you.
Maybe just first question I had was just to kind of focus a little bit on the supply chain.
If you could maybe elaborate a little bit on on maybe where youre seeing constraints currently.
And how youre kind of managing through that and I guess.
More broadly what your confidence is that you'll be able to meet spring demand from kind of a production supply chain and capacity standpoint.
Supply chain is something that we've been managing very closely over the last year in the COVID-19 environment and that that challenge continues within the context now of pretty significant demand demand is very strong at this point. So this is industry wide.
Issue, it's a global challenge in fact beyond just our industry really is.
Demand has come back fairly rapidly and many of the sub suppliers are still in a COVID-19 restricted environment and probably hadn't fully anticipated.
The recovery happening at that rate, we have a very close working relationship with our suppliers. We're in constant contact with them, making sure that we can do every possible thing we can do to keep our lines running the other part of that is just as you mentioned, making sure that we've got the right product in the right location to serve the customers and make sure that.
We don't short anyone so we're confident coming into the season that we have.
We matched our supply with demand, but that's that will continue to be an ongoing challenge as we go forward.
Okay.
I would just also just pointed out our ops team has done an heroic job.
Keeping lines running keeping the communication lines open with our suppliers to make sure that we can do everything we can to produce okay.
And I guess relative to others in the industry I mean, just given your scale I mean do you think you're at a relative advantage.
Versus first together.
Others in the industry.
It is as I said, it's an industry wide issue, but we do a lot of work to build the relationships with our suppliers and to put contracts in place to protect us.
So it's going to be a challenge for everyone, but we believe that we're in a good position with our suppliers relative to our competition.
Okay, Great and then on the residential business is there a way to kind of frame.
What the I guess the placement of product lineups at some of your key retailers. It looked like this year versus maybe the last year or two and you talked about battery in your prepared remarks could you just elaborate on on what percentage of sales or trailing 12 months through this quarter.
Battery is for Toro and how that compares to Pos.
Starting with the with this with the first quarter Snow has been a big was a big part of the story for residential and that was.
In addition to two are good or better than average snow year at least in some parts of the country that was also due to improved placement for that in fact was part of.
Greater.
Line.
More and more complete lineup, if you will with our with our customers with our channel partners excuse me.
And from.
I think that that's probably the best generalization of the trend we continue to add placement with our key partners.
Obviously with our dealers we continue to offer additional products additional lines with our mass retailers, we continue to add lines.
You probably saw the emphasis from the home depot, specifically on electric we're pleased to be one of the.
One of the brands that will be featured as a.
Electric supplier and a focus area as a percentage of sales I don't know that we have that in front of us.
It's still a relatively small portion of the overall, but it's a very rapidly growing piece of our business.
Okay. Okay, that's great and then I'm going to sneak one last one and just.
These are small, but you did do to robotics acquisitions over the last couple of months and I know it's early but.
<unk> does seem to be a game changer, if you talk to like golf course, superintendents and things where labor is really a big issue. So.
Could you just talk a little bit about how you see that developing and any sort of kind of timeline on commercialization there.
We agree it is an important part of the future and for us that really cuts across all of our markets. So you talk about golf, but theres interest in many of our markets for our robotic solutions driven by a number of factors. If you look at for example, the spray business the chemical application business.
The ability to do that more accurately to.
Reduce the environmental impact to reduce the cost labor is another key driver.
The timing we showed last year in 2019, a vision of what <unk>.
And on the solutions looks like for golf and we're on track to bring solutions to the market I can't be specific about timing, but.
But we're on track with our plans relative to what we talked about at that time.
And then <unk>.
Acquisition with specifically are a perfect fit.
For the strategies that we.
I've described previously the fact, they hit all of the technology areas, including.
Alternative power connected and robotics, and it'll be a great boost to our capabilities internally as well.
Okay, Okay, great well, thanks for the time and good luck on the rest of the year.
Thank you.
Thank you. Your next question comes from Mike Sulewski with colleagues on Securities. Your line is now open.
Good morning.
Thank you.
And you pay Marcia mentioned.
Few times, there were some manufacturing cost pressures.
So any comments on what goes exactly where was it seems to be different from each company's comments the cost of labor for summit is availability of labor father's day.
Things are stuck in the ports can't get out on the ports or into the ports just some kind of color as to what it is Toro scheme right now on that side.
Jim Mike what were seeing is first of all for the quarter. It's important to recall that we're comparing to a pre COVID-19 quarter. So I think I'll start with that low.
We are seeing is some of that impact of just the social distancing some capacity constraints driven by that as well as as you mentioned kind of a number of other impacts.
Related to as Rick said, our suppliers getting ramped up as demand increases.
Certainly commodities have taken a step up as well.
Sales in particular, we're seeing the impact of that as well as always.
We focus first and foremost on our synergies and productivity efforts to try to offset that.
We do tend to get.
Some price realization typically between one and two points balance price to market not to cost, but as these situations are occurring they are not unique to toro. So we anticipate that theyre happening across the industry.
And.
Overtime pricing kind of balances out with that as well.
Yes.
Got it.
Can you also comment on the cold weather and storms, we saw in Texas and parts of the Southeast U S.
In our February.
No on area, that's typically a ton of snow Im curious if youre able to speak on the inventory to that region.
At the last minute <unk>.
In the aftermath of the year are you seeing any unusual utilization or demand either on the underground equipment side or on the.
The rental side I spoke to on cleanup.
There were Mike a number of effects both on the supply mostly on the supply but on the demand side as well maybe the positives for us on the demand side not so much the deep south but through the central portion of the country. Both the snow events of the last several weeks.
We have been very positive in terms of driving.
Snow product demand.
So that's on the positive side.
The challenges on the demand or excuse me the.
On supply side.
As you can.
Imagine we have a number of key suppliers within the Gulf Coast region, especially in the resin, there's a concentration of resin suppliers in that area. They are coming back online, but they have had some delays.
Rates moving products around the country during those weeks with the severe storms.
Challenge to our operations.
Footprints, if you will and we have operations in areas that were affected by the cold. So our facilities are up and running completely but they did experience some delays and it's really the.
The continued recovery, bringing power back on to the region.
Fixing the.
Utilities, and so forth and we will have there will be some positive effect.
On demand with utilities repair and so forth, but it's not it's not going to be a significant driver specific to the repair process.
Got it if I can ask one more here and that's on the <unk>.
Seamless currently bouncing around Congress and Theres been some changes even on just can I ask how much it was eligible.
Can you give us a sense as your outlook at all based upon on consumers out there getting more stimulus checks on the government and if things change would that affect do you think.
The retail sales grew at some of your so your rationale partners.
I think the the most positive effect would be to continue to bring the economy back faster, so bringing more money into the into the economy I think is going to be generally positive.
Determine specifically which of our potential customers could be directly advantage by any of the legislation for us the biggest thing would be to focus on getting the COVID-19 situation under control. We believe that that has a lot of benefits internally externally you heard us talk about how important we feel.
The vaccination processes, and we're directly making sure that we can optimize our own access and the vaccination process within our facilities.
Yeah, and I think that will help not only tomorrow that will help our supply chain as well. So we absolutely think that's a key focus area the vaccination good point.
Got it Rick Renee and thanks, so much.
Thank you.
Your next question comes from Eric <unk> with Cleveland Research Company. Your line is now open.
Good morning.
Good morning.
I'm just curious it sounded like on the pro side the growth was.
More focused landscape contractor.
Curious for.
What's going on in terms of end market demand trends in golf and Charles Machine works and how you feel about your ability to match.
Managed supply relative to where demand is going to those two end markets.
The trends that we talked about in the fourth quarter have continued for pro so pretty significant.
Difficult recovery in most of the markets that were affected this time last year.
Come back very nicely, including golf, we see coming back just in terms of.
Orders going forward.
The resumption of capital.
Capital purchases, maybe the one exception, though we've talked about which is a very small portion, but any exposure that we have to oil and gas through Charles machine works.
They're kind of in a pause mode as energy policy becomes more clear.
But that's.
Well so on a couple percent somewhere around a couple percentage of our total business and I think that will kind of refocus on things like natural gas pipelines versus crude oil et cetera. So there's some net.
Back.
And in terms of the ability to meet that demand I think that's really the theme that we talked about earlier, it's the same which is.
We have we're doing every possible thing that we can we.
Working with our suppliers to have their products.
And we'll continue to management manage that really is our top priority.
Within the Charles Machine works just to follow up.
Between what's going on in energy, which we now see.
The change Thats taken place it appears in residential construction and then what's going on in five G.
When you look at all of those I think all the cards around the table now for where those three areas are going.
The growth outlook for this business is it.
Is it not worse because of whats happened with energy or are the others offsetting that like when you put all those together how do you feel about.
The growth outlook for that business relative to perhaps a year ago. When we were looking at this business.
We feel outstanding about the drivers in <unk> you mentioned the key drivers.
The <unk> broadband Buildout I personally have looked at the.
Timeline of previous build build outs like <unk> and there's still more dollars being spent on <unk> <unk>.
Infrastructure today than <unk> so.
<unk> is nowhere close to hitting its peak I think investments in infrastructure with twice.
What they were.
Two times in 2020, what they were in 19.
So the drivers you talked about alternative energy also has significant portion of underground element to it.
Realization, even brought to the surface through the problems recently in the south with broken water means speaks to our aging infrastructure all of those demands are.
All of those drivers are very positive for the Charles machine works business and just to put in perspective, the direct oil and gas.
Exposure is.
Less than 10%, so high kind of high single digits exposure for that business.
The other factors will be much stronger drivers going forward and have a lot of momentum.
Very helpful. Thank you.
Thank you.
Your next question comes from Ross Gilardi with Bank of America. Your line is now open.
Good morning, guys.
Good morning Ross.
I was just wondering if you could just talk a little bit more about the outdoor category at home depot, clearly Toro has got a big position at home depot, but there just seems to be a lot happening in the eagle was going to low as.
One of your competitors claims to have 19 cordless mowers on the market right now.
He is making a big push on riders building new capacity.
Cordless malware is in the U S.
And I'm just trying to get I know you were investing in it but they can.
Can you share at all what what kind of investment you're making to ensure that you get your appropriate share of shelf space at home depot in the cordless categories that evolution continues and then just.
Any insight on what kind of role Amazon is playing in and.
Outdoor.
What what Toros position is thought is on on Amazon as a more important distribution.
<unk> partner.
We're always very well aware of what's happening with our competitors and obviously when you speak about the home depot. This is a long term partner of ours and we are growing our battery.
Line at the home depot pretty steadily over the years and will be a key part of their battery solutions that they offer.
As we go forward so in reference to some of the competitors, we're well aware of the investments and the branding work that theyre doing.
So I would just I would just say that this is it's been a very competitive market for a very long time. So we've we compete with very high quality competitors, we always have.
So this is this is one of them.
In terms of battery.
Vestments as we've talked about that's been a priority for us and for us.
We have the ability to leverage across a lot of different areas. So if you talk about going into the higher power applications, such a pretty heavy use of.
Of batteries and fundamentally itself as well.
So we probably come at.
The advantages in a little different way, but we also have a strong set of advantages, including the reputation and the outdoors and as you shift from low power applications to a higher power applications you have to make a decision if you'd like to if.
If you want to stick with a brand thats more on power tools company or if you'd like to stick with someone.
A brand that's got 100 years of outdoor experience.
Okay, Richard and thoughts on Amazon roll on the in the outdoor space.
Relationship with them.
We Amazon is obviously a factor in every market I can't think of too many where there wouldn't be a factor.
And we have some relationship with Amazon and various parts of the world in various markets.
I don't think that were any different in this market than others necessarily for Amazon exposure.
We have.
Significant online.
Retail e-commerce business through both ourselves and also with key channel partners that are.
Very significant players in e-commerce, and we partner very closely with them. So we have a strong e-commerce presence.
Amazon is one factor of many.
Okay, Great and then just lastly.
You addressed part of this and I'm, sorry, if I missed here.
Your full answer on on Texas specific to ditch witch and underground construction equipment and with all the water infrastructure issues that we're reading about in Texas or the nature of those those problems is something that is a big opportunity for ditch witch or are these more in areas that.
Wouldn't involve their type of equipment per remediation.
I think remediation is.
A modest opportunity a lot of the entities that are working to fix those have existing equipment. They may be.
Based on the usage choose to replace that at this time, so there's a modest effect.
In the short term.
The probably larger effect is just the realization of the general population that we need to address our aging infrastructure in some cases.
Decisions need to be made.
Facilities need to be weatherproof to a greater extent and that does Jim.
Add to the longer term demand trends that will be positive for Charles machine works on <unk>.
Thank you very much.
Thank you.
Our next question comes from David Macgregor with Longbow Research. Your line is now open.
Yes, good morning, everyone.
Just a question on the.
Yeah.
Good morning, Rick.
I just wanted to ask about the outlook on the pro business.
Let's talk about the.
The fact that you thought there was a pretty good catch up opportunity in 2021 that theres been a lot of deferred spending landscape contractors and then I guess I'm just trying to get a sense of how big that opportunity might be for you as you think about your 2020 guidance.
The catch up is part of it but I think the bigger portion of it is just the return of business confidence that's going to return to.
That's one area of growth for us to start out with.
So.
Pro LTE as an important part of that.
As a growth driver our expectations for the makeup really has been included in our guidance for the year, but we do see continued strength really across the pro line. So LTE. The construction businesses are very strong.
Rental.
Now the.
Pick up of business with our national accounts as well as independent rental companies.
Strong throughout 2020 and golf.
Continues to pick up.
A little question Mark about the municipal budget, driven business and it has a lot to do with.
Relief.
Funding with prioritization of budgets as they come into the next cycle, but we've seen also evidenced that.
Cities and municipal tax supported budgets are prioritizing their outdoor spaces, especially based on the use towards this last year.
Okay.
Do you feel you're sufficiently inventories in the field in your pro business for.
The strong 2021 demands that you are talking about.
We used our field inventories in good shape in general we have a few areas, where we would like to have more field inventory.
Both on the professional and residential side so.
The strong demand on the fourth quarter and the first quarter made that more challenging to build on inventory, but we will take the opportunity to build as we can and we feel generally good about the field inventory.
Okay. Second question is just on the residential business, obviously extremely strong quarter up 31% I was just wondering given the magnitude of that increase year over year. So is there any chance of getting a little bit of transparency into the drivers behind that growth.
Specifically I guess, just what's the day extended good weather in November and December contributed.
The Flex force is any sense of kind of giving us a sense of what flex force may have contributed as well to the segment growth that would be helpful.
The.
Some of the factors that we've talked about in 2020 are still there certainly the stay at home trend continued to help us, but I would say that that's one of many factors for us for us as we've talked about through 2020, it's on.
Our refreshed line, it's the enhanced placement that we have with our current partners. It's the addition of new mass channel partners.
Tractor supply.
The strength of the brand and the marketing message. So those those parts of our drivers.
And.
Sure.
So we feel positive about the snow was a major a significant factor in the quarter.
I think you mentioned them it would be.
The strength of the Flex force.
Line of lithium ion products, and then walk power mowers and vs. Although it's a.
Lower quarter, a smaller quarter for roads for those products.
They had.
On the comps were very positive on small numbers.
So it was kind of strength throughout snow is the biggest biggest upside.
Upside driver, both with the weather conditions and with placement.
If you grow that Flex force business, how do you think about on your entire battery life for that point noted earlier, it's small at this point, but is expected to grow rather rapidly.
How do you think about the potential cannibalization on the gas powered product lines and what net growth could be achieved.
It's likely that there will be cannibalization thats, where some of the volume is coming from if you think about walk power mowers and the net obviously we are our plans are.
Put in place surrounding maintaining or growing our market share regardless of the power source.
And I think of the idea of battery matures, if not so much about the novelty of the idea that it's a battery powered products product, but it comes back to the.
The features benefits the quality of cut support and that's where we have some advantages.
Okay last question for me is just the acquisitions of turf links and left hand robotics very exciting.
It's nice to see entering the autonomous navigation space, maybe a little more.
Definitively.
I guess, what I'm trying to get a sense of just from a market development standpoint, what are the limiting factors for acceptance of this product is for growth of the product.
What do you have to do to get people to get on the <unk>.
Purchasing side to get excited about this and make that purchasing decision rather than say I'm going to wait and see what the next generation looks like.
While there is there is significant demand right now for autonomous products based on some on the challenges with labor productivity and so forth. So I think the limiting factor is having products that meet customer needs.
That's that's where we have a strong commitment that we're not going to have products in the marketplace.
To say that we have a robot.
We've actually done that on.
On a decade or two ago.
So our timing will be predicated on our confidence that we would have absolutely terrific solutions that have resolved that.
Customer issues and they will be delighted with so that's that's our driver we believe the demand is there and it's growing.
The product solution.
But we're waiting for.
Okay and can you leverage your existing dealership network with this product or.
The dealer network right now is limited.
Been opportunity for you.
We have an incredible dealer network across multiple brands thousands of dealer points multiple distribution partners and that is absolutely an advantage for us as we get to products that are more technical they require more support.
And infrastructure infrastructure to make them work, well and we view that as an advantage for us.
Great Congratulations on the progress in this area. Thanks.
It's very very exciting for us too.
This concludes the question and answer session. Mr. Rhoads. Please proceed to closing remarks.
Thank you for your questions and interest in the Tower company, we look forward to talking again in June to discuss our results for the second quarter. Thanks, everyone.
Thank you for your participation in today's conference. This concludes the presentation you may now disconnect good day.
[music].
[music].
[music].
[music].