Q1 2024 The Toro Company Earnings Call
Operator: Good day, ladies and gentlemen, and welcome to Toro Company's first quarter earnings conference call. My name is Carmen, and I'll be your coordinator for today. At this time, all participants are in a listen-only mode.
Good day, ladies and gentlemen, and welcome to torque company's first quarter earnings Conference call. My name is Carmen and I'll be your coordinator for today.
This time all participants are in a listen only mode. We will be facilitating a question and answer session towards the end of todays conference.
Operator: We'll be facilitating a question and 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, Julie Kerekes, Treasurer and Senior Manager, Director of Global Tax and Investor Relations. Please proceed, Ms. Kerekes.
Carmen: 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 you're correct, because treasurer and senior manager director of global tax and Investor Relations. Please proceed Ms. Good records.
Julie A. Kerekes: 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, thetorocompany.com. We have also posted a first quarter earnings presentation to supplement our earnings release. On our call today are Rick Olson, Chairman and Chief Executive Officer, Angie Drake, Vice President and Chief Financial Officer, and Jeremy Steffens, Director of Investor Relations. During this call, we will make forward-looking statements regarding our plans and projections for the future. Such 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.
Ms. Good: 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. The Toro company Dot Com. We have also posted a first quarter earnings presentation to supplement our earnings release.
Ms. Good: On our call today are Rick Olson, Chairman and Chief Executive Officer, Andrew Drake, Vice President and Chief Financial Officer, and Jeremy Stephens Director of Investor Relations.
Ms. Good: 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.
Julie A. Kerekes: 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 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 GAAP measures, and the reconciliation of the two, please refer to this morning's earnings release and our investor presentation. With that, I will now turn the call over to Rick. Thanks, Julie, and good morning, everyone.
Ms. Good: Additional information regarding these factors can be found in today's earnings release and in our investor presentation as well as in our SEC reports.
Ms. Good: During today's call, we will 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 GAAP measures and the reconciliation of the two please refer to this morning's earnings release, and our Investor presentation with that I will now turn the call over to you.
Ms. Good: Nick.
Nick: Thanks, Julie and good morning, everyone.
Richard M. Olson: The first quarter of fiscal 2024 played out largely as we expected. Our team continued to operate with dedication, creativity, and resilience as we took actions to best capitalize on near-term demand trends. We drove productivity benefits throughout the organization to offset higher material costs and made investments to enhance our market leadership positions and drive long-term growth. For the first quarter, we delivered net sales of just over $1 billion and adjusted diluted earnings per share of 64 cents.
Nick: The first quarter of fiscal 2024 played out largely as we expected.
Nick: Our team continues to operate with dedication creativity resilience as we took actions to best capitalize on near term demand trends.
Nick: We drove productivity benefits throughout the organization to offset higher material costs and made investments to enhance our market leadership position and drive long term growth.
Nick: For the first quarter, we delivered net sales of just over $1 billion and adjusted diluted earnings per share of <unk> 64.
Richard M. Olson: These results include exceptional top-line growth for our underground and specialty construction and golf and grounds businesses. Our ability to capitalize on continued strong demand in these end markets is the result of actions we've taken to increase output with more stable supply. The strength in our construction and golf and grounds businesses was offset by lower shipments of zero turn mowers, as expected, given elevated field inventories heading into the fiscal year. This compares to our first quarter a year ago, when we benefited from channel replenishment of contractor grade mowers following a period of constrained supply. The strength was also offset by lower shipments of snow and ice management products due to the low average snowfall.
Nick: These results include exceptional top line growth for our underground and specialty construction and golf and grounds businesses.
Nick: Our ability to capitalize on continued strong demand in these end markets was the result of actions we've taken to increase output what's more stable supply.
With strength in our construction and golf and grounds businesses was offset by lower shipments of zero turn mowers as expected given the elevated field inventories heading into the fiscal year.
Nick: This compares to our first quarter a year ago, when we benefited from channel replenishment of contractor grade mowers, following a period of constrained supply.
Nick: The strength was also offset by lower shipments of snow and ice management products due to below average snowfall.
Richard M. Olson: In addition, our results were affected by a few supply chain issues that delayed shipments for select product categories in our professional segment. Based on our first quarter results and our current visibility for the remainder of the year, we are reaffirming our full year fiscal 2024 net sales and adjusted diluted earnings per share guidance. Angie will walk through those details shortly.
Nick: In addition, our results were affected by a few supply chain initiatives the delayed shipments for select product categories and our professional segment.
Nick: Based on our first quarter results and our current visibility for the remainder of the year. We are reaffirming our full year fiscal 2024, net sales and adjusted diluted earnings per share guidance.
<unk> will walk through those details shortly.
Richard M. Olson: Throughout the quarter, we maintain a sharp focus on positioning the company to capitalize on long-term growth opportunities. We're developing new products aligned with market growth trends and prioritizing investments in the key technology areas of alternative power, smart connected, and autonomous solutions. We believe that leveraging these investments across our broad portfolio will provide distinct competitive advantages, further strengthen our innovation leadership, and drive accelerated profitable growth. Our competitive advantage and leadership was clearly on display at the recent golf course superintendent show in Phoenix, where we showcased our full suite of golf equipment and irrigation products. Importantly, the overall strength of the Gulf and the market was also evident, with the highest attendance since 2008 and representatives from all 50 states and 66 countries.
Nick: Throughout the quarter, we maintained a sharp focus on positioning the company to capitalize on long term growth opportunities.
Nick: We are developing new products aligned with market growth trends and prioritizing investments in key technology areas of alternative power smart connected and autonomous solutions.
Nick: We believe that leveraging these investments across our broad portfolio will provide distinct competitive advantages and further strengthen our innovation leadership and drive accelerated profitable growth.
Nick: Our competitive advantage and leadership was clearly on display at the recent golf course Superintendent show in Phoenix, where we showcase our full suite of golf equipment and irrigation products.
Nick: Importantly, the overall strength of the Gulf and market was also evident.
Nick: The highest attendance since 2008 and representatives from all 50 states in 66 countries.
Richard M. Olson: Our booth included several new products, such as an expanded offering of fully electric versions of our proven and popular machines, which offer quiet operation with no compromise on performance, our autonomous hybrid fairway mower that is designed to increase productivity and consistency, and our latest smart connected irrigation control system that provides unmatched ease of use and unsurpassed precision. We are extremely well positioned in the attractive golf market as the only company to offer both equipment and irrigation solutions, and as the global market leader in both. During the quarter, we also advanced our enterprise strategic priority of driving productivity and operational excellence. Our multi-year initiative, which we've named AMP for Amplifying Maximum Productivity, is off to a great start. Our transformation office is in place, and we are on track to deliver at least $100 million of annualized savings by fiscal 2027.
Nick: Our booth, including several new products, such as an expanded offering of fully electric versions of our proven and popular machines, which offer quiet operation with no compromise on performance.
Nick: Our autonomous hybrid fairway mower that is designed to increase productivity and consistency and our latest smart connected irrigation control system that provides unmatched ease of use and unsurpassed precision.
Nick: We are extremely well positioned in the attractive golf market as the only company to offer both equipment and irrigation solutions.
Nick: And as the global market leader in both.
Nick: During the quarter, we also advanced our enterprise strategic priority of driving productivity and operational excellence.
Nick: Our multiyear initiative that we've named Al four.
For amplifying maximum productivity is off to a great start.
Nick: Our transformation office is in place and we are on track to deliver at least $100 million of annualized savings by fiscal 2027.
Richard M. Olson: As discussed, we intend to reinvest a portion of the savings to further accelerate innovation and long-term growth. Finally, we maintain our focus on sustainability. This includes partnering with other industry leaders to share knowledge and solutions that promote environmental benefits, such as reducing exhaust and noise emissions and less water and chemical usage. For example, we extended our 10-year partnership with the GEO Foundation for Sustainable Golf, an organization focused on accelerating sustainability in and through golf worldwide.
Nick: As we discussed we intend to reinvest a portion of the savings to further accelerate innovation and long term growth.
Nick: Finally, we maintained our focus on sustainability this.
Nick: This includes partnering with other industry leaders to share knowledge and solutions that promote environmental benefits, such as reduced exhaust and noise emissions and less water and chemical usage.
Nick: For example, we extended our 10 year partnership with Geo Foundation for sustainable Golf and organization focused on accelerating sustainability in and through golf worldwide.
Angela Drake: We believe our focus on innovation, from enhancing our market leadership to driving sustainability benefits, provides significant long-term opportunities for the Toro company. I'll look further following Angie's detailed review of our financial results and guidance. With that, I will turn the call over to Angie.
Nick: We believe our focus on innovation from enhancing our market leadership to driving sustainability benefits provide significant long term opportunities for the Toro company.
Nick: I will discuss our outlook further following a detailed review of our financial results and guidance.
Nick: With that I will turn the call over to Andrew.
Angela Drake: Thank you, Rick, and good morning, everyone. We remain confident in our ability to deliver value to all stakeholders, supported by our strong balance sheet, disciplined approach to capital allocation, and innovation leadership. This, along with our extensive distribution and support network, positions us well to capitalize on growth opportunities in our attractive in-market market. As Rick said, our results in the first quarter were aligned with our expectations. Looking closer at the numbers, consolidated net sales for the quarter were just over $1 billion, a decrease of 12.8% compared to last year; reported EPS was $0.62 per diluted share, which was down from $1.01 in the first quarter of last year. Adjusted EPS was $0.64 per diluted share, down, as expected, from $0.98.
Angela Drake: Thank you Brett and good morning, everyone.
Angela Drake: We remain confident in our ability to deliver value to all stakeholders supported by our strong balance sheet disciplined approach to capital allocation.
Angela Drake: <unk> leadership.
Angela Drake: This along with our extensive distribution and support networks.
Angela Drake: With us well to capitalize on growth opportunities in our attractive end markets.
Angela Drake: As Rick said our results in the first quarter were in line with our expectations.
Angela Drake: Looking closer at the numbers.
Angela Drake: Consolidated net sales for the quarter were just over $1 billion.
Angela Drake: A decrease of 12, 8% compared to last year.
Angela Drake: Reported EPS was <unk> 62 cents per diluted share.
Angela Drake: This was down from $1 one in the first quarter of last year.
Angela Drake: Adjusted EPS was <unk> 64 cents per diluted share down as expected from 98 cents.
Angela Drake: Now to the segment results.
Angela Drake: Professional segment net sales for the first quarter were $756 $5 million down 14, 1% year over year.
Angela Drake: This decrease was primarily driven by lower shipments of zero turn mowers, and snow and ice management products.
Angela Drake: Now to the segment results. Professional segment net sales for the first quarter were $756.5 million, down 14.1% year over year. This decrease was primarily driven by lower shipments of zero-turn mowers and snow and ice management products.
Angela Drake: This was partially offset by higher shipments of underground and specialty construction products and golf and grounds equipment.
Angela Drake: Professional segment earnings for the first quarter for $112 $8 million.
Angela Drake: From $144 1 million last year.
When expressed as a percentage of net sales earnings for the segment were 14, 9% compared to 16, 4% last year.
Angela Drake: This was partially offset by higher shipments of underground and specialty construction products and golf and grounds equipment. Professional segment earnings for the first quarter were $112.8 million, down from $144.1 million last year. When expressed as a percentage of net sales, earnings for this segment were 14.9%, compared to 16.4% last year. The change was primarily due to lower net sales volume, partially offset by favorable product mix. Residential segment net sales for the first quarter were $240.1 million, down 9.3% compared to last year. The decrease was primarily driven by lower shipments of snow products and zero-turn mowers.
Angela Drake: The change was primarily due to lower net sales volume.
Angela Drake: Offset by favorable product mix.
Angela Drake: Residential segment net sales for the first quarter were $240 1 million down nine 3% compared to last year.
Angela Drake: Decrease was primarily driven by lower shipments of snow products and zero turn mowers.
Angela Drake: This was partially offset by higher shipments of walk power mowers and portable power products.
Angela Drake: Residential segment earnings for the quarter were $23 5 million <unk>.
Angela Drake: Compared to $37 8 million last year.
Angela Drake: When expressed as a percentage of net sales earnings for this segment were nine 8% compared to 14, 3% last year.
Angela Drake: The year over year decrease was largely driven by product mix.
Angela Drake: Turning to our operating results.
Our reported and adjusted gross margin were both 34, 4% for the quarter.
Angela Drake: This was partially offset by higher shipments of Watt power mowers and portable power products. Residential segment earnings for the quarter were $23.5 million, compared to $37.8 million last year. When expressed as a percentage of net sales, earnings for this segment were 9.8%, compared to 14.3% last year. The year-over-year decrease was largely driven by product mix. Moving to our operating results. Our reported and adjusted gross margins were both 34.4% for the quarter. This compares to 34.5% for both in the same period last year. The slight decrease was primarily due to unfavorable product mix within the residential sector, mostly offset by favorable product mix within the professional sector. SD&A expense as a percentage of net sales for the quarter was 25.6% compared to 22.6% in the same period last year.
Angela Drake: This compares to 34, 5% for both in the same period last year.
Angela Drake: The slight decrease was primarily due to unfavorable product mix within the residential segment, mostly offset by favorable product mix within the professional segment.
Angela Drake: SG&A expense as a percentage of net sales for the quarter was 25, 6% compared to 22, 6% in the same period last year.
Angela Drake: This increase was primarily driven by lower net sales volume.
Angela Drake: Operating earnings as a percentage of net sales for the quarter were eight 8% and on an adjusted basis were nine 2%.
Angela Drake: These compare to 11, 9% on both a reported and adjusted basis in the same period last year.
Interest expense for the quarter was $16 2 million up.
Angela Drake: Up $2 1 million from last year.
Angela Drake: The increase was primarily due to higher average interest rates and higher average outstanding borrowings.
Angela Drake: The reported effective tax rate for the first quarter was 19% compared with 18, 6% last year.
Angela Drake: This increase was primarily driven by lower net sales volume. Operating earnings as a percentage of net sales for the quarter were 8.8% and on an adjusted basis for 9.2%. These compare to 11.9% on both a reported and adjusted basis in the same period last year. Interest expense for the quarter was $16.2 million, up $2.1 million from last year. The increase was primarily due to higher average interest rates and higher average outstanding borrowings. The reported effective tax rate for the first quarter was 19%, compared with 18.6% last year.
Angela Drake: The increase was primarily due to lower tax benefits recorded an excess tax deductions for stock based compensation in the current year period.
Angela Drake: This was partially offset by a more favorable geographic mix of earnings.
Angela Drake: The adjusted effective tax rate for the first quarter was 28% compared with 21, 4% last year.
Angela Drake: The year over year difference was primarily driven by the geographic mix of earnings.
Turning to our balance sheet.
Angela Drake: <unk> receivables were $489 1 million up 29, 6% from a year ago.
Angela Drake: Merely driven by timing of shipments for our mass channel and payment terms.
Inventory was $1 one $8 billion.
Angela Drake: Up 4% compared to last year.
Angela Drake: This was driven by higher finished goods balances, primarily zero turn mowers, and snow and ice management products.
Angela Drake: The increase was primarily due to lower tax benefits recorded as excess tax deductions for stock-based compensation in the current year period, although this was partially offset by a more favorable geographic mix of earnings. The adjusted effective tax rate for the first quarter was 20.8% compared with 21.4% last year.
This was partially offset by improved working process level.
Angela Drake: By more reliable component availability and productivity improvement.
Angela Drake: Accounts payable were $421 8 million down 11, 2% compared to a year ago.
Angela Drake: Primarily driven by a reduction in material purchases.
Angela Drake: Free cash flow in the quarter with a $111 $3 million use of cash.
Angela Drake: The year-over-year difference was primarily driven by the geographic mix of earnings. Turning to our balance. Accounts receivable were $489.1 million, up 29.6% from a year ago, primarily driven by timing of shipments to our mass channel and payment terms. Inventory was $1.18 billion, up 4% compared to last year. This was driven by a higher finished goods balance, primarily zero-turn mowers and snow and ice management products. This was partially offset by improved working process levels enabled by more reliable component availability and productivity improvements. Accounts payable were $421.8 million, down 11.2% compared to a year ago, primarily driven by a reduction in material purchases. Free cash flow in the quarter was a $111.3 million use of cash.
Angela Drake: This was primarily driven by our actions to align production and inventory levels to demand.
Angela Drake: Additional working capital needs heading into the spring selling season and lower net earnings.
Angela Drake: As a reminder, the majority of our operating cash flow is typically generated in the second half of our fiscal year.
Angela Drake: Importantly, our balance sheet remains strong we continue to target a gross debt to EBITDA leverage ratio in the range of one to two times.
Angela Drake: Along with our investment grade credit ratings provides the financial flexibility to fund investments that drive long term sustainable growth.
Angela Drake: Our disciplined approach to capital allocation remains unchanged with priorities that include.
Angela Drake: Making strategic investments in our business to drive long term profitable growth, both organically and through acquisitions.
Angela Drake: Returning cash to shareholders through dividends and share repurchases and maintaining our leverage goals.
Angela Drake: We are acting on these priorities in fiscal 2024 through our plans to fund $125 million and capital expenditures to support new product investments advanced manufacturing technologies and capacity for growth.
Angela Drake: This was primarily driven by our actions to align production and inventory levels to demand, as well as additional working capital needs heading into the spring selling season and lower net earnings. As a reminder, the majority of our operating cash flow is typically generated in the second half of our fiscal year. Importantly, our balance sheet remains strong.
Angela Drake: Well as a regular dividend payout increase of 6% over fiscal 2023.
Angela Drake: This is a reflection of the confidence that we have in our future financial performance and cash flows.
Angela Drake: As we look ahead to the remainder of the fiscal year.
Angela Drake: In our residential segment, we expect benefits from our expanded mass channel.
Angela Drake: And our professional segment, we expect benefits from the continued strength in demand and substantial order backlogs for our underground and specialty construction products in golf and grounds equipment.
Angela Drake: We continue to target a gross debt to EBITDA leverage ratio in the range of one to two times. This, along with our investment grade credit ratings, provides us with the financial flexibility to fund investments that drive long-term sustainable growth. Our disciplined approach to capital allocation remains unchanged, with priorities that include making strategic investments in our business to drive long-term profitable growth, both organically and through acquisitions, returning cash to shareholders through dividends and share repurchases, and maintaining our leverage goals. We are acting on these priorities in fiscal 2024 through our plan to fund $125 million in capital expenditure to support new product investment, advanced manufacturing technologies, and capacity for growth, as well as our regular dividend payout increase of 6% over fiscal 2023. This is a reflection of the confidence that we have in our future financial performance and cash flows as we look ahead to the remainder of the fiscal year. In our residential segment, we expect benefits from our expanded mass channel.
Angela Drake: For these businesses, we made slight progress and reducing order backlog during the quarter.
Angela Drake: Driven by the actions we've taken to drive increased output.
Angela Drake: On a total company basis, our open orders increased slightly sequentially from the $197 billion balance at fiscal 2023 year end driven by seasonal order patterns.
Angela Drake: Our order backlog is lower on a year over year basis.
Our lawn care products, we are assuming more normal seasonal weather patterns with spring being our first principle opportunity to see a meaningful reduction in field inventory levels.
For snow and ice management products, we anticipate channel inventory will remain elevated heading into next season, given the lack of snowfall activity the sprinter.
Angela Drake: With this backdrop and based on our first quarter performance and current visibility we.
Angela Drake: We are reaffirming the full year net sales and adjusted diluted EPS guidance, we shared on our last earnings call.
Angela Drake: We continue to expect low single digit total company net sales growth with Q2, and Q3 being our larger quarters.
Angela Drake: In the professional segment, we expect net sales to grow at a rate lower than the total company average.
Angela Drake: For the residential segment, we expect net sales to grow at a rate higher than the total company average.
Angela Drake: In our professional segment, we expect benefits from the continued strength in demand and substantial order backlogs for our underground and specialty construction products and golf and grounds equipment. For these businesses, we made slight progress in reducing order backlog during the quarter, driven by the actions we've taken to drive increased output. On a total company basis, our open orders increased slightly sequentially from the $1.97 billion balance at fiscal 2023 year-end, driven by seasonal order patterns.
Angela Drake: Looking at profitability.
Angela Drake: For adjusted gross margin, we continue to expect a slight year over year improvement driven by productivity initiatives.
Angela Drake: We expect this will be partially offset by manufacturing inefficiencies as we continue to rebalance residential and contractor grade lawn care equipment inventory levels.
Angela Drake: Turning to adjusted operating earnings as a percentage of net sales.
Angela Drake: For the full year, we continue to expect a slight improvement over last year.
Angela Drake: We expect both the professional and residential segment earnings margins to also be higher than last year.
Angela Drake: We expect the other activities category to reflect higher expense compared to fiscal 2023.
Angela Drake: Our order backlog is lower on a year-over-year basis. For lawn care products, we are assuming more normal seasonal weather patterns, with spring being our first appreciable opportunity to see a meaningful reduction in field inventory levels. For snow and ice management products, we anticipate channel inventory will remain elevated heading into next season, given the lack of snowfall activity this winter. With this backdrop, and based on our first quarter performance and current visibility, we are reaffirming the full year net sales and adjusted diluted EPS guidance we shared on our last earnings call. We continue to expect low single-digit total company net sales growth, with Q2 and Q3 being our larger quarters. For the professional segment, we expect net sales to grow at a rate lower than the total company average.
Angela Drake: The results of our expectations for a return to more normal incentive compensation.
Angela Drake: With that we continue to expect full year adjusted diluted EPS in the range of $4 and 25.
Angela Drake: Two $4 35.
Angela Drake: Additionally for the full year, we continue to expect.
Angela Drake: Depreciation and amortization of about $120 million to $130 million.
Angela Drake: Interest expense of about $59 million and.
Angela Drake: And an adjusted effective tax rate of about 21%.
Angela Drake: Moving to the second quarter of fiscal 2024.
Angela Drake: We anticipate total company net sales to be similar to slightly higher year over year.
As a reminder, in the second quarter of fiscal 2023, we benefited from dealer and distributor inventory replenishment a contractor grade zero turn mowers.
Angela Drake: Following a period of constrained supply.
Angela Drake: The same dynamic is not present this year.
Angela Drake: We anticipate this will be more than offset by expected incremental benefits from our expanded mass retail channel and our focus on driving increased output for our businesses with elevated order backlog.
Angela Drake: For the residential segment, we expect net sales to grow at a rate higher than the total company average. Looking at profitability, for Adjusted Growth Margin, we continue to expect a slight year-over-year improvement driven by productivity initiatives. We expect this will be partially offset by manufacturing inefficiencies as we continue to rebalance residential and contractor grade lawn care equipment inventory levels. Turning to Adjusted Operating Earnings as a Percentage of Net Sales. For the full year, we continue to expect a slight improvement over last year. We expect both the professional and residential segment earnings margins to also be higher than last year.
Angela Drake: Given these considerations, we expect professional segment net sales for the second quarter to be down mid single digits on top of last year's strong comparison of 15, 4% growth.
Angela Drake: We expect residential segment net sales growth for the second quarter to be up low to mid 'twenty compared to the same period last year.
Looking at profitability.
For the second quarter, we anticipate total company adjusted operating margin to be lower than the same period last year.
Angela Drake: This reflects our expectations for segment mix and some continued inefficiencies as we align production to demand trends.
Angela Drake: We expect the professional segment earnings margin to be lower on a year over year basis, and the residential segment earnings margin to be higher year over year.
Angela Drake: We expect the Other Activities category to reflect higher expenses compared to fiscal 2023 as a result of our expectations for a return to more normal incentive compensation. With that, we continue to expect full year adjusted diluted EPS in the range of $4.25 to $4.35. Additionally, for the full year, we continue to expect depreciation and amortization of about $120 to $130 million, interest expense of about $59 million, and an adjusted effective tax rate of about 21%.
Angela Drake: Overall, we expect our second quarter fiscal 2024, adjusted diluted EPS to be meaningfully lower than last year's record result, and more in line with fiscal 2021 and 2022 results.
Angela Drake: We continue to build our business for long term profitable growth we.
Angela Drake: We are deploying capital with discipline, including prioritized investments in new products and technologies that address key market trends and that we believe will help our customers be successful.
Angela Drake: We are also confident in our ability to unlock significant benefits and opportunities with amp, our multiyear productivity initiatives.
Angela Drake: It's an exciting time to be a part of the Toro company.
Angela Drake: With that I'll turn the call back to Rick.
Richard M. Olson: Thank you Angie.
Richard M. Olson: Our business fundamentals and market leadership remains strong.
Angela Drake: Moving to the second quarter of fiscal 2024, we anticipate total company net sales to be similar to slightly higher year over year. As a reminder, in the second quarter of fiscal 2023, we benefited from dealer and distributor inventory replenishment of contractor-grade zero-term mowers following a period of constrained supply. The same dynamic is not present this year. We anticipate this will be more than offset by expected incremental benefits from our expanded mass retail channel and our focus on driving increased output for our businesses with elevated order backlog. Given these considerations, we expect professional segment net sales for the second quarter to be down mid-single digits, on top of last year's strong comparison of 15.4% growth. We expect residential segment net sales growth for the second quarter to be up low to mid-20s compared to the same period last year, looking at profitability. For the second quarter, we anticipate the total company adjusted operating margin to be lower than the same period last year.
Richard M. Olson: Our team continues to operate with agility as we flex production for market conditions enabled by more reliable a component supplier.
Richard M. Olson: We continue to drive increased output and improved lead times for our businesses with elevated open orders to better serve our customers.
Richard M. Olson: From a macro perspective, we are closely watching business and consumer confidence and spending patterns as well as monetary policy actions inflation numerous upcoming elections and the current geopolitical environment.
Richard M. Olson: Turning to our end markets I'll comment on the factors that could impact future results.
Richard M. Olson: For underground in specialty construction, we expect end user demand to remain strong. This was supported by private and public spending to address global issues, such as aging infrastructure broadband access and alternative energy build outs.
Richard M. Olson: These funds are increasingly making their way to project starts.
Richard M. Olson: We're focused on helping our customers address these needs with our trusted channel and the most comprehensive equipment lineup in the industry.
Richard M. Olson: For golf, we expect continued strength in demand driven by sustained momentum in new golfers and rounds played.
Richard M. Olson: For 2023 U S rounds played were the highest ever marking the fourth straight year with more than $500 million loans in total.
Richard M. Olson: We are focused on continuing to enhance our global leadership position in this attractive market with our complete suite of solutions deep relationships and best in class service and support network.
Richard M. Olson: For municipalities and grounds, we expect continued healthy budgets and the prioritization of public green spaces.
Angela Drake: This reflects our expectations for segment mix and some continued inefficiencies as we align production to demand trends. We expect the professional segment earnings margin to be lower on a year-over-year basis, and the residential segment earnings margin to be higher year over year. Overall, we expect our second quarter fiscal 2024 adjusted diluted EPS to be meaningfully lower than last year's record results and more in line with fiscal 2021 and 2022 results. We continue to build our business for long-term profitable growth. We are deploying capital with discipline, including prioritized investment in new products and technologies that address key market trends and that we believe will help our customers be successful. We are also confident in our ability to unlock significant benefits and opportunities with AMP, our multi-year productivity initiative. It's an exciting time to be a part of the Toro Company. With that, I'll turn the call back to Rick.
Richard M. Olson: To capitalize on these trends, we are developing innovative products that drive productivity, including zero exhaust emission alternatives with no compromise on performance.
Richard M. Olson: For example, our new grounds Master E 3200 battery powered out front rotary mower builds on 50 years of innovation by the Toro company in this product category.
Richard M. Olson: All electric model Leverages, our proprietary Hyperscale spark battery system to provide all day runtime and quiet operation.
Richard M. Olson: For snow and ice management, we expect end market demand to be driven by replacement needs. Following two consecutive seasons, but below average snowfall.
Richard M. Olson: We will be watching late season storm activity and how that effects channel inventory levels.
Richard M. Olson: For residential and commercial irrigation and lighting, we expect uneven demand from contractors as a result of steady commercial demand, but also a continued caution around homeowner projects.
Richard M. Olson: For agricultural micro irrigation, we expect stable demand from growers with a focus on maximizing crop yields while minimizing water usage.
Richard M. Olson: We continue to develop automated solutions that address this need including Arturo transpire.
Richard M. Olson: Thank you, Angie. Our business fundamentals and market leadership remain strong. Our team continues to operate with agility as we flex production for market conditions, enabled by more reliable component supply. We continue to drive increased output and improve lead times for our businesses with elevated open orders to better serve our customers. From a macro perspective, we're closely watching business and consumer confidence and spending patterns, as well as monetary policy actions, inflation, numerous upcoming elections, and the current geopolitical environment. Turning to our end markets, I'll comment on the factors that could impact future results. For underground and specialty construction, we expect end-user demand to remain strong, supported by private and public spending to address global issues such as aging infrastructure, broadband access, and alternative energy buildup.
Richard M. Olson: Correct plant sensing technology.
This innovative solution was named 2023, new product of the year by the irrigation Association.
Richard M. Olson: For landscape contractors, we expect steady retail demand with some price sensitivity.
Richard M. Olson: Continue to expect interest in our high productivity high capacity solutions that allow more work to be done with less labor resources.
Richard M. Olson: For homeowners, we expect retail demand to begin to stabilize in the spring.
Richard M. Olson: For both landscape contractors and homeowners, we're watching weather patterns and early spring as well as a return to more normal average temperatures and precipitation levels would be favorable.
Richard M. Olson: While market dynamics continue to have a near term effect, we believe our well established market leadership positions us to drive positive long term results.
Richard M. Olson: This leadership is underpinned by our innovative products trusted brand and extensive distribution and support networks.
Richard M. Olson: We also expect continued benefits from the essential nature and regular replacement cycle of our products.
Our commitment to delivering superior innovation and customer care continues to drive our success.
Richard M. Olson: These funds are increasingly making their way to Project START. We're focused on helping our customers address these needs with our trusted channel and the most comprehensive equipment lineup in the industry. For golf, we expect continued strength and demand driven by sustained momentum and new golfers and rounds played. In 2023, U.S. rounds played were the highest ever, marking the fourth straight year with more than 500 million rounds in total.
Richard M. Olson: This enduring commitments is bolstered by our strong balance sheet disciplined capital allocation and outstanding team of employees and channel partners.
Richard M. Olson: As a result, we have high confidence in our ability to drive sustained value for all stakeholders.
Richard M. Olson: On that note I would like to thank our employees and channel partners for their dedication to serving our customers.
Richard M. Olson: I would also like to thank our customers and shareholders for your continued support.
Richard M. Olson: We are focused on continuing to enhance our global leadership position in this attractive market with our complete suite of solutions, deep relationships, and best-in-class service and support networks. For municipalities and grounds, we expect continued healthy budgets and the prioritization of public green spaces. To capitalize on these trends, we're developing innovative products that drive productivity, including zero-exhaust emission alternatives with no compromise on performance. For example, our new Groundsmaster E3200 battery-powered out front rotary mower builds on 50 years of innovation by the Toro company in this product category. This all-electric model leverages our proprietary Hypercell smart battery system to provide all day runtime and quiet operation.
Speaker Change: With that we will open up the call for questions.
Speaker Change: Thank you so much and ladies and gentlemen, if you wish to ask a question. Please press star one one to get in the queue.
Speaker Change: If your question has been answered or you wish to withdraw your question Press Star One again, one moment for our first question is from down some dark cats with Raymond James. Please proceed.
Good morning, Rick Good morning, Angie how are you.
Richard M. Olson: Hey, Phil how.
Richard M. Olson: How are you.
Richard M. Olson: Well thank you.
Richard M. Olson: Three quick topics if I could.
Richard M. Olson: First.
Richard M. Olson: Angie I think you'd mentioned that.
Richard M. Olson: There was slight progress.
Richard M. Olson: Sequentially with the backlog, but I think if my notes are right.
Richard M. Olson: You said that the backlog was higher than the one 975 sequentially does that first off on my right. Secondly, does that imply that youre still seeing a fairly healthy order growth.
Richard M. Olson: And then related to that if you could give an update in terms of order cancellations.
Richard M. Olson: For snow and ice management, we expect end market demand to be driven by replacement needs following two consecutive seasons of below average snowfall. We will be watching late season storm activity and how that affects channel inventory levels. For residential and commercial irrigation and lighting, we expect uneven demand from contractors as a result of steady commercial demand but also continued caution around homeowner projects. For agricultural micro irrigation, we expect stable demand from growers with a focus on maximizing crop yield while minimizing water use.
Speaker Change: You are right, we are up slightly seasonally.
Speaker Change: We are continuing to see strong demand in our underground and specialty construction in golf and grounds groups.
Speaker Change: We are making some slight progress with our supply chain is it to become better we're improving our output overall, we expect to see that continue as we go throughout 2024.
Speaker Change: And I'll, let Rick speak to the cancellations I guess.
Richard M. Olson: Yes, Sam that is not something that we've seen so it's something we're very sensitive to are watching it closely given the backlog that we've been managing for the last several years.
Richard M. Olson: Not seeing.
Richard M. Olson: Any appreciable cancellations at this point that people are in the queue.
Richard M. Olson: We continue to develop automated solutions that address this need, including our Toro Transpera direct plant sensing technology. This innovative solution was named 2023 New Product of the Year by the Irrigation Association. For landscape contractors, we expect steady retail demand with some price sensitivity. We continue to expect interest in our high-productivity, high-capacity solutions that allow more work to be done with fewer labor resources. For homeowners, we expect retail demand to begin stabilizing in the spring.
Richard M. Olson: I want to stay there or so.
Richard M. Olson: It's not been a factor for us.
Speaker Change: So when you're saying that it was up seasonally sequentially was it up more so than normal seasonality less so in line just trying to get us give us a sense of the seasonal pattern versus what you're experiencing.
Speaker Change: Yes, if you if you look just on an average year, regardless of the level of output.
Speaker Change: Outputs or the order level. This would normally be a higher period. So that's that's what we mean by seasonal as thats normally an increase as we get orders that will ultimately be.
Richard M. Olson: For both landscape contractors and homeowners, we're watching weather patterns, and early spring as well as a return to more normal average temperatures and precipitation levels would be favorable. While market dynamics continue to have a near-term effect, we believe our well-established market leadership positions us to drive positive long-term results. This leadership is underpinned by our innovative products, trusted brand, and extensive distribution and support network. We also expect continued benefits from the essential nature and regular replacement cycle of our products. Our commitment to delivering superior innovation and customer care continues to drive our success, and this enduring commitment is bolstered by our strong balance sheet, disciplined capital allocation, and outstanding team of employees and channel partners. As a result, we have high confidence in our ability to drive sustained value for all stakeholders.
Speaker Change: Filled.
Speaker Change: During.
During the upcoming season, so, but significantly better year over year and.
Speaker Change: Golf and grounds underground, especially construction and actually are down and so it's really.
Speaker Change: The more typical sales patterns in some of our other businesses that are driving that so sequentially up a little bit because of the normal seasonal process in some of our businesses, but substantially better year over year continue to make progress in that regard.
Speaker Change: Okay.
Speaker Change: Yes, just to reiterate thats being driven by much better output from our operations from our plants, but that's the very encouraging part of it.
Speaker Change: Got it a second quick clarification second quick clarification question Angie.
Angie: Dsos were up pretty meaningfully in the quarter is that a function of the initial sell in to Lowe's.
Angie: Yes, as we referenced in our talking our comments, yes that was really related to timing of shipments to our mass channel. We also have some extended terms that we have extended to our channel partners.
Operator: On that note, I would like to thank our employees and channel partners for their dedication to serving our customers. I'd also like to thank our customers and shareholders for your continued support. With that, we will open up the call for questions. Thank you so much. And ladies and gentlemen, if you wish to ask a question, please press star 11 to get in the queue. If your question has been answered or you wish to withdraw your question, press star one one again.
Angie: As they continue to wait on some certain pieces of components to kind of fill up their packages to be able to ship to their customers.
Speaker Change: Got it and then the last question I noticed no share repo in the quarter.
Speaker Change: Why was that and what would you need to see in order to to commence repo activity. Thanks.
Speaker Change: Q1 is typically a.
Speaker Change: Our peak time for cash usage and we saw that same thing this quarter. So our first priority continues to them to be remaining to invest in our long term profitable growth.
Operator: One moment for our first question, and it's from Sam Darkatsh with Raymond James. Please proceed. Good morning, Rick. Good morning, Angie. How are you?
Speaker Change: As we approach Q1, we're looking at paying down our revolver FERC as a focus versus repurchases.
Samuel John Darkatsh: Hi Sam, how are you? I'm well. Three quick topics if I could. First, Angie, I think you mentioned that there was slight progress sequentially with the backlog, but I think, if my notes are right, that you said that the backlog was higher than the 1.975. Does that, first off, am I right?
Speaker Change: Very helpful. Thank you all.
Speaker Change: Thank you.
Speaker Change: One moment for our next question please.
Speaker Change: And he is from the line of Tim Walsh with Baird. Please proceed.
Timothy Ronald Wojs: Hi, everybody good morning.
Timothy Ronald Wojs: Okay.
Timothy Ronald Wojs: Maybe just to start on just the EPS cadence and just trying to kind of think about kind of what youre, implying Angie for the second quarter, and maybe kind of the back half of the year.
Speaker Change: It sounds like Q2 should maybe be kind of in this call. It $1 25 to $1 30 range.
Angela Drake: Secondly, does that imply that you're still seeing fairly healthy order growth? And then, related to that, if you could give an update in terms of order cancellations?
What's the what's the bridge kind of in the back half of the year, because I think historically Q2 has kind of been your.
Speaker Change: Seasonally strongest EPS quarter, so I'm, just trying to kind of understand like what maybe.
Angela Drake: We are up slightly seasonally. We are continuing to see strong demand in our underground and specialty construction and golf and grounds groups. We are making some slight progress with our supply chain as it's becoming better. We're improving our output overall, and I might let Rick speak to the cancellations. Yeah, Sam, that is not something that we've seen.
Speaker Change: It's hurting Q2 that might get better in the back half of the year.
Yeah.
Speaker Change: So our our confidence for the second half really comes from.
Speaker Change: Our we're comparing against a sharp drop off from last year first I would say and if you look at our cadence we're going to be more in line with F. 'twenty two for EPS.
Speaker Change: We're expecting our field inventory to be in a better place. We're also driving incremental output for our backlog as we talked about earlier as we continue to increase our volume output.
Speaker Change: In Q2 will be down some because of lawn care.
Richard M. Olson: So it's something we're very sensitive to or watching closely given the backlog that we've been managing for the last several years. We're just not seeing any appreciable cancellations at this point. If people are in the queue, they want to stay there, so that's not been a factor for us. So when you're saying that it was up seasonally, sequentially, was it up more so than normal seasonality? Less so?
Speaker Change: We guided to a meaningfully lower year over year again that being more in line with fiscal 2021 and 2020 to adjusted EPS.
Speaker Change: Okay. Okay got you.
Speaker Change: And then just I guess on the underground business.
Speaker Change: Rick anything you can kind of talk about in terms of just kind of order patterns I can appreciate that you're trying to get as much product out.
Richard M. Olson: In line? Just try to give us a sense of the seasonal pattern versus what you're experiencing. Yeah, if you look just at an average year, regardless of the level of output or the order level, this would normally be a higher period. So that's, that's what we mean by seasonal: it's normally an increase as we get orders that will ultimately be fulfilled during the upcoming season, so significantly better year over year and, you know, golfing grounds, underground, especially construction are down. So it's really the more typical sales patterns and some more other businesses that are driving that. So sequentially up a little bit because of the normal seasonal process in some of our businesses, but substantially better year over year, we continue to make progress in that regard. And that's, you know, that's a quick question.
Richard M. Olson: As you can just.
Richard M. Olson: To try to normalize the backlog, but how is the incoming order activity look and maybe if you could kind of talk about some of the key markets like telecom and <unk>.
Richard M. Olson: Utilities there.
Richard M. Olson: But I think we've probably put more recently the emphasis on increasing our output which has been pretty remarkable.
Richard M. Olson: Every day, we're improving our outputs to to work down.
Richard M. Olson: The backlog situation that we're in or the order open order situation at the same time the demand continues to be extremely strong.
Richard M. Olson: And we I mean, we happen to just recently do a deep dive on some of the commitments that are out there for funding projects just on one of the categories broadband in the U S more than $60 million $1 billion I should say $60 billion.
Richard M. Olson: Yeah, just to reiterate, that's being driven by, you know, much better output from our operations at our plants. That's, that's the very encouraging part of it. Got a second quick clarification.
Richard M. Olson: Allocated to broadband and then we don't talk much about what's happening in Europe, but substantially more for digital.
Samuel John Darkatsh: Second quick clarification question, Angie. BSOs were up pretty meaningfully in the quarter. Is that a function of the initial sell-in to Lowe's? Yeah, as we referenced in our talking, our comments, yes, that was really related to the timing of shipments to our mass channel. We also have some extended terms that we have extended to our channel partners, as they continue to wait on certain pieces of components to kind of fill out their packages to be able to ship to their customers. And then the last question: I noticed no share repo in the quarter. Why was that?
Richard M. Olson: Dual applications in the so called digital recovery Act.
Richard M. Olson: $723 billion of which probably 150 wood apart.
Richard M. Olson: It would apply to those markets, where we have a presence.
Richard M. Olson: It just looks like tremendously.
Richard M. Olson: What sort of runway from what we can see at this point from a market demand and we see the steady market demand at this point, so as we're able to increase our output within.
Richard M. Olson: Within our footprint today, and adding where we need to where there are constraints, that's going to allow us to get a bigger piece of that.
Angela Drake: And what would you need to see in order to commence repo activity? Thanks. Q1 is typically a peak time for cash usage, and we saw that same thing this quarter. So our first priority continues to be to remain to invest in our long-term profitable growth. And as we approach Q1, we're looking at paying down our revolver first as a focus versus reverse. Very helpful.
Richard M. Olson: Of that as we go forward.
Richard M. Olson: And.
Richard M. Olson: So that's just one of the areas, but everything from the energy build out addressing the utility issues that we have.
Worldwide ultimately addressing the power.
Richard M. Olson: Issues with.
Adding more power underground.
Richard M. Olson: An incredibly exciting time to be part of this market in this business.
Samuel John Darkatsh: Thank you all. Thank you. One moment for our next question, please. And it's from the line of Team Wojs with Baird.
Richard M. Olson: And we're really pleased that we're in a position to be able to be a part of that.
Richard M. Olson: Okay. Okay. Good and then just the last one on pro landscape is there any way to kind of frame where.
Operator: Please proceed. Hi everybody. Good morning. Hi Kim.
Timothy Ronald Wojs: Maybe just to start on just the EPS cadence and just trying to kind of think about kind of what you're implying, Angie, for the second quarter and maybe kind of the back half of the year. You know, it sounds like Q2 should maybe be kind of in this, call it, 125 to 130 range. I guess what's the bridge kind of in the back half of the year?
Richard M. Olson: Kind of a utilization is unlike a trailing 12 month basis in that business versus kind of where it normally is.
Richard M. Olson: Utilization in terms of maybe absorption.
Richard M. Olson: No in terms of like the manufacturing utilization just trying to understand kind of what the kind of I'm just trying to kind of figure out what the absorption hit us.
Richard M. Olson: Yeah.
Richard M. Olson: Just trying to think through.
Richard M. Olson: Pulling back on.
Angela Drake: Because I think historically Q2 has kind of been your seasonally strongest EPS quarter. So I'm just trying to kind of understand what maybe it's hurting Q2 and whether that might get better in the back half. So our confidence for the second half really comes from our, you know, we're comparing against a sharp drop off from last year first, I would say. And if you look at our cadence, we're going to be more in line with F-22 for EPS. We're expecting our field inventory to be in a better place. We're also driving incremental output for our backlog, as we talked about earlier, as we continue to increase our volume output. And Q2 will be down some because of lawn care. We, you know, guided to a meaningfully lower year over year, again, that being more in line with fiscal 2021 and 2022 adjusted EPS.
Richard M. Olson: For landscape production.
Richard M. Olson: We do.
Richard M. Olson: We probably don't have those specific numbers here, but just anecdotally.
Richard M. Olson: Obviously, we've got lower utilization within those plants. The positive thing is that we've been able to flex the capacity there. So for example, even with Intimidator.
Richard M. Olson: We talked about I think at the last earnings call.
Richard M. Olson: We have lower production, obviously of those products that go into the landscape contractor market. The positive thing is they have terrific operations. They are a terrific workforce, we've been able to flex other products from our construction business and be able to produce product that would be difficult for us to do to the past.
Richard M. Olson: And I would say we just we've included our best estimates and our guidance based on what we see there.
Speaker Change: Okay, Okay, great. Good luck on.
Speaker Change: The rest of year. Thank you.
Speaker Change: Thank you. Thank you one moment for our next question. Please.
Speaker Change: Okay.
Is from the line of David Macgregor with Longbow Research. Please proceed.
David Sutherland MacGregor: Yes, good morning, everyone and thanks for taking my questions.
Richard M. Olson: And then just, I guess, on the underground business, any, you know, Rick, anything you can kind of talk about in terms of just kind of order patterns, I can appreciate that you're trying to get as much product out as you can just, you know, to try to normalize the backlog, but how does the incoming order activity look, and maybe if you could kind of talk about some of the key markets like telecom and utilities. I think we, you know, have probably put more emphasis recently on increasing our output, which has been pretty remarkable. I mean, every day we're improving our outputs to work down this backlog situation that we're in or the order, open order situation.
David Sutherland MacGregor: Good morning, guys I guess.
David Sutherland MacGregor: Good morning, I Wonder if you could just help us I mean, there's a lot going on in your and your low or your low single digit top line growth guidance for this year I mean, you've got the best I can count at least seven or eight different variables that are in there.
David Sutherland MacGregor: I Wonder if you can help us just sort of bridging that or at a minimum just address maybe the capacity investments youre, making and what that might be contributing and then maybe just building off of Sam's question on the backlog last quarter, Rick you shared a number with us the $300 million rich.
David Sutherland MacGregor: A reduction in the backlog year over year in <unk>.
Speaker Change: Is there any chance you could kind of update that number for us today, and then I've got a couple of follow ups.
Speaker Change: Okay.
Andy: Maybe Andy can.
Speaker Change: Address that last part, but with regard to capacity and you talked about as many as seven different factors, we certainly understand those.
Richard M. Olson: At the same time, the demand continues to be extremely strong. And we, I mean, we happened to just recently do a deep dive on some of the commitments that are out there for funding projects, just on one of the categories, broadband in the U.S., more than 60 million, billion dollars, I should say, 60 billion dollars allocated to broadband. And then we don't talk much about what's happening in Europe, but substantially more for digital applications and the so-called Digital Recovery Act. I mean, you know, 723 billion dollars, of which probably 150 would apply to those markets where we have a presence.
Speaker Change: The good news is the foundation.
Speaker Change: Of that confidence in the Euro really comes from the businesses, where we have open orders at this point so golf grounds.
Speaker Change: Underground construction and that's going to be driven by improved output with under our plans and we have we're seeing steady improvements in that direction, we will.
Speaker Change: So you will see that benefit throughout the year.
Speaker Change: We have.
On the residential side.
Speaker Change: Clearer that we're going through an adjustment there, but on the positive side, we have the new business with lowes in not just Lowe's, but really.
Speaker Change: Working with all of our channel partners to create.
Richard M. Olson: So it just looks like a tremendously positive runway from what we can see at this point in terms of market demand. And we see steady market demand at this point. So as we're able to increase our output within our footprint today and add where we need to, where there are constraints, that's going to allow us to get a bigger piece of that as we go forward. And yeah, so that's just one of the areas, but everything from the energy build out to addressing the utility issues that we have worldwide, ultimately addressing the power issues with putting more power underground. I mean, it's an incredibly exciting time to be part of this market and this business. And we're really pleased that we're in a position to be able to be a part of it.
Speaker Change: First of all great product great support.
A unique value proposition for each of their customers. So that's on the positive side.
Speaker Change: And.
Speaker Change: So we have a lot of <unk>.
Speaker Change: Variables, but also a lot of drivers that can help us get to where we need to go.
Speaker Change: And with regards to capacity, we've been completely consistent with our strategy, where we're adding.
Speaker Change: Structural capacity, where we believe there is a longer term.
Speaker Change: Different growth rate than it's been in the past and we've been careful not to do that to use our flex capacity to alleviate back orders are open positions, where we think it's going to return to a more normalized growth rate. So that's <unk>.
Richard M. Olson: Okay, okay, good. And then just the last one on Pro Landscape, is there any way to kind of frame where the utilization is on a trailing 12 month basis in that business versus kind of where it normally is? I'm just trying to figure out what the absorption hit is on, you know, just trying to think through, you know, pulling back on pro-landscape production.
Speaker Change: We've been consistent with that and that's we believe that's the right approach for them.
Speaker Change: And on your question on backlog.
Speaker Change: We don't typically break that out every quarter. So we're just trying to give a little color here, but we did have.
Speaker Change: We weren't down.
Speaker Change: <unk> from F. 'twenty three as we reported at the end of Q4 last year, but we are just seeing that tick up slightly just like we said earlier seasonally based on.
Richard M. Olson: We probably don't have those specific numbers here, but just anecdotally, obviously, we've got lower utilization within those plants. The positive thing is that we've been able to flex the capacity there. So, for example, even with Intimidator, which we talked about, I think, on the last earnings call, we have lower production, obviously, of those products that go into the landscape contractor market. The positive thing is they have terrific operations there and a terrific workforce.
Speaker Change: On what we're seeing in open orders coming in in this first quarter of the year.
Speaker Change: But sterling breath.
Speaker Change: Right got it thanks for that maybe it maybe I can follow up with you guys offline on the on the bridge.
Speaker Change: Just a couple of things just quickly.
Speaker Change: The App investment.
Speaker Change: Programs, you are rolling out as their investments in the quarter that.
Speaker Change: Maybe it's upfront expense that we should take into consideration.
Speaker Change: Yes.
Speaker Change: He said in his prepared remarks amp is off to a great start get our transformation office in place and we did have some expenses in the quarter, which we will list than we had in our earnings release. Its three nine which is in our reported SG&A numbers and it will be adjusted out.
Richard M. Olson: We've been able to flex other products from our construction business and be able to produce products that would have been difficult for us to do in the past. Yeah, I'd say we just included our best estimates and our guidance based on what we see there. Okay, okay, very good. Good luck for the rest of the year.
Speaker Change: Got it.
Speaker Change: And then finally for me just it seems like with these backlogs in golf and specialty construction youre parts and accessories business must be elevated or he must be maybe running at a level above what you would typically be but is there any way of quantifying what that might have contributed to the quarter, what you might be seeing in terms of.
Timothy Ronald Wojs: Thank you. Thank you. Thank you. One moment for our next question, please, is from the line of David MacGregor with Longbow Research.
Operator: Please proceed. Yes, good morning, everyone, and thanks for taking my question. Good morning. Good morning, guys. Hey, good morning. I wonder if you could just help.
Speaker Change: Parts and accessories benefit right now both in terms of revenues, but also in terms of profit.
Speaker Change: We don't breakout parts, specifically, but just anecdotally.
Speaker Change: It would be typical run rate for us relative to FERC contribution to sales.
David Sutherland MacGregor: I mean, there's a lot going on in your low or your low single-digit top line growth guide. We've got, as best I can count, at least seven or eight different variables that are. I wonder if you can help us just sort of bridge that or, at a minimum, just address maybe the capacity investments you're making and what those are. And then maybe just building off of Sam's question on the backlog, last quarter, Rick, you shared a number with us of 300 million reduction in the backlog. Is there any chance you can kind of update that number for us today? Yeah, maybe Angie can address that last part.
Speaker Change: It's been maybe a little bit stronger during this period, but nothing nothing extraordinary.
Speaker Change: Okay, alright, great. Thanks very much.
Speaker Change: Okay. Thank you.
Speaker Change: Let me get to the next question. Please.
Speaker Change: Any come from the line of Tom Hayes with C. L. King. Please proceed.
Thomas Lloyd Hayes: Hey, good morning, Thanks for taking my question.
Thomas Lloyd Hayes: Good morning.
Thomas Lloyd Hayes: Hum.
Wanted to get your thoughts on especially around the lawn care segment, both residential and professional as far as your thoughts about the continued battery adoption certainly.
Speaker Change: You know the residential segments well along that.
Speaker Change: That path I was just wondering what are your thoughts on the professional side this year going forward.
Richard M. Olson: But with regard to capacity, and you talked about as many as seven different factors, we certainly understand those. I mean, the good news is that the foundation of that confidence in the year really comes from the businesses where we have open orders at this point, so golf courses, underground, and construction. And that's going to be driven by improved output within our plants, and we are, you know, seeing steady improvements in that direction, and we'll continue to see that benefit throughout the year. On the residential side, it's clear that we're going through an adjustment there, but on the positive side, we have the new business with Lowe's and not just Lowe's but really working with all our channel partners to create, you know, first of all, great products, great support, and a unique value proposition for each of their customers. So that's on the positive side, and we have a lot of variables but also a lot of drivers that can help us get to where we need to go.
Speaker Change: Yes.
Speaker Change: We are the one thing I can say is we are extremely confident in the platform. So we produce both on the residential side. The 60 volt is a fantastic product line, it's getting additional access to our.
Speaker Change: For our customers even as we go forward this year.
On the professional side, we're extremely excited again, both about the products, we've been able to introduce which are which obviously are the.
Speaker Change: The culmination of the outcome of the focus that we've put on the battery for six or seven years. So.
Speaker Change: It's.
Fulfilling to see the uptake from our customers, especially in specific categories golf has seen a higher uptick.
Speaker Change: Uptake of.
Speaker Change: Battery powered products for a lot of reasons.
Speaker Change: Beyond just the zero exhaust emissions noise.
Speaker Change: Operator implications and so forth and we just introduced the new grounds Master E 3200, which will be the perfect product for municipalities and those are some of our customers that are under the greatest.
Speaker Change: Need to provide through exhaust emission products. So we have a great lineup in both the residential and the pro categories and we're pleased to see our customers get the product that they want.
Richard M. Olson: And with regard to capacity, we've been completely consistent with our strategy where we're adding structural capacity where we believe there's a longer-term, you know, different growth rate than it has been in the past. And we've been careful not to do that to use our flex capacity to alleviate backorders or open positions where we think it's going to return to a more normalized growth rate. So that's We've been consistent with that, and we believe that's the right approach right now. And on your question about backlog, we don't typically break that out every quarter. So we're just trying to give a little color here. But we did have fun; we weren't down.
Speaker Change: Okay I appreciate the color on that Matt.
Speaker Change: Sure.
Speaker Change: I was just kind of I mean, just.
Speaker Change: Really to be able to provide gas or electric or battery options and have a terrific solution for both customers.
Speaker Change: Okay I apologize for cutting you off there just maybe circling back.
Speaker Change: I know it's been under pressure for the last couple of quarters, just maybe any thoughts on the rental equipment market.
Speaker Change: Our rental equipment from our perspective continues to be very strong it's really most of it is.
Speaker Change: Some portion of contractor, particularly national accounts are looking at replacing aging fleets.
Angela Drake: And from F23, as we reported at the end of Q4, you know, last year, but we are just seeing that pick up slightly, just like we said earlier, seasonally based on what we're seeing in open orders coming in this first quarter, which is fairly common for us. Right, got it. Thanks for that. Maybe I can follow up with you guys offline. Just a couple of other things, just quickly. The AMP program, as you're rolling that out, is an investment in the quarter that... front expense that. Yes, as Rick said in his prepared remarks, you know, AMP is off to a great start, got our transformation office in place. And we did have some expenses in the quarter, which we will list in our earnings release. It's 3.9, which is in our reported SG&A numbers, and it will be adjusted out.
Speaker Change: It's been positive for us.
Speaker Change: Theres been a little bit more construction activity, that's a driver of future demand for us as well.
Speaker Change: Okay I appreciate the color. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you and we are going to our last question. Please hormone.
Coming from the line of Ted Jackson with Northland Securities. Please proceed.
Ted Jackson: Thanks very much.
Ted Jackson: My questions have been answered, but just a couple of small ones.
Ted Jackson: Perfect and can you just talk a little bit about working capital and.
Ted Jackson: Where.
Ted Jackson: Are we still going to see.
Ted Jackson: Fair to tumors and this trend as we roll through.
Ted Jackson: Four.
Ted Jackson: Hum.
Ted Jackson: We will have a reduction in it mainly through inventory and more in the back half of the year.
It's still kind of holds is that a trend that we should expect.
Speaker Change: Yes, if I understood. Your question correctly, if youre kind of quiet.
Speaker Change: But if some of your asking about working capital.
We do expect to see working capital improvement throughout the year.
Speaker Change: First quarter is typically our peak usage.
Speaker Change: Cash.
Angela Drake: And then finally, for me, it seems like with these backlogs in golf and specialty construction, your parts and accessories business must be elevated, running at a level above. Is there any way of quantifying just what that might have contributed to the quarter, Part 6, both in terms of revenues and also in terms of funding? We don't break out parks specifically, but just anecdotally, it's, it would be, you know, a typical run rate for us relative to parks' contribution to sales. It's been, you know, maybe a little bit stronger during this period, but nothing, nothing extraordinary. All right, great. Thanks very much.
Speaker Change: No.
Speaker Change: We are growing our inventory and working through that but do we do expect to generate more of our cash in the second half.
Speaker Change: As you can expect the drivers behind that cash flow is also working capital.
Speaker Change: With the majority of our opportunity and driving our inventory down. So a continued sharp focus on that pad as we as we go throughout the year to reduce our inventory of finished goods and web.
And when I think about the inventory I'm trying to speak up a little bit I tend to bundle.
Speaker Change: And I look back kind of premium.
Speaker Change: Covid.
Speaker Change: Is it fair to say that normalized inventory on kind of a.
Speaker Change: On a day's basis is call. It 100, 110 days or so and is that a level that we could expect to see as you exit 'twenty four.
Thomas Lloyd Hayes: Okay, thank you. Thank you. Let me get to the next question, please. And we come from the line of Tom Hayes with C.L. King
Speaker Change: I don't know that we've provided that information, but we certainly are expecting to continue to improve it.
Operator: Please proceed. Hey, good morning. Thanks for taking my question. Good morning. Hey Rick, I just wanted to get your thoughts on, especially in the lawn care segment, both residential and professional, as far as your thoughts about the continued battery adoption. Certainly, you know, the residential segments, you know, well along that, Pat, I just wanted your thoughts on the professional side this year going forward. Yeah, we are, the one thing I can say is we are extremely confident in the platforms that we produce both on the residential side, the 60 volts is a fantastic product line, getting additional access to our customers, even as we go forward this year, on the professional side, we're extremely excited, again, both about the products we've been able to introduce, which are, which honestly are the culmination of the outcome of the focus that we've Golf has seen a higher uptick and uptake of battery-powered products for a lot of reasons, beyond just the zero exhaust emissions of noise, operator implications, and so forth.
Speaker Change: When we look back pre COVID-19.
Speaker Change: We changed a lot we're really a different company as we as we look at our makeup today, we added the Charles Machine works, we added and track without an Intimidator group.
Speaker Change: We went through a period of needing to increase our inventory so that we can provide.
Our customers that were still rebalancing some of that and then of course as we as we got into the winter season in Q1, we saw a lack of snowfall.
It also increased our inventory levels so I.
Speaker Change: I don't have an exact number for you on days, but we certainly feel confident that we can achieve our free cash flow guidance that we've put in place today.
Speaker Change: Okay.
Speaker Change: Next question.
A little nitpicky, but.
Speaker Change: To make sure I've got it right what is that like.
Speaker Change: The dividend payout on a per share basis right now.
Speaker Change: Yeah.
Speaker Change: The 6% in the same person.
Speaker Change: Net increase year over year, I don't know that I have that right in front of me tense.
Speaker Change: That's okay I can figure it out.
Speaker Change: A nitpicky, one and then.
Speaker Change: With regards to the.
Speaker Change: The initiatives and the initiatives and the savings Hugh.
Speaker Change: Showed in your pro forma for this quarter.
Speaker Change: Is that something worth modeling is there a number that you would see.
Speaker Change: The tests that we've put in in terms of our pro forma numbers are again basically in the back of that I can feel it every quarter.
Speaker Change: So for the for the benefits and the savings that we expect to achieve we are expecting to get $100 million over the next three years or so so by 2027, we expect to get $100 million in annual cost savings.
Richard M. Olson: And we just introduced the new Groundsmaster E3200, which will be the perfect product for municipalities. And those are some of our customers that are under the greatest need to provide zero exhaust emission products. So we, we have a great lineup in both the residential and the pro categories. And we're pleased to see our customers, you know, get the product that they want. I appreciate the call on that, mate. I'm sorry, guys.
Speaker Change: We have built and what.
Speaker Change: What we expect to see in F. 'twenty four but the majority of those savings will be in years, two and three.
Speaker Change: So more and more leveled back the back half of that project and then the first part.
Richard M. Olson: Sure. I was just going to add, you know, our focus is really to be able to provide gas or electric or battery options and have a terrific solution for both customers. Okay, I apologize for cutting you off there. Just maybe circling back.
Speaker Change: Okay and then.
Speaker Change: One thing you should think of doing in marketing given the weather. We have is have you thought about maybe marketing you're logged more than winter.
Speaker Change: Well the marketing is already started and the good news is golfers are golfing so that.
Richard M. Olson: I know it's been under pressure for the last couple quarters. Just maybe any thoughts on the rental equipment market? Rental equipment, from our perspective, continues to be very strong. It's really, most of it is that some portion of contractor, particularly national accounts, are looking at replacing aging fleets. That's been positive for us.
Speaker Change: A bit of a trade off for us on a positive side.
Speaker Change: So alright, well, thanks for giving me the time.
Speaker Change: Okay. Thanks.
Speaker Change: And thank you ladies and gentlemen, this concludes the Q&A session I will pass it back to Mr. <unk> for closing remarks.
Richard M. Olson: And, you know, there's been a little bit more construction activity. That's a driver of future demand for us as well. Okay, appreciate the color. Thank you.
Speaker Change: Thank you everyone for your questions and interest in material company. We look forward to talking with you again in June to discuss our fiscal 2024 second quarter result.
Thomas Lloyd Hayes: Thank you. Thank you. And we are going to our last question, please. Hold on.
Speaker Change: And with that we close our conference today. Thank you for participating you may now disconnect.
Operator: It's coming from the line of Ted Jackson with Northland Securities. Please proceed. Thanks very much.
Ted Jackson: Most of my questions have been answered. First, can we just talk a little bit about working capital? Where would you know if we are still going to see the fair?
Speaker Change: Okay.
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Angela Drake: As we roll through 24, we'll have a reduction, and more in the back after this. Yes, I understood your question correctly. You're kind of quiet.
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Angela Drake: But it's because you're asking about working capital. We do expect to see working capital improvement throughout the year. The first quarter is typically our peak usage of cash, so as we are growing our inventory and working through that, we do expect to generate more of our cash in the second half. As you can expect, the drivers behind that cash flow are also working capital, with the majority of our opportunity being in driving our inventory down. So a continued sharp focus on that, Ted, as we go throughout the year to reduce our inventory, both finished goods and WIP. And when I think about inventory, I'm trying to speak up a little bit; I tend to mumble. And I look back kind of pre-pre, is it fair to say that normalized inventory on kind of a day-based basis, call it 100, 110 days ish or so. And is that a level that we could expect to see as you exit 2020? I don't know that we've provided that information, but we certainly are expecting to continue to improve it. You know, when we look back at pre-COVID, we've changed a lot.
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Angela Drake: We're really a different company. As we look at our makeup today, we added Charles Machine Works, we added Ventrac, and we've added Intimidator Group. You know, we went through a period of needing to increase our inventory so that we could provide for our customers, so we're still rebalancing some of that. And, of course, as we got into the winter season and Q1, we saw a lack of snowfall that also increased our inventory level. So I don't have an exact number for you on days, but we certainly feel confident that we can achieve our free cash flow guidance that we've put in place today. Next question, just a little nitpicky, but just to make sure I've got it right, what is the dividend payout? I don't know about the 6% increase year over year. I don't know that I have that right in front of me, Ted. That's okay; I can figure it out. It's just a nip.
Speaker Change: Okay.
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Ted Jackson: And then, you know, with regard to the initiative, the AMP initiative, and the Saving H.U., which you showed in your pro formas for this quarter. Is that something worth modeling? Is there a number that you would? and Manuela.
Speaker Change: Okay.
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Angela Drake: Thank you. 1 1 1 2 1 2 1 3 4 1 3 4 3 4 1 1 1 1 4 1 1 1 4 1 4 1 5, So for the benefits and the savings that we expect to achieve, we're expecting to get $100 million over the next three years. So by 2027, we expect to get $100 million in annual cost savings. We have built in what we expect to see in F-24, but the majority of those savings will be in years 2 and 3. So more level to the back half of that project than the first part.
Angela Drake: Okay, and then, you know, one thing you should think of doing in marketing given the weather we have is, have you thought about maybe marketing your lawn mowers? Well, the marketing's already started, and the good news is golfers are golfing, so that's a bit of a trade-off for us on the positive side. All right, well, thanks for giving me the time. Okay, thanks.
Speaker Change: Yes.
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Operator: And thank you, ladies and gentlemen, this concludes the Q&A session. I will pass it back to Ms. Kerekes for closing remarks. Thank you everyone for your questions and interest in the Toro Company. We look forward to talking with you again in June to discuss our fiscal 2024 second quarter results. And with that, we close the conference today. Thank you all for participating. You may now disconnect.
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Operator: Phone Ringing, ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? www.thevenusproject.com , , , , , , , , , ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Good day, ladies and gentlemen, and welcome to Toro Company's first quarter earnings conference call. My name is Carmen, and I'll be your coordinator for today. At this time, all participants are in a listen-only mode.
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Operator: We'll be facilitating a question-and-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, Yuli Karakas, Treasurer and Senior Manager, Director of Global Tax and Investor Relations. Please proceed, Ms. Karakas. Thank you, and good morning, everyone.
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Julie A. Kerekes: Our earnings release was issued this morning, and a copy can be found in the investor information section of our corporate website, thetorocompany.com. We have also posted a first quarter earnings presentation to supplement our earnings release. On our call today are Rick Olson, Chairman and Chief Executive Officer, Angie Drake, Vice President and Chief Financial Officer, and Jeremy Steffens, Director of 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.
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Richard M. Olson: 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 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 GAAP measures, and the reconciliation of the two, please refer to this morning's earnings release and our investor presentation. With that, I will now turn the call over to Rick. Thanks, Julie, and good morning, everyone.
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Richard M. Olson: The first quarter of fiscal 2024 played out largely as we expected. Our team continued to operate with dedication, creativity, and resilience as we took actions to best capitalize on near-term demand trends. We drove productivity benefits throughout the organization to offset higher material costs and made investments to enhance our market leadership positions and drive long-term growth. For the first quarter, we delivered net sales of just over $1 billion and adjusted diluted earnings per share of 64 cents.
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Richard M. Olson: These results include exceptional top-line growth for our underground and specialty construction and golf and grounds businesses. Our ability to capitalize on continued strong demand in these end markets is the result of actions we've taken to increase output with more stable supply. The strength in our construction and golf and grounds businesses was offset by lower shipments of zero-turn mowers, as expected, given elevated field inventories heading into the fiscal year. This compares to our first quarter a year ago, when we benefited from channel replenishment of contractor grade mowers following a period of constrained supply. The strength was also offset by lower shipments of snow and ice management products due to the low average snowfall.
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Richard M. Olson: In addition, our results were affected by a few supply chain issues that delayed shipments for select product categories in our professional segment. Based on our first quarter results and our current visibility for the remainder of the year, we are reaffirming our full year fiscal 2024 net sales and adjusted diluted earnings per share guidance. Angie will walk through those details shortly.
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Richard M. Olson: Throughout the quarter, we maintain a sharp focus on positioning the company to capitalize on long-term growth opportunities. We're developing new products aligned with market growth trends and prioritizing investments in the key technology areas of alternative power, smart connected, and autonomous solutions. We believe that leveraging these investments across our broad portfolio will provide distinct competitive advantages, further strengthen our innovation leadership, and drive accelerated profitable growth. Our competitive advantage and leadership was clearly on display at the recent golf course superintendent show in Phoenix, where we showcased our full suite of golf equipment and irrigation products. Importantly, the overall strength of the Gulf and the market was also evident, with the highest attendance since 2008 and representatives from all 50 states and 66 countries.
Speaker Change: Yes.
Speaker Change: Okay.
Carmen: Good day, ladies and gentlemen, and welcome to <unk> Company's first quarter earnings Conference call. My name is Carmen and I'll be your coordinator for today at this time all participants are in a listen only mode. We will be facilitating a question and answer session towards the end of todays conference as a reminder, this.
Carmen: Conference is being recorded for replay purposes, I would now like to turn the presentation over to your host for today's conference you're correct Chris.
Chris: <unk> and senior manager director of global tax and Investor Relations. Please proceed Ms connectors.
Chris: 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. The Toro company Dot Com. We have also posted a first quarter earnings presentation to supplement our earnings release.
Ms connectors: On our call today are Rick Olson, Chairman and Chief Executive Officer, Andrew Drink, Vice President and Chief Financial Officer, and Jeremy Stephan Director Investor Relations.
Richard M. Olson: Our booth included several new products, such as an expanded offering of fully electric versions of our proven and popular machines, which offer quiet operation with no compromise on performance, our autonomous hybrid fairway mower that is designed to increase productivity and consistency, and our latest smart connected irrigation control system that provides unmatched ease of use and unsurpassed precision. We are extremely well positioned in the attractive golf market as the only company to offer both equipment and irrigation solutions and as the global market leader in both. During the quarter, we also advanced our enterprise strategic priority of driving productivity and operational excellence. Our multi-year initiative, which we've named AMP for Amplifying Maximum Productivity, is off to a great start. Our transformation office is in place, and we are on track to deliver at least $100 million of annualized savings by fiscal 2027.
Ms connectors: 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 <unk>.
Ms connectors: Information regarding these factors can be found in today's earnings release and in our investor presentation as well as in our SEC reports during.
Ms connectors: During today's call, we will 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 GAAP measures and a reconciliation of the two please refer to this morning's earnings release, and our Investor presentation with that I will now turn the call over to Vic.
Ms connectors: Yeah.
Vic: Thanks, Julie and good morning, everyone.
Vic: The first quarter of fiscal 2024 played out largely as we expected.
Vic: Our team continued to operate with dedication creativity and resilience as we took actions to best capitalize on near term demand trends.
Richard M. Olson: As discussed, we intend to reinvest a portion of the savings to further accelerate innovation and long-term growth. Finally, we maintain our focus on sustainability. This includes partnering with other industry leaders to share knowledge and solutions that promote environmental benefits, such as reduced exhaust and noise emissions and less water and chemical usage. For example, we extended our 10-year partnership with the GEO Foundation for Sustainable Golf, an organization focused on accelerating sustainability in and through golf worldwide.
Vic: We drove productivity benefits throughout the organization to offset higher material costs and made investments to enhance our market leadership positions and drive long term growth.
Vic: For the first quarter, we delivered net sales of just over $1 billion and adjusted diluted earnings per share of <unk> 64.
These results include exceptional topline growth for our underground and specialty construction and golf and grounds businesses.
Vic: Our ability to capitalize on continued strong demand in these end markets was the result of actions we've taken to increase output what's more stable supply.
Angela Drake: We believe our focus on innovation, from enhancing our market leadership to driving sustainability benefits, provides significant long-term opportunities for the Toro company. I'll look further following Angie's detailed review of our financial results and guidance. With that, I will turn the call over to Angie.
Vic: With strength in our construction and golf and grounds businesses was offset by lower shipments of zero turn mowers as expected given the elevated field inventories heading into the fiscal year.
Angela Drake: Thank you, Rick, and good morning, everyone. We remain confident in our ability to deliver value to all stakeholders, supported by our strong balance sheet, disciplined approach to capital allocation, and innovation leadership. This, along with our extensive distribution and support network, positions us well to capitalize on growth opportunities in our attractive in-market markets. As Rick said, our results in the first quarter were aligned with our expectations. Looking closer at the numbers, consolidated net sales for the quarter were just over $1 billion, a decrease of 12.8% compared to last year; reported ETS was $0.62 per diluted share, which was down from $1.01 in the first quarter of last year. Adjusted EPS was 64 cents per diluted share, down, as expected, from 98 cents.
Vic: This compares to our first quarter a year ago, when we benefited from channel replenishment of contractor grade Moore's following a period of constrained supply.
Vic: The strength was also offset by lower shipments of snow and ice management products due to below average snowfall.
Vic: In addition, our results were affected by a few supply chain issues that delayed shipments for select product categories and our professional segment.
Vic: Based on our first quarter results and our current visibility for the remainder of the year. We are reaffirming our full year fiscal 2024, net sales and adjusted diluted earnings per share guidance.
Speaker Change: <unk> will walk through those details shortly.
Throughout the quarter, we maintain a sharp focus on positioning the company to capitalize on long term growth opportunities.
Speaker Change: We are developing new products aligned with market growth trends and prioritizing investments in key technology areas of alternative power smart connected and autonomous solutions.
Speaker Change: We believe that leveraging these investments across our broad portfolio will provide distinct competitive advantages and further strengthen our innovation leadership and drive accelerated profitable growth.
Angela Drake: Now to the segment results. Professional segment net sales for the first quarter were $756.5 million, down 14.1% year over year. This decrease was primarily driven by lower shipments of zero-turn mowers and snow and ice management products.
Speaker Change: Our competitive advantage and leadership was clearly on display at the recent golf course Superintendent show in Phoenix, where we showcase our full suite of golf equipment and irrigation products.
Angela Drake: This was partially offset by higher shipments of underground and specialty construction products and golf and grounds equipment. Professional segment earnings for the first quarter were $112.8 million, down from $144.1 million last year. When expressed as a percentage of net sales, earnings for this segment were 14.9%, compared to 16.4% last year. The change was primarily due to lower net sales volume, partially offset by favorable product mix. Residential segment net sales for the first quarter were $240.1 million, down 9.3% compared to last year. The decrease was primarily driven by lower shipments of snow products and zero-turn mowers.
Speaker Change: Importantly, the overall strength of the Gulf and market was also evident.
Speaker Change: The highest attendance since 2008 and representatives from all 50 states in 66 countries.
Speaker Change: Our booth included several new products, such as an expanded offering of fully electric versions of our proven and popular machines, which offer quiet operation with no compromise on performance.
Speaker Change: Our autonomous hybrid fairway mower that is designed to increase productivity and consistency in our latest smart connected irrigation control system that provides unmatched ease of use and unsurpassed precision.
Speaker Change: We are extremely well positioned in the attractive golf market as the only company to offer both equipment and irrigation solutions.
Speaker Change: And as the global market leader in both.
Speaker Change: During the quarter, we also advanced our enterprise strategic priority of driving productivity and operational excellence.
Speaker Change: Our multi year initiative that we've named Amp for amplifying maximum productivity is off to a great start.
Angela Drake: This was partially offset by higher shipments of Watt power mowers and portable power products. Residential segment earnings for the quarter were $23.5 million, compared to $37.8 million last year. When expressed as a percentage of net sales, earnings for this segment were 9.8%, compared to 14.3% last year. The year-over-year decrease was largely driven by product mix.
Speaker Change: Our transformation office is in place and we are on track to deliver at least $100 million of annualized savings by fiscal 2027.
Speaker Change: As we discussed we intend to reinvest a portion of the savings to further accelerate innovation and long term growth.
Speaker Change: Finally, we maintained our focus on sustainability this.
Speaker Change: This includes partnering with other industry leaders to share knowledge and solutions that promote environmental benefits, such as reduced exhaust and noise emissions and less water and chemical usage.
Angela Drake: Turning to our operating results, our reported and adjusted gross margins were both 34.4% for the quarter. This compares to 34.5% for both in the same period last year. The slight decrease was primarily due to an unfavorable product mix within the residential sector, mostly offset by favorable product mix within the professional sector. SD&A expense as a percentage of net sales for the quarter was 25.6%, compared to 22.6% in the same period last year. This increase was primarily driven by lower net sales volume. Operating earnings as a percentage of net sales for the quarter were 8.8% and, on an adjusted basis, 9.2%. These compare to 11.9% on both a reported and adjusted basis in the same period last year. Interest expense for the quarter was $16.2 million, up $2.1 million from last year. The increase was primarily due to higher average interest rates and higher average outstanding borrowings. The reported effective tax rate for the first quarter was 19%, compared with 18.6% last year.
Speaker Change: For example, we extended our 10 year partnership with Geo Foundation for sustainable Golf and organization focused on accelerating sustainability in and through golf worldwide.
We believe our focus on innovation from enhancing our market leadership to driving sustainability benefits provides significant long term opportunities for the Toro company.
Speaker Change: I'll discuss our outlook further following a detailed review of our financial results and guidance.
Speaker Change: With that I will turn the call over to Andrew.
Andrew: Thank you Brett and good morning, everyone.
Andrew: Remain confident in our ability to deliver value to all stakeholders supported by our strong balance sheet disciplined approach to capital allocation and innovation leadership.
Andrew: This along with our extensive distribution and support networks positions us well to capitalize on growth opportunities in our attractive end markets.
Speaker Change: As I said our results in the first quarter were aligned with our expectations.
Speaker Change: Looking closer at the numbers.
Speaker Change: Consolidated net sales for the quarter were just over $1 million, a decrease of 12, 8% compared to last year.
Speaker Change: Reported EPS was <unk> 62 cents per diluted share.
Speaker Change: Which was down from $1 one in the first quarter of last year.
Speaker Change: Adjusted EPS was <unk> 64 per diluted share.
Speaker Change: As expected from 98 cents.
Speaker Change: Now to the segment results.
Speaker Change: Professional segment net sales for the first quarter were $756 $5 million.
Speaker Change: Down 14, 1% year over year.
Angela Drake: The increase was primarily due to lower tax benefits recorded as excess tax deductions for stock-based compensation in the current year period, although this was partially offset by a more favorable geographic mix of earnings. The adjusted effective tax rate for the first quarter was 20.8% compared with 21.4% last year.
This decrease was primarily driven by lower shipments of zero turn mowers, and snow and ice management products.
Speaker Change: This was partially offset by higher shipments of underground and specialty construction products and golf and grounds equipment.
Speaker Change: Professional segment earnings for the first quarter for $112 $8 million down from $144 1 million last year.
Angela Drake: The year-over-year difference was primarily driven by the geographic mix of earnings. Turning to our balance. Accounts receivable were $489.1 million, up 29.6% from a year ago, primarily driven by timing of shipments to our mass channel and payment terms. Inventory was $1.18 billion, up 4% compared to last year. This was driven by a higher finished goods balance, primarily zero-turn mowers and snow and ice management products. This was partially offset by improved work and process levels enabled by more reliable component availability and productivity improvements. Accounts payable were $421.8 million, down 11.2% compared to a year ago, primarily driven by a reduction in material purchases. Free cash flow in the quarter was a $111.3 million use of cash.
When expressed as a percentage of net sales earnings for this segment were 14, 9% compared to 16, 4% last year.
Speaker Change: The change was primarily due to lower net sales volume, partially offset by favorable product mix.
Residential segment net sales for the first quarter were $240 1 million down nine 3% compared to last year.
Speaker Change: The decrease was primarily driven by lower shipments of snow products and zero turn mowers.
Speaker Change: This was partially offset by higher shipments of walk power mowers and portable power products.
Speaker Change: Residential segment earnings for the quarter were $23 5 million compared to $37 8 million last year.
Speaker Change: When expressed as a percentage of net sales earnings for this segment were nine 8% compared to 14, 3% last year.
Speaker Change: The year over year decrease was largely driven by product mix.
Speaker Change: Turning to our operating results.
Speaker Change: Our reported and adjusted gross margin were both 34, 4% for the quarter.
Angela Drake: This was primarily driven by our actions to align production and inventory levels to demand, as well as additional working capital needs heading into the spring selling season and lower net earnings. As a reminder, the majority of our operating cash flow is typically generated in the second half of our fiscal year. Importantly, our balance sheet remains strong.
Speaker Change: This compares to 34, 5% per barrel in the same period last year.
Speaker Change: The slight decrease was primarily due to unfavorable product mix within the residential segment, mostly offset by favorable product mix within the professional segment.
Speaker Change: SG&A expense as a percentage of net sales for the quarter was 25, 6% compared to 22, 6% in the same period last year.
Angela Drake: We continue to target a gross debt to EBITDA leverage ratio in the range of 1 to 2 times. This, along with our investment grade credit ratings, provides the financial flexibility to fund investments that drive long-term sustainable growth. Our disciplined approach to capital allocation remains unchanged, with priorities that include
Speaker Change: This increase was primarily driven by lower net sales volume.
Speaker Change: Operating earnings as a percentage of net sales for the quarter were eight 8% and on an adjusted basis for nine 2%.
Speaker Change: These compare to 11, 9% on both a reported and adjusted basis in the same period last year.
Angela Drake: Making strategic investments in our business to drive long-term profitable growth, both organically and through acquisitions, returning cash to shareholders through dividends and share repurchases, and maintaining our leverage goals. We are acting on these priorities in fiscal 2024 through our plan to fund $125 million in capital expenditures to support new product investments, advanced manufacturing technologies, and capacity for growth, as well as our regular dividend payout increase of 6% over fiscal 2023. This is a reflection of the confidence that we have in our future financial performance and cash flow as we look ahead to the remainder of the fiscal year. In our residential segment, we expect benefits from our expanded mass channel.
Speaker Change: Interest expense for the quarter was $16 2 million up $2 1 million from last year.
Speaker Change: The increase was primarily due to higher average interest rates and higher average outstanding borrowings.
Speaker Change: The reported effective tax rate for the first quarter was 19% compared with 18, 6% last year.
Speaker Change: The increase was primarily due to lower tax benefits recorded an excess tax deductions for stock based compensation in the current year period.
Speaker Change: This was partially offset by a more favorable geographic mix of earnings.
The adjusted effective tax rate for the first quarter was 28% compared with 21, 4% last year.
Speaker Change: The year over year difference was primarily driven by the geographic mix of earnings.
Speaker Change: Turning to our balance sheet.
Speaker Change: Accounts receivable were $489 $1 million.
Angela Drake: In our professional segment, we expect benefits from the continued strength in demand and substantial order backlogs for our underground and specialty construction products and golf and grounds equipment. For these businesses, we made slight progress in reducing order backlog during the quarter, driven by the actions we've taken to drive increased output. On a total company basis, our open orders increased slightly sequentially from the $1.97 billion balance at fiscal 2023 year-end, driven by seasonal order patterns.
Speaker Change: Up 29, 6% from a year ago, primarily driven by timing of shipments for our mass channel and payment terms.
Speaker Change: Inventory was $1 one $8 billion.
Speaker Change: Up 4% compared to last year.
Speaker Change: This was driven by higher finished goods balances, primarily zero turn mowers, and snow and ice management products.
Speaker Change: This was partially offset by improved working process level.
Speaker Change: By more reliable component availability and productivity improvement.
Speaker Change: Accounts payable were $421 8 million.
Speaker Change: 11, 2% compared to a year ago.
Speaker Change: Primarily driven by a reduction in material purchases.
Angela Drake: Our order backlog is lower on a year-over-year basis. For lawn care products, we are assuming more normal seasonal weather patterns, with spring being our first appreciable opportunity to see a meaningful reduction in field inventory levels. For snow and ice management products, we anticipate channel inventory will remain elevated heading into next season, given the lack of snowfall activity this winter. With this backdrop, and based on our first quarter performance and current visibility, we are reaffirming the full year net sales and adjusted to loaded EPS guidance we shared on our last earnings call. We continue to expect low single-digit total company net sales growth, with Q2 and Q3 being our larger quarters. For the professional segment, we expect net sales to grow at a rate lower than the total company average.
Speaker Change: Free cash flow in the quarter with a $111 $3 million use of cash.
Speaker Change: This was primarily driven by our actions to align production and inventory levels to demand.
Speaker Change: Additional working capital needs heading into the spring selling season and lower net earnings.
As a reminder, the majority of our operating cash flow is typically generated in the second half of our fiscal year.
Speaker Change: Importantly, our balance sheet remains strong we continue to target a gross debt to EBITDA leverage ratio in the range of one to two times.
Speaker Change: Along with our investment grade credit ratings provides the financial flexibility to fund investments that drive long term sustainable growth.
Speaker Change: Our disciplined approach to capital allocation remains unchanged with priorities that include.
Speaker Change: Making strategic investments in our business to drive long term profitable growth, both organically and through acquisitions.
Speaker Change: Returning cash to shareholders through dividends and share repurchases and maintaining our leverage goals.
Angela Drake: For the residential segment, we expect net sales to grow at a rate higher than the total company average. Looking at profitability, for Adjusted Gross Margin, we continue to expect a slight year-over-year improvement driven by productivity initiatives. We expect this will be partially offset by manufacturing inefficiencies as we continue to rebalance residential and contractor-grade lawn care equipment inventory levels. Turning to Adjusted Operating Earnings as a Percentage of Net Sales. For the full year, we continue to expect a slight improvement over last year. We expect both the professional and residential segment earnings margins to also be higher than last year.
Speaker Change: We are acting on these priorities in fiscal 2024 through our plans to fund $125 million and capital expenditures to support new product investments advanced manufacturing technologies and capacity for growth.
Speaker Change: As well as our regular dividend payout increase of 6% over fiscal 2023.
This is a reflection of the confidence that we have in our future financial performance and cash flows.
Speaker Change: As we look ahead to the remainder of the fiscal year.
Speaker Change: In our residential segment, we expect benefits from our expanded mass channel.
Speaker Change: And our professional segment, we expect benefits from the continued strength and demand and substantial order backlogs for our underground and specialty construction products in golf and grounds equipment.
Angela Drake: We expect the Other Activities category to reflect higher expenses compared to fiscal 2023 as a result of our expectations for a return to more normal incentive compensation. With that, we continue to expect full year adjusted diluted EPS in the range of $4.25 to $4.35. Additionally, for the full year, we continue to expect depreciation and amortization of about $120 to $130 million, interest expense of about $59 million, and an adjusted effective tax rate of about 21%.
Speaker Change: For these businesses, we made slight progress and reducing order backlog during the quarter driven by the actions we've taken to drive increased output.
On a total company basis, our open orders increased slightly sequentially from the $1 $97 billion balance at fiscal 2023 year end driven by seasonal order patterns.
Speaker Change: Our order backlog is lower on a year over year basis.
Speaker Change: Our lawn care products, we are assuming more normal seasonal weather patterns with spring being our first principle opportunity to see a meaningful reduction in field inventory levels.
Speaker Change: For snow and ice management products, we anticipate channel inventory will remain elevated heading into next season, given the lack of snowfall activity the sprinter.
Speaker Change: With this backdrop and based on our first quarter performance and current visibility we.
Angela Drake: Moving to the second quarter of fiscal 2024, we anticipate total company net sales to be similar to slightly higher year over year. As a reminder, in the second quarter of fiscal 2023, we benefited from dealer and distributor inventory replenishment of contractor-grade zero-term mowers following a period of constrained supply. The same dynamic is not present this year. We anticipate this will be more than offset by expected incremental benefits from our expanded mass retail channel and our focus on driving increased output for our businesses with elevated order backlog. Given these considerations, we expect professional segment net sales for the second quarter to be down mid-single digits, on top of last year's strong comparison of 15.4% growth. We expect residential segment net sales growth for the second quarter to be up low to mid-20s compared to the same period last year, looking at profitability.
Speaker Change: We are reaffirming the full year net sales and adjusted diluted EPS guidance, we shared on our last earnings call.
Speaker Change: We continue to expect low single digit total company net sales growth with Q2, and Q3 being our larger quarters.
Speaker Change: In the professional segment, we expect net sales to grow at a rate lower than the total company average.
Speaker Change: For the residential segment, we expect net sales to grow at a rate higher than the total company average.
Speaker Change: Looking at profitability.
Speaker Change: For adjusted gross margin, we continue to expect a slight year over year improvement driven by productivity initiatives.
Speaker Change: We expect this will be partially offset by manufacturing inefficiencies as we continue to rebalance residential and contractor grade lawn care equipment inventory levels.
Speaker Change: Turning to adjusted operating earnings as a percentage of net sales.
Speaker Change: For the full year, we continue to expect a slight improvement over last year.
Angela Drake: For the second quarter, we anticipate total company adjusted operating margin to be lower than the same period last year. This reflects our expectations for segment mix and some continued inefficiencies as we align production to demand trends. We expect the professional segment earnings margin to be lower on a year-over-year basis, and the residential segment earnings margin to be higher year over year.
Speaker Change: We expect both the professional and residential segment earnings margin to also be higher than last year.
Speaker Change: We expect the other activity category to reflect higher expense compared to fiscal 2023.
Speaker Change: Results of our expectations for a return to more normal incentive compensation.
Speaker Change: With that we continue to expect full year adjusted diluted EPS in the range of $4 25.
Speaker Change: Two $4 35.
Speaker Change: Additionally for the full year, we continue to expect it.
Angela Drake: Overall, we expect our second quarter fiscal 2024 adjusted diluted EPS to be meaningfully lower than last year's record results and more in line with fiscal 2021 and 2022 results. We continue to build our business for long-term profitable growth. We are deploying capital with discipline, including prioritized investment in new products and technologies that address key market trends and that we believe will help our customers be successful. We are also confident in our ability to unlock significant benefits and opportunities with AMP, our multi-year productivity initiative. It's an exciting time to be a part of the Toro Company. With that, I'll turn the call back to Rick.
Speaker Change: Depreciation and amortization of about $120 million to $130 million.
Speaker Change: Interest expense of about $59 million and an adjusted effective tax rate of about 21%.
Speaker Change: Moving to the second quarter of fiscal 2024.
Speaker Change: We anticipate total company net sales to be similar to slightly higher year over year.
Speaker Change: As a reminder, in the second quarter of fiscal 2023, we benefited from dealer and distributor inventory replenishment of contractor grade zero turn mowers following a period of constrained supply.
Speaker Change: The same dynamic is not present this year.
Speaker Change: We anticipate this will be more than offset by expected incremental benefits from our expanded mass retail channel and our focus on driving increased output for our businesses with elevated order backlog.
Richard M. Olson: Thank you, Angie. Our business fundamentals and market leadership remain strong. Our team continues to operate with agility as we flex production for market conditions enabled by more reliable component supply. We continue to drive increased output and improve lead times for our businesses with elevated open orders to better serve our customers. From a macro perspective, we're closely watching business and consumer confidence and spending patterns, as well as monetary policy actions, inflation, numerous upcoming elections, and the current geopolitical environment. Turning to our end markets, I'll comment on the factors that could impact future results. For underground and specialty construction, we expect end-user demand to remain strong, supported by private and public spending to address global issues such as aging infrastructure, broadband access, and alternative energy buildup.
Speaker Change: Given these considerations, we expect professional segment net sales for the second quarter to be down mid single digits on top of last year's strong comparison of 15, 4% growth.
Speaker Change: We expect residential segment net sales growth for the second quarter to be up low to mid 'twenty compared to the same period last year.
Speaker Change: Looking at profitability.
For the second quarter, we anticipate total company adjusted operating margin to be lower than the same period last year.
Speaker Change: This reflects our expectations for segment mix and some continued inefficiencies as we align production to demand trends.
Speaker Change: We expect the professional segment earnings margin to be lower on a year over year basis, and the residential segment earnings margin to be higher year over year.
Speaker Change: Overall, we expect our second quarter fiscal 2024, adjusted diluted EPS to be meaningfully lower than last year's record result, and more in line with fiscal 2021 and 2022 results.
Richard M. Olson: These funds are increasingly making their way to Project START. We're focused on helping our customers address these needs with our trusted channel and the most comprehensive equipment lineup in the industry. For golf, we expect continued strength and demand driven by sustained momentum and new golfers and rounds played. In 2023, U.S. rounds played were the highest ever, marking the fourth straight year with more than 500 million rounds in total.
Speaker Change: We continue to build our business for long term profitable growth.
Speaker Change: We are deploying capital with discipline, including prioritized investments in new products and technologies that address key market trends and that we believe will help our customers be successful.
Speaker Change: We're also confident in our ability to unlock significant benefits and opportunities with an our multiyear productivity initiatives.
Speaker Change: It's an exciting time to be a part of the Toro company.
Richard M. Olson: We are focused on continuing to enhance our global leadership position in this attractive market with our complete suite of solutions, deep relationships, and best-in-class service and support networks. For municipalities and grounds, we expect continued healthy budgets and the prioritization of public green spaces. To capitalize on these trends, we're developing innovative products that drive productivity, including zero exhaust emission alternatives with no compromise on performance. For example, our new Groundsmaster E3200 battery-powered out front rotary mower builds on 50 years of innovation by the Toro company in this product category. This all-electric model leverages our proprietary Hypercell smart battery system to provide all day runtime and quiet operation.
Speaker Change: With that I'll turn the call back to Rick.
Richard M. Olson: Thank you Angie.
Richard M. Olson: Our business fundamentals and market leadership remains strong.
Richard M. Olson: Our team continues to operate with agility as we flex production for market conditions enabled by more reliable a component supplier.
Richard M. Olson: We continue to drive increased output and improved lead times for our businesses with elevated open orders to better serve our customers.
Richard M. Olson: From a macro perspective, we are closely watching business and consumer confidence and spending patterns as well as monetary policy actions inflation numerous upcoming elections and the current geopolitical environment.
Turning to our end markets I'll comment on the factors that could impact future results.
Richard M. Olson: For underground in specialty construction, we expect end user demand to remain strong. This was supported by private and public spending to address global issues, such as aging infrastructure broadband access and alternative energy build outs.
Richard M. Olson: These funds are increasingly making their way to project starts.
Richard M. Olson: For snow and ice management, we expect end market demand to be driven by replacement needs following two consecutive seasons of below average snowfall. We will be watching late season storm activity and how that affects channel inventory levels. For residential and commercial irrigation and lighting, we expect uneven demand from contractors as a result of steady commercial demand but also continued caution around homeowner projects. For agricultural micro-irrigation, we expect stable demand from growers with a focus on maximizing crop yield while minimizing water use.
Richard M. Olson: We're focused on helping our customers address these needs with our trusted channel and the most comprehensive equipment lineup in the industry.
Richard M. Olson: For golf, we expect continued strength in demand driven by sustained momentum in new golfers and rounds played.
Richard M. Olson: For 2023 U S rounds played were the highest ever marking the fourth straight year with more than $500 million loans in total.
Richard M. Olson: We are focused on continuing to enhance our global leadership position in this attractive market with our complete suite of solutions deep relationships and best in class service and support network.
Richard M. Olson: For municipalities and ground, we expect continued healthy budgets and the prioritization of public green spaces.
Richard M. Olson: To capitalize on these trends, we are developing innovative products that drive productivity, including zero exhaust emission alternatives with no compromise on performance.
Richard M. Olson: We continue to develop automated solutions that address this need, including our Toro Transpera direct plant sensing technology. This innovative solution was named 2023 New Product of the Year by the Irrigation Association. For landscape contractors, we expect steady retail demand with some price sensitivity. We continue to expect interest in our high-productivity, high-capacity solutions that allow more work to be done with fewer labor resources. For homeowners, we expect retail demand to begin stabilizing in the spring.
Richard M. Olson: For example, our new grounds Master E 3200 battery powered upfront rotary mower builds on 50 years of innovation by the Toro company in this product category.
First all electric model Leverages, our proprietary Hyperscale spark battery system to provide all day runtime and quiet operation.
Richard M. Olson: For snow and ice management, we expect end market demand to be driven by replacement needs. Following two consecutive seasons of below average snowfall.
Richard M. Olson: We'll be watching late season storm activity and how that effects channel inventory levels.
Richard M. Olson: For both landscape contractors and homeowners, we're watching weather patterns, and early spring as well as a return to more normal average temperatures and precipitation levels would be favorable. While market dynamics continue to have a near-term effect, we believe our well-established market leadership positions us to drive positive long-term results. This leadership is underpinned by our innovative products, trusted brand, and extensive distribution and support network. We also expect continued benefits from the essential nature and regular replacement cycle of our products. Our commitment to delivering superior innovation and customer care continues to drive our success, and this enduring commitment is bolstered by our strong balance sheet, disciplined capital allocation, and outstanding team of employees and channel partners. As a result, we have high confidence in our ability to drive sustained value for all states.
Richard M. Olson: For residential and commercial irrigation and lighting, we expect uneven demand from contractors as a result of steady commercial demand, but also a continued caution around homeowner projects.
Richard M. Olson: For agricultural micro irrigation, we expect stable demand from growers with a focus on maximizing crop yield while minimizing water usage.
Richard M. Olson: We continue to develop automated solutions that address this need including Arturo transpire.
Richard M. Olson: Direct plant sensing technology.
Richard M. Olson: Innovative solution was named 2023, new product of the year by the irrigation Association.
Richard M. Olson: For landscape contractors, we expect steady retail demand with some price sensitivity.
We continue to expect interest in our high productivity high capacity solutions that allow more work to be done with less labor resources.
Richard M. Olson: For homeowners, we expect retail demand to begin to stabilize in the spring.
Richard M. Olson: For both landscape contractors and homeowners, we're watching weather patterns and early spring as well as a return to more normal average temperatures and precipitation levels would be favorable.
Richard M. Olson: On that note, I would like to thank our employees and channel partners for their dedication to serving our customers. I'd also like to thank our customers and shareholders for your continued support. With that, we will open up the call for questions. Thank you so much. And ladies and gentlemen, if you wish to ask a question, please press star 11 to get in the queue. If your question has been answered or you wish to withdraw your question, press star one one again.
Richard M. Olson: While market dynamics continue to have a near term effect, we believe our well established market leadership positions us to drive positive long term results.
Richard M. Olson: This leadership is underpinned by our innovative products trusted brand and extensive distribution and support networks.
Richard M. Olson: We also expect continued benefits from the essential nature and regular replacement cycle of our products.
Operator: One moment for our first question, and it's from Sam Darkatsh with Raymond James. Please proceed. Good morning, Rick. Good morning, Angie. How are you?
Richard M. Olson: Our commitment to delivering superior innovation and customer care continues to drive our success.
Richard M. Olson: This enduring commitments is bolstered by our strong balance sheet disciplined capital allocation and outstanding team of employees and channel partners.
Samuel John Darkatsh: All right, Sam, do it well. Hurry up. I'm fine, thank you.
Richard M. Olson: As a result, we have high confidence in our ability to drive sustained value for all stakeholders.
Angela Drake: Three quick topics, if I could. First, Angie, I think you mentioned that there was slight progress sequentially with the backlog, but I think, if my notes are right, that you said that the backlog was higher than the 1.975. Does that, first off, am I right?
Richard M. Olson: On that note I would like to thank our employees and channel partners for their dedication to serving our customers.
Richard M. Olson: I would also like to thank our customers and shareholders for your continued support.
Speaker Change: With that we will open up the call for questions.
Speaker Change: Thank you so much and ladies and gentlemen, if you wish to ask a question. Please press star one one to get in the queue.
Angela Drake: Secondly, does that imply that you're still seeing fairly healthy order growth? And then, related to that, if you could give an update on terms of order cancellations. You are right, we are up slightly seasonally. We are continuing to see strong demand in our underground and specialty construction and golf and grounds groups.
Speaker Change: If your question has been answered or you wish to withdraw your question Press Star One again, one moment for our first question is from Doug Some dark cats with Raymond James. Please proceed.
Doug: Good morning, Rick Good morning, Angie how are you.
Doug: Good morning, <unk> how are you.
Doug: Well thank you.
Doug: Yes, three quick topics if I could.
Angela Drake: We are making some slight progress with our supply chain as it's becoming better. We're improving our output overall, and we expect to see that continue as we go throughout 2024. And I might let Rick speak to the cancellations. Yeah, Sam, that is not something that we've seen, so it's something we're very sensitive to.
Doug: <unk>.
Doug: Angie I think you'd mentioned that.
Doug: There was slight progress.
Doug: <unk> with the backlog, but I think if.
Doug: My notes are right that you saw.
Doug: Said that the backlog was higher.
Doug: Then the 197, 5% sequentially does that first off on my right. Secondly, does that imply that youre still seeing a fairly healthy order growth.
Richard M. Olson: We're watching it closely given the backlog we've been managing for the last several years. We're just not seeing any appreciable cancellations at this point. If people are in the queue, they want to stay there, so that's not been a factor for us.
Doug: And then related to that if you could give an update in terms of order cancellations.
Speaker Change: You are right, we are up slightly seasonally.
Speaker Change: We are continuing to see strong demand in our underground and specialty construction in golf and grounds groups and we are making some slight progress with our supply chain is it to become better we're improving our output overall, we expect to see that continue as we go throughout 2024.
Richard M. Olson: So when you're saying that it was up seasonally, sequentially, was it up more so than normal seasonality, or less so in line? Just try to give us a sense of the seasonal pattern versus what you're experiencing. Yeah, if you look just at an average year, regardless of the level of output or the order level, this would normally be a higher period.
Speaker Change: And I'll, let Rick speak to the cancellations.
Richard M. Olson: Yes, Sam that is not something that we've seen so that's something we're very sensitive to our Washington closely given the backlog that we've been managing for the last several years, we're just not seeing.
Richard M. Olson: So that's, that's what we mean by seasonal is it's normally an increase as we get orders that will ultimately be fulfilled, um, during uh, during the upcoming season, so significantly better year over year, and golf and grounds, underground, especially construction, actually are down. So it's really the more typical sales patterns and some more other businesses that are driving that. So sequentially up a little bit because of the normal seasonal process in some of our businesses, but substantially better year over year and continuing to make progress in that regard. And that's, you know, that's a quick question. Yeah, just to reiterate, that's being driven by, you know, much better output from our operations at our plants. That's, that's the very encouraging part of it. Got a second quick clarification question, Angie. BSOs were up pretty meaningfully in the quarter. Is that a function of the initial sell-in to Lowe's?
Richard M. Olson: Any appreciable cancellations at this point that people are in the queue. They want to stay there so.
Richard M. Olson: Has not been a factor for us.
Sam: So when youre, saying that it was up seasonally sequentially was it up more so the normal seasonality less so in line just try to get us give us a sense of the seasonal pattern versus what you're experiencing.
Speaker Change: Yes, if you if you look just on an average year, regardless of the level of output.
Speaker Change: Outputs or the order level this would normally be a higher periods. So that's that's what we mean by seasonal as thats normally an increase as we get orders that will ultimately be.
Speaker Change: Fulfillment.
Speaker Change: During.
Speaker Change: During the upcoming season, so, but significantly better year over year and.
Speaker Change: Golf and grounds underground, especially construction and actually are down and so it's really.
Speaker Change: The more typical sales patterns in some of our other businesses that are driving that so sequentially up a little bit because of the normal seasonal processes all of our businesses, but substantially better year over year continue to make progress in that regard.
Speaker Change: And that channel.
Speaker Change: Right.
Yes, just to reiterate thats being driven by much better output from our operations from our plants, but that's the very encouraging part of it.
Angela Drake: Yeah, as we referenced in our talking, our comments, yes, that was really related to timing of shipments to our mass channel. We also have some extended terms that we have extended to our channel partners, as they continue to wait on certain pieces of components to kind of fill out their packages to be able to ship to their customers. Got it. And then the last question: I noticed no share repo in the quarter. Why was that?
Speaker Change: Got it a second quick clarification second quick clarification question Angie.
Dsos were up pretty meaningfully in the quarter is that a function of the initial sell in to Lowe's.
Angie: Yes, as we referenced in our talking our comments, yes that was really related to timing of shipments to our mass channel. We also have some extended terms that we have extended to our channel partners.
Angela Drake: And what would you need to see in order to commence repo activity? Thanks. Q1 is typically a peak time for cash usage, and we saw that same thing this quarter.
Angie: <unk> continue to wait on some certain pieces of components to kind of fill up their packages to be able to ship to their customers.
Samuel John Darkatsh: So our first priority continues to be to remain to invest in our long-term profitable growth, and as we approach Q1, we're looking at paying down our revolver first as a focus versus reverse. Very helpful.
Speaker Change: Got it and then the last question.
Speaker Change: No share repo in the quarter.
Speaker Change: Why was that and what would you need to see in order to to commence.
Speaker Change: Commence repo activity. Thanks.
Speaker Change: Q1 is typically a.
Operator: Thank you all. One moment for our next question, please. And it's on the line between Team Wojs and Baird.
Speaker Change: Our peak time for cash usage and we saw that same thing this quarter. So our first priority continues to dip to be remaining to invest in our long term profitable growth.
Timothy Ronald Wojs: Please proceed. Hi everybody. Good morning. Hi Kim.
Angela Drake: Maybe just to start on just the EPS cadence and just trying to kind of think about kind of what you're implying, Angie, for the second quarter and maybe kind of the back half of the year. You know, it sounds like Q2 should maybe be kind of in this, call it, 125 to 130 range. I guess what's the bridge kind of in the back half of the year?
Speaker Change: As we approach Q1, we're looking at paying down our revolver FERC as a focused versus repurchases.
Speaker Change: Very helpful. Thank you all.
Speaker Change: Thank you.
Speaker Change: One moment for our next question please.
Speaker Change: And is from the line of Tim Walsh with Baird. Please proceed.
Timothy Ronald Wojs: Hi, everybody good morning.
Okay.
Timothy Ronald Wojs: Maybe just to start on just the.
Timothy Ronald Wojs: The EPS cadence and just trying to kind of think about kind of what youre, implying Angie for the second quarter, and maybe kind of the back half of the year.
Angela Drake: Because I think historically Q2 has kind of been your seasonally strongest EPS quarter. So I'm just trying to kind of understand what maybe it's hurting Q2 and whether that might get better in the back half. So our confidence for the second half really comes from our, you know, we're comparing against a sharp drop off from last year first, I would say. And if you look at our cadence, we're going to be more in line with F-22 for EPS. We're expecting our field inventory to be in a better place. We're also driving incremental output for our backlog, as we talked about earlier, as we continue to increase our volume output. And Q2 will be down some because of lawn care. We, you know, guided to a meaningfully lower year-over-year, again, that being more in line with fiscal 2021 and 2022 adjusted EPA.
Timothy Ronald Wojs: It sounds like Q2 should maybe be kind of in this call. It $1 25 to $1 30 range.
Timothy Ronald Wojs: What's the what's the bridge kind of in the back half of the year, because I think historically Q2 has kind of been your.
Timothy Ronald Wojs: Seasonally strongest EPS quarter, so I'm, just trying to kind of understand like what maybe.
Timothy Ronald Wojs: It's hurting Q2 that might get better in the back half of the year.
Timothy Ronald Wojs: Okay.
Speaker Change: So our our confidence for the second half really comes from.
Speaker Change: We're comparing against a sharp drop off from last year first I would say and if you look at our cadence we're going to be more in line with F. 'twenty two for Etfs.
Speaker Change: We're expecting our field inventory to be in a better place. We're also driving incremental output for our backlog as we talked about earlier as we continue to increase our volume output.
Speaker Change: In Q2 will be down some because of lawn care.
We.
Speaker Change: We guided to a meaningfully lower year over year again that being more in line with fiscal 2021 and 2020 to adjusted EPS.
Richard M. Olson: And then just, I guess on the underground business, any, you know, Rick, anything you can kind of talk about in terms of just kind of order patterns. I can appreciate that you're trying to get as much product out as you can just, you know, to try to normalize the backlog, but how does the incoming order activity look, and maybe you could kind of talk about some of the key markets like telecom and utility. I think we, you know, we probably put more emphasis recently on increasing our output, which has been pretty remarkable. I mean, every day we're improving our outputs to work down this backlog situation that we're in or the order, open order situation. At the same time, demand continues to be extremely strong.
Speaker Change: Okay. Okay got you and then just I guess on the underground business.
Speaker Change: Any.
Rick anything you can kind of talk about in terms of just kind of order patterns. I can appreciate that you are trying to get as much product out.
Speaker Change: As you can just.
Speaker Change: To try to normalize the backlog, but how's the incoming order activity look and maybe if you could kind of talk about some of the key markets like telecom and.
Speaker Change: Utilities there.
Speaker Change: But I think we've probably put more recently the emphasis on increasing our output which has been pretty remarkable I mean every day, we're improving our outputs to to work down.
Speaker Change: The backlog situation that we're in or the order open order situation at the same time the demand continues to be extremely strong.
Richard M. Olson: And we, I mean, we happened to just recently do a deep dive on some of the commitments that are out there for funding projects, just on one of the categories, broadband in the U.S., more than 60 million, billion dollars, I should say, 60 billion dollars allocated to broadband. And then we don't talk much about what's happening in Europe, but substantially more for digital applications and the so-called Digital Recovery Act. I mean, you know, 723 billion dollars, of which probably 150 would apply to those markets where we have a presence. So it just looks like a tremendously positive runway from what we can see at this point in terms of market demand. And we see steady market demand at this point.
And we I mean, we happen to just recently do a deep dive on some of the commitments that are out there for funding projects just on one of the categories broadband in the U S more than $60 million 1 billion.
<unk> 60 billion.
Speaker Change: Allocated to broadband and then we don't talk much about what's happening in Europe, but substantially more for digital.
Speaker Change: Digital applications in the so called digital recovery Act.
Speaker Change: $723 billion of which probably 150 wood apart would.
Speaker Change: It would apply to those markets, where we have a presence.
Speaker Change: So it just looks like tremendously positive runway from what we can see at this point from a market demand and we see the steady market demand at this point, so as we're able to increase our output within within our footprint today, and adding where we need to where there are constraints, that's going to allow us to get to.
Richard M. Olson: So as we're able to increase our output within our footprint today and add where we need to, where there are constraints, that's going to allow us to get a bigger piece of that as we go forward. And yeah, so that's just one of the areas, but everything from the energy build out to addressing the utility issues that we have worldwide, ultimately addressing the power issues with putting more power underground.
Speaker Change: A bigger piece of that.
Speaker Change: As we go forward.
Speaker Change: And.
Speaker Change: So that's just one of the areas, but everything from the energy build out addressing the utility issues that we have.
Speaker Change: Worldwide ultimately addressing the power.
Speaker Change: Issues with.
Speaker Change: Adding more power underground.
Richard M. Olson: I mean, it's an incredibly exciting time to be part of this market and this business. And we're really pleased that we're in a position to be able to be a part of it. Okay, okay, good. And then just the last one on pro landscape, is there any way to kind of frame where the kind of utilization is on a trailing 12 month basis in that business versus kind of where it normally is? I'm just trying to figure out what the absorption hit is on, you know, just trying to think through, you know, pulling back on pro-landscape production.
Speaker Change: As an incredibly exciting time to be part of this market in this business.
Speaker Change: And we're really pleased that we're in a position to be able to be a part of that.
Speaker Change: Okay. Okay. Good and then just the last one on pro landscape is there any way to kind of frame where.
Speaker Change: Kind of a utilization is unlike a trailing 12 month basis in that business versus kind of where it normally is.
Speaker Change: Utilization in terms of maybe absorption.
Speaker Change: No in terms of like the manufacturing utilization just trying to understand kind of what kind of I'm, just trying to kind of figure out what the absorption hit us.
Speaker Change: <unk>.
Speaker Change: Just trying to think through.
Speaker Change: Pulling back on.
Speaker Change: For landscape production.
Angela Drake: We probably don't have those specific numbers here, but just anecdotally, obviously, we've got lower utilization within those plants. The positive thing is that we've been able to flex the capacity there. So, for example, even with Intimidator, which we talked about, I think, at the last ARENES call, we have lower production, obviously, of those products that go into the landscape contractor market. The positive thing is they have terrific operations there and a terrific workforce.
Speaker Change: We do.
Speaker Change: We probably don't have those specific numbers here, but just anecdotally.
Speaker Change: Obviously, we've got lower utilization within those plants. The positive thing is that we've been able to flex the capacity there. So for example, even with Intimidator.
Speaker Change: We talked about I think at the last earnings call.
Speaker Change: We have lower production, obviously at those products that go into the landscape contractor market. The positive thing is they have terrific operations, there and a terrific workforce, we've been able to flex other products from our construction business and be able to produce product that would be difficult for us to do to the valves.
Angela Drake: We've been able to flex other products from our construction business and be able to produce products that would be difficult for us to do in the past. Yeah, I'd say we just included our best estimates in our guidance based on what we see there. Okay, okay. Very good. Good luck for the rest of the year.
Yes, and I would say we just we've included our best estimates and our guidance based on what we see there.
Speaker Change: Okay, Okay, Craig good luck on.
Timothy Ronald Wojs: Thank you. Thank you. Thank you. One moment for our next question, please, is from the line of David MacGregor with Longbow Research.
Craig: The rest of year. Thank you.
Speaker Change: Thank you. Thank you one moment for our next question. Please.
Speaker Change: Okay.
Speaker Change: Is from the line of David Macgregor with Longbow Research. Please proceed.
Operator: Please proceed. Yes, good morning, everyone, and thanks for taking my question. Morning. Morning, guys. Hey, good morning.
David Sutherland MacGregor: Yes, good morning, everyone and thanks for taking my questions.
David Sutherland MacGregor: Good morning. Thanks.
David Sutherland MacGregor: I wonder if you could just help. I mean, there's a lot going on in your low single-digit top line growth guide. We've got, as best I can count, at least seven or eight different variables that are. I wonder if you can help us just sort of bridge that or, at a minimum, just address maybe the capacity investments you're making and what those are. And then maybe just building off of Sam's question on the backlog. Last quarter, Rick, you shared a number with us, the $300 million reduction in the backlog. Is there any chance you can kind of update that number for us today? Yeah, maybe Angie can address that last part.
David Sutherland MacGregor: Hey, good morning.
David Sutherland MacGregor: I Wonder if you could just help us I mean, there's a lot going on in your and your loss or your low single digit top line growth guidance for this year I mean, you've got the best I can count at least seven or eight different variables there.
David Sutherland MacGregor: In there I wonder if you can help us just sort of bridging that or at a minimum just address maybe the capacity investments youre, making and what that might be contributing.
David Sutherland MacGregor: And then maybe just building off of Sam's question on the backlog last quarter, Rick you shared a number with us a $300 million.
David Sutherland MacGregor: Reduction in the backlog year over year and <unk> is there any chance you could kind of update that number for us today, and then I've got a couple of follow ups.
David Sutherland MacGregor: Yes.
Speaker Change: Yes, maybe Andy you can address that last part, but with regard to capacity and you talked about as many as seven different factors, we certainly understand those.
Angela Drake: But with regard to capacity, and you talked about as many as seven different factors, we certainly understand those. I mean, the good news is that the foundation of that confidence for the year really comes from the businesses where we have open orders at this point. So golf courses, underground, and construction, and that's going to be driven by improved output within our plants, and we have, you know, we're seeing steady improvements in that direction, and we'll continue to see that benefit throughout the year. On the residential side, it's clear that we're going through an adjustment there, but on the positive side, we have the new business with Lowe's and not just Lowe's but really working with So that's on the positive side, and we have a lot of variables but also a lot of drivers that can help us get to where we need to go.
Speaker Change: The good news is the foundation.
Speaker Change: Of that confidence in the Euro really comes from the businesses, where we have open orders at this point so golf grounds.
Andy: Underground construction and thats going to be driven by improved output with under our plans and we have we're seeing steady improvements in that direction.
Andy: So you will see that benefit throughout the year.
Speaker Change: We have.
Speaker Change: On the residential side.
Speaker Change: Clear that we're going through an adjustment there, but on a positive side, we have the new business with lowes in not just Lowe's, but really.
Speaker Change: Working with all of our channel partners to create.
Speaker Change: First of all great product, great support and a unique value proposition for each of their customers. So that's on the positive side.
Speaker Change: And.
Speaker Change: So we have a lot of variables, but also a lot of drivers that can help us get to where we need to go.
Richard M. Olson: And with regard to capacity, we've been completely consistent with our strategy where we're adding structural capacity where we believe there's a longer-term, different growth rate than it has been in the past. And we've been careful not to do that to use our flex capacity to alleviate backorders or open positions where we think it's going to return to a more normalized growth rate. So that's, We've been consistent with that, and we believe that's the right approach right now. And on your question on backlog, we don't typically break that out every quarter, so we're just trying to give a little color here, but we did have, we weren't down from F23, as we reported at the end of Q4, you know, last year, but we are just seeing that pick up slightly, just like we Great, I got it. Thanks for that. Maybe I can follow up with you guys offline.
Speaker Change: And with regards to capacity we have.
Been completely consistent with our strategy, where we're adding.
Speaker Change: Structural capacity, where we believe there is a longer term.
Speaker Change: <unk> growth rate than it's been in the past and we've been careful not to do that to use our flex capacity to alleviate back orders are open positions, where we think it's got a return to a more normalized growth rate. So that's we've been consistent with that and that's we believe that's the right approach for them.
Speaker Change: And on your question on backlog.
Speaker Change: We don't typically break that out every quarter. So we're just trying to give a little color here, but we did have.
Speaker Change: We weren't down and from F. 'twenty three as we reported at the end of Q4 last year, but we are just seeing that tick up slightly just like we said earlier seasonally based on.
Speaker Change: And what we're seeing in open orders coming in in this first quarter of the year.
Speaker Change: Which is fairly new for us.
Speaker Change: Right got it thanks for that maybe it maybe I can follow up with you guys offline on the on the bridge.
David Sutherland MacGregor: Just a couple of other things, just quickly. The AMP program, as you're rolling that out, is an investment in the quarter that... front expense that. Yes, as Rick said in his prepared remarks, you know, AMP is off to a great start, got our transformation office in place. And we did have some expenses in the quarter, which we will list in our earnings release. It's 3.9, which is in our reported SG&A numbers, and it will be adjusted out. And then finally, for me, it seems like with these backlogs in golf and specialty construction, your parts and accessories business must be elevated, running above. Is there any way of quantifying just what that might have contributed to the quarter?
Speaker Change: Just a couple of other things just quickly.
The App investments are the air programs, you are rolling out as their investments in the quarter that may.
Speaker Change: Maybe upfront expense that we should take into consideration.
Speaker Change: Yes, as Rick said in his prepared remarks amp is off to a great start get our transformation office in place and we did have some expenses in the quarter, which we we will list than we had in our earnings release, it's three nine.
Speaker Change: In our reported SG&A numbers and it will be adjusted out.
Speaker Change: Got it and then finally for me just it seems like with six.
Speaker Change: Backlogs in golf and specialty construction, youre parts and accessories business must be elevated or he must be maybe running.
Speaker Change: Level above what you would typically be but is there any way of quantifying what that might have contributed to the quarter, what you might be seeing in terms of.
Angela Drake: Part 6, both in terms of revenues but also, We don't break out parts specifically, but just anecdotally, it's, it would be, you know, a typical run rate for us relative to the parks' contribution to sales. It's been, you know, maybe a little bit stronger during this period, but nothing, nothing extraordinary. All right, great, thanks very much.
Speaker Change: Parts and accessories benefit right now both in terms of revenues, but also in terms of profit.
Speaker Change: We don't breakout parts, specifically, but just anecdotally it.
Speaker Change: It would be typical run rate for us relative to FERC contribution to sales.
Speaker Change: Yes, maybe a little bit stronger during this period, but nothing nothing extraordinary.
Speaker Change: Okay, alright, great. Thanks very much.
Operator: Okay, thank you. Thank you. Let me get to the next question, please. And we come from the line of Tom Hayes with C.L. King
Speaker Change: Okay. Thank you.
Speaker Change: Thank you let me get to the next question. Please.
Speaker Change: And he comes from the line of Tom Hayes with C. L. King. Please proceed.
Thomas Lloyd Hayes: Please proceed. Hey, good morning. Thanks for taking my question. Good morning. Hey Rick, maybe you just wanted to get your thoughts on, especially in the lawn care segment, both residential and professional, as far as your thoughts about the continued battery adoption. Certainly, you know, the residential segments, you know, well along that, Pat, I was just wondering your thoughts on the professional side this year going forward. Yeah, we, we are, the one thing I can say is we are extremely confident in the platforms that we produce both on the residential side, the 60 volts is a fantastic product line. It's getting additional access to our customers, even as we go forward this year. On the professional side, we're extremely excited, again, both about the products we've been able to introduce, which are, which honestly are the culmination of the outcome of the focus that we've put on that area for, you know, six or seven years. So it's, it's, it's fulfilling to see the uptake from our customers, especially in specific categories. Golf has seen a higher uptick, an uptake of battery-powered products for a lot of reasons, beyond just the zero exhaust emissions of noise, operator implications, and so forth.
Thomas Lloyd Hayes: Hey, good morning, Thanks for taking my question.
Thomas Lloyd Hayes: Good morning.
Thomas Lloyd Hayes: I just wanted to get your thoughts on especially around the lawn care segment, both residential and professional as far as your thoughts about the continued battery adoption certainly.
Speaker Change: The residential segments well along that.
Speaker Change: Pat I was just wondering your thoughts on the professional side this year going forward.
Yes.
Pat: Are the one thing I can say is we are extremely confident in the platform. So we produce both on the residential side the 60 volt.
Pat: <unk> product line.
Pat: Additional access to our for our customers even as we go forward this year.
Pat: Professional side, we're extremely excited again, both about the products, we've been able to introduce which are which obviously are the.
Pat: The culmination of the outcome of the focus that we've put on the battery for six or seven years. So.
It's fulfilling.
Pat: Fulfilling to see the uptake from our customers, especially in specific categories.
Pat: Also seeing a higher uptick and uptake of.
Pat: Battery powered products for a lot of reasons.
Pat: Just zero exhaust emissions of noise.
Pat: Operator implications and so forth and we just introduced the new grounds Master E 3200, which will be the perfect product for municipalities and those are some of our customers that are under the greatest need to supervisor of exhaust emission products. So.
Richard M. Olson: And we just introduced the new GroundsMaster E3200, which will be the perfect product for municipalities. And those are some of our customers that are under the greatest need to provide zero exhaust emission products. So we have a great lineup in both the residential and the pro categories, and we're pleased to see our customers get the product that they want. I appreciate the call on that, mate. I'm sorry, guys.
Pat: We have a great lineup in both the residential and the pro categories and we're pleased to see our customers get the product that they want.
Speaker Change #100: Okay appreciate the color on that.
Richard M. Olson: Sure. I was just going to add, you know, our focus is really to be able to provide gas or electric or battery options and have a terrific solution for both customers. Okay, I apologize for cutting you off there. Just maybe circling back. I know it's been under pressure for the last couple quarters.
Speaker Change #100: Sure.
Speaker Change #100: I was just kind of I was just at our folks.
Speaker Change #100: Really to be able to provide gas or electric or battery options and have a terrific solution for both customers.
Okay I apologize for cutting you off there just maybe circling back.
Speaker Change #100: I know it's been under pressure for the last couple of quarters, just maybe any thoughts on the rental equipment market.
Richard M. Olson: Just maybe any thoughts on the rental equipment market? Rental equipment, from our perspective, continues to be very strong. It's really, most of it is that some portion of contractors, particularly national accounts, are looking at replacing aging fleets. That's been positive for us.
Speaker Change #100: Our rental equipment from our perspective continues to be very strong it's really most of it is.
Speaker Change #100: Some portion of contractor, particularly national accounts are looking at replacing aging fleets, that's been positive for us and.
Richard M. Olson: And, you know, there's been a little bit more construction activity. That's a driver of future demand for us as well. Okay, I appreciate the color. Thank you.
Speaker Change #100: Theres been a little bit more construction activity, that's a driver of future demand for us as well.
Speaker Change #101: Okay I appreciate the color. Thank you.
Thomas Lloyd Hayes: Thank you. Thank you. And we are going to our last question, please. Hold on.
Speaker Change #102: Thank you.
Speaker Change #103: Thank you and we are going to our last question. Please come alone.
Operator: It's coming from the line of Ted Jackson with Northland Securities. Please proceed. Thanks very much.
Speaker Change #103: Coming from the line of Ted Jackson with Northland Securities. Please proceed.
Ted Jackson: Most of my questions have been answered. First, Angie, can we just talk a little bit about working capital? Where are we still going to see the fair do?
Ted Jackson: Thanks very much.
Ted Jackson: It might be your questions have been answered, but just a couple of small ones.
Ted Jackson: Firstly can we just talk a little bit about working capital and.
Ted Jackson: Where are.
Ted Jackson: Are we still going to see rare.
Ted Jackson: Fair to tumors and the trend as we roll through.
Angela Drake: As we roll through 24, I will have a reduction and more in the back after this. Yes, I understood your question correctly. You're kind of quiet.
Ted Jackson: Hunting for that.
Ted Jackson: Oh.
Speaker Change #104: We will have a reduction in it mainly through inventory and more in the back half of the year.
Speaker Change #104: Is this still kind of holds is that a trend that we should expect.
Yes, if I understood. Your question correctly, you are kind of quiet.
Angela Drake: But it's because you're asking about working capital. We do expect to see working capital improvement throughout the year. The first quarter is typically our peak usage of cash.
But if some of you are asking about working capital.
Speaker Change #105: We do expect to see working capital improvement throughout the year. The first quarter is typically our peak usage of cash so.
Angela Drake: So we are growing our inventory and working through that, but we do expect to generate more of our cash in the second half. As you can expect, the drivers behind that cash flow are also working capital, with the majority of our opportunity being to drive our inventory down. So a continued sharp focus on that, Ted, as we go throughout the year to reduce our inventory, both finished goods and whips. And when I think about inventory, I'm trying to speak up a little bit, but I tend to mumble. And I look back kind of pre-, Is it fair to say that normalized inventory on kind of a day-based basis, call it 100, 110 days or so. And is that a level that we could expect to see as you exit 2020? I don't know that we've provided that information, but we certainly are expecting to continue to improve it. You know, when we look back pre-COVID, we've changed a lot.
Speaker Change #105: As we are growing our inventory and working through that but we do expect to generate more of our cash in the second half as.
Speaker Change #105: As you can expect the drivers behind that cash flow is also working capital.
Speaker Change #105: With the majority of our opportunity and driving our inventory down. So a continued sharp focus on that pad as we as we go throughout the year to reduce our inventory of finished goods and web.
Speaker Change #105: And when I think about inventory I'm trying to speak up a little bit Tinder bumble.
Speaker Change #105: I look back kind of premium.
Speaker Change #105: Covid.
Speaker Change #105: Is it fair to say that normalized inventory on kind of a a database.
Speaker Change #105: Call. It 100, 110 days or so and is that a level that we could expect to see as you exit 'twenty four.
Speaker Change #106: I don't know that we've provided that information, but we certainly are expecting to continue to improve it.
Speaker Change #106: When we look back pre COVID-19.
Angela Drake: We're really a different company. As we look at our makeup today, we added Charles Machine Works, we added Ventrac, and we've added Intimidator Group. You know, we went through a period of needing to increase inventory so that we could provide for our customers, so we're still rebalancing some of that. And, of course, as we got into the winter season in Q1, we saw a lack of snowfall that also increased our inventory levels. So I don't have an exact number for you on days, but we certainly feel confident that we can achieve our free cash flow guidance that we've put in place today. Next question, just a little nitpicky, but just to make sure I've got it right, what is the dividend payout? I don't know about the 6% increase year over year. I don't know that I have that right in front of me, Ted. That's okay; I can figure it out. Just a nip.
We changed a lot we're really a different company as we as we look at our makeup today we added.
Speaker Change #106: Charles Machine works, we added and track without an Intimidator group.
Speaker Change #106: We went through a period of needing to increase our inventory so that we can provide.
Speaker Change #106: Our customers. So we're still rebalancing some of that and then of course as we as we got into the winter season in Q1, we saw a lack of snowfall.
<unk> also increased our inventory levels so I.
Speaker Change #106: I don't have an exact number for you on days, but we certainly feel confident that we can achieve our free cash flow guidance that we've put in place today.
Speaker Change #106: Okay.
Speaker Change #107: Next question.
Speaker Change #108: He'll nitpicky, but.
Speaker Change #109: To make sure I've got it right what is that like.
Speaker Change #109: The dividend payout on a per share basis right now.
Speaker Change #109: Yeah.
Speaker Change #109: The 6%, yes, it was a 10% increase year over year I don't know that I have that right in front of you cats.
Speaker Change #110: That's okay I can figure it out.
Speaker Change #110: A nitpicky one.
Ted Jackson: And then, you know, with regard to the initiative, the AMP initiative, and the savings queue, which you showed in your pro formas for this quarter. Is that something worth modeling? Is there a number that you would?
Speaker Change #110: And then.
Speaker Change #110: With regards to the.
Speaker Change #110: The initiatives the Amp initiative savings.
Speaker Change #110: Savings Hugh.
Speaker Change #110: Showed in your pro forma for this quarter.
Speaker Change #110: Is that something worth modeling is there a number that you would think.
Speaker Change #111: Jeff that we've put in in terms of our pro forma numbers are again basically in the back of that I can feel it every quarter.
Angela Drake: So for the benefits and the savings that we expect to achieve, we're expecting to get $100 million over the next three years. So by 2027, we expect to get $100 million in annual cost savings. We have built in what we expect to see in F-24, but the majority of those savings will be in years two and three. So more level to the back half of that project than the first part. Okay, and then, you know, one thing you should think of doing in marketing given the weather we have is, have you thought about maybe marketing your lawnmowers? Well, the marketing's already started, and the good news is golfers are golfing, so that's a bit of a tradeoff for us on the positive side.
Speaker Change #112: So for that for the benefits and the savings that we expect to achieve we are expecting to get a $100 million over the next three years or so so by 2027, we expect to get $100 million in annual cost savings.
Speaker Change #112: We have built.
Speaker Change #112: What we expect to see in F. 'twenty four but the majority of those savings will be in years, two and three.
Speaker Change #112: So more and more level back the back half of that project during the first part.
Speaker Change #113: Okay and then.
One thing you should think of doing in marketing given the weather. We have is have you thought about maybe marketing you're logged more than winter.
Speaker Change #113: Well the marketing is already started and the good news is golfers are golfing so that.
Speaker Change #113: A bit of a trade off for us on a positive side.
Richard M. Olson: All right, well, thanks for giving me the time. Okay, thanks. And thank you, ladies and gentlemen, this concludes the Q&A session. I will pass it back to Ms. Kerekes for her closing remarks. Thank you everyone for your questions and interest in the Toro Company. We look forward to talking with you again in June to discuss our fiscal 2024 second quarter results. And with that, we close the conference today. Thank you all for participating. You may now disconnect.
Speaker Change #114: So alright, well thanks for the forgive me the time.
Speaker Change #115: Okay. Thank you thanks, Doug.
Speaker Change #116: And thank you ladies and gentlemen, this concludes the Q&A session I will pass it back to Mr. <unk> for closing remarks.
Speaker Change #117: Thank you everyone for your questions and interest in material company. We look forward to talking with you again in June to discuss our fiscal 2024 second quarter results.
Speaker Change #118: And with that we close our conference today. Thank you for participating you may now disconnect.