Q2 2024 The Toro Company Earnings Call

June 6, 2024

Carmen: Good day, ladies and gentlemen, and welcome to the Toro Company's second quarter earnings conference call. My name is Carmen, and I will be your coordinator for today. At this time, all participants are in a listen-only mode.

Good day, ladies and gentlemen, and welcome to the Toro Company's second quarter earnings Conference call. My name is Carmen and I will be your coordinator for today at this time all participants are in a listen only mode, who would be facilitating a question and answer session towards the end of today's.

Speaker Change: 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 usually correct because as senior managing director of global tax and Investor Relations. Please proceed Ms correct, yes.

Carmen: We will 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, a Senior Managing Director of Global Tax and Investor Relations. Please proceed, Ms. Kerekes.

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 second 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 Stebbins, Director, Investor Relations.

Speaker Change: 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 second quarter earnings presentation to supplement our earnings release.

Speaker Change: On our call today are Rick Olson, Chairman and Chief Executive Officer.

Speaker Change: Angie draped, Vice President and Chief Financial Officer, and Jeremy stepping director Investor Relations.

Julie A. Kerekes: 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. Additional information regarding these factors can be found in today's earnings release and in our investor presentations, as well as in our SEC report. During today's call, we will also refer to non-GAAP financial measures, which we believe are important in evaluating the company's performance.

Speaker Change: During this call we will make forward looking statements regarding our plans and projections for the future forward looking statements are based upon our historical performance and current expectations and are subject to risks uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements additional information regarding these factors can be found.

Speaker Change: In today's earnings release, and in our Investor presentations as well as in our SEC reports.

Speaker Change: During today's call. We will also refer to non-GAAP financial measures, which we believe are important in evaluating the company's performance.

Speaker Change: 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 Rick.

Julie A. Kerekes: 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 Rick. Thanks, Julie, and good morning, everyone.

Richard M. Olson: Our team continued to execute well as we delivered second quarter results in line with the expectations we shared on last quarter's call. Once again, our team operated with dedication and agility as we adjusted production to align with demand trends, grown productivity benefits across the enterprise, and capitalized on an ever-expanding portfolio of innovative products that satisfy our customers' most pressing needs. We are continuing to advance our key strategic priorities to drive shareholder value by accelerating profitable growth, driving productivity and operational excellence, and empowering our people. For the second quarter, we delivered record net sales of $1.35 billion.

Richard M. Olson: Thanks, Julie and good morning, everyone. Our team continued to execute well as we delivered second quarter results in line with the expectations, we shared on last quarter's call.

Richard M. Olson: Once again, our team operated with dedication and agility as we adjusted production to align with demand trends drove productivity benefits across the enterprise and capitalized on an ever expanding portfolio of innovative products.

Richard M. Olson: Satisfy our customers' most pressing needs.

Richard M. Olson: We are continuing to advance our key strategic priorities to drive shareholder value by accelerating profitable growth driving productivity and operational excellence and empowering our people.

Richard M. Olson: For the second quarter, we delivered record net sales of $135 billion. This.

Richard M. Olson: This was driven by top-line growth of 26% in our residential segment, and within our professional segment, we saw continued growth in the underground and specialty construction and golf and grounds businesses. For residential, as anticipated, exceptional growth in our mass channel more than offset the expected lower shipments to our dealer channel, given elevated dealer field inventories heading into this year. The residential segment benefited from successful new product introductions and better weather conditions compared to last year. However, strong demand has kept order backlogs elevated in our underground and specialty construction and golf and grounds businesses.

Richard M. Olson: This was driven by top line growth of 26% and our residential segment.

Richard M. Olson: Within our professional segment, we saw continued growth in the underground and specialty construction and golf and grounds businesses.

Richard M. Olson: For residential as anticipated exceptional growth in our mass channel more than offset the expected lower shipments to our dealer channel given elevated dealer field inventory is coming into this year.

Richard M. Olson: The residential segment benefited from successful new product introductions, and better weather conditions compared to last year.

Richard M. Olson: Strong demand has kept order backlog elevated in our underground and specialty construction and golf and grounds businesses.

Richard M. Olson: We continue to successfully drive incremental output within our existing manufacturing footprint to increase shipments of those products and better serve our customers. However, this strength was offset by anticipated lower shipments of contractor-grade zero-turn mowers, given elevated field inventories heading into this fiscal year. Notably, we've made significant progress reducing dealer field inventories of lawn care equipment in both the professional and residential segments. This was a result of our reduction in shipments to dealers, as expected, coupled with initial spring retail momentum. Moving to the bottom line, we delivered adjusted diluted earnings per share of $1.40. This compares to last year's record $1.58.

Richard M. Olson: We continue to successfully drive incremental output within our existing manufacturing footprint to increase shipments of those products and better serve our customers.

Richard M. Olson: This strength was offset by anticipated lower shipments of contractor grade zero turn mowers, given elevated field inventories heading into this fiscal year.

Richard M. Olson: Notably, we've made significant progress reducing dealer field inventories of lawn care equipment, and both the professional and residential segments.

Richard M. Olson: This was a result of our reduction in shipments to dealers as expected coupled with initial spring retail momentum.

Richard M. Olson: Moving to the bottom line, we delivered adjusted diluted earnings per share of $1 40.

This compares to last year's record $1 58.

Richard M. Olson: The change, year over year, was largely a result of segment mix, given the significant growth in residential this quarter, as well as product mix within the residential segment. We were pleased to have been able to offset some of this effect with productivity benefits and improved management of SG&A. Based on our performance in the first half of the year 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.

Richard M. Olson: The change year over year was largely a result of segment mix given the significant growth in residential this quarter as.

Richard M. Olson: As well as product mix within the residential segment.

Richard M. Olson: We were pleased to have been able to offset some of this effect with productivity benefits and prudent management of SG&A.

Richard M. Olson: Based on our performance in the first half of the year 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 Andrew.

Speaker Change: <unk>, who will walk through those details shortly.

Richard M. Olson: Throughout the quarter, we advanced our enterprise strategic priorities to drive shareholder value for the long term. First, we maintained a sharp focus on accelerating profitable growth. One important component of this strategy is innovation to solve customers' most pressing needs, align with market growth trends, and generate a strong return on investment. To that end, we recently introduced a number of new products that are providing truly unique solutions in our market. To briefly highlight a few examples, our new generation of Toro Time Cutter and Titan zero-turn mowers have been extremely well received by customers.

Speaker Change: Throughout the quarter, we advanced our enterprise strategic priorities to drive shareholder value for the long term.

Speaker Change: First we maintained a sharp focus on accelerating profitable growth one important component of those strategies innovation to solve customers' most pressing needs align with market growth trends and generate a strong return on investment.

So we.

Speaker Change: We recently introduced a number of new products that are providing truly unique solutions in our markets.

Speaker Change: To briefly highlight a few examples are a new generation of Toro time cutter and tightened zero turn mowers have been extremely well received by customers.

Richard M. Olson: These new lowers are already driving share gains and enhancing our market leadership position in this space. This is a testament to our customer focus, brand strength, and dependability, as well as our extensive distribution network, including mass channel partners and our best-in-class independent dealers. We've also raised the bar with our new TX1000 Turbo Compact Utility Loader. This machine introduces a smart power feature that optimizes engine, auxiliary, and traction torque for an unparalleled operator experience.

Speaker Change: These new loans are already driving share gains and enhancing our market leadership position in this space.

Speaker Change: This is a testament to our customer focus brand strength and dependability as well as our extensive distribution network, including mass channel partners and our best in class independent dealers.

Speaker Change: We've also raised the bar with our new TX 1000 Turbo compact utility loader. This machine introduces a smart power feature that Optimizes engine ancillary and traction tour for an unparalleled operator experience.

Richard M. Olson: Another example is our recently introduced Ditch Witch AT120 for the accelerating underground construction market. This industry-leading machine, which leverages 30 existing and pending patents, is the world's most powerful all-terrain horizontal directional drill. The AT120 enables productivity while at the same time reducing job site noise.

Speaker Change: Another example is our recently introduced <unk> <unk> hundred 20 for the accelerating underground construction market.

Speaker Change: This industry, leading machine, which leverages 30 existing and pending patents as the world's most powerful altering horizontal directional drill.

100008 enables productivity off the same time, reducing job site noise.

Richard M. Olson: Our internal team voted the AT120 as our new product of the year. This honor reflects the product's advanced features and its importance to our long-term strategy. Second, we continue to drive productivity and operational excellence across the organization. Our outstanding team delivered strong productivity gains this quarter, while at the same time operating with flexibility as we adjusted production to meet demand dynamics across our portfolio. Importantly, we remain on track and confident in our ability to deliver at least $100 million of annualized savings by fiscal 2027 from our multi-year productivity initiative named AMP for amplifying maximum productivity.

Speaker Change: Our internal team board of the <unk> hundred 20, as our new product of the year.

Speaker Change: This honor reflects the products advanced features and its importance to our long term strategy.

Speaker Change: Second we continued to drive productivity and operational excellence across the organization.

Speaker Change: Our outstanding team delivered strong productivity gains this quarter, while at the same time operating more flexibility as we adjusted production to meet demand dynamics across our portfolio.

Speaker Change: Importantly, we remain on track and confidence in our ability to deliver at least $100 million of annualized savings by fiscal 2027 from our multiyear productivity initiative named al for amplifying maximum productivity.

Richard M. Olson: As we've discussed, we intend to prudently reinvest up to 50% of the savings to further accelerate innovation and long-term growth. Third, we continue to foster a culture of empowering people. A great example is our annual TTC Technology Forum, which empowers our internal technology community to connect and collaborate to inspire unique customer and enterprise solutions across the organization. Themes at this year's forum included advanced battery technology, integrated data usage, robotic navigation, and advanced manufacturing technology.

Speaker Change: As we've discussed we intend to prudently reinvest up to 50% of the savings to further accelerate innovation and long term growth.

Speaker Change: And third.

Speaker Change: We continue to foster a culture of empowering people.

Speaker Change: A great example is our annual PTC technology Forum, which empowers our internal technology community to connect and collaborate to inspire a unique customer and enterprise solutions across the organization.

Speaker Change: Teams at this year's Forum included advanced battery technology integrated data usage robotics navigation and advanced manufacturing technologies.

Richard M. Olson: A highlight was sharing developments in predictive and generative AI models to enable new product features, streamline workflows, and unlock powerful data insights for both the Toro company and our customers. We will remain focused on our three strategic priorities going forward. We are building on strong momentum as we enter the second half of the year. With that, I'll turn the call over to Angie to discuss our financial results and guidance before I return to provide commentary on the outlook for our business. Thank you, Rick, and good morning, everyone.

Speaker Change: A highlight with sharing developments and predictive and generative AI models.

To enable new product features streamline workflows and unlock powerful data insights for both the total company and our customers.

Speaker Change: We will remain focused on our three strategic priorities going forward. We are building on our strong momentum as we enter the second half of the year.

Speaker Change: With that I'll turn the call over to <unk> to discuss our financial results and guidance before I return to provide commentary on the outlook for our businesses.

Angela C. Drake: As Rick said, our results in the second quarter were aligned with our outlook, as our talented team continued the disciplined execution of our strategic priorities. Consolidated net sales for the quarter were $1.35 billion, up slightly from our record in Q2 last year. Reported EPS was $1.38 per diluted share compared to $1.59 in the second quarter of last year. Adjusted EPS was $1.40 per deleted share, down, as expected, from $1.58.

Speaker Change: Thank you Rick and good morning, everyone.

Speaker Change: As Rick said our results in the second quarter were aligned with our outlook and our talented team continued the disciplined execution of our strategic priorities.

Richard M. Olson: Consolidated net sales for the quarter were $135 billion up slightly.

Richard M. Olson: Slightly from a record in Q2 last year.

Richard M. Olson: And EPS was $1.38 per diluted share compared to $1 59 in the second quarter of last year.

Richard M. Olson: Adjusted EPS was $1 40 per diluted share down as expected from $1.58.

Angela C. Drake: Now for the segment results. Professional segment net sales for the second quarter were just over $1 million, down 5.9% year over year. This decrease was primarily driven by lower shipments of zero-turn mowers, which was expected given elevated field inventories heading into the spring selling season. This was partially offset by higher shipments of underground and specialty construction equipment and golf and grounds products, as we address the elevated order backlog for these businesses. Professional segment earnings for the second quarter were $190.7 million, compared to $227.5 million last year.

Richard M. Olson: Now to the segment results.

Richard M. Olson: Professional segment net sales for the second quarter were just over $1 million down five 9% year over year.

Richard M. Olson: This decrease was primarily driven by lower shipments of zero turn mowers, which was expected given the elevated dealer inventories heading into the spring selling season.

Richard M. Olson: This was partially offset by higher shipments of underground and specialty construction equipment and golf and ground products as we address the elevated order backlog for these businesses.

Richard M. Olson: Professional segment earnings for the second quarter were $197 million compared to $227 5 million last year.

Angela C. Drake: When expressed as a percentage of net sales, earnings for the segment were 19% compared to 21.3% last year. The change in profitability was expected and primarily due to lower net sales volume as field inventory levels of zero-turn mowers normalized and higher material and manufacturing costs as we continue to adjust production to demand. This was partially offset by productivity. Residential segment net sales for the second quarter were $335.6 million, up 26.3% compared to last year.

Richard M. Olson: Expressed as a percentage of net sales earnings for this segment were 19% compared to 21, 3% last year.

Richard M. Olson: The change in profitability was expected and primarily due to lower net sales volume of steel inventory levels at zero turn mowers normalized and higher material and manufacturing costs as we continue to adjust production to demand.

Richard M. Olson: This was partially offset by productivity improvements.

Residential segment net sales for the second quarter were $335 6 million up 26, 3% compared to last year.

Angela C. Drake: The increase was primarily driven by higher shipments of product to our mass channel, which was partially offset by lower shipments to our dealer channel as we worked to normalize field inventory levels. Residential segment earnings for the quarter were $36.1 million, up from $22.7 million last year. When expressed as a percentage of net sales, earnings for this segment were 10.8%, up from 8.6% last year. The year-over-year increase was largely due to increased net sales leverage and productivity improvements.

Richard M. Olson: The increase was primarily driven by higher shipments of product to our mass channel, which was partially offset by lower shipments to our dealer channel as we work to normalized inventory levels.

Residential segment earnings for the quarter were $36 1 million up from $22 7 million last year.

Richard M. Olson: When expressed as a percentage of net sales earnings for this segment were 10, 8% up from eight 6% last year.

Richard M. Olson: The year over year increase was largely due to net sales leverage and productivity improvements.

Angela C. Drake: This was partially offset by product mix and higher material and manufacturing costs. Turning to our operating results, Our reported and adjusted gross margins were both 33.6% for the quarter. This compares to 35.8% for both in the same period last year. The decrease was primarily due to unfavorable segment mix given the exceptional residential segment growth, product mix within residential, and higher material and manufacturing costs. This was partially offset by productivity improvements. SG&A expense as a percentage of net sales for the quarter was 19.7%, compared to 19.5% in the same period last year.

Richard M. Olson: This was partially offset by product mix and higher material and manufacturing costs.

Richard M. Olson: Turning to our operating results.

Richard M. Olson: Our reported and adjusted gross margin for both 33, 6% for the quarter.

Richard M. Olson: This compares to 35, 8% for both in the same period last year.

Richard M. Olson: The decrease was primarily due to unfavorable segment mix given the exceptional residential segment gross.

Richard M. Olson: Product mix within residential and higher material and manufacturing costs.

Richard M. Olson: This was partially offset by productivity improvements.

Richard M. Olson: SG&A expense as a percentage of net sales for the quarter was 19, 7% compared to 19, 5% in the same period last year.

Angela C. Drake: The increase was primarily driven by slightly higher corporate expenses, mostly offset by lower marketing costs. Operating earnings as a percentage of net sales for the quarter were 13.9%, and on an adjusted basis were 14.2%. These compare to 16.3% on both a reported and adjusted basis in the same period last year. Interest expense for the quarter was $16.7 million, up $2 million from last year. The increase was primarily due to higher average outstanding borrowings and higher average interest rates. The reported effective tax rate for the second quarter was 19.2%, compared with 20.6% a year ago. The adjusted effective tax rate for the second quarter was 19.8%, compared with 21.1%.

Richard M. Olson: The increase was primarily driven by slightly higher corporate expenses, mostly offset by lower marketing costs.

Richard M. Olson: Operating earnings as a percentage of net sales for the quarter or 13, 9% and on an adjusted basis was 14, 2%.

Richard M. Olson: These compare to 16, 3% on both a reported and adjusted basis in the same period last year.

Richard M. Olson: Interest expense for the quarter was $16 $7 million up $2 million from last year.

Richard M. Olson: The increase was primarily due to higher average outstanding borrowings and higher average interest rates.

Richard M. Olson: Our reported effective tax rate for the second quarter was 19, 2% compared with 26% a year ago.

The adjusted effective tax rate for the second quarter was 19, 8% compared with 21, 1%.

Angela C. Drake: The decrease for both was primarily due to a more favorable geographic mix of earnings. Turning to our balance, Accounts receivable were $623.1 million, up 34.9% from a year ago, primarily driven by increased shipments to our NASH channel for the spring selling season as well as payment terms to that channel. This increase was as expected, given our new strategic partnership with Lowe's. As a reminder, our accounts receivable balance consists of sales to our mass channel partners, irrigation customers, and many of our international dealers and distributors.

Richard M. Olson: The decrease for both was primarily due to a more favorable geographic mix of earnings.

Richard M. Olson: Turning to our balance sheet.

Richard M. Olson: Accounts receivable were $623 1 billion up.

Richard M. Olson: <unk> 34, 9% from a year ago.

Richard M. Olson: Driven by increased shipments to our mass channel for the spring selling season, as well as payment terms to that channel.

Richard M. Olson: This increase was as expected given our new strategic partnership with Lowe's.

Richard M. Olson: As a reminder, our accounts receivable balance consists of sales to our mass channel partners irrigation customers and many of our international dealers and distributors.

Angela C. Drake: The majority of our U.S. independent dealers and distributors take advantage of inventory floor plan financing programs to fund their purchases, as is customary in our industry. We offer programs with third-party financial institutions, as well as through our Red Iron joint venture with Huntington Bank.

Richard M. Olson: The majority of our U S independent dealers and distributors take advantage of inventory floor plan financing program to fund their purchases.

Speaker Change: Mary and our industry.

We offer programs with third party financial institutions as well as to our Red Iron joint venture with Huntington Bank.

Angela C. Drake: Red Iron offers financing for the majority of our domestic dealers and distributors of lawn care, snow and ice management, and golf and ground solutions, as well as Toro-branded specialty construction products. Additionally, there are other third-party institutions that provide inventory financing for a small portion of those dealers and distributors, some international channel partners, as well as the majority of our ditch-rich underground construction distribution partners. As is typical for these types of financing programs, the large majority of floor plan interest payments to Red Iron and our other inventory financing partners are funded by the Toro Company as the OEM. These payments are reflected in our net sales results and are always considered when we provide Outlook commentary. From the dealer or distributor perspective, Red Iron Financing operates similar to a third-party bank program.

Speaker Change: Red Iron offers financing for the majority of our domestic dealers and distributors have long hair, snow and ice management and golf and ground solutions as well as Toro branded specialty construction products.

Additionally, there are other third party institutions that provide inventory financing for a small portion of those dealers and distributors some international channel partners as well as the majority of our ditch witch underground construction distribution partners.

Speaker Change: As is typical for these types of financing programs. The large majority of floor plan interest payments to red iron and our ever inventory financing partners are funded by mature company as the OEM.

Speaker Change: These payments are reflected in our net sales results and are always considered when we provide outlook commentary.

Speaker Change: From a dealer or distributor perspective.

Speaker Change: Red Iron financing operate similar to a third party bank program.

Angela C. Drake: From our perspective, the Toro Company's 45% non-controlling ownership stake in the Red Iron JV allows us to recoup a portion of our floor planning costs. In accordance with GAAP, our share of JV income is reported within the other income line of our income statement. Now, back to the balance sheet. Inventory at the end of Q2 was $1.11 billion, down 2% compared to last year and slightly lower sequentially from last

Speaker Change: From our perspective, the Toro company, 45% Noncontrolling ownership stake in the Rhode Island, JV allows us to recoup a portion of our floor planning costs.

Speaker Change: In accordance with GAAP, our share of JV income is reported within the other income line of our income statement.

Angela C. Drake: The decrease was driven by lower residential segment finished goods balances due to increased shipments to our mass channel. This was partially offset by higher balances of snow and ice management products, as expected, given the lack of snowfall this past winter. Accounts payable were $512.4 million, relatively flat compared to a year ago.

Speaker Change: Now back to the balance sheet.

Speaker Change: Inventory at the end of Q2 was $111 billion down.

Speaker Change: Down 2% compared to last year.

Speaker Change: Slightly lower sequentially from last quarter.

Speaker Change: The decrease was driven by lower residential segment finished goods balances due to increased shipments to our mass channel.

Speaker Change: This was partially offset by higher balances of snow and ice management products as expected given the lack of snowfall this past winter.

Speaker Change: Accounts payable were $512 4 million relatively flat compared to a year ago.

Angela C. Drake: Year-to-date free cash flow was $95.6 million, an improvement of almost $100 million compared to last year. We are making progress on normalizing working capital and are emerging from our peak needs season. As a reminder, the majority of our operating cash flow is typically generated in the second half of our fiscal year, based on seasonal flow, and we expect that same cadence this year. For the full year, we continue to expect a free cash flow conversion rate of about 100% based on reported net income, aligned with our 10-year historical average conversion rate. Importantly, our balance sheet remains strong. We ended the quarter within our gross debt to EBITDA leverage ratio target of between one to two times.

Speaker Change: Year to date free cash flow was $95 6 million, an improvement of almost $100 million compared to last year.

Speaker Change: We are making progress on normalized working capital and our emerging from our peak needs Steven.

Speaker Change: As a reminder, the majority of our operating cash flow is typically generated in the second half of our fiscal year.

Speaker Change: Based on seasonal flow and we expect that same cadence this year.

Speaker Change: For the full year, we continue to expect a free cash flow conversion rate of about 100% based on reported net income aligned with our 10 year historical average conversion rate.

Speaker Change: Importantly, our balance sheet remains strong.

Speaker Change: We ended the quarter within our gross debt to EBITDA leverage ratio target of between one to two times.

Angela C. Drake: 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 our first priority being to make strategic investments in our business to drive long-term profitable growth, both organically and through acquisition. We are acting on this priority with our plan to fund $125 million in capital expenditures during fiscal 2024 to support new product investments, advanced manufacturing technologies, and capacity for growth.

Speaker Change: This 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 our first priority to make strategic investments in our business to drive long term profitable growth, both organically and through acquisitions.

Speaker Change: We are acting on this priority with our plan to fund $125 million and capital expenditures during fiscal 2024.

Speaker Change: To support new product investments advanced manufacturing technologies and capacity for growth.

Angela C. Drake: Our next priority is to return capital to shareholders, both through our regular dividend and share repurchase. We have consistently grown our dividend payout over time as our earnings have grown, which reinforces our conviction in our strong and sustainable growth and future cash flow. Year over year, we have increased our dividend by six percent. With respect to share repurchases, our approach has been to fund repurchases with excess free cash flow while maintaining our leverage goal. To that end, with the improvement in cash flow this quarter, we reduced our outstanding revolver borrowings by $170 million and spent $10 million to repurchase shares.

Our next priority is to return capital to shareholders, both through our regular dividend and share repurchases.

Speaker Change: We have consistently grown our dividend payout over time as our earnings have grown which reinforces our conviction and our strong and sustainable growth and future cash flows.

Speaker Change: Over year, we have increased our dividend by 6%.

Speaker Change: With respect to share repurchases, our approach has been to bond repurchases with excess free cash flow, while maintaining our leverage goals.

Speaker Change: And with the improvement in cash flow this quarter, we reduced our outstanding revolver borrowings by $170 million and spent $10 million to repurchase shares.

Angela C. Drake: We plan to continue ramping up share repurchases in the second half of the fiscal year, as we have strong convictions about our future growth opportunities. Looking ahead to the remainder of the fiscal year, in our professional segment, we continue to expect benefits from the sustained strength in demand and substantial order backlogs for underground construction products and golf and grounds equipment. However, for these businesses, field inventory levels remain lower than ideal.

Speaker Change: We plan to continue ramping up share repurchases in the second half of the fiscal year as we have strong conviction about our future growth opportunities.

Speaker Change: Looking ahead to the remainder of the fiscal year.

Speaker Change: And our professional segment, we continue to expect benefits from the sustained strength in demand and substantial order backlogs for underground construction products involvement grounds equipment.

Speaker Change: For these businesses field inventory levels remained lower than ideal.

Angela C. Drake: We made slight progress in reducing open orders during the second quarter driven by the actions we've taken to drive increased output. On a total company basis, our order backlog remains elevated, and with our progress in reducing lead times, backlog is down slightly from the $1.97 billion balance at fiscal 2023 year end and lower on a year-over-year basis. In our residential segment, we continue to expect benefits from the strength of our mass channel.

Speaker Change: We made solid progress in reducing open orders during the second quarter driven by the actions we've taken to drive increased output.

Speaker Change: On a total company basis, our order backlog remains elevated and with our progress in reducing lead times backlog is down slightly from the $197 billion balance at fiscal 2023 at year end and lower on a year over year basis.

Speaker Change: In our residential segment, we continue to expect benefits from the strength in our mass channel.

Angela C. Drake: For both segments, we are focused on normalizing dealer field inventories of bond care solutions and snow and ice management products, and we have considered the expected impacts of this focus in our guidance. We are also assuming normal seasonal weather patterns for the second half of our fiscal year, including temperature and moisture levels.

Speaker Change: For both segments. We are focused on normalizing dealer field inventories are bond care solutions, and snow and ice management products and have considered the expected impacts of this focus in our guidance.

Speaker Change: We are also assuming normal seasonal weather patterns for the second half of our fiscal year, including temperature and moisture levels.

Angela C. Drake: With this backdrop, and based on our first half 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 and expect higher shipments of lawn care solutions to our mass channel to offset a reduction in pre-season shipments of snow and ice management products. For the professional segment, we continue to expect net sales growth at a rate slightly lower than the overall company average.

Speaker Change: With this backdrop and based on our first half performance and current visibility 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 and expect higher shipments of lawn care solutions to our mass channel to offset a reduction in pre season shipments of snow and ice management products.

Speaker Change: For the professional segment, we continue to expect net sales growth at a rate slightly lower than the total company average.

Speaker Change: From the residential segment, we expect net sales to grow at a rate significantly higher than the total company average.

Speaker Change: Looking at profitability.

Speaker Change: We now expect adjusted gross margin and adjusted operating earnings as a percentage of net sales to be similar to last year.

Speaker Change: A reflection of the expected change in product mix with lower snow shipments.

Angela C. Drake: Turning to our segments, we continue to expect both the professional and residential segment earnings margins to be higher than last year. For the professional segment, we also expect a slight improvement over last year's margin, exclusive of impairment charges. For the other activities category, we continue to expect higher expenses compared to fiscal 2023.

Speaker Change: Turning to our segments, we continue to expect of the professional and residential segment earnings margin to be higher than last year.

Speaker Change: For the professional segment margin. We also expect a slight improvement over last year's margin exclusive of impairment charges.

Speaker Change: For the other activities category, we continue to expect higher expense compared to fiscal 2023.

Angela C. Drake: This is the result of our expectations for a return to more normal incentive compensation. For the second half of the year, we expect a quarterly run rate similar to Q1. 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-$130 million and an adjusted effective tax rate of about 21%. For interest expense, we now expect about $60 million for the full year.

Speaker Change: This is the result of our expectations for a return to more normal incentive compensation.

Speaker Change: For the second half of the year, we expect a quarterly run rate similar to Q1.

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 depreciation and amortization of about $120 million to $130 million.

Speaker Change: And an adjusted effective tax rate of about 21%.

Speaker Change: For interest expense, we now expect about $60 million for the full year.

Angela C. Drake: Moving to the third quarter of fiscal 2024, we anticipate Total Company net sales to be up in the high teens year over year. For the professional segment, we expect net sales to be up high single digits to low teens. For the residential segment, we expect substantial year-over-year growth. Losing to profitability. For the third quarter, we anticipate the total company adjusted operating margin to be higher than the same period last year. We also expect the professional segment earnings margin to be higher on a year-over-year basis and similar sequentially to our second quarter fiscal 2024 results. We expect the residential segment earnings margin to be much higher year over year and lower sequentially from the second quarter.

Speaker Change: Moving to the third quarter of fiscal 2024.

Speaker Change: Anticipate total company net sales to be up high teens year over year for.

For the professional segment, we expect net sales to be up high single digits to low teens.

Speaker Change: For the residential segment, we expect substantial year over year growth.

Speaker Change: Moving to profitability.

Speaker Change: For the third quarter, we anticipate total company adjusted operating margin to be higher than the same period last year.

Speaker Change: We also expect the professional segment earnings margin to be higher on a year over year basis, and similar sequentially to our second quarter fiscal 2024 result.

Speaker Change: We expect the residential segment earnings margin to be much higher year over year and lower sequentially from the second quarter.

Angela C. Drake: Overall, we expect our third quarter fiscal 2024 adjusted diluted EPS to be meaningfully higher than last year and slightly higher than the Q3 record $1.19 we achieved in fiscal 2022. We continue to operate with discipline and build our business for long-term profitable growth. Our multi-year productivity initiative, AMP, is gaining momentum, and we are confident in our ability to drive significant benefits and opportunities, including profitability. With that, I'll turn the call back to Rick.

Speaker Change: Overall, we expect our third quarter fiscal 2024, adjusted diluted EPS to be meaningfully higher than last year and slightly higher than the Q3 record $1 19, we achieved in fiscal 2022.

Speaker Change: We continue to operate with discipline and build our business for long term profitable growth.

Speaker Change: Our multiyear productivity initiatives and is gaining momentum and we are confident in our ability to drive significant benefits and opportunities including profitability improvement.

Speaker Change: With that I'll turn the call back to Rick.

Richard M. Olson: Thank you, Angie. We have confidence in our ability to deliver growth in fiscal 2024 and beyond. We are entering the second half of our fiscal year with good momentum. We continue to expect benefits from our strong leadership position in attractive end markets supported by our suite of innovative solutions that perform necessary work with regular replacement cycles. We are supported by our strong business fundamentals, market leadership, and deep customer and channel relationships.

Richard M. Olson: Thank you Angie we have confidence in our ability to deliver growth in fiscal 2024 and beyond.

Speaker Change: We are entering the second half of our fiscal year with good momentum.

Richard M. Olson: We continue to expect benefits from our strong leadership positions in attractive end markets supported by our suite of innovative solutions that perform necessary work with regular replacement cycles.

Richard M. Olson: We are supported by our strong business fundamentals market leadership, and deep customer and channel relationships.

Richard M. Olson: Our team continues to execute well and operate with resiliency as we flex production to align with market conditions and better serve our customers. The supply chain has largely returned to normal, which is enabling incremental output for our businesses with elevated order backlog. Our homeowner markets also appear to be recovering, and we expect to benefit from our successful new product introductions, the power of our brand, and our extensive distribution network. Looking ahead, we continue to keep a close eye on macro factors as well as demand dynamics in our specific end markets.

Richard M. Olson: Our team continues to execute well and operate with resiliency as we flush production to align with market conditions and better serve our customers.

Richard M. Olson: The supply chain has largely returned to normal which is enabling incremental output for our businesses with elevated order backlog.

Our homeowner markets also appear to be recovering and we expect to benefit from our successful new product introductions, the power of our brand and our extensive distribution networks.

Richard M. Olson: Looking ahead, we continue to keep a close eye on macro factors as well as demand dynamics and our specific end markets.

Richard M. Olson: For the underground construction market, we expect demand to remain strong. This includes a very positive runway for projects to address global infrastructure needs supported by robust public and private multi-year spending. Looking at the utility and markets alone, there are many positive drivers. Spending on power construction, including new and upgraded generation and transmission infrastructure, is expected to climb by 11% in 2024. Construction spending on water treatment and storage, including pipe replacement, is expected to grow by 8% this year.

Richard M. Olson: Looking at the utility end markets alone. There are many positive drivers spending on power construction, including new and upgraded generation and transmission infrastructure is expected to decline by 11% in 2024.

Richard M. Olson: Construction spending on water treatment and storage, including pipe replacement is expected to grow by 8% this year.

Richard M. Olson: For sewage and wastewater infrastructure, 11% growth is expected, and for telecom, growth is now expected to exceed the initial 7% estimate for the year, driven by funding for the U.S. government's Broadband Equity and Access Deployment Program. This program is expected to provide over $42 billion to provide high-speed internet access to underserved areas. For specialty construction markets, we're seeing a return to more typical patterns as supply and demand come into balance with much improved lead times.

Richard M. Olson: For sewage and wastewater infrastructure, 11% growth as expected and for telecom growth is now expected to exceed the initial 7% estimate for the year driven by funding for the U S government's broadband equity and access deployment program.

Richard M. Olson: This program is expected to distribute over 42 billion.

Richard M. Olson: To provide high speed internet access to underserved areas.

Richard M. Olson: Where specialty construction markets, we're seeing a return to more typical patterns of supply and demand come into balance with much improved lead times.

Richard M. Olson: We expect this trend to continue. With this stabilization, we anticipate our open order book for these products to normalize by the end of fiscal 2024. For Golf and Grounds, we expect to continue to see healthy budgets and the prioritization of equipment and irrigation replacement. We're seeing post-pandemic increases in participation extend to golf tourism, where the number of golf travelers in 2024 is projected to exceed 12 million for the third straight year, a level about 20% above the historical average.

Richard M. Olson: We expect this trend to continue.

Richard M. Olson: With those stabilization, we anticipate our open order book for these products to normalize by the end of fiscal 2024.

Richard M. Olson: For golf and grounds, we expect to continue to see healthy budgets and the prioritization of equipment and irrigation replacement.

Richard M. Olson: We're seeing post pandemic increases in participation extend to golf tourism.

Richard M. Olson: The number of golf travelers in 2024 is projected to exceed $12 million for the third straight year.

Richard M. Olson: Level about 20% above the historical average.

Richard M. Olson: For landscape contractors, we continue to expect steady retail demand with some pockets of price sensitivity given the interest rate environment. For homeowners, retail activity for the 2024 spring season is off to a good start. And, as I mentioned, we're pleased to see some recovery after last year's pause. We expect demand to be driven by regular replacement needs, and certainly, a continuation of more normal temperature and moisture levels would be favorable. For snow and ice management, we expect preseason sell-in demand to be reduced, given elevated field inventories following a second straight season of below-average snowfall.

Richard M. Olson: Our landscape contractors, we continue to expect steady retail demand with some pockets of price sensitivity given the interest rate environment.

Richard M. Olson: For homeowners resale activity for the 2020 for spring season is off to a good start and as I mentioned, we're pleased to see some recovery after last year's pause.

Richard M. Olson: We expect demand to be driven by regular replacement needs.

Richard M. Olson: Certainly a continuation of more normal temperature and moisture levels would be favorable.

Richard M. Olson: For snow and ice management, we expect preseason selling demands to be reduced given elevated field inventories following a second straight season of below average snowfall.

Richard M. Olson: Before we go to Q&A, I'd like to take this opportunity to share why we're so excited about the future and what we see as the greatest growth opportunities as we move ahead. Our corporate purpose is to help customers enrich the quality, productivity, and sustainability of the land. Our success is built on a long history of caring relationships based on trust and integrity.

Richard M. Olson: Before we go to Q&A I'd like to take this opportunity to share why we're so excited about the future and what we see as the greatest growth opportunities as we move ahead.

Richard M. Olson: Our corporate purpose is to help customers and rich the beauty productivity and sustainability of the land.

Richard M. Olson: Our success is built on a long history of caring relationships based on trust and integrity.

Richard M. Olson: This provides an exceptional foundation for our market leadership in the high-value spaces, as evidenced by the strength of our diversified and complementary portfolio of businesses. First, we are excited about our underground construction business. We believe the near and long-term prospects for this business are extremely compelling given the rapidly growing demand for data communication infrastructure and energy grid modernization, as well as the global focus on replacing aging infrastructure. For investors wanting exposure to this end market, we are very well positioned as a worldwide market leader with the most comprehensive equipment and brand lineup in the industry and our best-in-class channel.

Richard M. Olson: This provides an exceptional foundation for our market leadership in the high value spaces as evidenced by the strength of our diversified and complementary portfolio of businesses.

Richard M. Olson: First we are excited about our underground construction business, we believe the near and long term prospects for this business are extremely compelling given the rapidly growing demand for data communications infrastructure and energy grid modernization.

Richard M. Olson: As well as the global focus on replacing aging infrastructure.

Richard M. Olson: For investors want exposure to this end market, we are very well positioned.

Richard M. Olson: Worldwide market leader with the most comprehensive equipment and brand lineup in the industry and our best in class channel.

Richard M. Olson: The strength of our deep relationships, the complexity of the technology and innovation in our products, and the runway for growth all make this an extremely attractive space for us and our shareholders. There is sustained global momentum in this space, which is supporting healthy competition and new development. Like underground construction, our deep relationships and lineup of industry-leading innovative products and solutions, including our full suite of reduced and zero-emission offerings, make this market attractive for us and our shareholders.

The strength of our deep relationships the complexity of the technology and innovation in our products and the runway for growth all makes us an extremely attractive space for us and our shareholders.

Richard M. Olson: Second our golf business continues to strengthen and grow there is sustained global momentum in this space, which is supporting healthy courses and new development.

Richard M. Olson: Like underground construction, our deep relationships and lineup of industry, leading innovative products and solutions, including our full suite of reduced <unk> zero emission offerings make this market attractive for us and our shareholders.

Richard M. Olson: We have a distinct competitive advantage as the only company to offer both equipment and irrigation solutions for this market and as the market leader in both. The enthusiasm for the game shows no sign of slowing down.

Richard M. Olson: We have a distinct competitive advantage as the only company to offer both equipment and irrigation solutions for this market and as the market leader in both.

Richard M. Olson: <unk> for the game shows no sign of slowing down we're prepared to capitalize with continued innovation and our best in class service and support network.

Richard M. Olson: We are prepared to capitalize with continued innovation in our best-in-class service and support network. Third, we have multi-brand leadership in the attractive zero-term lower space, which is the largest single lawn care category for both our professional and residential segments. We have significantly strengthened our market position over the past few years, supported by the investments that we've made in our innovative product lineup and the strategic development of our dealer and mass partnership.

Richard M. Olson: Third we have multi brand leadership and the attractive zero turn mower space, which is the largest single lawn care category for both our professional and residential segments.

Richard M. Olson: We have significantly strengthened our market position over the past few years supported by the investments that we've made in our innovative product lineup.

Richard M. Olson: The strategic development of our dealer and mass partnerships.

Richard M. Olson: For example, our expansion in 2020 with the Tractor Supply Company helped us reach farm and ranch customers. This valued partnership continues to grow as we focus on engineering products to address their unique customer needs. Most recently, our expansion into Lowe's aligns us with the single largest retailer of zero turn mowers.

Richard M. Olson: For example, our expansion in 2020 with tractor supply company helped us reach farm and ranch customers.

Richard M. Olson: This valued partnership continues to grow as we focus on engineering products to address their unique customer needs.

Most recently our expansion into Lowe's aligns us with the single largest retailer of zero turn mowers.

Richard M. Olson: Their strength in this category is exceptional, with a share that is more than 50% higher than any other retailer based on the latest trackline data. These partnerships, coupled with our best-in-class network of independent dealers, provide unsurpassed service and support to our customers and position us extremely well for further growth in this space. Fourth, we're excited about our ability to leverage our technology and innovation investments across our broad portfolio. We continue to prioritize investments in key technology areas such as alternative power, smart, connected, and autonomous solutions.

Richard M. Olson: Their strength in this category is exceptional.

Richard M. Olson: Sure that is more than 50% higher than any other retailer based on the latest track client data.

Richard M. Olson: These partnerships coupled with our best in class network of independent dealers provides unsurpassed service and support to our customers and positions us extremely well for further growth in this space.

Richard M. Olson: Fourth we're excited about our ability to leverage our technology and innovation investments across our broad portfolio we.

Richard M. Olson: We continue to prioritize investments in key technology areas of alternative power smart connected and autonomous solutions.

Richard M. Olson: This will enable the accelerated development of new products to help our customers be successful and provide distinct competitive advantages for the Toro company. And finally, it comes down to our discipline, execution, and consistent financial performance. We have reported year-over-year growth in net sales and adjusted diluted earnings per share for nearly 15 years.

Richard M. Olson: This will enable accelerated development of new products to help our customers be successful and provide distinct competitive advantages for the Toro company.

Richard M. Olson: And finally, it comes down to our disciplined execution and consistent financial performance.

Richard M. Olson: We have reported year over year growth in net sales and adjusted diluted earnings per share for nearly 15 years.

Carmen: We believe this is a result of our disciplined and effective approach to capital allocation, our dedicated team of employees and channel partners, our broad and strategically aligned distribution networks, and our guiding principle of doing what we say we will do. We've built a strong and agile organization that has been resilient through many macro cycles, and we are ready to seize the opportunities that lie ahead to drive value for our customers, our channel partners, and our shareholders in both the near and the long term.

Richard M. Olson: We believe this is a result of our disciplined and effective approach to capital allocation our.

Richard M. Olson: Our dedicated team of employees and channel partners.

Richard M. Olson: Our broad and strategically aligned distribution networks, and our guiding principle of doing what we say we will do.

Richard M. Olson: We've built a strong and agile organization that has been resilient through many macro cycles and we are ready to seize the opportunities that lie ahead to drive value for our customers our channel partners and our shareholders in both the near and the long term.

Carmen: With that, we will open up the call for questions. Thank you, and ladies and gentlemen, if you wish to ask a question, please press star 11 on your touchtone telephone. If your question has been answered or you wish to withdraw your question, press star 11 again.

Richard M. Olson: With that we will open up the call for questions.

Speaker Change: Thank you and ladies and gentlemen, if you wish to ask a question. Please press star one one on your Touchtone telephone. If your question has been answered or you wish to withdraw your question.

Speaker Change: Press Star one again, please standby for our first question. Please.

Carmen: Please stand by for our first question, please. One moment, please. He's coming from the line of Samuel Darkatsh with Raymond James.

Speaker Change: One moment. Please his comment from the line of Samuel Dark cash with Raymond James. Please proceed.

Samuel John Darkatsh: Please proceed. Good morning, Rick. Good morning, Angie. How are you? Great, so I can do them all. How are you?

Speaker Change: Good morning, Rick Good morning, Angie how are you.

Speaker Change: Alright, so I need to.

Paul: Paul how are you.

Samuel John Darkatsh: Well, as well. Thank you for asking. If I may, three questions. Hopefully, they're pretty quick.

Speaker Change: As well thank you for asking if I may ask three questions hopefully there pretty quick.

Samuel John Darkatsh: First, Angie, I think you mentioned in your prepared remarks a strong conviction in long-term growth. Does that extend to your confidence that next fiscal year will also show organic total sales growth? And I say that in light of the fact that your order book in underground is expected to normalize.

Paul: First.

Andrew: Andrew I think you mentioned in your prepared remarks strong conviction and long term growth good does that.

Andrew: Extend I know you don't give guidance for a while for next year, but does that extend into your.

Speaker Change: Confidence that no.

Speaker Change: Our next fiscal year will also show organic total sales growth.

Speaker Change: Say that in light of the fact that you're.

Your order book in underground is expected to normalize you have got a lot of moving parts with landscape.

Richard M. Olson: You've got a lot of moving parts with landscape, and retail, and snow, and what have you. Is next year, prospectively, a growth year as you see it right now? Why don't I comment on that?

Speaker Change: Retail and snow and what have you is next year prospectively a growth year as you see it right now.

Richard M. Olson: I think the short answer is that we do see opportunity for continued growth into next year. A couple of the factors that you mentioned, we now expect, just based on the continued demand profile and continued orders, that the open order position is going to extend into 2025 for those key growth areas, underground and construction. And then you just think of the other factors of normalizing our shipment flow into the areas where we have high field inventory today, the strength of the mass strategy that we have that we have today, and dealers coming back online.

Speaker Change: Okay.

Speaker Change: Ill comment on that but I think the short answer is we do see opportunity for continued growth into next year. A couple of the factors that you mentioned.

Speaker Change: We now expect just based on the continued demand profile and continued orders but.

Speaker Change: The open order position is going to extend into 'twenty five for those key growth areas underground and construction.

Speaker Change: It's normalized a little bit of one of the key drivers compact utility loaders in the specialty construction area.

Speaker Change: But those are those big drivers.

Speaker Change: We have better outputs, but the demand just continues to come in if you look at the drivers long term those look very solid and then do you just think of the other factors of.

Normalizing our shipment flow into the areas, where we had a higher field inventory today of the strength of the mass strategy, though.

Speaker Change: So we have today dealers coming back online.

Richard M. Olson: Essentially, snow is sitting the year out for us this year relative to a poor snow season last year. So we have a lot of opportunities, but it's still early to be very specific about that, but we feel positive about the future and the long-term future in general for growth opportunities for us given our portfolio. Thanks. Second question.

Speaker Change: Essentially snow is fitting the euro for us this year relative to a poor snow season. This last year. So we have a lot of opportunities still early to be very specific about that but we feel positive about the future.

Speaker Change: Long term future of general for growth opportunities for us given our portfolio.

Samuel John Darkatsh: Mentioning that you're anticipating ramping up your repo activity, your share repurchase activity in the back half, I think, at least based on your guidance, it looks like you're anticipating, I don't know, somewhere around, call it $275 million in second half free cash flow after dividends. Is it fair to assume that the bulk of that might go to repo, especially with the stock at its current level? I'd say with the improvement in cash flow that we saw in the quarter, we spent about $10 million on share repurchases, and we do expect to ramp that up in the second half and expect those purchases to exceed, expect those share repurchases to exceed last year's $60 million. Now, we will assess our cash position and our cash usage, and we'll make decisions based on that if we want to prioritize doing share repurchases over I got it.

Speaker Change: Thanks second question.

Speaker Change: Mentioning that you are anticipating ramping your repo activity or share repurchase activity in the back half.

Speaker Change:

Speaker Change: At least based on your guidance it looks like Youre anticipating.

Somewhere around call it $275 million and in second half free cash flow. After dividends is it fair to assume that the bulk of that might go to repo, especially with the stock at current levels.

Speaker Change: I'd say with the improvement in cash flow that we saw in the quarter. We spent about $10 million on share repurchases and we do expect to ramp that up in the <unk>.

Speaker Change: Second half and expect those purchases to exceed except those expect those share repurchases to exceed last years $60 million now we will assess our cash position and our cash usage and we will make decisions based on that if we want to prioritize doing share repurchases over others.

Speaker Change: <unk>.

Samuel John Darkatsh: My last question, as it relates to the landscape and retail field inventories, at this stage, what's the timing of expected normalcy of those elevated field inventories, and then, on top of that, any color you can provide in terms of the red iron DSOs being elevated as well. Thanks, guys. Yeah, I'll take the first part of that, first of all, relative to field inventories, largely playing out as we had described, even going back to the third quarter last year, if not a little bit better.

Speaker Change: Got it and my last question.

Speaker Change: As it relates to the landscape and retail field inventories.

Speaker Change: At this stage, what's the timing of it.

Speaker Change: Expected I'll use the word normalcy.

Speaker Change: Of those.

Speaker Change: Elevated field inventories and then I guess on top of that any color you can provide in terms of the red iron Dsos being elevated as well thanks guys.

Samuel John Darkatsh: So if you think in terms of, you know, we're well over halfway in that process of reducing the field inventory in those key areas, the biggest, biggest driver of that that has to be there is retail. We're seeing very strong retail, really through all those channels, but certainly in the dealer channel, it's helping to bring that down. And then obviously, we immediately, you know, restricted shipments into that into the field at that time.

Speaker Change: Yeah, I'll take I'll take the first part of that first of all relative to field inventories largely playing out as we had described even going back to the third quarter last year, if not a little bit better. So if you think in terms of.

Speaker Change: We're well over halfway in that process of reducing field inventory in those key areas. The biggest the biggest driver of driver of that that has to be there as retail we're seeing very strong retail.

Really through all of those channels, but certainly in the dealer channel that is helping to bring that down obviously, we immediately restricted shipments.

Speaker Change: And to the into the field at that time.

Richard M. Olson: So if you look at the broader sense, outside of those areas that we've targeted and talked about since last year, underground is extremely low. So that continues to be sort of hand to mouth. We've made dramatic improvements in our production outputs and getting that field out into the field, but it's immediately flowing through to end customers just based on the, you know, pretty incredible demand. In that area. On the Gulf side, still lower than we'd like to see it. Very similar situation there,

So if you look at the broader staffs outside of those areas that we had targeted and talked about since last year.

Speaker Change: Underground is extremely low so that continues to be sort of hand to mouth, we've made dramatic improvements in our production.

Speaker Change: <unk> and getting that field out into the field, but it's immediately flowing through to end customers just based on the pretty incredible demand.

Richard M. Olson: We are seeing very strong retail. Our shipments are up with Gulf. But the backlog continues to stay relatively high. Why is that?

Speaker Change: In that area.

Speaker Change: On the golf side still lower than we'd like to see a very similar situation. There we are seeing very strong retail.

Speaker Change: Our shipments are up with golf, but the backlog continues to stay relatively high Y is up because the demand keeps coming in the orders keep coming so.

Richard M. Olson: Because the demand keeps coming, the orders keep coming. So that's the situation. The area that we talked about really since last year, the homeowner markets, the residential and homeowner portion of landscape contractor, we've made tremendous progress, and we're right on track with where we'd expect to be. If you want to comment specifically on DSO, yeah, I'll comment on the Red Iron DSO question.

Speaker Change: That's the situation, but the area that we had had talked about really since last year.

Speaker Change: The homeowner markets residential and homeowner portion of landscape contractor, we're making we've made tremendous progress and we're right on track with where we'd expect to be sure to comment specifically on DSO, Yeah, Yeah, I'll comment on the Red Iron DSO question, we saw significant improvement in the Red Iron DSO in the second quarter.

Angela C. Drake: We saw significant improvement in the Red Iron DSO in the second quarter. In fact, we saw a 46 day improvement from Q1 to Q2. For lawn care, strong retail drove liquidation, and that was coupled with lower shipments to the dealer channel.

Speaker Change: In fact, we saw 46 day improvement from Q1 to Q2.

Speaker Change: For lawn care strong retail drove liquidations and that was coupled with lower shipments to the dealer channel, we're well over halfway through reducing field inventory as Rick mentioned.

Angela C. Drake: We're well over halfway through reducing field inventory, as Rick mentioned. We also understand from Huntington Bank that we are in a similar situation to our industry and faring even a little bit better with the strength of our channel and product. Very helpful, thank you.

Speaker Change: We also understand from Huntington Bank that we are in a similar situation of our industry and ferring, even a little bit better with the strength of our channel and products.

Speaker Change: Very helpful. Thank you.

Carmen: Thank you. One moment for our next question, and it comes from the line of David MacGregor with Longbow Research.

Speaker Change: Thank you my moment for our next question. Please.

Speaker Change: And it comes from the line of David Macgregor with Longbow Research. Please proceed.

David Sutherland MacGregor: Please proceed. Yes, good morning, everyone. And congratulations on the strong quarterly results. Good morning. I wanted to pick up on your response to Sam's question about, [inaudible] Not necessarily just your business, but the overall retail. We don't have, we don't provide that specific information, but given a more normal or slightly positive spring, it's, you know, much better than it was last year. And it's really better than the last couple of years.

Speaker Change: Yes, good morning, everyone and congratulations on the strong quarterly results.

David Sutherland MacGregor: David I wanted to pick up on it.

Richard M. Olson: And that's really the biggest driver in bringing it down. And sorry, I can't provide a specific number, or I don't have a specific number at this point, but new products are really a big part of that growth as well. Obviously, we have some unique situations with our strategies and some of our shifts. So Lowe's, for example, through the Mass Channel has been a big boost to our retail. And the good news is that it's really a partnership there, along with our other Mass partners. And it's really the strength of our brand.

Speaker Change: Good morning, I wanted to pick up on your response to Sam's question about.

Speaker Change: Just the.

Speaker Change: The retail being so strong and is there any way you can just give us.

Speaker Change: Our retail sales growth number for landscape contractor equipment and residential channels not necessarily just your business, but the overall industry, but just what was retail growth of those two categories in the quarter.

Oh.

Speaker Change: We don't have we don't provide that specific information, but given our more normal or slightly positive as spring.

Speaker Change: It's much better than it was last year.

Speaker Change: That's really better than the last couple of years.

Speaker Change: And that's really the biggest driver in bringing it down I'm, sorry, I can't provide a specific erg.

Speaker Change: Don't have a specific number at this point, but new products are really a big part of that growth as well.

Speaker Change: Obviously, we have some unique situations with with.

Speaker Change: With our strategies and some of them were shifts so.

Speaker Change: Flows for example through the mass channel has been a big boost to our retail and.

Speaker Change: The good news, it's really the partnership there along with our other mass partners and it's really the strength of our brand the strength of our new products, that's helping really helping to drive that so all those things combined really.

Richard M. Olson: It's the strength of our new products that's helping, really helping to drive that. So all those things combined, we believe that we are over-indexing the market at this point. Is there any way of quantifying how much benefit the weather was to 2Q?

Speaker Change: We believe that we are.

Speaker Change: Over indexing the market at this point.

Okay is there any way of quantifying how much benefit the weather was two <unk> you referenced the fact that you got an earlier start and some of the seasonal markets.

Richard M. Olson: You referenced the fact that you got an earlier start. We've looked at the data, and we've had some good discussions about that just over the last couple of days. It feels much, much better than it did for the last couple of years, but it's actually a little bit closer to normal. A normal kind of spring timing, a little bit better than that.

Speaker Change: So we've we've looked at the data and we've had some good discussions about that just over the last couple of days it is.

Speaker Change: It feels much much better the bid for the last couple of years, but it's actually a little bit closer to normal the normal kind of spring timing.

Speaker Change: Little bit better than that.

Richard M. Olson: And I think the positive thing for us is, relative to the last couple of years where we were at this point, there was a very positive moisture situation as we entered the summer season. It was a little bit cooler, a little bit longer in the south, and some are very important markets in the southeast. So that just kind of sets you up for a better situation going into what can be the drier part of the season.

Speaker Change: And I think the positive thing for US is relative to the last couple of years, where we were at this point there is very very positive moisture situation as we have entered the.

Speaker Change: Summer season, it was a little bit cooler a little bit longer in the south and so are very important markets in the southeast. So that just kind of sets you up for a better <unk>.

Speaker Change: Situation going into what can be the driver part of the season. So that's been positive.

Richard M. Olson: So that's been positive. It was a bit faster warming up this year in the south. And if you hear about the extraordinary heat in the southwest, the desert southwest is not, you know, our top area for turf-related products with the exception of the Gulf and those types of areas that are irrigated.

Speaker Change: Those faster warm ups this year in the south.

Speaker Change: And for sure about the extraordinary Heath.

Speaker Change: Southwest.

Speaker Change: The desert southwest is not.

Speaker Change: Our top areas for tariff related.

Products with the exception of golf and those types of areas that are irrigated.

Richard M. Olson: So it's been positive, but probably closer to the long-run normal, certainly than it has been for the last couple of years. And then just on unit volumes, you talk about the capacity bottleneck. Golf and Specialty Construction: how much better do shipments get in the second half for golf? Yeah, they would be quite positive, especially relative to the continuous ramp-up that we've seen since last year. So, relative to the second half of last year, it would be, you know, substantially better.

Speaker Change: If it's a spin it's been positive, but probably closer to a long run normal certainly thats been for the last couple of years.

Speaker Change: Okay, and then just on unit volumes you talk about the.

Speaker Change: Capacity benefits of the Debottlenecking investments that you've made in golf and specialty construction, how much better do shipments get in the second half for golf and pitch, which is a consequence of these debottlenecking investments on a year over year basis.

Speaker Change: Yes, they would be.

Speaker Change: <unk> positive, especially relative to the continuous ramp up that we've seen since last year, so relative to the second half of last year it would be.

Speaker Change: Substantially better.

Speaker Change: Okay last question for me is just on landscape contractor.

Richard M. Olson: Last question for me is just on Landscape Contractor. Given the average service life of Landscape Contractor, and the fairly depressed sales trends as of late, you'd have to believe there's some pent-up replacement demand there. What's your best estimate of that? You know, I think we're seeing that right now. First of all, if you divided that sort of professional product category, there's really not been as much pullback, if you will, over the last year among the true professional science or landscape contractors. They wear the product out; it has to be replaced on a regular cycle.

Speaker Change: Just given the average service life and launched landscape contractor versus.

Speaker Change: Fairly depressed sales trends as of late.

Speaker Change: I have to believe there is some pent up replacement demand there what's your best estimate of that deferred replacement demand in this category at this point.

Speaker Change: What do you think from a timing standpoint in terms of seeing that come to market.

Speaker Change: I think we're seeing that right now first of all if you divided that sort of professional product category. There is there's really not been.

Speaker Change: As much.

Speaker Change: Pullback if you will over the last year and the true professional side so landscape contractors.

Richard M. Olson: That has not really had as much of an impact. It's really the homeowner portion of that. And what we see, the good news so far, is that the homeowners have come back into the buying mode relative to last year, where we saw sort of a cliff event this time of year where they just stopped. And my theory was that they all seemed to go traveling or whatever.

Speaker Change: Where are the product out it has to be replaced on a regular cycle of that has not really been as much of a impact it's really the homeowner portion of that.

Speaker Change: And what we see the good news so far is that the homeowners have come back into the buying mode.

Relative to last year, where we saw sort of almost close to that at this time of year, where they just.

Richard M. Olson: That's when kind of that spending spiked at the same time. But it's coming back more into a normal mode. And then it's just helped by much better weather and seasonal conditions. So the combination of the two feels much more normal.

Speaker Change: Stopped.

Speaker Change: By theory was if they still seem to go traveling or whatever that's when kind of the spending spike at the same time, but it's coming back more into a normal.

Speaker Change: Mode.

Speaker Change: Just helps but much better.

Speaker Change: Other than seasonal conditions. So the combination of the two feels much more durable plus right.

Speaker Change: Got it thanks, very much Rick and good luck. Thank.

Richard M. Olson: Thanks very much, Rick. Good luck. Thank you. Thank you. One moment for our next question. And it's coming from Ted Jackson with Northland Securities. Please proceed. Thanks very much.

Speaker Change: Thank you.

Speaker Change: Thank you for our next question is coming from Ted Jackson with Northland Securities. Please proceed.

Ted Jackson: Thanks, very much good morning.

Ted Jackson: Good morning. All my questions have kind of been answered. I'm going to ask one question, which is around the productivity initiative. We've seen $7.5 million year-to-date with regard to those actions. I just was curious in terms of maybe providing some color in terms of the activity that you're taking there, in terms of streamlining the business. When you see the initiative wrap, quantification with regard to, you know, kind of the total cost of the initiatives and kind of how it would play out over the coming months and reporting periods. That would be my first kind of question.

Ted Jackson: Hi, Ted.

Ted Jackson: All my questions have been answered I'm going to ask one which was around the productivity initiatives, we've seen $7 $5 million year to date with regards to that act those actions.

Speaker Change: I just was curious in terms of maybe providing some color in terms of the activity that you are taking there in terms of streamlining the business.

Speaker Change: When you see the initiative wrapping up and maybe some kind of.

Speaker Change: Quantification with regards to kind of the total cost of the initiatives and kind of how it would play out over the coming.

Speaker Change: Reporting periods that would be my first question. Thanks.

Angela C. Drake: Thank you. Okay, sure. So the Transformational Productivity Initiative that we have, we're calling AMP for Amplifying Maximum Productivity. And what we have stated is that we expect this initiative to last three years, so through the end of 2026. And our plan is to, or we expect to achieve $100 million in annual cost savings by 2027, so kind of a run rate to get us to the 2027 number. Where we're investing our time and our money is really in kind of three focus areas: a sustainable supply base, and so that's really focused kind of on materials, and that's very heavily related to our sourcing initiatives.

Speaker Change: Okay sure.

Speaker Change: So the transformational productivity initiatives that we have we're calling out for amplifying maximum productivity and what we have stated is that we expected.

Speaker Change: This initiative to last three years, so going through the end of 2026 and our plan is to Oh are we expect to achieve $100 million in annual cost savings by 2027th so kind of a run rate to get us to the 2027 number.

Speaker Change: Where we're investing.

Speaker Change: Our time in our and our cost is really in kind of three focus areas.

Speaker Change: A sustainable supply base, and so thats really focus kind of on materials and that's that's very heavily related to our sourcing initiatives and then we are looking at design to value and also route to market.

Angela C. Drake: And then we're looking at design to value and also route to market. We've also recently added another work stream in our productivity initiative for working capital, really focusing on inventory and how we can reduce that year over year and make a meaningful impact. What we said is that we would probably invest or reinvest as much as 50% of that transformational productivity savings back into the business, whether that be in technology or enabling other productivity or innovation, anything that we can do to gain profitable growth for the enterprise. And you mentioned the cost.

Speaker Change: We've also recently added another work stream and our productivity initiative for working capital are really focusing on inventory and how we can reduce that year over year, making any meaningful impact.

Speaker Change: What we said is that we would probably invest or reinvest as much as 50% of that transformational productivity savings back into the business.

Speaker Change: Whether that be in technology are enabling other productivity or innovation.

Speaker Change: Anything that we can do to gain profitable growth for the enterprise.

Angela C. Drake: We did expect some one-time implementation costs, and year-to-date, we're at $8.3 million, and that's largely been consulting fees. And I'd say we'd expect a similar run rate through the last half of the year as well, Ted. Okay. I was just going to say, it's off to a great start.

And you mentioned the cost we did expect some one time illumination implementation cost.

Ted Jackson: And year to date were $8 3 million and Thats largely been consulting fees and I'd say, we'd expect a similar run rate through the last half of the year as well Ted.

Speaker Change: But all of them what initiative.

Speaker Change: Alright, I was just going to say, it's off to a great start.

Ted Jackson: So, would it be fair, like, if we want to incorporate this into our forecast in terms of the proforma, that we would, you know, kind of scale it across for the remainder of 24, but we go to 25, and, you know, kind of the, what we're seeing with regard to the proforma adjustments would take? Yeah, we have included our best estimates in our guidance. So any benefits that we expect to achieve in 24 are included in the guidance today. OK.

Speaker Change: So would it be fair like incorporate this into our.

Speaker Change: Forecast in terms of the pro forma that we would kind of scale it across for the remainder of 'twenty four but when we go to 25.

Speaker Change: The what we're seeing with regards to the pro forma adjustments with data.

Speaker Change: Yes, we have included our best estimate in our guidance. So any benefits that we expect to achieve and 24 are included in the guidance today.

Speaker Change: Okay.

Angela C. Drake: Okay, then my next question, you kind of went into it, which is nice to hear the focus on working capital is, as we think about working capital, and by the way, it was really nice to see the improvement in it this quarter. How do we think about how things within those line items on the balance sheet will trend for the remainder of the year? I mean, is it, you know? I mean, are we going to continue to see improvements with regard to inventory?

Speaker Change: Okay then.

Speaker Change: Next question you kind of went on a diet, which is nice to hear the focus on working capital is.

Speaker Change: As we think about working capital and by the way it was really nice to see the improvement in it this quarter.

Speaker Change: How come how do we think about how things within those line items on the balance sheet trend for the remainder of the year I mean is it.

Speaker Change: Are we going to continue to see improvements with regards to inventory and then with regards to the receivables and what you had happened which is clearly a result of success with the mass channel.

Angela C. Drake: And then with regard to, you know, the receivables and what you had happen, which is, you know, clearly, you know, a result of, you know, success with the mass channel. Does that, does that, like, kind of change any of your seasonal dynamics on the receivables front? Or do you understand what I'm asking?

Speaker Change: <unk>.

Speaker Change: Is that does that like kind of changing of your seasonal dynamics on the receivables front or do you assume I'm asking what kind of could you help us think through the.

Speaker Change: The go forward for both inventory and receivables as we kind of go through the year and what it means for your working capital for where do we exit 2024. That's my last question. Thanks.

Ted Jackson: Like, kind of, if you could help us kind of think through the go forward for both inventory and receivables as we kind of go through the year and what it means to be working capital for when we exit 2024? That's my last question. Thank you. Okay, yes, AR is based on seasonal flow and is typically a bit higher in Q2. And we saw that again this quarter our inventory is improving, and we do expect to see that our most appreciable opportunity to affect working capital is inventory.

Speaker Change: Okay, Yes.

Speaker Change: Is based on seasonal flow and is typically a bit higher in Q2, and we saw that again this quarter.

Speaker Change: Our inventory is improving.

Speaker Change: And we do expect to see that our most appreciable opportunity to affect working capital is inventory.

Ted Jackson: And we do have that focus on it, a focused effort, I would say, as I mentioned in the AMP workstream, and we'll can expect to continue to see that improve throughout the rest of the quarter. Okay, thanks very much and congratulations on the quarter. All right, thank you.

Speaker Change: And we did have that focus on it and focused effort I would say as I mentioned in the Amp work stream and we will we expect to continue to see that improve throughout the rest of the year.

Speaker Change: Okay, Thanks, very much and congratulations on the quarter.

Doug: Alright. Thank you thanks, Doug.

Angela C. Drake: Thanks, guys. Thank you. Our next question comes from the line of Eric Bosshard with Eclipland Research.

Speaker Change: Thank you.

Eric Bosshard: Please proceed. Thanks. First of all, just clarification on the Dealers, Landscape Contractor Dealers, is this business, in terms of sell-through, what I heard you say, I just want to make sure that the sell-through is... positive, and the homeowner residential through that channel is also positive. Is that the right way to think about how that, That's correct, Eric. Both are positive through the dealer.

Speaker Change: Our next question comes from the line of Eric Bosshardt with Cleveland Research. Please proceed.

Richard M. Olson: We're seeing really good, good retail activity in both areas, and his dad sort of digested the shift. And now we're back at a point where we can sustain sales through growth in the dealers in those categories. We can sustain in some cases where we have, you know, additional opportunity as we're ramping up production to continue to supply those areas. Just as you would imagine with some of our new product introductions, those have been in high demand, so we're still working to meet that demand.

Eric Bosshard: Thanks, a couple of things first of all a follow up just clarification in terms of <unk>.

Speaker Change: Dealers landscape contractor dealers.

Eric Bosshard: Is this business in terms of sell through what I heard you say just want to make sure that the sell through is positive and the homeowner residential through that channel is also positive because that's.

The right way Directionally to think about how that piece of the business is performing.

Speaker Change: That's correct.

Speaker Change: Both both are positive through the dealer, we're seeing really good good retail activity in both areas.

Speaker Change: Yeah.

Speaker Change: And is that sustainable work.

Speaker Change: We've sort of digested.

Speaker Change: The shift in the change that took place and now we're back at a point, where we can sustain you can sustain sell through growth and the dealers in those categories is that the right way to think about it.

Speaker Change: We can sustain in some cases were we.

Speaker Change: Yeah.

Speaker Change: Additional opportunity as we're ramping up production to continue to supply those areas.

Speaker Change: Just as you would imagine with some of our new product introductions those have been in high demand. So we're still working to meet that demand.

Richard M. Olson: But the positive thing is, you know, retail drives everything, creates all the opportunities. That's very strong. So it allows us to both adjust field inventory and, you know, experience sales through those areas where the inventory is already normalized, related to this, she had commented.

Speaker Change: But the positive thing is.

Speaker Change: Retail drives everything creates all the opportunities that is very strong. So it allows us to both adjust field inventory and.

Speaker Change: Experienced the sell through in those areas, where the inventory is already normalized.

Speaker Change: Related to this you had commented a couple of times that you are more than halfway through the inventory right sizing at what point would you expect sell in would match sell through in this channel.

Richard M. Olson: I think, you know, the original commentary was we thought it would take this year to normalize that, and it's really just a function of the overweight in our second and third quarter for these products. So it's really for more than halfway through, and we're through the second quarter.

Speaker Change: I think they are.

Speaker Change: Our original commentary was we thought it would take this this year to normalize and that's really it's really just a function of.

Speaker Change: The overweight of our second and third quarter.

Speaker Change: Are these products. So it's really if we're more than halfway through and we're through the second quarter, we still have the third quarter.

Richard M. Olson: We still have the third quarter to do the normalization, and it should set us up to be in good condition as we go into the next selling season. Let's say the item that will still be a factor this fall is elevated snow inventory. That's a little bit higher than what we would like to see, just based on the in-season reorders that didn't happen this last winter season. So we had some positive snow events in the latter part of the season that helped a little bit, but our field inventory is still a little bit higher for both the residential and the pro side with boss, and all of that's included in our guidance. So that's all; that's all been built in.

Due to the normalization and it should set us up to be a good good condition as we go into the until the next selling season.

Let's say the chasm.

Speaker Change: So I don't know that we will still be a factor. This fall is elevated snow inventory, that's a little bit higher than what we would like to see just based on the in season Reorders, but.

Speaker Change: It didn't happen.

Speaker Change: And.

Speaker Change: This last.

Speaker Change: Winter season, so if we had some positives snow events in the latter part of the season, that's helped a little bit, but our field inventory is still a little bit higher for both the.

Speaker Change: Residential and on the pro side with boss and all of that's included in our guidance. So that's all that's all been Bolton.

Richard M. Olson: And then the other issue I was curious about, and you commented on mixed and residential. I'm guessing this relates to selling more to Lowe's. And if I'm wrong, you can correct me.

Speaker Change #100: And then the other issue I was curious on you commented about mixed in residential which I'm guessing this relates to selling more to lowes, what and if I'm wrong. You can correct me what what I'm interested in residential is what youre seeing in terms of consumer takeaway.

Speaker Change #101: And specifically you.

Speaker Change #101: You have a breadth of price points and then also the introduction of battery powered.

Speaker Change #101: I'm curious how consumer demand consumer takeaway has shifted this year relative to last year relative to expectations.

Speaker Change #102: The various products and price points.

Richard M. Olson: I think earlier, as you mentioned in the comments, the overall mix of residential because of the tremendous strength there for the factors we talked about relative to pro, as a factor. And then within the residential segment, there is a mix of profitability among the products. And riders is the biggest category, and we have a range of prices in riders. We've sold more in kind of the entry, mid-level, and total mix, just based on where the demand was, the new product introductions, and so forth. So that's predictable in our case. But is that the same dynamic in walks as it is in riders?

Speaker Change #103: I think it's largely played out as we expected.

Speaker Change #103: I think.

Speaker Change #104: As you mentioned in the comments the overall mix of residential because of the tremendous strength there for the factors, we talked about relative to pro.

Speaker Change #104: There is a factor and then within the residential segment there is a mix of <unk>.

Speaker Change #104: Profitable profitability among the products.

Speaker Change #104: Riders is the biggest category.

Speaker Change #104: We have a range of pricing and riders, we sold more in kind of an entry and mid level and <unk>.

Speaker Change #104: Total mix.

Speaker Change #104: Just based on.

Speaker Change #104: Based on where the demand was the new product introductions and so forth. So.

Speaker Change #104: That's that's predictable and our case.

Speaker Change #105: Is that the same dynamic in walks as it is and writers in terms of better success entry mid.

Richard M. Olson: Better success. I think the biggest thing would be sort of the relative impact of WOC versus riders, and we have had a very strong year so far in WOC. And, you know, we've seen a nice uptick in our 60 volt battery segment as well, with really strong representation from Lowe's in particular. Eric, what we did see though, the mix had an impact, but our productivity more than offset any higher material and manufacturing costs we saw in the. Thanks. Thank you. Thank you.

Speaker Change #105:

Speaker Change #105: I think the biggest thing we'd be sort of the relative impact of walk versus riders and we had a very strong year, so far and what's.

Speaker Change #105: We've seen nice the nice uptick in our 60 volt battery segments as well.

Speaker Change #105: With really strong representation with the lowest in particular.

Eric: Eric what we didn't see though the.

Speaker Change #107: This had an impact on our productivity more than offset any higher material and manufacturing costs, we saw in the quarter.

Speaker Change #108: That's helpful. Thank.

Speaker Change #109: Thank you for that thanks, that's all I have.

Speaker Change #110: Thank you.

Speaker Change #111: We have time for one more question any come from the line of Tom Hayes with C. L. King. Please proceed.

Angela C. Drake: And we have time for one more question. Any calls from the line of Tom Hayes with CL King, please proceed. Hey, good morning, everyone.

Thomas Lloyd Hayes: Thanks for taking my questions. Rick, maybe it's a quick question on the golf industry. It sounds like it's going in the right direction. Do you see any differences between the three primary segments, the private, semi-private, and public courses on spending? All quite strong still at this point, and the driver across all those is golf participation and rounds played. Rounds played can be more variable depending on uh, you know seasonal timing and so forth, but that's about uh plus four percent or so so far this year through April, so that portion is positive, it affects really all levels of golf, you know, from the most prestigious to the uh, you know, municipal course where I might play Okay, just maybe one more.

Thomas Lloyd Hayes: Hey, good morning, everyone. Thanks for taking my questions.

Speaker Change #113: Hey, Bill.

Speaker Change #114: Rick maybe just.

Speaker Change #115: Quick question on the golf industry and it sounds like it's going in the right direction any differences between the three primary segments, the private semi private and public courses on spending.

Speaker Change #116: All all quite strong still at this point is the driver across all of those as Dol participation rounds played rounds played can be more variable depending on.

Speaker Change #116: Seasonal timing and so forth, but thats you know about.

Speaker Change #116: Plus 4% or so so far this year year to date through April.

Speaker Change #116: So that portion is positive it affects really all levels of golf for the most prestigious to the.

Speaker Change #117: Well of course, where I might play.

Speaker Change #117: So that's that's the driver and we don't see a big difference across those at this point.

Richard M. Olson: I think you called out in the press release that the zero turn rollers, you know, continue to be a headwind. I was just wondering what you think needs to occur to turn that around. Uh, you know, the good news is retail has been very, very strong in that category. So, for us,

Speaker Change #118: Okay, just maybe one more I think you'd called out on the press release that the zero turn mowers continue to be a headwind I was just wondering what do you think needs to occur to turn that around.

The good news is the retail has been very very strong in that category so for us.

Richard M. Olson: Any headwind would just be the adjustment that's taking place in our field inventory. So for us, that means fewer shipments of those, especially higher-end Zs or more professional Zs. That was an intentional part of our plan that we built into the year for this year to make that adjustment in our field inventory. So it was built into our plan from the start, and it continues to be tracking at or ahead of plan at this point. Okay, I appreciate the color.

Speaker Change #119: Any headwind would just be the adjustments was taking place in our field inventory so for us that means less shipments of those especially higher and these are more professional.

Thomas Lloyd Hayes: Thank you. Okay, thank you. Thank you. And this concludes the Q&A session. Ms. Kerekes, please proceed with closing remarks. Thank you, everyone, for your questions and interest in the Toro Company. We look forward to talking with you again in September to discuss our fiscal 2024 third quarter results. Thank you, everyone, for attending today's program. You may now disconnect.

Speaker Change #119: Is that that was an intentional part of our plan that we built into the year for this year is to make that adjustment in our field inventories, though was built into our plan from the start continues to be tracking at or ahead of plan at this point.

Speaker Change #120: Okay I appreciate the color. Thank you.

Speaker Change #121: Okay. Thank you.

Speaker Change #122: Thank you and this concludes the Q&A session. Mr. <unk>. Please proceed with closing remarks.

Speaker Change #123: Thank you everyone for your questions and interest in the Toro company, we look forward to talking with you again in September to discuss our fiscal 2024, our third quarter results.

Speaker Change #124: Thank you everyone for attending today's program you may now disconnect.

Julie A. Kerekes: ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? , , , , , , , , , , , , , , ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Good day, ladies and gentlemen, and welcome to the Toro Company's second quarter earnings conference call. My name is Carmen, and I will be your coordinator for today. At this time, all participants are in a listen-only mode.

Speaker Change #124: [music].

Julie A. Kerekes: We will 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, a senior managing director of Global Tax and Investor Relations. Please proceed, Ms. Kerekes.

Carmen: Good day, ladies and gentlemen, and welcome to the Toro Company's second quarter earnings Conference call. My name is Carmen and I will 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 conference.

Is being recorded for replay purposes, I would now like to turn the presentation over to your host for today's conference usually correct because as senior managing director of global tax and Investor Relations. Please proceed miscarriages.

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 second 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 Stevens, Director, Investor Relations.

Speaker Change #126: 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. This Royal company Dot Com. We have also posted a second quarter earnings presentation to supplement our earnings release.

Speaker Change #127: On our call today are Rick Olson, Chairman and Chief Executive Officer Andy.

Speaker Change #127: Andrew draped, Vice President and Chief Financial Officer, and Jeremy stepping director Investor Relations.

Speaker Change #127: During this call we will make forward looking statements regarding our plans and projections for the future.

Speaker Change #127: We're looking statements are based upon our historical performance and current expectations and are subject to risks uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements additional information regarding these factors can be found in today's earnings release and in our investor presentation as well as in our SEC reports.

Speaker Change #127: During today's call. We will also refer to non-GAAP financial measures, which we believe are important in evaluating the company's performance.

Speaker Change #127: 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.

Speaker Change #128: I will now turn the call over to Rick.

Richard M. Olson: Thanks, Julie, and good morning, everyone. Our team continued to execute well as we delivered second quarter results in line with the expectations we shared on last quarter's call. Once again, our team operated with dedication and agility as we adjusted production to align with demand trends, drove productivity benefits across the enterprise, and capitalized on an ever-expanding portfolio of innovative products that satisfy our customers' most pressing needs. We are continuing to advance our key strategic priorities to drive shareholder value by accelerating profitable growth, driving productivity and operational excellence, and empowering our people. For the second quarter, we delivered record net sales of $1.35 billion.

Thanks, Julia and good morning, everyone. Our team continued to execute well as we delivered second quarter results in line with the expectations, we shared on last quarter's call.

Richard M. Olson: Satisfy our customers' most pressing needs.

Richard M. Olson: For the second quarter, we delivered record net sales of $135 billion.

Richard M. Olson: This was driven by top line growth of 26% in our residential segment, and within our professional segment, we saw continued growth in the underground and specialty construction and golf and grounds businesses. For residential, as anticipated, exceptional growth in our mass channel more than offset the expected lower shipments to our dealer channel, given elevated dealer field inventories heading into this year. The residential segment benefited from successful new product introductions and better weather conditions compared to last year. However, strong demand has kept order backlog elevated in our underground and specialty construction and golf and grounds businesses.

Richard M. Olson: This was driven by top line growth of 26% and our residential segment and within our professional segment. We saw continued growth in the underground, especially construction and golf and grounds businesses.

The residential segment benefited from successful new product introductions, and better weather conditions compared to last year.

Richard M. Olson: Strong demand has kept order backlog elevated in our underground and specialty construction and golf and grounds businesses.

Richard M. Olson: We continue to successfully drive incremental output within our existing manufacturing footprint to increase shipments of those products and better serve our customers. However, this strength was offset by anticipated lower shipments of contractor-grade zero-turn mowers given elevated field inventories heading into this fiscal year. Notably, we've made significant progress reducing dealer field inventories of lawn care equipment in both the professional and residential segments. This was a result of our reduction in shipments to dealers, as expected, coupled with initial spring retail momentum. Moving to the bottom line, we delivered adjusted diluted earnings per share of $1.40. This compares to last year's record $1.58.

Richard M. Olson: We continue to successfully drive incremental output within our existing manufacturing footprint to increase shipments of those products and better serve our customers.

Richard M. Olson: This strength was offset by anticipated lower shipments of contractor grade zero turn mowers, given elevated field inventories heading into this fiscal year.

Richard M. Olson: Notably, we've made significant progress reducing dealer field inventories of lawn care equipment, and both the professional and residential segments.

Richard M. Olson: This was a result of our reduction in shipments to dealers as expected coupled with initial spring retail momentum.

Richard M. Olson: Moving to the bottom line, we delivered adjusted diluted earnings per share of $1 40.

Richard M. Olson: This compares to last year's record $1 58.

Richard M. Olson: The change year over year was largely a result of segment mix given the significant growth in residential this quarter, as well as product mix within the residential segment. We were pleased to have been able to offset some of this effect with productivity benefits and improved management of SG&A. Based on our performance in the first half of the year 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.

Richard M. Olson: The change year over year was largely a result of segment mix given the significant growth in residential this quarter as.

Richard M. Olson: As well as product mix within the residential segment.

Richard M. Olson: We were pleased to have been able to offset some of this effect with productivity benefits and prudent management of SG&A.

Speaker Change #129: <unk>, who will walk through those details shortly.

Richard M. Olson: Throughout the quarter, we advanced our enterprise strategic priorities to drive shareholder value for the long term. First, we maintained a sharp focus on accelerating profitable growth. One important component of this strategy is innovation to solve customers' most pressing needs, align with market growth trends, and generate a strong return on investment. To that end, we recently introduced a number of new products that are providing truly unique solutions in our market. To briefly highlight a few examples, our new generation of Toro Time Cutter and Titan Zero-Turn mowers have been extremely well received by customers.

Speaker Change #130: Throughout the quarter, we advanced our enterprise strategic priorities to drive shareholder value for the long term.

Speaker Change #131: First we maintained a sharp focus on accelerating profitable growth one important component of those strategies innovation to solve our customers' most pressing needs align with market growth trends and generate a strong return on investment.

Speaker Change #131: So that in and we.

Speaker Change #131: We recently introduced a number of new products that are providing truly unique solutions in our markets.

Speaker Change #131: To briefly highlight a few examples are a new generation of Toro time cutter and tightened zero turn mowers have been extremely well received by customers.

Richard M. Olson: These new mowers are already driving share gains and enhancing our market leadership position in this space. This is a testament to our customer focus, brand strength, and dependability, as well as our extensive distribution network, including mass channel partners and our best-in-class independent dealers. We've also raised the bar with our new TX1000 Turbo Compact Utility Loader. This machine introduces a smart power feature that optimizes engine, auxiliary, and traction torque for an unparalleled operator experience.

Speaker Change #131: New borrowers are already driving share gains and enhancing our market leadership position in this space.

Speaker Change #131: This is a testament to our customer focus brand strength and dependability as well as our extensive distribution network, including mass channel partners and our best in class independent dealers.

Speaker Change #131: We've also raised the bar with our new TX one turbo compact utility loader. This machine introduces a smart power feature that Optimizes engine auxiliary and traction for an unparalleled operator experience.

Speaker Change #131: Another example is our recently introduced <unk> $81 20 for the accelerating underground construction market.

Speaker Change #131: This industry, leading machine, which leverages 30 existing and pending patents as the world's most powerful altering horizontal directional drill.

100008 enables productivity at the same time, reducing job site noise.

Speaker Change #131: Our internal team, but as the <unk> hundred 20, as our new product of the year.

Speaker Change #131: This honor reflects the products advanced features and its importance to our long term strategy.

Speaker Change #131: Second we continued to drive productivity and operational excellence across the organization.

Speaker Change #131: Our outstanding team delivered strong productivity gains this quarter, while at the same time operating flexibility as we adjusted production to meet demand dynamics across our portfolio.

Speaker Change #131: Importantly, we remain on track and confidence in our ability to deliver at least $100 million of annualized savings by fiscal 2027 from our multiyear productivity initiative named al for amplifying maximum productivity.

As we've discussed we intend to prudently reinvest up to 50% of the savings so further accelerate innovation and long term growth.

Speaker Change #131: And third.

Speaker Change #131: We continue to foster a culture of empowering people.

Speaker Change #131: A great example is our annual TTC technology Forum, which empowers our internal technology community to connect and collaborate to inspire our unique customer and enterprise solutions across the organization.

Speaker Change #131: Themes at this year's Forum included advanced battery technology integrated data usage robotics navigation and advanced manufacturing technologies.

Speaker Change #131: A highlight with sharing developments and predictive and generative AI models.

Speaker Change #131: To enable new product features streamline workflows and unlock powerful data insights for both the total company and our customers.

Speaker Change #131: We will remain focused on our three strategic priorities going forward. We are building on strong momentum as we enter the second half of the year.

Speaker Change #132: With that I'll turn the call over to Andy to discuss our financial results and guidance before I return to provide commentary on the outlook for our businesses.

Angela C. Drake: As Rick said, our results in the second quarter were aligned with our outlook, as our talented team continued the disciplined execution of our strategic priorities. Consolidated net sales for the quarter were $1.35 billion, up slightly from our record in Q2 last year. Reported EPS was $1.38 per diluted share, compared to $1.59 in the second quarter of last year. Adjusted EPS was $1.40 per diluted share, down, as expected, from $1.58.

Andy: Thank you Rick and good morning, everyone.

As Rick said our results in the second quarter were aligned with our outlook and our talented team continued the disciplined execution of our strategic priorities.

Speaker Change #134: Holiday did net sales for the quarter were $135 billion.

Speaker Change #134: Slightly from a record in Q2 last year.

And EPS was $1.38 per diluted share compared to $1 59 in the second quarter of last year.

Speaker Change #134: Adjusted EPS was $1 46 per diluted share down as expected from $1.58.

Speaker Change #134: Now to the segment results.

Speaker Change #134: Total segment net sales for the second quarter were just over $1 million.

Speaker Change #134: Down five 9% year over year.

Speaker Change #134: This decrease was primarily driven by lower shipments of zero turn mowers, which was expected given the elevated dealer inventories heading into the spring selling season.

Speaker Change #134: This was partially offset by higher shipments of underground and specialty construction equipment and golf and ground products as we address the elevated order backlog for these businesses.

Speaker Change #134: Professional segment earnings for the second quarter were $197 million.

Speaker Change #134: Compared to $227 5 million last year.

Speaker Change #134: When expressed as a percentage of net sales earnings for this segment were 19% compared to 21, 3% last year.

Speaker Change #134: The change in profitability was expected and primarily due to lower net sales volume SPL inventory levels at zero turn mowers normalized and higher material and manufacturing costs as we continue to adjust production to demand.

Speaker Change #134: Partially offset by productivity improvements.

Speaker Change #134: Residential segment net sales for the second quarter were $335 6 million up 26, 3% compared to last year.

Speaker Change #134: The increase was primarily driven by higher shipments of product to our mass channel, which was partially offset by lower shipments to our dealer channel as we work to normalized inventory levels.

Speaker Change #134: Residential segment earnings for the quarter were $36 1 million up from $22 7 million last year.

Angela C. Drake: When expressed as a percentage of net sales, earnings for this segment were 10.8%, up from 8.6% last year. The year-over-year increase was largely due to increased net sales leverage and productivity improvements. This was partially offset by product mix and higher material and manufacturing costs. Turning to our operating results, Our reported and adjusted gross margins were both 33.6% for the quarter. This compares to 35.8% for both in the same period last year. The decrease was primarily due to unfavorable segment mix given the exceptional residential segment growth, product mix within residential, and higher material and manufacturing costs.

Speaker Change #134: When expressed as a percentage of net sales earnings for this segment were 10, 8% up from eight 6% last year.

Speaker Change #134: The year over year increase was largely due to net sales leverage and productivity improvements.

Speaker Change #134: This was partially offset by product mix and higher material and manufacturing costs.

Angela C. Drake: This was partially offset by productivity improvements. SG&A expense as a percentage of net sales for the quarter was 19.7%, compared to 19.5% in the same period last year. The increase was primarily driven by slightly higher corporate expenses, mostly offset by lower marketing costs. Operating earnings as a percentage of net sales for the quarter were 13.9%, and on an adjusted basis were 14.2%. These compare to 16.3% on both a reported and adjusted basis in the same period last year.

Speaker Change #134: Turning to our operating results.

Speaker Change #134: Our reported and adjusted gross margin for about 33, 6% for the quarter.

Speaker Change #134: This compares to 35, 8% for both in the same period last year.

Speaker Change #134: The decrease was primarily due to unfavorable segment mix given the exceptional residential segment gross.

Speaker Change #134: Product mix within residential and higher material and manufacturing costs.

Speaker Change #134: This was partially offset by productivity improvements.

Speaker Change #134: SG&A expense as a percentage of net sales for the quarter was 19, 7% compared to 19, 5% in the same period last year.

Speaker Change #134: The increase was primarily driven by slightly higher corporate expenses, mostly offset by lower marketing costs.

Speaker Change #134: Operating earnings as a percentage of net sales for the quarter or 13, 9% and on an adjusted basis or 14, 2%.

Speaker Change #134: These compare to 16, 3% on both a reported and adjusted basis and the same period last year.

Angela C. Drake: Interest expense for the quarter was $16.7 million, up $2 million from last year. The increase was primarily due to higher average outstanding borrowings and higher average interest rates. The reported effective tax rate for the second quarter was 19.2%, compared with 20.6% a year ago. The adjusted effective tax rate for the second quarter was 19.8%, compared with 21.1%.

Speaker Change #134: Interest expense for the quarter was $16 $7 million up $2 million from last year.

Speaker Change #134: The increase was primarily due to higher average outstanding borrowings and higher average interest rates.

Speaker Change #134: Our reported effective tax rate for the second quarter was 19, 2% compared with 26% a year ago.

Speaker Change #134: The adjusted effective tax rate for the second quarter was 19, 8% compared with 21, 1%.

Angela C. Drake: The decrease for both was primarily due to a more favorable geographic mix of earnings. Turning to our balance sheet, Accounts receivable were $623.1 million, up 34.9% from a year ago, primarily driven by increased shipments to our NASH channel for the spring selling season, as well as payment terms to that channel. This increase was as expected, given our new strategic partnership with Lowe's. As a reminder, our accounts receivable balance consists of sales to our mass channel partners, irrigation customers, and many of our international dealers and distributors.

Speaker Change #134: The decrease for both was primarily due to a more favorable geographic mix of earnings.

Speaker Change #134: Turning to our balance sheet.

Speaker Change #134: Accounts receivable were $623 $1 million.

Speaker Change #134: 34, 9% from a year ago.

Speaker Change #134: Primarily driven by increased shipments to our mass channel for the spring selling season, as well as payment terms to that channel.

Speaker Change #134: This increase was as expected given our new strategic partnership with Lowe's.

Speaker Change #134: As a reminder, our accounts receivable balance consist of sales to our mass channel partners irrigation customers and many of our international dealers and distributors.

Speaker Change #134: The majority of our U S independent dealers and distributors take advantage of inventory floor plan financing truck brand just on their practices as the <unk>.

Speaker Change #134: Customary in our industry.

Speaker Change #134: We offer programs with third party financial institutions as well as to our Red Iron joint venture with Huntington Bank.

Speaker Change #134: Red Iron offer financing for the majority of our domestic dealers and distributors have long hair, snow and ice management and golf and ground solutions as well as Toro branded specialty construction products.

Speaker Change #134: Additionally, there are other third party institutions that provide inventory financing for a small portion of those dealers and distributors some international channel partners as well as the majority of our Dutch rich underground construction distribution partners.

Speaker Change #134: As is typical for these types of financing program. The large majority of Floorplan interest payments to red iron and our ever inventory financing partners are funded by mature our company as the OEM.

Speaker Change #134: These payments are reflected in our net sales results and are always considered when we provide outlook commentary.

Speaker Change #134: From a dealer or distributor perspective, red iron financing operate similar to a third party bank program from.

Speaker Change #134: From our perspective, the Toro company, 45% Noncontrolling ownership stake in the Rhode Island JV allows us to recoup a portion of our floor planning cost.

Speaker Change #134: In accordance with GAAP, our share of JV income is reported within the other income line of our income statement.

Speaker Change #134: Now back to the balance sheet.

Speaker Change #134: Inventory at the end of Q2 was $111 billion down.

Speaker Change #134: Down 2% compared to last year.

Speaker Change #134: Slightly lower sequentially from last quarter.

The decrease was driven by lower residential segment finished goods balances due to increased shipments to our mass channel.

Speaker Change #134: This was partially offset by higher balances of snow and ice management products as expected given the lack of snowfall this past winter.

Speaker Change #134: Accounts payable were $512 4 million relatively flat compared to a year ago.

Speaker Change #134: Year to date free cash flow was $95 6 million, an improvement of almost $100 million compared to last year.

We are making progress on normalized working capital and our emerging from our peak needs season.

Speaker Change #134: As a reminder, the majority of our operating cash flow is typically generated in the second half of our fiscal year.

Speaker Change #134: Based on seasonal flow and we expect that same cadence this year.

Speaker Change #134: For the full year, we continue to expect a free cash flow conversion rate of about 100% based on reported net income aligned with our 10 year historical average conversion rate.

Speaker Change #134: Importantly, our balance sheet remains strong we ended the quarter within our gross debt to EBITDA leverage ratio target of between one to two times.

Angela C. Drake: 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 our first priority being to make strategic investments in our business to drive long-term profitable growth, both organically and through acquisitions. We are acting on this priority with our plan to fund $125 million in capital expenditures during fiscal 2024 to support new product investments, advanced manufacturing technologies, and capacity for growth.

Speaker Change #134: This along with our investment grade credit ratings provides the financial flexibility to fund investments that drive long term sustainable growth.

Speaker Change #134: Our disciplined approach to capital allocation remains unchanged with our first priority to make strategic investments in our business to drive long term profitable growth, both organically and through acquisitions.

Speaker Change #134: We are acting on this priority with our plan to fund $125 million and capital expenditures during fiscal 2024.

Speaker Change #134: To support new product investments advanced manufacturing technologies and capacity for growth.

Angela C. Drake: Our next priority is to return capital to shareholders, both through our regular dividend and share repurchase. We have consistently grown our dividend payout over time as our earnings have grown, which reinforces our conviction in our strong and sustainable growth and future cash flow. Year over year, we have increased our dividend by 6%. With respect to share repurchases, our approach has been to fund repurchases with excess free cash flow while maintaining our leverage goal. To that end, with the improvement in cash flow this quarter, we reduced our outstanding revolver borrowings by $170 million and spent $10 million to repurchase shares.

Speaker Change #134: Our next priority is to return capital to shareholders, both through our regular dividend and share repurchases.

Speaker Change #134: We have consistently grown our dividend payout over time as our earnings have grown which reinforces our conviction and our strong and sustainable growth and future cash flows.

Speaker Change #134: Year over year, we have increased our dividend by 6%.

Speaker Change #134: With respect to share repurchases, our approach has been to bond repurchases with excess free cash flow, while maintaining our leverage goals.

Speaker Change #134: To that end with the improvement in cash flow this quarter, we reduced our outstanding revolver borrowings by $170 million and spent $10 million to repurchase shares.

Angela C. Drake: We plan to continue ramping up share repurchases in the second half of the fiscal year, as we have strong conviction about our future growth opportunities. Looking ahead to the remainder of the fiscal year, in our professional segment, we continue to expect benefits from the sustained strength in demand and substantial order backlogs for underground construction products involved in grounds equipment. However, for these businesses, field inventory levels remain lower than ideal.

Speaker Change #134: We plan to continue ramping up share repurchases in the second half of the fiscal year as we have strong conviction about our future growth opportunities.

Speaker Change #134: Looking ahead to the remainder of the fiscal year.

Speaker Change #134: And our professional segment, we continue to expect benefits from the sustained strength in demand and substantial order backlogs for underground construction products in golf and grounds equipment.

Speaker Change #134: For these businesses field inventory levels remained lower than ideal.

Angela C. Drake: We made slight progress in reducing open orders during the second quarter driven by the actions we've taken to drive increased output. On a total company basis, our order backlog remains elevated, and with our progress in reducing lead times, backlog is down slightly from the $1.97 billion balance at fiscal 2023 year-end and lower on a year-over-year basis. In the residential segment, we continue to expect benefits from the strength in our mass channel.

Speaker Change #134: We made slight progress and reducing open orders during the second quarter driven by the actions we've taken to drive increased output.

On a total company basis, our order backlog remains elevated and with our progress in reducing lead times backlog is down slightly from the $197 billion balance at fiscal 2023 at year end and lower on a year over year basis.

Speaker Change #134: In our residential segment, we continue to expect benefits from the strength in our mass channel.

Angela C. Drake: For both segments, we are focused on normalizing dealer-filled inventories of bond care solutions in snow and ice management products, and we have considered the expected impacts of this focus in our guidance. We are also assuming normal seasonal weather patterns for the second half of our fiscal year, including temperature and moisture levels.

Speaker Change #134: For both segments. We are focused on normalizing dealer field inventories are bond care solutions, and snow and ice management products and have considered the expected impacts of this focus in our guidance.

Speaker Change #134: We are also assuming normal seasonal weather patterns for the second half of our fiscal year, including temperature and moisture levels.

Speaker Change #134: With this backdrop and based on our first half performance and current visibility we are reaffirming the full year net sales and adjusted diluted EPS guidance, we shared on our last earnings call.

Speaker Change #134: We continue to expect low single digit total company net sales growth and expect higher shipments of lawn care solutions to our mass channel to offset a reduction in pre season shipments of snow and ice management products.

Speaker Change #134: For the professional segment, we continued to affect net sales growth at a rate slightly lower than the total company average.

Angela C. Drake: For the residential segment, we expect net sales to grow at a rate significantly higher than the total company average. Looking at profitability, we now expect adjusted gross margins and adjusted operating earnings as a percentage of net sales to be similar to last year. This is a reflection of the expected change in product mix with lower snow shipments. Turning to our segments, we continue to expect both the professional and residential segment earnings margins to be higher than last year. For the professional segment margin, we also expect a slight improvement over last year's margin, exclusive of impairment charges. For the other activities category, we continue to expect higher expenses compared to fiscal 2023.

Speaker Change #134: The residential segment, we expect net sales to grow at a rate significantly higher than the total company average.

Speaker Change #134: Looking at profitability.

Speaker Change #134: We now expect adjusted gross margin and adjusted operating earnings as a percentage of net sales to be similar to last year.

Speaker Change #134: Reflection of the expected change in product mix with lower snow shipments.

Turning to our segments, we continue to expect the professional and residential segments earnings margins to be higher than last year.

For the professional segment margin. We also expect a slight improvement over last year's margin exclusive of impairment charges.

Speaker Change #134: For the other activities category, we continue to expect higher expense compared to fiscal 2023.

Angela C. Drake: This is the result of our expectations for a return to more normal incentive compensation. For the second half of the year, we expect a quarterly run rate similar to Q1. 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 Appreciation and Amortization of about $120-$130 million and an Adjusted Effective Tax Rate of about 21%. For interest expense, we now expect about $60 million for the full year.

Speaker Change #134: This is the result of our expectations for a return to more normal incentive compensation.

Speaker Change #134: For the second half of the year, we expect a quarterly run rate similar to Q1.

Speaker Change #134: With that we continue to expect full year adjusted diluted EPS in the range of $4 25.

Speaker Change #134: Two $4 35.

Speaker Change #134: Additionally for the full year, we continue to expect.

Speaker Change #134: Depreciation and amortization of about $120 million to $130 million and an adjusted effective tax rate of about 21%.

Speaker Change #134: For interest expense, we now expect about $60 million for the full year.

Angela C. Drake: Moving to the third quarter of fiscal 2024, we anticipate Toro Company net sales to be up high teens year over year. For the professional segment, we expect net sales to be up high single digits to low teens.

Speaker Change #134: Moving to the third quarter of fiscal 2024.

Speaker Change #134: Anticipate total company net sales to be up high teens year over year for.

Speaker Change #134: For the professional segment, we expect net sales to be up high single digits to low teens.

Angela C. Drake: For the residential segment, we expect substantial year-over-year growth. Moving to profitability. For the third quarter, we anticipate total company adjusted operating margin to be higher than the same period last year. We also expect the professional segment earnings margin to be higher on a year-over-year basis and similar sequentially to our second quarter fiscal 2024 results. We expect the residential segment earnings margin to be much higher year-over-year and lower sequentially from the second quarter.

Speaker Change #134: For the residential segment, we expect substantial year over year growth.

Speaker Change #134: Moving to profitability.

Speaker Change #134: For the third quarter, we anticipate total company adjusted operating margin to be higher than the same period last year.

We also expect the professional segment earnings margin to be higher on a year over year basis, and similar sequentially to our second quarter fiscal 2024 result.

Speaker Change #134: We expect the residential segment earnings margin to be much higher year over year and lower sequentially from the second quarter.

Speaker Change #134: Overall, we expect our third quarter fiscal 2024, adjusted diluted EPS to be meaningfully higher than last year and slightly higher than the Q3 record $1 19, we achieved in fiscal 2022.

Speaker Change #134: We continue to operate with discipline and build our business for long term profitable growth.

Speaker Change #134: Our multiyear productivity initiatives and is gaining momentum and we are confident in our ability to drive significant benefits and opportunities including profitability improvement.

Speaker Change #135: With that I'll turn the call back to Rick.

Richard M. Olson: Thank you, Angie. We have confidence in our ability to deliver growth in fiscal 2024 and beyond. We are entering the second half of our fiscal year with good momentum. We continue to expect benefits from our strong leadership position in attractive end markets, supported by our suite of innovative solutions that perform necessary work with regular replacement cycles. We are supported by our strong business fundamentals, market leadership, and deep customer and channel relationships.

Richard M. Olson: Thank you Angie we have confidence in our ability to deliver growth in fiscal 2024 and beyond.

Speaker Change #136: We are entering the second half of our fiscal year with good momentum.

Speaker Change #137: We continue to expect benefits from our strong leadership positions in attractive end markets supported by our suite of innovative solutions that perform necessary work with regular replacement cycles.

Speaker Change #137: We are supported by our strong business fundamentals market leadership, and deep customer and channel relationships.

Speaker Change #137: Our team continues to execute well and operate with resiliency as we flush production to align with market conditions and better serve our customers.

Speaker Change #137: The supply chain has largely returned to normal which is enabling incremental output for our businesses with elevated order backlog.

Speaker Change #137: Our homeowner markets also appear to be recovering and we expect to benefit from our successful new product introductions, the power of our brand and our extensive distribution networks.

Speaker Change #137: Looking ahead, we continue to keep a close eye on macro factors as well as demand dynamics and our specific end markets.

Speaker Change #137: For the underground construction market, we expect demand to remain strong. This includes a very positive runway for projects to address global infrastructure needs supported by robust public and private multiyear spending.

Speaker Change #137: Looking at the utility end markets alone. There are many positive drivers spending on Colorado, construction, including new and upgraded generation and transmission infrastructure is expected to decline by 11% in 2024.

Speaker Change #137: Construction spending on water treatment and storage, including pipe replacement is expected to grow by 8% this year.

Speaker Change #137: For sewage and wastewater infrastructure, 11% growth as expected and for telecom growth is now expected to exceed the initial 7% estimate for the year driven by funding for the U S government's broadband equity and access deployment program.

This program is expected to distribute over $42 billion to provide high speed internet access to underserved areas.

Speaker Change #137: Our specialty construction markets, we're seeing a return to more typical patterns of supply and demand come into balance with much improved lead times.

Speaker Change #137: We expect this trend to continue.

Speaker Change #137: With those stabilization, we anticipate our open order book for these products to normalize by the end of fiscal 2024.

Speaker Change #137: For golf and grounds, we expect to continue to see healthy budgets and the prioritization of equipment and irrigation replacement.

Speaker Change #137: We're seeing post pandemic increases in participation extends the golf tourism or the number of golf travelers in 2024 is projected to exceed $12 million for the third straight year.

Speaker Change #137: <unk> about 20% above the historical average.

Speaker Change #137: For landscape contractors, we continue to expect steady retail demand with some pockets of price sensitivity given the interest rate environment.

Speaker Change #137: For homeowners retail activity for the 2020 for spring season is off to a good start and as I mentioned, we're pleased to see some recovery after last year's pause.

Speaker Change #137: We expect demand to be driven by regular replacement needs.

Speaker Change #137: And certainly a continuation of more normal temperature and moisture levels would be favorable.

Speaker Change #137: For snow and ice management, we expect pre season sell in demand to be reduced given elevated field inventories following a second straight season, a below average snowfall.

Speaker Change #137: Before we go to Q&A I'd like to take this opportunity to share why we're so excited about the future and what we see as the greatest growth opportunities as we move ahead.

Speaker Change #137: Our corporate purpose is to help customers enrich the beauty productivity and sustainability of the land.

Speaker Change #137: Our success is built on a long history of carrying relationships based on trust and integrity.

Speaker Change #137: This provides an exceptional foundation for our market leadership in the high value spaces as evidenced by the strength of our diversified and complementary portfolio of businesses.

Speaker Change #137: First we are excited about our underground construction business, we believe the near and long term prospects for this business are extremely compelling given the rapidly growing demand for data communications infrastructure and energy grid modernization.

Speaker Change #137: As well as the global focus on replacing aging infrastructure.

Speaker Change #137: For investors want exposure to this end market, we are very well positioned.

Worldwide market leader with the most comprehensive equipment and brand lineup in the industry and our best in class channel.

Speaker Change #137: The strength of our deep relationships the complexity of the technology and innovation in our products and the runway for growth all makes us an extremely attractive space for us and our shareholders.

Speaker Change #137: Second our golf business continues to strengthen and grow there is sustained global momentum in this space, which is supporting healthy courses and new development.

Like underground construction, our deep relationships and lineup of industry, leading innovative products and solutions, including our full suite of reduced <unk> zero emission offerings makes this market attractive for us and our shareholders.

Speaker Change #137: Have a distinct competitive advantage as the only company to offer both equipment and irrigation solutions for this market and as the market leader in both.

Speaker Change #137: Yes to be up for the game shows no sign of slowing down we're prepared to capitalize with continued innovation and our best in class service and support network.

Richard M. Olson: We are prepared to capitalize with continued innovation in our best-in-class service and support network. Third, we have multi-brand leadership in the attractive zero-term mower space, which is the largest single lawn care category for both our professional and residential segments. We have significantly strengthened our market position over the past few years, supported by the investments that we've made in our innovative product lineup and the strategic development of our dealer and mass partnership.

Speaker Change #137: Third we have multi brand leadership and the attractive zero turn mower space, which is the largest single lawn care category for both our professional and residential segments.

Speaker Change #137: We have significantly strengthened our market position over the past few years supported by the investments that we've made in our innovative product lineup.

Speaker Change #137: The strategic developments of our dealer and mass partnerships.

Richard M. Olson: For example, our expansion in 2020 with the Tractor Supply Company helped us reach farm and ranch customers. This value partnership continues to grow as we focus on engineering products to address their unique customer needs. Most recently, our expansion into Lowe's aligns us with the single largest retailer of zero-turn mowers.

Speaker Change #137: For example, our expansion in 2020 with the tractor supply company helped us reach farm and ranch customers.

Speaker Change #137: This valued partnership continues to grow as we focus on engineering products to address their unique customer needs.

Speaker Change #137: Most recently our expansion into Lowe's aligns us with the single largest retailer of zero turn mowers.

Richard M. Olson: Their strength in this category is exceptional, with a share that is more than 50% higher than any other retailer based on the latest track line data. These partnerships, coupled with our best in class network of independent dealers, provide unsurpassed service and support to our customers and position us extremely well for further growth in this space. Fourth, we're excited about our ability to leverage our technology and innovation investments across our broad portfolio. We continue to prioritize investments in key technology areas such as alternative power, smart, connected, and autonomous solutions.

Our strength in this category is exceptional with.

Speaker Change #137: Sure that is more than 50% higher than any other retailer based on the latest track client data.

Speaker Change #137: These partnerships coupled with our best in class network of independent dealers provide unsurpassed service and support to our customers and positions us extremely well for further growth in this space.

Speaker Change #137: Fourth we're excited about our ability to leverage our technology and innovation investments across our broad portfolio we.

Speaker Change #137: We continue to prioritize investments in key technology areas of alternative power smart connected and autonomous solutions.

Speaker Change #137: This will enable accelerated development of new products to help our customers be successful and provide distinct competitive advantages for the Toro company.

Speaker Change #137: And finally, it comes down to our disciplined execution and consistent financial performance.

Speaker Change #137: We have reported year over year growth in net sales and adjusted diluted earnings per share for nearly 15 years.

Richard M. Olson: We believe this is a result of our disciplined and effective approach to capital allocation, our dedicated team of employees and channel partners, our broad and strategically aligned distribution networks, and our guiding principle of doing what we say we will do. We've built a strong and agile organization that has been resilient through many macro cycles, and we are ready to seize the opportunities that lie ahead to drive value for our customers, our channel partners, and our shareholders in both the near and the long term.

Speaker Change #137: We believe this is a result of our disciplined and effective approach to capital allocation our.

Speaker Change #137: Our dedicated team of employees and channel partners.

Speaker Change #137: Our broad and strategically aligned distribution networks, and our guiding principle of doing what we say we will do.

Speaker Change #137: We've built a strong and agile organization that has been resilient through many macro cycles and we are ready to seize the opportunities that lie ahead to drive value for our customers our channel partners and our shareholders in both the near and the long term.

Richard M. Olson: With that, we will open up the call for questions. Thank you, and ladies and gentlemen, if you wish to ask a question, please press star 11 on your touchtone telephone. If your question has been answered or you wish to withdraw your question, press star 11 again.

Speaker Change #137: With that we will open up the call for questions.

Speaker Change #138: Thank you and ladies and gentlemen, if you wish to ask a question. Please press star one one on your Touchtone telephone. If your question has been answered or you wish to withdraw your question.

Speaker Change #139: Press Star one again, please standby for our first question. Please.

Samuel John Darkatsh: Please stand by for our first question, please. One moment, please. He's coming from the line of Samuel Darkatsh with Raymond James.

Speaker Change #140: One moment, please is coming from the line of Samuel Dark cash with Raymond James. Please proceed.

Samuel John Darkatsh: Please proceed. Good morning, Rick. Good morning, Angie. How are you? Good morning, Sam. I can do them all.

Speaker Change #141: Good morning, Rick Good morning, Angie how are you.

Speaker Change #143: Alright, thank you.

Samuel John Darkatsh: How are you? Well, as well. Thank you for asking. If I may, three questions. Hopefully, they're pretty quick.

Speaker Change #142: Paul how are you.

Speaker Change #144: As well thank you for asking if I may ask three questions hopefully there pretty quick.

Samuel John Darkatsh: First, Angie, I think you mentioned in your prepared remarks a strong conviction in long-term growth. Does that extend, I know you don't give guidance for a while for next year, but does that extend into your confidence that next fiscal year will also show organic total sales growth? And I say that in light of the fact that, you know, your order book and underground is expected to normalize, you've got a lot of moving parts with landscape and retail and snow and what have you. Is next year prospectively a growth year as you see it right now? Yeah, why don't I comment on that?

Speaker Change #142: First.

Speaker Change #142: Andrew I think you mentioned in your prepared remarks strong conviction and long term growth does that.

Speaker Change #142: Extend I know you don't give guidance for a while for next year, but does that extend into your.

Speaker Change #142: Confidence that net.

Speaker Change #145: Next fiscal year, we will also show organic total sales growth.

Speaker Change #146: Say that in light of the fact that you're.

Speaker Change #147: Your order book in underground is expected to normalize you have got a lot of moving parts with landscape in retail and snow and what have you is next year prospectively a growth year as you see it right now.

Richard M. Olson: And I think the short answer is that we do see opportunity for continued growth into next year. A couple of the factors that you mentioned, we now expect, just based on the continued demand profile and continued orders, that the open order position is going to extend into 25 for those key growth areas, underground and construction. It's, you know, it's normalized a little bit, one of the key drivers, compact utility loaders in the specialty construction area. But those big drivers, we have better outputs, but the demand just continues to come. And if you look at the drivers over the long term, those look very solid.

Speaker Change #148: Yes, why don't I.

Speaker Change #149: Ill comment on that but I think the the short answer is we do see opportunity for continued growth into next year. A couple of the factors that you mentioned.

Speaker Change #149: We now expect just based on the continued demand profile and continued orders but.

Speaker Change #149: The open order position is going to extend into 'twenty five for those key growth areas underground and construction.

Speaker Change #149: It's normalized a little bit of one of the key drivers compact utility loaders in the specialty construction area.

Speaker Change #149: But those are those big drivers.

Speaker Change #149: We have better outputs, but the demand just continues to come in if you look at the drivers long term those look very solid and then do you just think of the other factors of.

Speaker Change #149: Normalizing our shipment flow into the areas, where we had a higher field inventory today, the strength of the mass strategy, though.

Richard M. Olson: And then you just think of the other factors of normalizing, you know, our shipment flow into the areas where we have high field inventory today, the strength of the mass strategy that we have that we have today, dealers coming back online, you know, essentially, snow is setting the year out for us this year relative to a poor snow season last year. So we still have a lot of opportunities to be very specific about that. But we feel positive about the future and, you know, the long term future in general for growth opportunities for us given our portfolio. Thanks.

Speaker Change #149: So we have today dealers coming back online.

Speaker Change #149: Essentially snow is sitting in the euro for us this year relative to a poor snow season. This last year. So we have a lot of opportunities still early to be very specific about that but we feel positive about the future.

Speaker Change #149: Long term future of general for growth opportunities for us given our portfolio.

Samuel John Darkatsh: Second question, mentioning that you're anticipating ramping up your repo activity, your share repurchase activity in the back half. I think, at least based on your guidance, it looks like you're anticipating, I don't know, somewhere around, call it $275 million in second half free cash flow after dividends. Is it fair to assume that the bulk of that might go to repo, especially with the stock at its current level? I'd say with the improvement in cash flow that we saw in the quarter, we spent about $10 million on share repurchases, and we do expect to ramp that up in the second half and expect those purchases to exceed, expect those share repurchases to exceed last year's $60 million.

Speaker Change #150: Thanks second question.

Speaker Change #151: Mentioning that you are anticipating ramping your repo activity or share repurchase activity in the back half.

Speaker Change #150:

Speaker Change #152: At least based on your guidance it looks like Youre anticipating.

Speaker Change #153: Somewhere around call it $275 million.

Speaker Change #154: Second half free cash flow after dividends is it fair to assume that the bulk of that might go to repo, especially with the stock at current levels.

Speaker Change #155: I'd say with the improvement in cash flow that we saw in the quarter. We spent about $10 million on share repurchases and we do expect to ramp that up in the second half and expect those purchases to exceed except those expect those share repurchases to exceed last years $60 million now.

Samuel John Darkatsh: Now we will assess our cash position and our cash usage, and we'll make decisions based on that if we want to prioritize doing share repurchases over other things. Got it. My last question, as it relates to the landscape and retail field inventories, at this stage, what's the timing of expected normalcy of those elevated field inventories? And then, on top of that, any color you can provide in terms of the red iron DSOs being elevated as well.

Speaker Change #155: We'll assess our cash position and our cash usage and we will make decisions based on that if we want to prioritize doing share repurchases over other things.

Speaker Change #156: Got it and my last question.

As it relates to the landscape and retail field inventories.

Speaker Change #157: At this stage, what's the timing of expected I'll use the word normalcy.

Speaker Change #157: Of those.

Elevated field inventories and then I guess on top of that any color you can provide in terms of the red iron Dsos being elevated as well thanks guys.

Richard M. Olson: Thanks, guys. Yeah, I'll take the first part of that, first of all, relative to field inventories, largely playing out as we had described, even going back to the third quarter last year, if not a little bit better. So if you think in terms of, you know, we're well over halfway in that process of reducing the field inventory in those key areas, the biggest, biggest driver of that that has to be there is retail. We're seeing very strong retail, really through all those channels, but certainly in the dealer channel, it's helping to bring that down. And then obviously, we immediately restricted shipments into that into the field at that time.

Speaker Change #158: Yes, I'll take I'll take the first part of that first of all relative to field inventories largely playing out as we had described even going back to the third quarter last year, if not a little bit better. So if you think in terms of.

Speaker Change #158: We're well over halfway in that process of reducing the field inventory in those key areas. The biggest the biggest driver driver of that that has to be there as retail we're seeing very strong retail.

Speaker Change #158: Really through all of those channels, but certainly in the dealer channel is helping to bring that down obviously, we immediately restricted shipments into that into the field at that time.

Richard M. Olson: So if you look at the broader sense, outside of those areas that we've targeted and talked about since last year, underground is extremely low. So that continues to be sort of hand to mouth. We've made dramatic improvements in our production outputs and getting that field out into the field, but it's immediately flowing through to end customers just based on the, you know, pretty incredible demand. In that area, on the Gulf side, still lower than we'd like to see it. Very similar situation there.

Speaker Change #158: So if you look at the broader stuff outside of those areas, but we had targeted and talked about since last year.

Speaker Change #158: Underground is extremely low so that continues to be sort of had someone else. We've made dramatic improvements in our production.

Speaker Change #158: Outputs and getting that field out into the field, but it's immediately flowing through to end customers just based on the pretty incredible demand.

Richard M. Olson: We are seeing very strong retail. Our shipments are up with Gulf. But the backlog continues to stay relatively high. Why is that?

Speaker Change #158: In that area.

Speaker Change #158: On the golf side still lower than we'd like to see a very similar situation. There we are.

Speaker Change #158: Very strong retail.

Speaker Change #158: Our shipments are up with golf, but the backlog continues to say relatively hot FY is up because the demand keeps coming in the orders keep coming so.

Richard M. Olson: Because the demand keeps coming, the orders keep coming. So that's the situation. But the area that we talked about really since last year, the homeowner markets, the residential, and homeowner portion of landscape contractor, we've made tremendous progress, and we're right on track with where we'd expect to be. If you want to comment specifically on DSO, yeah, I'll comment on the Red Iron DSO question.

Speaker Change #158: That's the situation, but the area that we had talked about really since last year.

Speaker Change #159: The homeowner markets residential and homeowner portion of landscape contractor, we're making we've made tremendous progress and we're right on track with where we'd expect to be sure to comment specifically on DSO, Yeah, Yeah, I'll comment on the Red Iron DSO question, we saw significant improvement in the Red Iron DSO in the second quarter.

Angela C. Drake: We saw significant improvement in the Red Iron DSO in the second quarter. In fact, we saw a 46-day improvement from Q1 to Q2. For lawn care, strong retail drove liquidation, and that was coupled with lower shipments to the DR channel.

In fact, we saw 46 day improvement from Q1 to Q2.

Speaker Change #160: For lawn care strong retail drove liquidations and that was coupled with lower shipments to the dealer channel, we're well over halfway through reducing field inventory as Rick mentioned.

Speaker Change #161: We also understand from Huntington Bank that we are in a similar situation of our industry and failing even a little bit better with the strength of our channel and products.

Speaker Change #162: Very helpful. Thank you.

Angela C. Drake: Thank you. One moment for our next question, please. And it comes from the line of David MacGregor with Longbow Research.

Speaker Change #163: Thank you my moment for our next question. Please.

Speaker Change #164: And it comes from the line of David Macgregor with Longbow Research. Please proceed.

David Sutherland MacGregor: Please proceed. Yes, good morning, everyone, and congratulations on the strong quarterly results. Good morning.

Speaker Change #165: Yes, good morning, everyone and congratulations on the strong quarterly results.

David Sutherland MacGregor: David I wanted to pick up on it.

David Sutherland MacGregor: I wanted to pick up on your response to Sam's question about, not necessarily just your business, but the overall retail sales. We don't have, we don't provide that specific information, but given a more normal or slightly positive spring, it's, you know, much better than it was last year. And it's really better than the last couple of years.

Speaker Change #166: Good morning, I wanted to pick up on your response to Sam's question about.

David Sutherland MacGregor: Just the.

The retail being so strong and is there any way you can just give us.

Speaker Change #167: Our retail sales growth number for landscape contractor equipment and residential channels not necessarily just your business, but the overall industry, but just what was retail growth of those two categories in the quarter.

Speaker Change #168: Oh, we we don't have we don't provide that specific information, but given our more normal or slightly positive as spring.

Speaker Change #168: It's much better than it was last year.

Speaker Change #169: That's really better than the last couple of years.

Richard M. Olson: And that that's really the biggest driver and brings it down, and sorry, I can't provide a specific or I don't have a specific number at this point, but new products are really a big part of that growth as well. Obviously, we have some unique situations with our strategies and some of our shifts, so Lowe's, for example, through the mass channel, has been a big boost to our retail and the good news. It's really the partnership there, along with our other mass partners. And that's really the strength of our brand.

Speaker Change #169: And that's really the biggest driver of bringing it down im sorry, I cant provide a specific.

Speaker Change #169: Don't have a specific number at this point, but new products are really a big part of that growth as well.

Speaker Change #169: Obviously, we have some unique situations with with.

Speaker Change #169: With our strategies and some of the work shifts so.

Speaker Change #169: Flows for example through the mass channel has been a big boost to our retail and.

Speaker Change #169: The good news, it's really the partnership there along with our other mass partners and it's really the strength of our brand the strength of our new products with helping really helping to drive that so all those things combined really.

Richard M. Olson: It's the strength of our new products that's really helping to drive that. So all those things combined really where we believe that we are over-indexing the market at this point. Is there any way of quantifying how much benefit the weather was to 2Q?

Speaker Change #169: We believe that we are.

Speaker Change #169: Over indexing the market at this point.

Speaker Change #170: Okay is there any way of quantifying how much benefit the weather was two <unk> you referenced the fact that you got an earlier start and some of the seasonal markets.

Richard M. Olson: You referenced the fact that you got an earlier start. We've looked at the data, and we've had some good discussions about that in the last couple of days. It feels much, much better than it did for the last couple of years, but it's actually a little bit closer to normal, a normal kind of spring timing, a little bit better than that. And I think the positive thing for us is, relative to the last couple of years, where we were at this point, in a very positive moisture situation as we entered the summer season. It was a little bit cooler, a little bit longer in the south, and some are very important markets in the southeast.

Speaker Change #171: So we've we've looked at the data and we've had some good discussions about that just over the last couple of days it is.

Speaker Change #171: It feels much much better the bid for the last couple of years, but it's actually a little bit closer to normal the normal kind of spring timing.

Speaker Change #171: Little bit better than that.

Speaker Change #171: And I think the positive thing for US is relative to the last couple of years, where we were at this point there is very very positive moisture situation as we have entered the.

Speaker Change #171: Summer season, it was a little bit cooler a little bit longer in the south and so are very important markets in the southeast. So that just kind of sets you up for a better <unk>.

Richard M. Olson: So that just kind of sets you up for a better situation going into what can be the drier part of the season. So that's been positive. It was a bit faster warm-up this year in the south. And if you hear about the extraordinary heat in the southwest, The desert southwest is not our top area for turf-related products, with the exception of the Gulf and those types of areas that are irrigated.

Speaker Change #171: Situation going into what can be the driver part of the season. So that's been positive.

Speaker Change #171: Those faster warm ups this year in the south.

Speaker Change #171: And for sure about the extraordinary feats in.

Speaker Change #171: Southwest.

Speaker Change #171: The desert southwest is not.

Speaker Change #171: Our top areas for tariff related.

Speaker Change #171: Products with the exception of golf and those types of areas that are irrigated.

Richard M. Olson: So it's been positive, but probably closer to the long-run normal, certainly than it has been for the last couple of years. And then just on unit volumes, you talk about the capacity benefit and the bottleneck. Golf and Specialty Construction: how much better do shipments get in the second half for golf? Yeah, they would be quite positive, especially relative to the continuous ramp-up that we've seen since last year. So, relative to the second half of last year, it would be, you know, substantially better.

Speaker Change #171: If it's a spin it's been positive, but probably closer to a long run normal certainly thats been for the last couple of years.

Speaker Change #172: Okay, and then just on unit volumes you talk about the.

Speaker Change #173: Capacity benefits of the Debottlenecking investments that you've made in golf and specialty construction, how much better do shipments get in the second half for golf and pitch, which is a consequence of these debottlenecking investments on a year over year basis.

Speaker Change #174: Yes, they would be.

Speaker Change #175: <unk> positive, especially relative to the continuous ramp up that we've seen since last year, so relative to the second half of last year it would be.

Speaker Change #175: Substantially better.

Speaker Change #176: Okay last question for me is just on landscape contractor.

Speaker Change #176: Just given the average service life and launched landscape contractor versus.

Speaker Change #177: Fairly depressed sales trends as of late.

Speaker Change #178: I have to believe there is some pent up replacement demand there what's your best estimate of the deferred replacement demand in this category at this point.

Speaker Change #178: What do you think from a timing standpoint in terms of seeing that come to market.

Speaker Change #179: I think we're seeing that right now first of all if you provided that sort of professional product category. There is there's really not been.

Speaker Change #179: As much.

Speaker Change #179: Pullback if you will over the last year and the true professional side so landscape contractors.

Richard M. Olson: That has not really had as much of an impact. It's really the homeowner portion of that. And what we see, the good news so far, is that homeowners have come back into the buying mode relative to last year, where we saw sort of a cliff event this time of year where they just stopped, and my theory was that they all seemed to go traveling or whatever. That's when kind of that spending spiked at the same time, but it's coming back more into a normal mode. And then it's just helped by much better weather and seasonal conditions.

Speaker Change #179: Where are the product out it has to be replaced on a regular cycle that has not really been as much of a impact it's really the homeowner portion of that.

Speaker Change #179: And what we see the good news so far is that the homeowners have come back into the buying mode.

Relative to last year, where we saw sort of almost a cost for that at this time of year, where they just.

Speaker Change #179: Stopped.

By theory was that they seem to go traveling or whatever that's when cover spending spikes at the same time, but it's coming back more into a normal.

Speaker Change #179: Mode and then it's just helped by a much better weather and seasonal conditions. So the combination of the two it feels much more normal plus right.

Speaker Change #180: Got it thanks, very much Rick and good luck.

Speaker Change #181: Thank you.

Richard M. Olson: So the combination of the two feels much more normal. Thanks very much, Rick. Good luck! Thank you. Thank you. One moment for our next question, and it's coming from Ted Jackson with Northland Securities. Please proceed. Thanks very much. Good morning.

Speaker Change #182: Thank you for our next question is coming from Ted Jackson with Northland Securities. Please proceed.

Ted Jackson: Thanks, very much good morning.

Ted Jackson: All my questions have kind of been answered. I'm going to ask one, which is around the productivity initiative. You know, we've seen $7 and a half million dollars year to date with regard to, you know, those actions.

Ted Jackson: Hi, Ted.

Ted Jackson: All my questions have been answered I'm going to ask one which is around the productivity initiatives, we've seen $7 $5 million year to date with regards to that act those actions and I. Just was curious in terms of maybe providing some color in terms of the activity that you are taking there in terms of streamlining the business.

Ted Jackson: And I just wanted to be curious in terms of maybe providing some color in terms of the activity that you're taking there in terms of, you know, streamlining the business. When you see the initiative wrapping up, and maybe some kind of quantification with regard to the total cost of the initiatives and how they would play out over the coming months and reporting periods. That'd be my first question.

Ted Jackson: When you see the initiative wrapping up and maybe some kind of.

Ted Jackson: Quantification with regards to kind of the total cost of the initiatives and kind of how it would play out over the coming.

Ted Jackson: Reporting periods that would be my first question. Thanks.

Angela C. Drake: Thank you. Okay, sure. So, the Transformational Productivity Initiative that we have, we're calling AMP for Amplifying Maximum Productivity, and what we have stated is that we expect this initiative to last three years, so going through the end of 2026, and our plan is to, or we expect to achieve $100 million in annual cost savings by 2027. So, kind of a run rate to get us to the 2027 number. Where we're investing our time and our cost is really in kind of three focus areas: a sustainable supply base, and so that's really focused kind of on materials, and that's very heavily related to our sourcing initiatives, and then we're looking at design to value, and also route to market.

Speaker Change #183: Okay sure.

Speaker Change #184: So the transformational productivity initiatives that we have we're calling out for amplifying maximum productivity and what we have stated is that we expected.

Speaker Change #184: This initiative to last three years or so going through the end of 2026.

Speaker Change #184: And our plan is to Oh are we expect to achieve $100 million in annual cost savings by 2027th so kind of a run rate to get us to the 2027 number.

Speaker Change #184: Where we're investing.

Speaker Change #184: Our time in our and our cost is really.

The three focus areas.

Speaker Change #184: A sustainable supply base, and so thats really focus kind of on materials and that's that's very heavily related to our sourcing initiatives and then we're looking at design to value and also route to market.

Angela C. Drake: We've also recently added another work stream in our productivity initiative for working capital, really focusing on inventory and how we can reduce that year over year and make a meaningful impact. What we said is that we would probably invest or reinvest as much as 50% of that transformational productivity savings back into the business, whether that be in technology or enabling other productivity or innovation, anything that we can do to gain profitable growth for the enterprise. And you mentioned the cost. We did expect some one-time implementation costs, and year-to-date, we're at $8.3 million, and that's largely been consulting fees.

Speaker Change #184: <unk> also recently added another work stream and our productivity initiative for working capital are really focusing on inventory and how we can reduce that year over year, making any meaningful impact.

Speaker Change #184: What we status that we would probably invest or reinvest as much as 50% that transformational productivity savings back into the business.

Speaker Change #184: That would be in technology are enabling other productivity or innovation.

Speaker Change #184: Anything that we can do to gain profitable growth for the enterprise.

Angela C. Drake: And I'd say we'd expect a similar run rate through the last half of the year as well, Ted. [inaudible] Alright, I was just going to say it's off to a great start. So, would it be fair, like, if we want to incorporate this into our forecast in terms of the proforma, that we would, you know, kind of scale it across for the remainder of 24, but we go to 25, and, you know, kind of the, what we're seeing with regard to the proforma adjustments would fade? Yeah, we have included our best estimates in our guidance, so any benefits that we expect to achieve in 24 are included in the Okay.

Speaker Change #185: And then you mentioned the cost.

Speaker Change #186: Did expect some one time eliminate implementation cost.

Speaker Change #186: And year to date were $8 3 million and Thats largely been consulting fees.

Speaker Change #186: And I'd say, we'd expect a similar run rate through the last half of the year as well Ted.

But all of them what initiative.

Speaker Change #187: Alright, I was just going to say, it's off to a great start.

Speaker Change #188: So would it be fair like.

Speaker Change #189: Incorporate this into our.

Speaker Change #189: Forecast in terms of the pro forma that we would kind of scale it across for the remainder of 'twenty four but as we go into 'twenty five.

Speaker Change #189: The what we're seeing with regards to the pro forma adjustments with fate.

Speaker Change #190: Yes, we have included our best estimate in our guidance. So any benefits that we expect to achieve 24 are included in the guidance today.

Ted Jackson: Okay, then my next question, you kind of went into it, which is nice to hear the focus on working capital is, as we think about working capital, and by the way, it was really nice to see the improvement in it this quarter. How do we think about how things within those line items on the balance sheet will trend for the remainder of the year? I mean, is it, you know? I mean, are we going to continue to see improvements with regard to inventory?

Speaker Change #191: Okay. Okay.

Speaker Change #192: Okay. Then my next question you kind of went on a diet, which is nice to hear the focus on working capital is.

Speaker Change #193: As we think about working capital and by the way it was really nice to see the improvement in it this quarter.

Speaker Change #194: How do we think about how things within those line items on the balance sheet trend for the remainder of the year I mean is it.

Are we going to continue to see improvements with regards to inventory and then with regards to the receivables from what you had happened which is politically result of success with the mass channel.

Ted Jackson: And then with regard to, you know, the receivables and what you had happen, which is, you know, clearly, as a result of, you know, the success of the MASH channel, does that, like, kind of change any of your seasonal dynamics on the receivables front? Or do you understand what I'm asking?

Speaker Change #194: <unk>.

Speaker Change #195: Is that does that like kind of change any of your seasonal dynamics on the receivables front or can you share what I'm asking what kind of could you help us think through the.

Speaker Change #195: The go forward for both inventory and receivables as we kind of go through the year and what it means for your working capital where do we exit 2024. That's my last question. Thanks.

Angela C. Drake: Like, kind of, if you could help us kind of think through the go forward for both inventory and receivables as we kind of go through the year, and what it means for your working capital whether we exit 2024? That's my last question. Okay, yes, AR is based on seasonal flow and is typically a bit higher in Q2. And we saw that again this quarter; our inventory is improving. And we do expect to see that our most appreciable opportunity to affect working capital is inventory.

Speaker Change #196: Okay, Yes.

Speaker Change #197: Is based on seasonal flow and is typically a bit higher in Q2, and we saw that again this quarter.

Speaker Change #198: Our inventory is improving.

Speaker Change #199: And we do expect to see that most of the first of all opportunity to affect working capital is inventory and.

We did have that focus on it and focused effort I would say as I mentioned in the Amp work stream and we will we expect to continue to see that improve throughout the rest of the year.

Speaker Change #200: Okay, Thanks, very much and congratulations on the quarter.

Doug: Alright. Thank you thanks, Doug.

Speaker Change #201: Thank you.

Angela C. Drake: And we do have that focus on it, a focused effort, I would say, as I mentioned in the AMP workstream, and we'll can expect to continue to see that improve throughout the rest of the year. Okay, thanks very much and congratulations on the quarter. All right, thank you. Thank you. Thank you. Our next question comes from the line of Eric Bosshard with Eclipland Research.

Speaker Change #202: Our next question comes from the line of Eric Bosshardt with Cleveland Research. Please proceed.

Eric Bosshard: Please proceed. I just want to ask you a couple things. First of all, a follow-up, just clarification in terms of dealers, landscape contractor dealers, is this business in terms of sell-through? What I heard you say, I just want to make sure that the sell-through is... positive, and the homeowner residential through that channel is also positive. Is that the the right way to think about how that? That's correct, Eric. Both are positive through the dealer.

Eric Bosshard: Thanks, a couple of things first of all a follow up just clarification in terms of <unk>.

Speaker Change #203: Dealers landscape contractor dealers.

Eric Bosshard: The right way Directionally, if you think about how that piece of the business is performing.

Speaker Change #204: That's correct.

Speaker Change #205: Both both are positive through the dealer, we're seeing really good good retail activity in both areas.

Speaker Change #204: Yeah.

Richard M. Olson: We're seeing really good, good retail activity in both areas. And is that we've sort of digested the shift and the change, place, and now we're back at a point where sell-through growth and the number of dealers in those categories are up. We can sustain in some cases where we have, you know, additional opportunity as we're ramping up production to continue to supply those areas. Just as you would imagine with some of our new product introductions, those have been in high demand, so we're still working to meet that demand.

Speaker Change #206: And is that sustainable.

Speaker Change #207: We've sort of digested.

Speaker Change #208: The shift in the change that took place and now we're back at a point, where we can sustain you can sustain sell through growth and the dealers in those categories is that the right way to think about it.

Speaker Change #208: We can sustain in some cases were we.

Speaker Change #208: Yes.

Speaker Change #208: Additional opportunity as we're ramping up production to continue to supply those areas.

Speaker Change #208: Just as you would imagine with all of our new product introductions those have been in high demand. So we're still working to meet that demand.

Richard M. Olson: But the positive thing is, you know, retail drives everything, creates all the opportunities, and that's very strong, so it allows us to both adjust field inventory and experience sell-through in those areas where the inventory is already normalized, related to this, she commented. I think, you know, the original commentary was we thought it would take this year to normalize that. And it's really just a function of the overweight of our second and third quarter for these products. So it's really been more than halfway through, and we're through the second quarter.

Speaker Change #208: But the positive thing is.

Speaker Change #208: Retail drives everything creates all the opportunities that is very strong. So it allows us to both adjust field inventory and.

Speaker Change #208: Experienced the sell through in those areas, where the inventory is already normalized.

Speaker Change #209: Related to this you had commented a couple of times that you are more than halfway through that inventory right sizing at what point would you expect sell in would match sell through in this channel.

Speaker Change #210: I think they are.

Speaker Change #211: Our original commentary was we thought it would take this this year to normalize and that's really it's really just a function of.

Speaker Change #211: The overweight of our second and third quarter.

Speaker Change #211: For these products. So it's really if we're more than halfway through and we're through the second quarter, we still have the third quarter due to the normalization and it should set us up to be in good condition as we go into the until the next selling season.

Richard M. Olson: We still have the third quarter to do the normalization, and it should set us up to be in good, good condition as we go into the next season. Let's say the item that will still be a factor this fall is elevated snow inventory, that's a little bit higher than what we would like to see, just based on the in-season reorders that didn't happen this last winter season. So we had some positive snow events in the latter part of the season.

Speaker Change #211: Let's say the.

Speaker Change #211: So I don't know.

Speaker Change #211: That will still be a factor. This fall is elevated snow inventory, that's a little bit higher than what we would like to see just based on the in season Reorders, but.

Speaker Change #211: It didn't happen.

Speaker Change #211: <unk>.

Speaker Change #211: This last.

Speaker Change #211: Winter season, So we had some positives snow events in the latter part of the season, that's helped a little bit, but our field inventory is still a little bit higher for both the.

Richard M. Olson: That's helped a little bit, but our field inventory is still a little bit higher for both the residential and the pro side with boss, and all of that's included in our guidance. So that's all, that's all been built in. And then the other issue is, and you commented about mixed and residential, which I'm guessing this relates to selling more to Lowe's. And if I'm wrong, you can correct

Speaker Change #211: Residential and on the pro side with boss and all of that's included in our guidance. So that's all that's all been Bolton.

Speaker Change #212: And then the other issue I was curious on you commented about mixed in residential which I am guessing this relates to selling more to lowes, what im and if I'm wrong. You can correct me what im interested in residential is what youre seeing in terms of consumer takeaway.

Eric Bosshard: What I'm interested in residential is what you're seeing in terms of consumer takeaway, and specifically you. You have a breadth of price points, and then also the introduction of battery power. I'm curious how consumer demand, and consumer takeaway, has shifted this year relative to last year, relative to expectations, between the various products. I think it's largely played out as we expected. I think, as you mentioned in the comments, the overall mix of residential, because of the tremendous strength there for the factors we talked about relative to pro, as a factor. And then within the residential segment, there is a mix of profitability among the products.

Speaker Change #212: And specifically you.

Speaker Change #212: You have a breadth of price points and then also the introduction of battery powered.

Speaker Change #212: I'm curious how consumer demand consumer takeaway has shifted this year relative to last year relative to expectations.

Speaker Change #212: The various products and price points.

Speaker Change #213: I think it's largely played out as we expected.

Speaker Change #213: I think.

Speaker Change #214: As you mentioned in the comments the overall mix of residential because it was a tremendous strength there for the factors, we talked about relative to pro.

There is a factor and then within the residential segment there is a mix of <unk>.

Speaker Change #214: Profitable profitability, among the products and riders.

Richard M. Olson: And riders is the biggest category, and we have a range of pricing in riders. We've sold more in kind of the entry, mid-level, total mix. Just based on where the demand was, the new product introductions and so forth. So that's predictable in our case. Is that the same dynamic in walks as it is in riders?

Speaker Change #214: <unk> is the biggest category.

Speaker Change #214: We have a range of pricing and riders, we've sold more than cover entry and mid level.

Speaker Change #214: Total mix.

Speaker Change #214: Just based on.

Speaker Change #214: Based on where the demand was the new product introductions and so forth. So.

Speaker Change #214: That's predictable and our case.

Speaker Change #215: Is that the same dynamic in walks as it isn't writers in terms of better success entry mid.

Richard M. Olson: better success. I think the biggest thing would be sort of the relative impact of WOC versus riders, and we have had a very strong year so far in WOC. And, you know, we've seen a nice uptick in our 60 volt battery segment as well, with really strong representation from Lowe's in particular. And what we did see, though, the mix had an impact that our productivity more than offset any higher material and manufacturing costs we saw in the Thanks. Thank you. Thank you. And we have time for one more question. Any calls from the line of Tom Hayes with CL King, please proceed. Hey, good morning, everyone.

Speaker Change #215: Good.

Speaker Change #215: I think the biggest thing we'd be sort of the relative impact of walk versus riders.

Speaker Change #215: We had a very strong year, so far and what's.

Speaker Change #215: We've seen nice a nice uptick in our 60 volt battery segments as well.

Speaker Change #215: With really strong representation with lowest in particular.

Speaker Change #216: Eric what we didn't see though.

Speaker Change #217: Mix had an impact on our productivity more than offset any higher material and manufacturing costs, we saw in the quarter.

Speaker Change #218: That's helpful. Thanks.

Speaker Change #219: Thank you for that thanks, that's all I have.

Speaker Change #220: Thank you.

We have time for one more question any come from the line of Tom Hayes with C. L. King. Please proceed.

Thomas Lloyd Hayes: Thanks for taking my questions. Rick, maybe it's a quick question on the golf industry. It sounds like it's going in the right direction. Any differences between the three primary segments, the private, semi-private, and public courses, in terms of spending?

Thomas Lloyd Hayes: Hey, good morning, everyone. Thanks for taking my questions.

Speaker Change #221: Hey, Bill.

Richard M. Olson: All quite strong still at this point, and the driver across all those is golf participation and rounds played. Rounds played can be more variable depending on, uh, you know, seasonal timing and so forth, but that's about Uh plus four percent or so so far this year year to date through April. So that portion is positive. It affects really all levels of golf, you know, from the most prestigious to the uh, municipal course where I might play. So that's the driver, and we don't see a big difference across those at this point.

Speaker Change #222: Rick maybe just.

Speaker Change #223: Quick question on the golf industry and it sounds like it's going in the right direction any differences between the three primary segments, the private semi private and public courses on spending.

Speaker Change #224: All all quite strong still at this point the driver across all of those as golf participation rounds played rounds played can be more variable depending on.

Speaker Change #224: Seasonal timing and so forth, but thats above.

Plus 4% or so so far this year year to date through April.

Speaker Change #224: So that portion is positive it affects really all levels of golf for the most prestigious to the.

Speaker Change #225: Well of course, where I might play.

Speaker Change #225: So that's that's the driver and we don't see a big difference across those at this point.

Richard M. Olson: Okay, just maybe one more. I think you called out in the press release that the zero turn rollers, you know, continue to be a headwind. I was just wondering what you think needs to occur to turn that around.

Speaker Change #226: Okay, just maybe one more thank you.

Speaker Change #227: Called out on the press release that the zero turn mowers continue to be a headwind I was just wondering what do you think needs to occur to turn that around.

Thomas Lloyd Hayes: Uh, you know, the good news is retail has been very, very strong in that category. So, for us, Any headwind would just be the adjustment that's taking place in our field inventory. So for us, that means fewer shipments of those, especially higher-end Zs or more professional Zs. That was an intentional part of our plan that we built into the year for this year to make that adjustment in our field inventory. That was built into our plan from the start, and it continues to be tracking at or ahead of plan at this point.

Speaker Change #228: The good news is the retail has been very very strong in that category so for us.

Speaker Change #229: Any headwind would just be the adjustments was taking place in our field inventory so for us that means less shipments of those especially higher and these are more professional.

Is that that was an intentional part of our plan that we built into the year for this year is to make that adjustment in our field inventories, though was built into our plan from the start continues to be tracking at or ahead of plan at this point.

Thomas Lloyd Hayes: Okay, I appreciate the color. Thank you. Okay, thank you.

Speaker Change #230: Okay I appreciate the color. Thank you.

Julie A. Kerekes: Thank you. And this concludes the Q&A session. Ms. Kerekes, please proceed with closing remarks. Thank you, everyone, for your questions and interest in the Toro Company. We look forward to talking with you again in September to discuss our fiscal 2024 third quarter results. Thank you, everyone, for attending today's program. You may now disconnect.

Speaker Change #231: Okay. Thank you.

Speaker Change #232: Thank you and this concludes the Q&A session. Mr. <unk>. Please proceed with closing remarks.

Speaker Change #233: Thank you everyone for your questions and interest in the Toro company, we look forward to talking with you again in September to discuss our fiscal 2024 third quarter results.

Speaker Change #234: Thank you everyone for attending today's program you may now disconnect.

Q2 2024 The Toro Company Earnings Call

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