Q4 2024 The Toro Co Earnings Call
Good day, ladies and gentlemen, and welcome to the Toro company fourth quarter and full year fiscal 2024 earnings Conference call. My name is Marvin and I'll be your coordinator for today.
At this time all participants are in a listen only mode.
Facilitating a question and answer session towards.
I don't remember.
Great.
Pay purposes.
Speaker Change: I'll now turn the presentation over to your host for today's conference Julie Cherokees Chaser and senior managing director of global tax related inventions. Please proceed with carriers.
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.
Speaker Change: We also posted a fourth quarter earnings presentation to supplement our earnings release, along with an updated general investor presentation on our call today are Rick Olson, Chairman and Chief Executive Officer, and she drank Vice President and Chief Financial Officer, and Jeremy stuff and director Investor Relations.
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.
Speaker Change: 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.
Rick Olson: During today's call. We will also refer to non-GAAP financial measures, which we believe are important in evaluating the company's performance for more details on these measures. The most comparable GAAP measures and a reconciliation of the two please refer to this morning's earnings release, and our Investor presentation with that I will now turn the call over to Rick.
Rick Olson: Thanks, Julie and good morning, everyone.
Rick Olson: During fiscal 2024, we delivered net sales growth and an extremely dynamic operating environment enhanced our best in class distribution network and began to successfully execute on our major productivity initiative we call.
Rick Olson: And we introduced exciting new products that help our customers succeed with innovations they value.
Rick Olson: As we close out the year, our market leadership position across all our businesses remains strong our innovative product lineup is extremely compelling and we are confident in our ability to deliver value to our shareholders into the future.
Rick Olson: Looking at our full year financial performance, we reported net sales of $4 5 billion.
Rick Olson: Which were up about 1% over last year. This marks our 15th consecutive year of topline growth and demonstrates the strength of our balanced portfolio as well as the disciplined execution by our talented team.
Rick Olson: We delivered exceptional net sales growth for underground construction products.
And golf and ground solutions, our team has substantially increased production within our manufacturing footprint as we strategically manage output to address strong end market demand and satisfy our customers.
Rick Olson: This sustained demand continues to keep order backlog elevated for these businesses.
Rick Olson: Top line growth for the fiscal year was also exceptional in our residential segment. This was driven by successful new product introductions that exceeded expectations, along with the strength of our mass channel, including the first 10 months of our new strategic partnership with Lowe's.
Rick Olson: This relationship is off to a fantastic start highlighted by our respective leadership and the zero turn mower category.
Rick Olson: We're honored to be recognized by lowes as vendor of the year for their seasonal and outdoor department.
Rick Olson: The strength in these areas helped to offset industry wide dynamics affecting other parts of our portfolio. These dynamics included post pandemic correction and macro caution, we're navigating with lawn care products and our dealer channel as well as two consecutive seasons of below average snowfall for our snow and ice.
Management businesses.
Rick Olson: Turning to profitability, we delivered adjusted diluted earnings per share of $4 17 for the full year in line with our expectations.
Rick Olson: Our margins were affected by product mix, given the outsized growth in our residential segment and reduced shipments of higher margin snow products.
Rick Olson: However, on a full year basis productivity net price benefits offset inflation.
Rick Olson: Putting the cost of adjusting production throughout the year as demand patterns continue to shift.
Rick Olson: We were extremely pleased to deliver an increase of more than $300 million and free cash flow for the year.
Rick Olson: This enabled us to return nearly $400 million to shareholders, including share repurchases of about $250 million and an increase in our regular dividend payout.
Rick Olson: These actions demonstrate our confidence in our ability to generate strong free cash flow and deliver positive financial results into the future.
Rick Olson: Turning to the fourth quarter net sales increased nine 4% over last year, driven by increased outputs and shipments for our underground construction equipment and golf and grounds products as expected.
Rick Olson: We also saw growth in shipments of lawn care products to our mass channel and strong dealer demand for our newly launched X Mark lasers, the professional grade zero turn mowers.
These new models raised the bar for reliability quality and productivity and offer X marks exclusive adapt technology to quickly adjust the decorate without tools.
Rick Olson: This enables optimum performance on any turf and any conditions.
Rick Olson: <unk> celebrated 30 years of leadership, it's no surprise that X Mark Morris our preferred two to one by landscape professionals over the next best selling brand.
Speaker Change: Adjusted diluted earnings per share for the fourth quarter increased 34% to 95.
Speaker Change: This result was in line with the outlook, we shared on our third quarter call.
Speaker Change: Similar to the full year sales mix was a margin headwind during the quarter with more residential growth and less snow shipments than originally expected even so our team executed with discipline to prudently manage expenses and drive the best possible outcome.
Speaker Change: Throughout the year, we advanced our three enterprise strategic priorities of accelerating profitable growth driving productivity and operational excellence and empowering people.
Speaker Change: Ill highlight examples of each.
Speaker Change: First we continued to leverage innovation breakthroughs across our businesses innovation is the lifeblood of our company and key to driving long term profitable growth.
Speaker Change: During the year, we introduced new products aligned with market growth trends and the productivity needs of our customers.
Speaker Change: Some examples include the ditch witch W. A warlock series vacuum excavator for underground construction, which provides maximum performance in a compact footprint. This enables underground contractors to safely and efficiently expose install and may preparers to utility infrastructure, even in congested areas.
The Toro grounds Master E 3200, fully electric out front rotary more for golf and grounds. This machine Leverages, our proprietary Hypersound battery system to increase productivity with significantly quieter operation zero of exhaust emissions and no compromise on quality.
Speaker Change: And we launched new and improved zero turn mower models across all three of our brands X Mark Toro and Spartan.
Speaker Change: We also continued to advance our autonomous solutions and our planning wider launches residential and professional autonomous mowers in fiscal 2025.
Speaker Change: Second our team did an outstanding job of delivering productivity gains this year in a quickly changing environment.
Speaker Change: We remain on track to deliver $100 million of annualized run rate savings by fiscal 2027 from our multiyear productivity initiative named Amp for amplifying maximum productivity.
Speaker Change: As we've discussed we intend to prudently reinvest up to half of the savings to further accelerate innovation and long term growth.
Speaker Change: In its first year, our team implemented $14 5 million of annualized run rate cost savings slightly ahead of our expectations.
Speaker Change: We also made targeted portfolio adjustments to further position the company for profitable growth, including divestitures and branch consolidations.
Speaker Change: Earlier this month, we implemented additional adjustments to better align our organizational structure for our long term strategic priorities.
Speaker Change: This resulted in the difficult actions to reduce our workforce by approximately 300, primarily salaried employees. Obviously this wasn't a decision we took lightly.
Speaker Change: And third we ensured our employees and channel partners were aligned and empowered to deliver superior customer care what was once again, a very dynamic operating environment.
Our team remains agile and never wavered from our commitment to doing business the right way.
Speaker Change: In doing so they successfully strengthened our market leadership in our attractive end markets.
Speaker Change: I'd like to reiterate the high confidence we have in our ability to capitalize on future growth opportunities, while simultaneously driving profitability improvement.
Speaker Change: With that I'll turn the call over to Angie.
Angie: Thank you Rick and good morning, everyone.
Angie: We were pleased to deliver net sales growth in the quarter and for the full year.
Angie: At the same time, we drove productivity and net price benefits and continued to make progress in addressing elevated order backlogs and field inventories.
Angie: Consolidated net sales for the quarter were $1 8 billion.
Angie: Up nine 4% from Q4 last year.
Angie: Reported EPS was <unk> 87 per diluted share up from 67% in the fourth quarter of last year.
Angie: Adjusted EPS was <unk> 95 per diluted share up 34% from 71 a year ago.
Angie: For the full year net sales of $4 five $8 billion were up from $4 5 billion last year.
Angie: Reported EPS was $4.01 per diluted share.
Angie: This compares to $3 <unk> last year, which included a noncash impairment charge in our professional segment.
Angie: On an adjusted basis full year EPS was $4 17 per diluted share down slightly from $4 in 'twenty one.
Angie: A reflection of product mix with growth weighted to our residential segment.
Angie: Now to the segment results.
Professional segment net sales for the fourth quarter were $913 9 million up 10, 3% year over year.
Angie: This increase was primarily driven by higher shipments of golf and grounds products and underground construction equipment as we address the sustained demand that have kept order backlog elevated and then.
Angie: <unk> elevation.
Angie: This was partially offset by lower shipments of compact utility loaders as expected given the field inventories have replenished and lower shipments of snow and ice management products also as expected given the elevated field level heading into the season.
Angie: For the full year professional segment net sales decreased three 2% to 356 billion.
And comprised 78% of total company net sales.
Angie: Professional segment earnings for the fourth quarter were $169 $7 million on a reported basis.
Angie: From $124 5 million last year.
Angie: When expressed as a percentage of net sales earnings for this segment were 18, 6% up from 15%.
Angie: The positive change in profitability was primarily due to productivity improvement net sales leverage net price realizations and product mix.
Angie: This was partially offset by higher material and manufacturing costs.
Angie: For the full year professional segment earnings were $638 $9 million up from $509 1 million in fiscal 2023.
Angie: As a percentage of net sales.
Angie: Net earnings were 18% up from 13, 9% last year.
Angie: Residential segment net sales for the fourth quarter were $150 up four 5% compared to last year.
Growth in the quarter was primarily driven by higher shipments of lawn care products to our mass channel.
Angie: Partially offset by lower shipments of snow products.
Higher sales promotions.
Angie: For the full year residential segment net sales were $998 3 million up 16, 9% from $854 2 million in fiscal 2023 and comprised 22% of total company net sales.
Angie: The residential segment reported a loss of $13 8 million compared to a $4 5 million profit last year.
Angie: The year over year decrease was largely due to higher material and freight costs higher warranty and marketing expense and product mix.
Angie: This was partially offset by productivity improvements.
Angie: As we expected we recognized an outsized impact of higher material and freight costs in the quarter.
Angie: This was due to the timing of production and shipments throughout the year.
Angie: The variability was more pronounced than typical given the unique circumstances.
Angie: We prioritize being a good supplier while at the same time adjusting to rapidly changing demand dynamics.
Angie: For the full year residential segment earnings were $78 4 million up from $68 $9 million.
Angie: As a percentage of net sales segment earnings were seven 9% compared to eight 1% last year.
This was largely a reflection of product mix within the segment. This year with the reduction in snow shipments and the weighting towards entry level zero turn mowers.
Angie: Turning to our operating results for the total company.
Angie: Our reported and adjusted gross margin was 32, 4% and 32, 3% respectively for the quarter.
Angie: This compares to $33 five and 33, 6% respectively in the same period last year.
Angie: The decrease was primarily due to higher material and manufacturing costs.
Angie: This was partially offset by productivity improvements.
Angie: For the full year reported and adjusted gross margin were 33, eight and 33, 9% respectively.
Angie: This compares to $34 six and 34, 7% in fiscal 2023.
Angie: The change was primarily driven by higher material and manufacturing costs and product mix.
Angie: This was partially offset by productivity improvements.
Angie: SG&A expense as a percentage of net sales for the quarter improved to 22, 3% from 23, 9% a year ago.
Angie: The improvement was primarily driven by net sales leverage and lower incentive compensation and lower marketing costs.
Angie: This was partially offset by higher warranty expense.
Angie: For the full year SG&A expense as a percentage of net sales was 22, 2% compared to 21, 8% last year.
Angie: Operating earnings as a percentage of net sales for the quarter or 10, 1% up from nine 6% in the same period last year.
Angie: On an adjusted basis operating earnings as a percentage of net sales were 10, 9%.
Angie: An 80 basis point improvement from the fourth quarter a year ago.
Angie: For the full year operating earnings as a percentage of net sales were 11, 6%.
Angie: And on an adjusted basis were 12, 2%.
Angie: These both compared to nine 5% and 12, 9% on a reported and adjusted basis, respectively in fiscal 2023.
Angie: Interest expense for the quarter was $14 $5 million down from $14 9 million last year.
Angie: The decrease was primarily due to lower average outstanding borrowings and lower average interest rates.
Angie: Interest expense for the full year was $61 9 million up $3 2 million.
Angie: The year over year increase was primarily due to higher average interest rates, partially offset by lower average outstanding borrowings.
Angie: The reported and adjusted effective tax rates for the fourth quarter were 17, 7% and 16, 9% respectively.
Angie: These compare with 19, 1% and 19, 3% a year ago.
Angie: The decreases were primarily due to a more favorable geographic mix of earnings this year.
For the full year the reported effective tax rate was 18, 3% compared to 17, 7% in fiscal 2023.
Angie: The increase was primarily due to the impact of noncash impairment charges in the prior year and lower tax benefits recorded as excess tax deductions for stock compensation in the current year.
Angie: This was partially offset by a more favorable geographic mix of earnings this year.
The adjusted effective tax rate for the full year was 18, 8% compared to 24% a year ago.
Angie: The year over year improvement was largely due to a more favorable geographic mix of earnings.
Angie: Turning to our balance sheet.
Accounts receivable were $459 7 million up 12, 8% from a year ago, primarily driven by increased shipments to our mass channel as well as payment terms to that channel.
This increase was expected given the initial year of our strategic partnership with Lowe's.
Angie: Inventory at the end of Q4 was $1 4 billion.
Angie: Down four 5% compared to last year and slightly lower sequentially from the third quarter.
Angie: The year over year decrease was driven by reductions in both finished goods and work in process.
Angie: Primarily driven by lower balances related to lawn care products.
Angie: This was partially offset by higher levels of compact utility loaders as expected.
Accounts payable were $452 7 million.
Angie: Up five 3% from last year, primarily driven by the timing of material purchases.
Angie: Full year free cash flow was significantly higher year over year at $471 million.
Angie: This reflects a conversion ratio of 112% of reported net earnings.
Much improved from 50% in the prior year.
Importantly, our balance sheet remains strong and provides financial flexibility.
Angie: Our leverage ratio is within our stated target of one to two times on a gross basis and we continue to benefit from our investment grade credit ratings.
Angie: During the quarter, we refinanced our $600 million revolving credit facility.
Angie: And at $270 million term loan that we are both set to expire in October of 2026.
Angie: We replaced those facilities with a $900 million revolver, and a $200 million term loan.
The increased revolver side, it's a reflection of the substantial growth in our company since the last upsides in 2018, which was prior to the Charles Machine works acquisition.
This larger revolver also provides a mechanism to reduce future refinancing risk and easily accommodate modestly sized acquisition.
Angie: 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.
Angie: We invested about $100 million in capital expenditures during fiscal 2024, and expect to invest another $100 million in fiscal 2025.
Angie: Our next priority is to return capital to shareholders, both through our regular dividend and through share repurchases.
Angie: We increased our dividend eight per share or 6% for fiscal 2024, and our board just approved another 6% increase for the first quarter of fiscal 2025.
Angie: This consistent increase in our regular dividend payout over time demonstrates the conviction, we have in our strong and sustainable future cash flows.
Angie: With respect to share repurchases, we continue to fund buybacks with excess free cash flow, while maintaining our leverage goals.
Angie: We invested nearly $250 million in fiscal 2024 to repurchase about $2 8 million shares.
Angie: While also paying off our outstanding revolver borrowings and $70 million of term loan.
Angie: We plan to continue repurchasing shares in fiscal 2025.
Angie: A reflection of our strong conviction and future profitable growth opportunities.
Angie: In addition to the dividend increase our board authorized an additional 4 million shares under our repurchase program, putting the total authorization at just over 8 million shares heading into the new fiscal year.
Angie: Before I provide details on our fiscal 2025 outlook I want to take a few moments to address three topics that have been top of mind for investors.
Angie: First order backlog, which is our open order book at a point in time.
Angie: We ended the year with a backlog of about $1 2 billion.
This has improved from about $2 billion, a year ago, but still elevated over what we would consider a normal range.
Angie: The elevation is attributable to two areas of our business underground construction in golf and grounds.
Angie: We continue to expect backlog will be close to normal by the end of fiscal 2025.
Angie: Importantly, we expect the sustained strength in these businesses will help avoid a significant gap as demand and supply normalized.
Angie: We also expect field inventories of our lawn care and snow products to normalize which should provide some offset.
Second field inventory.
Angie: Build levels remained higher than ideal for our lawn care and snow businesses and much lower than ideal for underground construction equipment.
For lawn care products, we still have a little work to get back to normal similar to where we were at the end of last quarter.
Angie: Importantly, we made significant progress in reducing dealer field inventories of lawn care products during fiscal 2024, driven by lower shipments coupled with retail sales growth that outpaced industry averages.
Angie: This outperformance in sell through demonstrates the strength of our brands and market share and our attractive positioning as homeowner markets eventually rebalance.
Angie: We expect to enter the upcoming Turk season, as well as the snow pre season in the second half of fiscal 2025, and a much better field position compared to fiscal 2024.
Angie: Third I would like to comment on the inventory financing.
Angie: In our industry inventory floor plan financing programs are the standard for.
Angie: Our dealer or distributor perspective, the financing operates the same whether it is through red iron ore another financial institution.
Speaker Change: From our perspective, the JV structure allows us to recoup a portion of the floor planning costs, we pay as the OEM, which is a positive for us.
Speaker Change: In terms of Red iron receivables the balance of move around seasonally as expected given the retail flow also follows seasonal patterns.
Speaker Change: With this our red Iron DSO ticked up slightly sequentially from Q3 as is typical given the normal flow.
Speaker Change: However, compared to the fourth quarter of last year, we saw a slight improvement after adjusting for the onboarding of new acquisition balances.
Speaker Change: Importantly, our network of dealers and distributors remains financially sound.
Speaker Change: One data point to consider is the amount of repurchases we were required to make during the fiscal 2024, which was immaterial as usual given the strength of our channels and brands.
Speaker Change: Now moving to our fiscal 2025 outlook.
Speaker Change: With the backdrop I, just provided and based on our current visibility.
Speaker Change: We expect total company net sales growth in a range of zero to 1% for the full year.
Speaker Change: This assumes continued strong demand and stable supply for our businesses with elevated backlog.
Speaker Change: <unk> of the macro caution we have seen in markets connected to homeowners.
And weather patterns aligned with historical averages.
Speaker Change: It also considers the additional adjustments needed to normalize field levels of lawn care and snow products.
Speaker Change: For the professional segment, we expect full year net sales to be up low single digits for the.
Speaker Change: The residential segment, we expect net sales to be down high single digits, which considers the continued rebalancing of our mass partners as well as the full year impact of last year's post divestiture.
Speaker Change: Looking at profitability.
Speaker Change: For the full year, we expect improvement in both adjusted gross margin and adjusted operating earnings as a percentage of net sales.
Speaker Change: We also expect both the residential and professional segment earnings margin to be higher than last year.
With this backdrop, we anticipate full year adjusted diluted EPS in the range of $4 and 25.
Speaker Change: Two $4 40.
Speaker Change: Additionally for the full year, we expect depreciation and amortization of about $125 million to $135 million.
Speaker Change: Interest expense of about $54 million in.
Speaker Change: And adjusted effective tax rate of about 20% and.
Speaker Change: And our free cash flow conversion rate of about 100% of reported net income.
Speaker Change: Turning to the first quarter at fiscal 2025.
Speaker Change: We anticipate total company net sales to be similar year over year.
We expect professional segment net sales to be up low single digits and residential net sales to be down mid single digits compared to the same period last year.
Speaker Change: Looking at profitability.
Speaker Change: For the first quarter, we expect total company adjusted operating margin to be slightly lower year over year.
Speaker Change: We expect the professional segment earnings margin to be similar to slightly higher than the same period last year.
Speaker Change: And the residential segment earnings margin to be slightly lower.
Speaker Change: Overall, we expect our first quarter fiscal 2025, adjusted diluted EPS to be slightly lower year over year.
Speaker Change: We continue to build our business for long term profitable growth and are excited about the momentum we are seeing with amp.
Speaker Change: As our current drive for five employee initiatives Sunset, we are introducing our next initiative called Amp It up.
Speaker Change: This new initiative will align and Incent all employees to drive productivity and profitability with a goal to achieve a total company adjusted operating earnings margin of at least 14% by full year fiscal 2026.
Speaker Change: We are confident in our ability to drive productivity gains and profitability improvement across the enterprise.
Speaker Change: With that I'll turn the call back to Rick.
Thank you Angie.
Rick Olson: We entered the new fiscal year with confidence and optimism.
Rick Olson: In an environment that has included industry wide headwinds in some of our markets for the past few years, we've improved our operational capabilities and invested in innovation to position the company for long term growth.
Rick Olson: Importantly, our business fundamentals and market leadership remains strong.
Rick Olson: Looking ahead, we are keeping a close eye on macro factors, including the economy consumer and business confidence and the geopolitical environment.
Rick Olson: Closely monitoring the benefits and risks of any potential policy changes under the new administration and are prepared to take actions as appropriate.
Rick Olson: I'll now comment on the demand dynamics and our specific markets for.
<unk> underground construction, we expect demand to remain strong supported by both public and private multi year spending.
Rick Olson: We have visibility into the compelling runway of projects to address global infrastructure needs, including communications utilities and data centers infra.
Rick Olson: Infrastructure spending remains a positive outlier in the broader construction industry with consistent growth projected for the foreseeable future.
Speaker Change: For specialty construction, which includes our Toro dingo, an ditch witch <unk> lines of compact utility loaders fueled levels have been replenished across the industry.
Speaker Change: For the rental market, which is a meaningful part of specialty construction expectations are for a return to mid single digit growth next year. Following three years of double digit growth.
Speaker Change: Next month's American rental Association show should provide some initial visibility into 2025 order patterns will be watching those along with demand trends in construction and landscape markets or we expect some macro caution for homeowner projects.
Speaker Change: For golf and grounds rounds played and new golfer data reinforce that the industry has sustained momentum worldwide.
Speaker Change: This in turn reinforces the durability of demand.
Speaker Change: Expect continued emphasis on equipment and irrigation investments for existing courses as well as demands driven by new course development.
Speaker Change: For lawn care solutions, starting with landscape contractors, we expect stable retail demand driven by regular replacement activity with some pockets of price sensitivity given the interest rate environments and field inventory remains elevated in the industry.
Speaker Change: For homeowners, we expect the caution we have seen in these markets to continue into 2025.
Speaker Change: We will be watching how macro factors and interest rates affect consumer spending patterns over and above regular replacement needs and certainly favorable growing conditions would be beneficial.
Speaker Change: For snow and ice management contracts budgets are in good shape, following a better turf growing season.
Speaker Change: If more normal snowfall patterns return in fiscal 2025, we would expect indices in retail to pick up for both contractors and homeowners.
Speaker Change: Far the weather patterns appear to be tracking more favorable than last year, but it's still early in the season.
Speaker Change: For residential and commercial irrigation and lighting, we expect the outlook for commercial products to be solid and outpaced demand for homeowner projects for homeowners. We expect continued caution at least in the near term.
Speaker Change: And finally for agricultural micro irrigation, we expect similar conditions to last year with generally stable demand from growers.
For all of our irrigation businesses, we are committed to designing end to end solutions that address the worldwide need for efficient water use.
Speaker Change: For example, our Aqua tracks Atul drip tape lineup for micro irrigation offers unmatched precision, enabling growers to maximize crop yield with the least amount of water.
We're also focused on automation that helps our customers stay connected so they can easily manage and improve outcomes from any location.
Speaker Change: This includes our Toro links and Toro Dx side Central control systems for golf and commercial applications as well as our Tempus <unk> automation system for agricultural use.
Speaker Change: Before we take questions I'd like to reiterate why we're so excited about the future and what we see as the greatest growth opportunities ahead.
Speaker Change: First we are excited about the underground construction business, which has extremely compelling near and long term prospects driven by strong global trends.
Speaker Change: There is rapidly growing demand for data communication infrastructure and energy grid modernization as well as a global focus on replacing aging infrastructure.
Speaker Change: Importantly, we are very well positioned as a worldwide leader with the most innovative comprehensive equipment and brand lineup in the industry.
Speaker Change: As well as a best in class channel and deep relationships.
Speaker Change: Second our golf business is also exciting due to the winning combination of positive long term market fundamentals, coupled with our strong market leadership.
Speaker Change: Like underground construction, we have deep relationships and a comprehensive lineup of industry, leading innovative products and solutions.
Speaker Change: We have a distinct competitive advantage as the only company to offer both equipment and irrigation solutions for this market and as the worldwide market leader in both.
Speaker Change: Third we continue to strengthen our multi brand leadership in the important zero turn mower space.
Speaker Change: This represents the largest single lawn care category for both our professional and residential segments.
Speaker Change: We've enhanced our market leadership position through investments in our innovative product lineup and the strategic development of our independent dealer networks and mass partnerships.
Speaker Change: We're positioned extremely well for further growth, especially as these markets return to normal strength.
Speaker Change: Fourth we have a proven ability to leverage our technology and innovation investments across our broad portfolio.
Speaker Change: This enables the accelerated development of new products that help our customers drive productivity and superior results, while enhancing the total company's competitive advantage and ensuring market leadership into the future.
Speaker Change: We're excited about the upcoming retail launches autonomous products across our portfolio, including residential commercial and golf applications.
Speaker Change: This includes our total haven robotic mower X Mark <unk>.
Speaker Change: First tracer with ex Q technology, and <unk> solutions eponymous fairway mower.
Speaker Change: We will continue to drive return on innovation with prioritized investments, including the key technology areas of alternative power smart connected and autonomous solutions.
Speaker Change: And finally, it comes down to our disciplined execution and consistent financial performance, we reported 15 consecutive years of top line growth.
Speaker Change: We built a strong and agile organization that has been resilience through many macro cycles.
Speaker Change: The talented team that is determined to capitalize on all of our opportunities and we have the best network of strategically aligned channel partners focused on going above and beyond to serve our customers every day.
Speaker Change: All of this positions us extremely well to drive value for our customers our channel partners and our shareholders in both the near and long term.
Speaker Change: With that we will open up the call for questions.
Speaker Change: Ladies and gentlemen, if you wish to ask a question. Please press star followed by one one on your touch telephone.
Speaker Change: Your question has been answered or you wish to a truck a question press star followed by one one again.
Speaker Change: Please standby for your first question.
Speaker Change: Your first question comes from the line of Eric Butler of Cleveland Research Company. Your line is now open.
Speaker Change: Thanks.
Speaker Change: Two things I.
Speaker Change: I guess first of all the residential profit contraction in the quarter was a little different than I guess, many <unk> have looked like anything <unk>.
Speaker Change: The unique or any way you could help us better understand.
The residential profit performance in the quarter.
Speaker Change: Good morning, Eric I'll take this one so we anticipated a tougher quarter in Q4 for residential we have.
<unk> volume as usual and mix also played a role with that lets snow and more entry level zero turn mowers.
We also have a focus on being a good supplier, which we mentioned in our prepared remarks and that drove some increased freight from manufacturing efficiencies and some additional programming as well.
Speaker Change: Overall, just a reminder, if you look at the full year, we're at about 8%.
Speaker Change: Operating margin of our residential margin for the year.
Speaker Change: Okay.
And then Rick I thought.
Speaker Change: Thought it was helpful to hear a lot of a lot of tailwind that you see within the business as we move forward I guess the question is.
Speaker Change: 90 days ago, I think the expectation was pro up 15% and it was up 10 in the quarter and I know there was talk of five.
Speaker Change: 5% or perhaps a path to 5% growth in 'twenty, five and now it zero to one and so I guess my question is with the tailwind certainly attacked like what's different in terms of the revenue performance in pro in the quarter and the total outlook in 'twenty five.
Speaker Change: Yes, I think if you first of all good.
Speaker Change: To hear from you Eric if you look at the pro business. If you look at just in general our outlook for next year. It does it does reflect a little bit of the caution that we saw and started to talk about in the third quarter, particularly with those the homeowners that are buying the professional product from the web site contract.
Speaker Change: Her side.
Speaker Change: So that's that's part of what continues into next year as well, we have yet to see how that plays out along with other factors.
Speaker Change: And then keep in mind snow is.
Speaker Change: We're off to an okay start I guess for the season, but thats factored in as well.
Speaker Change: Do see obviously continued strength in pro from the major areas, where we've had backlog the underground construction.
Speaker Change: And golf and grounds, which are an extremely healthy condition and so it's really these other these other factors seawalls were off a little bit. So we see some adjustments taking place in that as we get into the first part of the year, but we are well positioned in our markets from a leadership standpoint and.
Speaker Change: We are well positioned for the future for professional growth.
Speaker Change: It just reflects the caution that we talked about it in the third quarter.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you for.
Speaker Change: Your next question.
Speaker Change: And your next question comes from the line of Mike Sharkey FBA.
Speaker Change: Got it.
Speaker Change: Yeah.
Yes, hi, good morning, and thanks for taking my questions here.
Speaker Change: Alright.
Speaker Change: Hi, there guys.
Speaker Change: Hey, Greg can give more detail on the amp it up initiatives that you mentioned Rick.
Speaker Change: Looking at your slides here, that's got a nice looking logo.
I guess I'm curious how it differs from.
Speaker Change: The original program that you've got here I guess.
Speaker Change: As an amped up version of what you're already doing.
And I live and more about what's involved in the vault, taking more employee suggestions and rewarding them for it or are there other things we should be thinking about here.
Speaker Change: Paul.
Speaker Change: First of all I'll, let Andy.
Andrew: Andrew you talked about those she is actually the spa.
Andrew: Sponsor of Amp and Amp it up as really an extension of our Amp initiative. If it's if you recall, Mike you've got a lot of history with US we understand some of the employee initiatives that have been really central to.
Andrew: Focusing our employee base on what's really critical in this case, so we're really.
Andrew: Compounding the emphasis on our amp initiatives amplifying maximum productivity by really focusing our entire employee base on productivity cost improvements efficiency.
Speaker Change: Bean factors et cetera, and with that Angie, yes does that so that kind of covers that covers that really well into this year is going to be are at this time, it's going to be a two year employee initiative and and just a reminder, it's our internal goal, it's not guidance, but it will be a profitability focus like you mentioned like list with.
Speaker Change: All employees being focused on profitability, so really aligns with that productivity initiatives that Rick mentioned and for all of us to go and look for ways to become more profitable.
Speaker Change: Okay.
Speaker Change: I just wanted to ask about your autonomous but you've mentioned a few times in your comments yet.
Speaker Change: It sounds like it's going to be a bit of a larger.
Speaker Change: Launch than maybe previous tests have been okay.
Speaker Change: We have retail launch here.
Any thoughts as to what the penetration might be after the first year, maybe secondly.
Speaker Change: After the fifth year like what's the what's the curve you expect to.
Speaker Change: See here given the pricing kind of what it delivers it may differ by the three by the by the central versus the professional group just kind of thoughts as to what that might mean mix wise.
Speaker Change: Margin wise over some period of time would be appreciate it.
Speaker Change: But just do you are you are correct. This is a pretty significant launch across three areas. So it includes both our golf and includes our golf business of the commercial equipment with the.
Speaker Change: Turf tracer.
Speaker Change: The Haven on the.
Speaker Change: On the consumer side.
Speaker Change: The homeowner side, if you look at penetration we don't have specific numbers that we're talking about at this time, but the penetration would be higher and the kind of the order that I gave them so higher penetration in golf and the commercial applications.
Speaker Change: The residential business is already a very competitive business from a robotic standpoint. So just by nature of there are a lot more players there. But this is this is really the fruits of the waivers of many people and the investments that we've made through the years. These are really.
Speaker Change: <unk> machine technology, if you have a chance to see it operates see these machines operate and that's really an indicator of more to come. So I would just add Mike. It's probably the reason why you're asking the question, but the timing could not be better as our customers are extremely concerned about labor availability as we go forward. So.
Speaker Change: Theres more interest than ever so it's been there's been a lot of work that have guidance for these products of this technology.
Speaker Change: The timing of introducing could not be better.
Rick Olson: Exciting Rick Thanks, so much for the.
Speaker Change: Discussion I'll hop back in the queue.
Speaker Change: Thanks, Mike.
Speaker Change: Thank you for your next question.
Speaker Change: Your next question comes from the line of David Macgregor of Longbow Research. Your line is now open.
Yes, good morning, everyone. Thanks for taking the questions.
Speaker Change: I wanted to start on the residential business and.
Speaker Change: Stronger than expected growth in the fourth quarter, but first quarter guide is down mid single digits can you just discuss the extent to which.
Fourth quarter programming and promotions may have pulled forward unit volume from the first half of 'twenty five.
Speaker Change: Yes, good to talk to David and really if you look at the first quarter guidance, it's really consistent with what I mentioned before it really reflects what we talked about in the third quarter.
Speaker Change: More caution from our homeowners as we headed into this year, the lower snow even relative to last year and consists.
Speaker Change: Consistent with our.
Speaker Change: The commentary previously the channel has a lot of snow product in it right now so even as we're getting a little bit of.
Speaker Change: Both snow.
Speaker Change: That's happening, it's drawing down that field inventory and it creates more of an opportunity for the second half for us. So that's.
The snow.
<unk> itself.
Speaker Change: Headwind.
Speaker Change: Those will be part of the snow story as we get into the second half of the year.
Speaker Change: Yes, those are probably some of the bigger factors then if you look at.
Speaker Change: If you do look at our forward projections that residential will be taking out the pope divestiture that becomes part of it.
Speaker Change: And <unk>.
Speaker Change: Bottom line the positive side is whats driving.
Speaker Change: Our business there is a great product lineup with the investments that we have.
Speaker Change: Jade.
Speaker Change: In that area. So any any caution that you see there just reflects what we talked about in the third quarter, but still kind of the off season for the spring product. So we'll really see how the flows and the macro factors that were there if there is improvements in those.
Speaker Change: Right.
Speaker Change: A follow up question, but I just want to clarify here, so youre, saying that pull forward was not an issue here.
Terms of.
Speaker Change: The strength of <unk> versus the weakness in <unk>.
The nothing unusual for us pull forward.
Speaker Change: With regard to pull forward.
Speaker Change: If the atmosphere right now where there is a lot of industry wide promotions.
Speaker Change: The independent factors that we can for you we're actually in a better.
Significantly better field position than our competitors.
Speaker Change: You also can.
Speaker Change: There are factors for example of new product introductions.
Speaker Change: X smart cards, Mark team introduced a new laser platform I think we mentioned in our prepared remarks.
Speaker Change: Those metrics. So there are a lot of factors, but we don't have any discomfort about.
Speaker Change: Pull forward in the fourth quarter.
Speaker Change: Okay and then my follow up question is just with regard to the 2025 guidance and you talked about net sales growth relatively flat maybe up 1%.
Speaker Change: But you've got your margins just gross margins up and not slightly I mean, theres no word slightly in there so.
Speaker Change: Yeah.
Speaker Change: So youre setting up for a pretty good incremental performance or incremental margin performance and I was wondering if you could just sort of talk about the puts and takes within that incremental margin performance what is driving that strength of 25.
Speaker Change: And as you can maybe speak to the specifics, but just in general it reflects our strategy to position ourselves next year with.
Even if there is.
Speaker Change: Lower growth on the top line, we want to position ourselves to be able to improve profitability.
Speaker Change: Reflected in and that's reflected in the action. So we've taken that we've described even.
Speaker Change: The workforce reduction those kinds of things, but positioning ourselves to be able to improve profitability and if we are.
If we are surprised to the positive fuel regrets positioning ourselves to be more competitive as well.
Speaker Change: Yes, and I'll, just also add to that.
Speaker Change: Some product mix, we expect some additional snow and it will be better in the back half than it is in the first half.
Speaker Change: Great.
Speaker Change: Do you expect that raw materials would be a good guy next year.
Speaker Change: I think we're pretty stable on our commodities overall.
Speaker Change: Yes, David.
Speaker Change: Some favorability.
Speaker Change: Maybe to continue into the first half 'twenty five.
Speaker Change: Got it thanks very much.
Speaker Change: Thank you.
Speaker Change: Thank you for your next question.
Speaker Change: Your next question comes from the line of Tim <unk> with Baird. Your line is now open.
Speaker Change: Hey, everybody good morning.
Speaker Change: Morning.
Speaker Change: Good morning, maybe just my first question is maybe just the Etfs kind of cadence for the year. So thanks.
Speaker Change: Thanks for the Q1 comments.
Speaker Change: I guess as you think about the rest of the year I mean should we expect.
Speaker Change: Are you expecting.
Speaker Change: Earnings growth on a year over year basis for the remaining three quarters or is the guidance kind of more second half weighted than that just trying to kind of think about how that how we should kind of pace earnings through the year.
Speaker Change: So we havent guidance, specifically for the rest of the year, there, but that our cadence is typically that our second and third quarters are our largest quarters as is typical and we do expect to.
Speaker Change: Closed into a more normal backlog by the end of F. 'twenty five and for sales and EPS, both and we expect our second half to be greater than our first half really because of that snow and lawn care field inventory being in a better position.
Speaker Change: Okay.
Hey.
Speaker Change: And I guess on the backlog.
Speaker Change: You ended the year at $1 2 billion.
Speaker Change: You've kind of chewed through a fair amount of that I mean, what are you kind of imply when you say normalized backlog and kind of ending the year at a normalized number.
Speaker Change: What are you kind of implying for that and I guess.
Speaker Change: Within the $1 2 billion, how much of that todays golf and how much today of that is underground now.
Speaker Change: Yes, the two largest remaining areas that you called them out in our golf and grounds and underground and.
Speaker Change: What we've talked about is getting down to a more normal run rates that makes the positive thing about those two remaining areas as the long term demand trends for them look to be extremely positive.
Speaker Change: So our goal this year.
Speaker Change: As to bring them down to the more long term run rates because of the demand looks quite durable there.
Speaker Change: I mean, the good news, we also have offsets.
Speaker Change: <unk> that are going through a correction right now that we would expect to return to contributing to that as we get into this year. So it's really speaks to the strength of the portfolio. We've been able over the last two years to really whether those corrections in those markets.
Speaker Change: With the business that we're talking about here with underground in golf and grounds.
Speaker Change: I would just go back to that we've made.
Speaker Change: Yes in both of those businesses offer volume for golf and grounds and underground construction and have 24, our ability to produce within our given our footprint has been a tremendous help to our business. So that really speaks to the work that our operations people are doing.
Speaker Change: Okay. Okay. So so you don't have like a normal like you don't have like a number where you are saying like 700 million or something like that it's a normal backlog.
Speaker Change: Or.
Speaker Change: We've got something in mind, I think that we're thinking it's probably south of $600 million.
Speaker Change: Okay.
Speaker Change: That's helpful and then I guess just.
Speaker Change: I mean on this like mathematically you can can you provide like an air pocket in fiscal 'twenty, six and in like golf and underground just I guess, if youre shipping backlog youre kind of tactically over shipping demand. So if you have normal demand next year.
Speaker Change: I guess does it inflect mathematically imply that those businesses are down I'm, just trying to understand if there's a way to kind of prevent that I know like landscape, probably normalizes, but it just seems like you could have still some kind of volatility in those businesses too.
Speaker Change: So I think the key really is the the the durability of the demand. So if demand continues at a more normal rates and we can return to a more normal rates of fulfilling the demand we've got.
High confidence in the quality of the orders that are out there right now in fact, we have gone through an exercise to refresh them and make sure that they are correct.
Speaker Change: So we've got high confidence in the demand. That's there we have good confidence in the future demands and.
Speaker Change: Our work is to manage that to a more normal level.
Speaker Change: In the.
Speaker Change: But theres not a collapse in demand of the market, which we don't believe there will be we have the ability to manage that back down to a more normal rate.
Speaker Change: Without the ERCOT market that you are talking.
Speaker Change: Okay and then okay.
Speaker Change: Yes.
Speaker Change: The backups.
Speaker Change: The port.
Speaker Change: As a backup to the plan is that we the strength of the portfolio. We have other businesses that will be coming back online eventually snow returns to normal.
Speaker Change: The landscape contractor business.
Speaker Change: Books getting.
Speaker Change: Getting healthier oils.
Speaker Change: Okay. Okay, I understand and then if I could squeeze one more last one in just on the upcoming administration I guess do you explicitly have anything in the guidance related to tariffs.
Speaker Change: And then how have you kind of thought about immigration.
Speaker Change: I know a lot of your products drive productivity, so that could be a positive but.
Speaker Change: Is there a risk that some of your customers could actually just has.
Speaker Change: Our lower earnings year, if they just don't have as much labor to complete the same number of jobs I guess I guess, how have you how would you kind of answer that question.
Speaker Change: Maybe going backwards.
Speaker Change: Most of our customers really have jobs that has to get done one way or another so they've got they are maintaining a property, let's say or a golf course or a municipality that work has to be done and if they are restricted on labor. They are going to be exceptionally interested in higher productivity machines, whether it's.
Speaker Change: The ultimate would be autonomous, but we also have many solutions just provided much higher productivity of what.
Speaker Change: But a high return on investment so that we believe.
Demand for those products will be greater.
Speaker Change: So we view that.
Speaker Change: As a positive.
So going to be a challenge for our customers and then just back to tariffs just a couple of things. We have not included the effect of tariffs in our guidance.
Speaker Change: I would just remind that the vast majority of our products are produced in the United States and virtually all of our professional products.
Speaker Change: We do have production in Mexico for some of our more.
Speaker Change: Price competitive products.
Speaker Change: And with regard to China, specifically, we substantially reduced our China risk since 2016, so we've done some positioning for this.
Speaker Change: Current situation I think the biggest thing is we are closely monitoring all of the factors and making sure that we've got mitigation in place for anything that would be negative and then on the flip side, just making sure. We take advantage of what we see is a number of very positive potential moves that are out there as well.
Okay.
Speaker Change: Thanks for all the color and taking the ask your questions and I appreciate it.
Speaker Change: Thank you Tim.
Speaker Change: Thank you.
Speaker Change: Your next question.
Speaker Change: The next question comes from the line of Josh Wilson of Raymond James Your line is now open.
Josh Wilson: Good morning, Thanks for taking my questions.
Hi, Josh.
Josh Wilson: Just a point of clarification first as it relates to the 25 guidance. When you talk about stable conditions for landscape contractor and Intimidator does that mean.
Josh Wilson: Assuming sales are those.
Josh Wilson: Sub segments are flat year on year and $25 24.
Josh Wilson: I'd say, we're still working down the field inventory for both of those.
Josh Wilson: We haven't said that they're flat, but we are we will be working those down for about snow and lawn care off deals and including about the best that she mentioned, but we expect it to be better year over year.
Speaker Change: We quoted.
Speaker Change: 80% number I believe in the third quarter of the work that we've done to bring field inventory down.
We probably would have expected that to go even further by this point, but we're probably at a similar level. So we still have some work to do to adjust our field inventory, where we are in a much better position than we were last year at this time.
Speaker Change: Yeah.
Speaker Change: Got it thanks for that.
Speaker Change: Thank you.
Speaker Change: Thank you for your next question.
Speaker Change: Your next question comes from the line of Jackson.
Speaker Change: With Northland Your line is now open.
Speaker Change: Thanks, very much a scanner Keith got into the Q&A.
Speaker Change: Good morning.
Speaker Change: England.
Speaker Change: My first question is pretty simple some kind of the flip side of the earlier question with regards to working through the backlog and an air pocket.
Speaker Change: As you normalize your dealer inventory and let's say you hit your expectation of getting that normalized before you exit this year with the flip side being the case that where we could see a pickup in.
Speaker Change: Your sales.
Speaker Change: Because you're no longer having to deal with that headwind and that would be something that could be a tailwind for you in 2026, and perhaps even the second half of 'twenty.
Speaker Change: Okay.
Speaker Change: I think.
Speaker Change: Ted you speak to I mean, there's a couple of elements of that first of all the movement of our various markets. So if you do if you did have a continuation of healthy markets for golf and underground, which we believe is a.
Speaker Change: Along.
Demand looks positive from our perspective at this point.
Speaker Change: And with the recovery potentially and landscape contractor.
And some of the areas that have been a little bit muted that would be a combination that would be positive net positive for sales. So I think that's definitely true.
True, but subject.
Speaker Change: The year plays out macroeconomics et cetera.
Speaker Change: Yes, well look Hey, you know, it's gonna Smelly model.
Speaker Change: Pointing it out.
Speaker Change: Where we are.
Speaker Change: They are lower.
So second question.
Speaker Change: You commented in the last call that you were seeing the rental market.
Speaker Change: Softened and it was <unk>.
Speaker Change: Looking for an update on that.
Speaker Change: Listen to their calls during the third quarter for most of the rental houses.
Speaker Change: They are clearly kind of.
Speaker Change: Yes.
Speaker Change: They're not getting the utilization rates they had in the past the outlooks for us a little more subdued.
Speaker Change: Pulling back on some of their Capex I mean, I know, it's just one portion of your business and not.
Speaker Change: Thing that drives everything, but but what have you seen with that business as you've gone through the fourth quarter.
Speaker Change: So we did we.
Speaker Change: Think we may have called out.
Speaker Change: More caution from our rental customers that is.
Speaker Change: Not a huge portion of cigna.
Speaker Change: A significant portion of our <unk>.
Speaker Change: Especially specialty construction business, the compact utility loaders Toro and <unk>.
Speaker Change: And ditch witch.
Speaker Change: Two sides of the vessel the national rental.
Speaker Change: Rental people has done some capital investments over the last several years. So their fleets are relatively more new.
Speaker Change: I think the caution that they've seen is just in some of the construction areas.
Speaker Change: Resulted in less plus rental.
Speaker Change: They have obviously much better commentary on that than we do on the independent rental those tend to be more towards.
Speaker Change: Homeowner projects landscaping projects, etcetera, and Thats, where we see a very similar kind of caution to our homeowners, but shows up and landscape contractor, our landscape contractor professionals, who use and residential business. So.
Speaker Change: So we think that that we expect that to kind of move with.
Speaker Change: Consumer confidence and other factors the macro factors that we've talked about them.
Speaker Change: And more normalizing.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay I'll leave it to license the Q will be out later today is that correct.
Speaker Change: That's correct.
Speaker Change: Okay, great. Thanks for taking my questions.
Speaker Change: Alright, thank you.
Speaker Change: This concludes the question answer session with carriers. Please proceed to closing remarks.
Speaker Change: Thank you Marvin and thank you everyone for your questions and interest inventory company and wish you a safe and joyous holiday season, we look forward to talking with you again in March to discuss our fiscal 2025 first quarter results.
Speaker Change: Thank you for your participation in today's conference. This does conclude.
Speaker Change: No.
Speaker Change: Okay.
Yes.
[music].
Speaker Change: Mhm.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: So.
Speaker Change: Hum.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change:
[music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: [music].
Speaker Change: [music].
Speaker Change: [music].