Q1 2025 The Toro Co Earnings Call
Com. We have also posted a first quarter earnings presentation to supplement our earnings release. On our call today are Rick Olson, Chairman and Chief Executive Officer, Angie Drake, Vice President and Chief Financial Officer, and Jeremy Stephens, Director of Investor
Jeremy Stephan: 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.
Jeremy Stephan: Additional information regarding these factors can be found in today's earnings release and in our investor presentations as well as in our SEC reports.
Jeremy Stephan: During today's call, we will also refer to non-GAF financial measures, which we believe are important in evaluating the company's performance. For more details on these measures, the most comfortable GAF measures, and their reconciliation of the two, please refer to this morning's earnings release and our investor presentation.
Rick Olson: But that I will now turn the call over to Rick
Rick Olson: Thanks, Julie, and good morning, everyone. fiscal 2025 is off to a solid start as we reported first quarter bottom-line results that exceeded the expectations we shared on our last call.
Rick Olson: We delivered this result despite the low average snowfall in key markets. This is a testament to our compelling market leading lineup of innovative products, the discipline and execution by our talented team, and the extraordinary customer service provided by our best-in-class network of channel partners.
Rick Olson: For the quarter, we achieved total company net sales of nearly $1 billion with growth in the professional segment, offset by lower shipments as expected in residential.
Rick Olson: We grow a professional segment growth by successfully increasing output for golf and grounds products. Demand remains robust in golf, coming off another record year of grounds played and order backlog remains elevated.
Rick Olson: Nelson delivered on strong channel demand for our new contractor grade zero-term mores ahead of the upcoming spring season.
Rick Olson: This includes our 30th anniversary X-Mark Laser Z lineup, featuring our exclusive Adapt technology to enable quick, tool-free adjustments of the ZEC Rake.
Rick Olson: The residential segment continued to be affected by elevated field inventories of cell products. In addition, last year's first quarter included pulp products, which we divested in Q3 of 2024.
Rick Olson: Despite the slight reduction in overall sales, we increased adjusted diluted earnings per share to 65 cents on the momentum of our amplifying maximum productivity or amp initiative, along with improved profitability in the professional segment.
Rick Olson: Professional profitability improvement was driven by a favorable mix, positive net price, and prudent expense management in addition to productivity gains.
Rick Olson: Based on our first quarter results and our current visibility, we are maintaining our full-year fiscal 2025 net sales and adjusted deluded earnings per share of guidance.
Rick Olson: Due to the uncertain and rapidly changing tariff environment, this guidance excludes all incremental tariffs introduced year-to-date with the exception of the additional tariffs on China imports that came into effect in February .
Angie will walk through her guidance details shortly.
Rick Olson: We continue to take action as to strategically position the enterprise for sustained profitable growth.
Rick Olson: They expect to drive strong returns by prioritizing innovation that directly addresses our customers most pressing needs and aligns with key market growth trends.
Rick Olson: Across all our businesses, we are launching cutting-edge products equipped with the latest technologies, reinforcing our commitment to industry leadership and long-term success.
Rick Olson: Our innovation leadership was very apparent at the recent golf course Superintendents trade show, where we showcase our suite of robotic solutions.
Rick Olson: This included the introduction of our new Toro Turf Pro, autonomous motor with GPS RTK technology, ideal for multiple golf course applications as well as sports fields and grounds.
Rick Olson: The turf probe helps customers improve productivity while keeping grounds consistently well-manacured by going up to 18 and a half acres three times a week with minimal operator input.
Rick Olson: Our new X-Mark Tourist Tracer with XIQ was also on display. With its 60-inch cutting deck, the Tourist Tracer with XIQ provides another robotic option for golf customers focused on productivity and efficiency.
Rick Olson: B-Solutions are an excellent complement to our Toro Geo Link autonomous fairway more, which we are rolling out more broadly this spring.
Rick Olson: For Driving Range Applications, we introduced our new Toro Range Pro golf ball picking robot, also a GPS RTK technology.
Rick Olson: The Range Pro is capable of collecting over 15,000 balls in 24 hours. This is a game changer by our customers looking to free up time and labor while simultaneously maintaining a clean range for golfers.
Rick Olson: We also showcase several industry leading advancements in smart connected solutions that meaningfully increase efficiency and improve results for golf course superintendents.
Rick Olson: He's included our all-new and tele-360 web-based digital toolkit to streamline turf equipment management, as well as our renewed links drive platform for full mobile irrigation control.
Rick Olson: These tools are designed to give superintendents the real-time information and flexibility they need to make proactive decisions anytime and anywhere.
Rick Olson: Another highlight of the golf show was our announcement of an exclusive partnership with Terror Rad, a leader in advanced soil moisture mapping technology.
Rick Olson: Together, we are introducing the first of its kind, data-driven soil moisture sensing and management software. This software, called Spatial Adjust, will integrate exclusively with our Toro Lynx Central Control Platform.
Rick Olson: He will provide real-time moisture mapping while mowing, along with individual irrigation had adjustment recommendations that could be made with a click of a button.
Rick Olson: By eliminating the need for manual soil probing and streamlining irrigation scheduling, this groundbreaking technology will allow superintendents to optimize turf health while at the same time reducing water consumption and operating costs.
White Golf. Another key market opportunity is in underground construction.
Rick Olson: We recently filled an important gap in our strategic underground product portfolio with the acquisition of Procassero Services, U.S.A.
Rick Olson: They are the exclusive U.S. distributor of Germany's Procastoral Nechatronics industry leading U.V., Sheridan Place, Pipelineing, and Robotics Equipment.
Rick Olson: These trenchless solutions are used for the inspection and rehabilitation of water, waste water and storm water, main line pipes. They perfectly complement our market leading blue light LED product for the lateral light cure market.
Rick Olson: We see the opportunity to capture early market adoption in the US in this fast-growing space by partnering with the proven brand leader in Europe on current and future products for capitalizing on synergies with our hammerhead product portfolio.
Rick Olson: In addition to driving innovation and adding strategic products to our portfolio, we continue to make progress enhancing productivity and profitability with our AMP initiative.
Rick Olson: During the first quarter, we implemented nearly $50 million in run rate savings, bringing our total today to $64 million.
Rick Olson: The savings implemented in Q1 were primarily driven by headcount actions we took in December to better align our organizational structure with our long-term strategic priorities.
Rick Olson: We also continue to make progress in driving savings with our supply-based transformation.
Rick Olson: We remain on track to deliver a hundred million dollars of annualized run rate savings by fiscal about 2027 from here.
Rick Olson: As we've discussed, we intend to prunently reinvest up to half of the savings to further accelerate innovation and long-term growth.
Rick Olson: Importantly, everything we are doing with AMP helps fuel our enterprise strategic priorities of accelerating profitable growth, driving productivity and operational excellence, and empowering our people.
Rick Olson: We remain confident in our ability to generate consistent strong cash flow and deliver positive financial results into the future.
Rick Olson: This was demonstrated by our repurchase of $100 million in shares during the quarter following nearly $250 million in repurchases last year, but that I'll turn the call over to Angie.
Angie Drake: Thank you, Rick, and good morning, everyone. We're pleased to deliver adjusted deluded EPS growth in the quarter, driven by improved profitability.
Angie Drake: Consolidated net sales for the quarter were $995 million down slightly from Q1 last year. Note that Q1 last year included net sales from the Pope products business while the current year does not.
Angie Drake: reported EPS with 52 cents per diluted share compared to 62 cents last year. Adjusted EPS with 60 cents per diluted share up from 64 cents.
Down to the segment results [inaudible]
Angie Drake: Professional segment net sales for the first quarter were $7608.8 million, about 1.6% year-over-year. This increase was primarily driven by three factors.
Angie Drake: First, higher shipments of golf and grounds products as a result of increased output to address the sustained demand that has kept water backlog elevated.
Angie Drake: Second, increased shipments of your return moors. This is a reflection of strong channel demand for new models and improved field inventory levels. And third, net price
Angie Drake: These positive factors were partially offset by lower shipments of compact utility loaders as expected, following last year's channel replenishment and this year's increased macro caution.
Angie Drake: Professional segment earnings for the first quarter were $127.2 million on a reported bank, up 13% from $112.8 million last year.
Angie Drake: When expressed as a percentage of net sales, earnings for the segment were 16.5 percent up from 14.9 percent.
Angie Drake: The positive 160 basis point change in profitability was primarily due to net sales leverage, product mix, and productivity improvement. This was partially offset by higher material, manufacturing, and break off.
Angie Drake: Residential segment net sales for the first quarter were $221 million. They all have expected from $240 million last year.
Angie Drake: The Deep Rease was primarily driven by lower shipments of snow products given elevated field inventory heading into the season, lower shipments of portable power products.
Angie Drake: The post-advests that were last year and higher sales promotions and incentives. These factors were partially offset by higher shipments of de-return and watt-power motors.
Angie Drake: Residential segment earnings for the quarter were $17.2 million, compared to $23.5 million last year.
Angie Drake: When expressed as a percentage of net sales, earnings for the segment were 7.8% compared to 9.8% last year.
Angie Drake: The decrease was largely due to higher material, manufacturing and freight costs, higher sales promotions and incentives, and product mix with less snow product. These were partially offsets by productivity improvements.
Turning to our operating results for the total company.
Angie Drake: Our recorded and adjusted gross margins were 33.7 and 34.1% respectively for the quarter. This compares to 34.4% for both in the same period last year.
Angie Drake: The recorded gross margin reflects higher ant charges compared to last year.
Angie Drake: Additional changes on both a reported and adjusted basis were primarily due to higher material and manufacturing costs, partially offset by productivity improvement.
Angie Drake: S-DNA expense as the percentage of net sales for the quarter was slightly higher at 25.9% from 25.6% a year ago.
Angie Drake: The change was primarily driven by the higher-amp charges and was partially offset by lower marketing
Angie Drake: Operating earnings as the percentage of net sales for the quarter were 7.8% down from 8.8% in the same period last year.
Angie Drake: On an adjusted basis, operating earnings at the percentage of net sales were 9.4%, a 20 basis month improvement from 9.2% in the first quarter a year ago.
Angie Drake: Enter six cents for the quarter was $15 million, down from $16.2 million last year.
Angie Drake: The decrease was primarily due to lower average outstanding borrowing and lower average interest rates.
Angie Drake: The reported effective tax rate for the first quarter was 20.1 percent, compared with 19 percent last year.
Angie Drake: The increase was primarily due to lower tax benefits recorded as excess tax deductions for stock-based compensation in the current year period.
Angie Drake: This was partially offset by a more favorable geographic mix of earnings this year.
Angie Drake: The adjusted effective tax rate for the first quarter was 20.2 percent, compared with 20.8 percent a year ago, primarily driven by the geographic nick of earnings.
Turning to our balance sheet.
Angie Drake: Accounts receivable were $494 million, up slightly from $489 million a year ago, primarily driven by increased international shipment.
Angie Drake: This was partially obsessed by lower mass channel shipments as expected.
Angie Drake: Inventory at the end of Q1 was $1.14 billion, down about 3% compared to last year, and higher sequentially from the fourth quarter. That's as typical due to the normal seasonal flow.
Angie Drake: The year-over-year improvement was primarily driven by lower balances related to non-care products.
Angie Drake: This was partially offset by higher levels of compact utility loaders as expected.
Angie Drake: Accounts payable were $447 million, up 6% from last year, primarily driven by higher material
Angie Drake: Free cash flow in the quarter was a $67.7 million use of cash and improvement over last year.
Angie Drake: The use is a reflection of our normal seasonal working capital needs heading into the spring selling season.
Angie Drake: As a reminder, the majority of our operating cash flow is typically generated in the second half of our fiscal year.
Importantly, our balance sheet remains strong and provides financial flexibility.
Angie Drake: We continue to target a growth step to even all leverage ratio in the range of one to two times.
Angie Drake: This, along with our investment grade credit rating, provides the financial flexibility to fund investments that drive long-term sustainable growth.
Our Disciplined Approach to Capital Allocation Remains Unchanged
Angie Drake: with key priorities of making strategic investments in our business to drive long-term profitable growth, both organically and through acquisition, returning cash to shareholders through dividends and share with the repurchases and maintaining our leverage goals.
Angie Drake: Examples of how we are acting on these priorities in fiscal 2025 include, first, our plan to fund $100 million in capital expenditures to support new product investments, advanced manufacturing technologies, and capacity for growth.
2nd, our recent acquisition in the Trenchfield Underground Space
Angie Drake: Third, paying our regular dividend with an increase of 6% over fiscal 2024, and finally, executing on share purchases, including $109 in the first quarter.
Angie Drake: We have continued repurchasing shares in the second quarter, a reflection of the confidence we have in our future financial performance and cash flows.
Have we looked ahead to the remainder of the year? [inaudible]
Angie Drake: In our professional segment, we continue to expect benefits from the sustained strength in the manate and elevated order backlog for underground construction equipment and golf and grounds products.
Angie Drake: We also continue to expect backlog will be closer to normal by the end of fiscal 2025.
Angie Drake: We also expect the continued field inventory normalization of lawn care and snow products to provide some offset.
Angie Drake: Speaking of yield inventories, we are entering the spring turf season with dealer field inventories of lawn care products in a better position compared to where we were a year ago.
Angie Drake: This has been driven by the work we have done over the past year to decrease shipments into the channel, coupled with retail film-through that has outpaced those shipments.
Angie Drake: This, along with the strings of our brand, channel, and new product introduction, sets us up well at homeowner markets eventually return to normal strength.
Angie Drake: For snow products, field levels remain elevated, heading into the second quarter, but are trending in the right direction.
Angie Drake: While snowfall activity has improved compared to last year, near-to-date snowfall totals have still been meaningfully below historical averages in many key U.S. markets.
Angie Drake: We will be watching to see how late season storm activity clears the channel.
Angie Drake: In any event, we expect field levels of snow products to be in a better position compared to last year heading into our second half pre-season cell-in.
Angie Drake: Our guidance considers the below normal snowfall so far this winter, as well as the incremental China tariffs that came into effect in February .
Angie Drake: Due to the uncertain and rapidly evolving trade policy environment, this guidance excludes the impacts of all other incremental tariffs.
Angie Drake: We are prepared to take operational and pricing actions as appropriate to mitigate any new tariffs with the continued goal of being a good supplier, while protecting our market leadership and profitability.
Angie Drake: As a reminder, we have significantly reduced our exposure to China supply since the initial round of tariffs in 2018.
Angie Drake: In addition, the vast majority of our manufacturing production takes place in the US, particularly for our higher margin professional segment.
Angie Drake: We do have production facilities in Mexico, primarily for residential and irrigation products.
Angie Drake: With this backdrop, we are maintaining the full-year net sales and adjusted deluded EPS guidance we shared on our last earnings call.
Angie Drake: This includes total company net sales growth and a range of zero to one percent for the full year, which assumes continued strong demand and stable supply for our businesses with elevated backlog.
Angie Drake: A continuation of the macro caution we have seen in markets connected to homeowners.
Angie Drake: and Weather Patterns, aligned with historical averages for the remainder of the fiscal year.
Angie Drake: It also considers the additional adjustments needed to normalize field levels of lawn care and snow products.
Angie Drake: For the professional segment, we continue to expect four-year net sales to be up low single digits.
Angie Drake: For the Revidential Segment, we continue to expect net fails to be down high single digits which considers the continued rebalancing of our math partners as well as the full year impact of last year's
Angie Drake: Looking at profitability. For the full year, we continue to expect improvement in both adjusted growth margins and adjusted operating earnings as a percentage of net sales.
Angie Drake: We also continue to expect both the residential and professional segment earnings margins to be higher than last year.
Angie Drake: With this, we continue to anticipate full-year adjusted deluded EPS in the range of $4.25, $2.4.40.
Angie Drake: Additionally, for the full year, we continue to expect depreciation and amortization of about $125 to $135 million dollars, and for sixth sense of about $54 million dollars.
Angie Drake: and adjusted effective tax rate of about 20 percent and a free cash flow conversion rate of about 100 percent of reported net income.
Angie Drake: We anticipate total company net sales to be similar year over year.
Angie Drake: We expect professional segment net sales to be up low single digits and residential segment net sales to be down in single digits compared to the same period last year.
Angie Drake: Looking at profitability. For the second quarter, we expect total companies adjusted operating margins to be slightly lower year over year.
Angie Drake: We expect the professional segment earning margins to be similar to the same period last year and the residential segment earnings margins to be slightly lower.
Angie Drake: Overall, we expect our second quarter fiscal 2025 adjusted deluded EPS to be slightly lower than last year's $1.40.
Angie Drake: We continue to execute with discipline, and are excited about the momentum we are gaining with our customer-centered technology investment. This includes our robust new product pipeline, aimed at driving success for our customers and for the Toro company.
Angie Drake: We are also confident in our abilities to unlock significant benefits and opportunities with our AMP Productivity Initiative, as we continue to build our business for long-term profitable growth.
With that, I'll turn the call back to Rick.
Thank you, Angie.
Rick Olson: As I mentioned from the outside of the call, we are pleased with our bottom line performance to begin the year and what is a very dynamic operating environment.
Rick Olson: We continue to expect benefits from our market leadership and strong fundamentals, the ongoing success of our Amp initiative, and the essential nature and regular replacement cycle of our products.
Rick Olson: When this and the continued agility and dedication of our team, we have confidence in our ability to deliver positive financial results into the future.
Rick Olson: We recognize the high degree of uncertainty that exists in the current macro environment. This includes the economy, consumer and business confidence, and the geopolitical environment.
Rick Olson: We are closely monitoring the risks and benefits associated with potential policy and regulatory changes including tariff development.
Rick Olson: The situation is rapidly evolving and changing and we will remain nimble [inaudible]
Rick Olson: We are prepared to quickly make adjustments to our operations and pricing as appropriate.
Rick Olson: I'd like to emphasize once again why we are confident and excited about our future.
Rick Olson: First, the near and long-term prospects for underground construction business remain extremely compelling.
Rick Olson: This is supported by a rapidly growing demand for data communication infrastructure, data center of build-out, and energy grid modernization, as well as the global focus on replacing aging infrastructure.
Rick Olson: In terms of the aging water infrastructure, recent surveys point to more than $630 billion in spending needed over the next 20 years to ensure safe drinking water in the U.S.
Rick Olson: With most of those dollars, expect as you go to clean water distribution.
Rick Olson: Outside of US, a sprawling network of 30,000 miles of hydrogen gas pipeline is planned across Europe . These are just a few examples of many that support the widespread need and positive runway for infrastructure investments.
Rick Olson: We're a very well positioned to capitalize on this runway for growth as a worldwide market leader with the most comprehensive equipment and brand light up in the industry and our best in class channel.
Rick Olson: The strength of demand combined with our deep relationships and our technology and innovation leadership make this an extremely attractive space for us and our shareholders.
Rick Olson: Second, the near and long-term prospects for our golf business are also extremely compelling.
Data continues to support the sustained strength of this market.
Rick Olson: U.S. Participation in on-course golf exceeded 28 million players in 2024, marking the seventh consecutive annual increase.
Rick Olson: Last year's net increase of approximately 1.5 million golfers was the biggest single year of jump since the year 2000.
Rick Olson: At the same time, total US golf participation, including both on and off course players, rose 5% and was up 38% when compared to pre-pandemic 2019 data.
Rick Olson: All of this points to an extremely healthy end market with more new course development than any time since 2011.
Rick Olson: We are uniquely positioned to capitalize on this market as the only company to offer both equipment and irrigation solution and as a clear market leader involved.
Rick Olson: As you can hear from my earlier remarks, the strength of our innovation pipeline for this market is unmatched with our steady introduction of solutions that drive enhanced performance, productivity and efficiency for our golf customers.
Rick Olson: Third, we enjoy multi-brand leadership in the important zero turn more space, which is the largest single turf care category for both our professional and residential segments.
Rick Olson: As these markets return to more normal strengths, we are extremely well positioned to benefit from the share gains that we've realized with investments in our product lineup and the strategic actions that we've taken to strengthen our independent dealer networks and mass partnerships.
Rick Olson: Ford, our proven ability to leverage technology and innovation investments across our broad portfolio enhances the durability of our competitive advantage and market leadership. Thank you very much.
Rick Olson: This leverage enables the accelerated development of new products, aligned with market trends that help our customers with their most pressing needs, such as addressing labor challenges via shortages or skilled requirements.
Rick Olson: Concerving scarce resources, such as water, while at the same time reducing costs and improving outcomes with access to the most up-to-date technology advancements.
Rick Olson: And finally, it comes down to the strength of our Agile organization, which has been resilient through many macro cycles.
Rick Olson: Our talented team is equipped and determined to capitalize on the many opportunities in front of us as we build on our 15th consecutive year of top-line growth.
Rick Olson: And we have a best in class network of strategically aligned channel partners focused on going above and beyond serve our customers every day.
Rick Olson: All of this positions us extremely well to drive value for all stakeholders in both the near and long term.
But that, we will open to call for questions.
Speaker Change: Ladies and gentlemen, if you wish to ask a question, please press star-follow by 1-1 on your touch-tone telephone. If your question has been answered, or you wish to withdraw your question, please press star-follow by 1-1 again. Please stand by for our first question.
Speaker Change: Our first question comes from David MacGregor with the Longbow Researcher line is open.
Good morning everyone. Thanks for taking my question.
David? Um, I wanted to...
Speaker Change: Hey, Rick, I just want to start just asking about AMP and clearly there's a very good level of progress being made here, but I just want to be clear around kind of the movement some of the numbers here. You talk about $64 million on run rate.
Speaker Change: in cost savings to date, 50 million of that occurred in the first quarter, which is up to a great start. I guess how much of this reached the bottom line in the first quarter, if any at all? You talked about trying to redirect the portion of that into investment, some portion of it falls to the bottom line. Thanks.
Speaker Change: to try to help us understand just how much of that might have benefited one few and then just the cadence on these ant benefits and the drop turnings over the remaining three quarters of 25 would be really helpful. Thanks.
Speaker Change: Yeah, sure, David. The timing of our emphasis on productivity could not have been better in the current environment. And Angie is leading this initiative. So maybe I'll let Angie do a review on this basics. Yeah, first I'll address your question on the savings that we saw in the quarter. So you'll see later with the TINQ that we have $7 million in gross realized savings in the quarter.
Speaker Change: and remember that we have mentioned that we will reinvest the portion of that, so not all of that necessarily drops to the bottom line.
Speaker Change: But everything that we have done and everything that we have invested, we've considered in our full year outlook and included in our guidance.
Speaker Change: To your point on how we expect to see this play out over the rest of the year, we did see that $49 million run rate savings in Q1, which gets us to $64 million in run rate savings to date.
Speaker Change: The majority of that did come from the restructuring events that we did in December .
Speaker Change: And if you'll remember last year, we mentioned that we would expect to see the majority of the rest of what we have left in a hundred million dollar run rate to be achieved in F-25.
Speaker Change: So, we still have some opportunity with other things like supply days, route to market, the things that we have mentioned are working capital and efficiencies to play out for the rest of the year. However, we haven't defined that exactly by quarter.
Okay, so what we what we are confident.
Delivering $100 million.
Speaker Change: Okay, and just to be clear on the numbers here, when you talk about a $49 million dollar run rate and seven million of gross realized savings, are you suggesting that it was 42 million in expenses and the gross differences to seven million? I just want to be clear on the math.
Speaker Change: No, the 49 million run rate just means that those savings will be into the future. So the $7 million is what was realized in Q1.
Okay, to run right. Of course. All right.
Speaker Change: Okay, thanks for that. And then secondly, you just talked about pros, snow. I know in the residential snow, you talked about volumes for down in the inventory dynamic in the channel. But on the proside with Boss, where are the other mentors here? And how should we read through to landscape contractor in the season ahead given?
Speaker Change: You know, everything we're hearing through our channel chat are that these guys have a pretty good plow season which puts cash in their pocket and there's obviously been deferred spending and LCE. So just trying to think through the read from Pro Snow in this quarter to what DTR pro grade ZTR could look like this summer.
Speaker Change: Sure. Be happy to answer that. Personally, if you just look at the context of the winter, I know there were some kind of headline grabbing snow events, but honestly the snow in Florida or Georgia does not really drive a lot of our snow product sales. [inaudible]
Speaker Change: So overall, across the US snow, relative to average was down about 13 and a half percent.
Speaker Change: And if you look at the major snow market, it was down more than 50%. I think here in Minnesota we're down roughly two-thirds. We just had a snow event the last couple of days that may have taken a little bit off of that, but roughly low over half reduction from
Speaker Change: But the different markets respond a little bit differently, and on the residential side it tends to be, you know, heavy major events, heavy snow, major events that drive a lot of the business early in the season.
Speaker Change: From a contractor perspective, the ideal event is a lighter snow event that's possible.
Speaker Change: because it can be done efficiently. And if you cover the ground that you need to clear, if you get paid for that job. So a possible snow might be one or two inches, that's kind of ideal. And we did have a decent amount of those, so it helped to drive some of the business.
Speaker Change: Relative to the residential business, a little bit better on the pro side.
Speaker Change: So, field inventories, we are down a little bit year over year based on the winter with a little bit better than last year. So in spite of my comments, it was a little bit better than last year.
Speaker Change: But still higher than we would have expected, but we've included all of that in our guidance at this point, including the knowledge of where the
Speaker Change: where the inventories are. The good news is with the facts that I mentioned, a little bit better, quite a few snowball or plowable events in many markets, contractor budgets, we believe are going into the spring in better shape, in fact, good shape at this point.
Speaker Change: So that is a positive. So kind of a complicated answer, but there's a few details that kind of are different depending on which part of the business we're talking about.
Speaker Change: No, that's helpful. Thank you for that. Just last question for me, the interesting to get your updated price cost expectations for this year. You talk about raw materials being a bad guy in the first quarter. Just hardly thinking about the price cost spread here through the balance of the year.
Speaker Change: Yeah, for Q1, we had slight price increase, or so our price was up, our cost was up more, and that was really due to higher manufacturing and brake costs and some inflation.
Speaker Change: There was also variability in timing, but productivity improvements did offset that sum.
Speaker Change: We didn't guide for Q2 on price costs, but for the full year we do expect to return to a more normal one to two percent price.
based on those areas that...
Speaker Change: That is before tariffs. I do want to say that. That's before those tariffs. But especially businesses where demand remains stronger and we believe we didn't get price.
Very good. Thank you very much.
One more for our next question.
Tim Walsh: The next question comes from Tim Wojs with Bear, July 9th is open.
Hey everybody, good morning.
Tim Walsh: Maybe just the first question on some of the moving pieces on tariffs. Could you just remind us kind of how much of your call.
Tim Walsh: are related to Mexico manufacturing and China supply chain. How big is Canada, and I guess do you produce in Canada or do you produce in the US, if you could run through a couple of those kind of exposure related, you know, kind of items that they'd be helpful?
Tim Walsh: with a scenario for every possibility that you can imagine, and it seems to be changing by, you know, on short notice, so we're working that very closely.
Tim Walsh: just to give you some, you know, overall picture of tariff exposure. First of all, the vast majority of our products are made in the United States.
Tim Walsh: The backlog products that we've talked a lot about in the last couple of years, the golf and grounds and the underground businesses.
Tim Walsh: are virtually 100% built in the United States, so very little exposure on the professional side. We do have operations in Mexico and they would be producing some of our residential products.
Tim Walsh: and irrigation products. So that's kind of the, that's the Mexico exposure in the residential irrigation area.
Tim Walsh: But again, vast majority of overall products in the US. We do not produce products in Canada. We do have customers in Canada.
Tim Walsh: from that perspective as we do part of our global business. And then back to, I think, the first part of the question for China exposure, we've talked about that exposure has been...
Tim Walsh: Significantly, vastly reduced from what it was back in 2017 and 2018. We've blasted these conversations and it's, you know, low single digits kind of percent.
Tim Walsh: of Cods, and we've built into our guidance the first round of the China tariffs that were implemented in February , had a chance to process that, and we'll be offsetting those within our year that's been included in our guidance.
Tim Walsh: So they're probably the major areas that gets more complicated when you start talking about any reciprocal tariffs, those kinds of things Those are on the board that we don't have information to be able to respond to those
Speaker Change: Okay. Okay. And I get like, if the current, so this tariff on China are 20, you know, being involved, type of, in China, and then that's the 25-line carrier in Mexico. So stay intact, zero up.
Speaker Change: Yeah, it's a moving target right now, so we're working through that process.
Speaker Change: We have the option to strategically move products, sources, and so forth, so that process is in process right now.
Speaker Change: But we go through the normal process. First of all, I'll try to minimize the impact of tariff so I'm making sure we're represented with our industry groups. And we try to mitigate the tariffs with offsetting by changing locations of sources or manufacturing.
Speaker Change: Offsetting with cost savings, negotiating with our suppliers, and then ultimately the rest of that gets passed through and priced, and all those discussions are taking place. We just haven't been able to process that relative to the incremental.
Planned Terrace at this point.
Tim Walsh: The key thing for us Tim is that we want to, as a market leader, make sure we support our customers at the same time, protect our own business at the same time.
Tim Walsh: Okay. And just as a reminder, as we've tacked on our care remarks, we have included those February and active Chinese pair of skin, our best estimates in the guidance.
Speaker Change: Okay, I understand. On the field channel inventory, just in kind of the pro kind of grounds business, landscape contractor business, Rick, where are you relative to normal?
Speaker Change: at this point in kind of the year and I guess what's the sentiment like when you talk to your distributor and dealer is just around expectations for sales and just just how much kind of inventory they're kind of willing to kind of hold.
Speaker Change: We are pretty much where we left off when we started talking about this in the latter part of last year.
Speaker Change: where I will have another opportunity to reset that even further as we get into the spring, but we're...
Speaker Change: We are in position to be able to do that. The great thing is, I think we mentioned our ex-mark laser Z introduction. New products really help to fuel demands that help us.
to move the products faster. [inaudible]
Speaker Change: We're a little bit higher than we'd like to be much better than last year and in position for the spring in that landscape contractor room.
Speaker Change: The underground business, for example, is still well under where we should be with our field inventory. We feel good about where we are with the golf products, so it's really kind of isolated to landscape contractor. We're going to have to look after it.
Speaker Change: As a result of a little bit less snow, we do have higher snow inventories, but that's been built into our projection for the rest of the year as well. It just means a little bit less pre-seasoned shouldn't, but that's been built in now to our plan.
Okay. And then just the last one, on underground.
Speaker Change: I mean, it's been mentioned as a growth driver for the past several quarters. I guess it wasn't kind of mentioned as one in pro this quarter. So just give it what you just said about the fact that field inventory can be higher there. And I assume there was still a backlog there. Is it a timing issue there just trying to understand?
Speaker Change: You look kind of what happened with the underground visits in the quarter.
Speaker Change: Yes, but I think you're pretty much outlined it. We continue to see very, very strong bands in the underground space and feel very positive about that business. It just didn't rise to some of the other categories that we talked about as we go through the process of our comments.
Speaker Change: We also are introducing new products in that area so there's a little bit of a ramp up taking places. It's a timing factor strictly. Still very positive, still strong driver of our future. Thank you very much.
Okay, okay, so let's get, thanks for the time.
Jeff, thank you.
One moment for our next question.
Our next question comes from...
Ted Jackson with Northanger Light is open.
Ted Jackson: Oh, thanks very much. Actually, I had three questions to ask and two have been hit, but I do have a kind of a nuanced one going back in the terrace.
With regards...
Ted Jackson: So I know it's your favorite topic, right? Slide on with regards to, you know, going back to you said you didn't have anything with retaliatory tariffs, but is there how much?
Ted Jackson: Two parts. One is, how is there any, how much product do you actually make here in the states that actually is exported that could come at risk if there were retaliatory tariffs?
and then going back into kind of the Mexico. And...
Ted Jackson: The products that you make there, how hard would it be for you to shift production and bring something that's stuff into the US? Is it something that you would think would be worthwhile to do, or is it the kind of thing where you just have to deal with the tariffs and that's it. That'd be my question for you, thanks.
Thank you.
Okay, for sure
Ted Jackson: Now, first of all, on the first part, it would really be, you know, the ratio that we're looking at is 80% of our sales are in the US, and the vast majority of our products are produced in the US, so it would be the net difference that if we sell the 20% that we sell internationally, could be subject to whatever retaliatory measures might be there. [inaudible]
Ted Jackson: with regard to the residential products. We do have flexibility to move that product around some of it's easier to move than others.
Ted Jackson: but it's really primarily focused on the kind of the cost-competitive type of product. So it's a work in our residential business, not 100% of our residential businesses in Mexico.
Speaker Change: Okay, and then actually asked this quickly, like, what would have been like, how much was Pope in the last quarter? Just to kind of get a sense in terms of, you know, the dynamic with its impact on kind of the year over year for you?
and they're not done. Thanks.
Speaker Change: Yeah, the vote, the vote piece for Q1 was probably about seven and a half million.
Oh, minor. OK.
Last year, yeah, last year.
Thank you very much.
Okay, thanks, Doug.
Speaker Change: And I'm not showing any further questions at this time. This concludes the question and intercession, Miss Kerekes, please proceed with closing remarks.
Ms. Kerekes: Thank you, Kevin, and thank you everyone for your questions and interest in the Toro company. We look forward to talking with you again in June to discuss our fiscal 2025 second quarter results.
Speaker Change: Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.
Thank you for watching!