February 25, 2024

Toro Co.’s second quarter earnings are down, with a lower profit margin because of inflation and supply chain costs.

But its earnings call and presentation was still upbeat, with a focus on how new technology will allow the company to keep pace or surpass competitors in several ways.

For example, earlier this year the Bloomington-based company introduced an autonomous fairway mower at a key golf industry trade show and last week announced a robotic lawn mower for residential markets for the spring 2023 season – though a price and product name haven’t been announced.

While too early to project accurate sales for new products Olson told analysts on the company’s second quarter earnings call that the response to their new products has been “absolutely fantastic across the board”.

In the last fiscal year, Toro spent about $130 million on research and experimental expenditures. It has steadily increased the investment as a percentage of net sales over they past 10 years from approximately 1.5% of net sales to more than 3.5%.

Olson told analysts to expect new technologies to have a big impact going forward.

“We are seeing what should be a steady flow of some really exciting products going forward, that also gives us confidence in the future,” Olson said.

Meanwhile, executives said global supply chain issues helped push down Toro’s gross margin from 35.1% in last year’s second quarter to 32.4%. Acquisition costs, higher raw material prices and increased freight and production costs also contributed.

Margins did improve over Toro’s first quarter, but the company is making operational improvements, adding more pricing increases and counting on its new products to help boost profits down the line.

Earnings for the quarter were down 8% to $131.1 million, or $1.24 a share. Adjusted earnings of $1.25 a share also were down but beat analysts’ expectations.

Sales of $1.25 billion, were up 8.7%, but missed analyst expectations. Toro shares closed Thursday at $85.44, up 5.5%. Over the last 52 weeks Toro’s shares have ranged between $74.29 and $115.68.

Price increases and the acquisition of the Intimidator Group, which makes zero-turn mowers under the Spartan brand, helped lift sales in the professional segment by 12%. The residential business only saw a 1.7% sales increase, and the unit’s earnings fell 19% due in part to late arriving spring weather.

Olson said in the quarterly earnings release that despite supply chain challenges, demand remains strong and Toro is raising guidance for the remainder of their fiscal year. The company now expects fiscal year sales to increase 14% to 16% and adjusted earnings per share to be in the range of $4 to $4.15.

Olson pointed to last falls introduction of the Revolution series of battery-powered professional mowers as evidence of how new technology can help. The line will start contributing to top-line totals later this year.

Those technology advancements to stay with and ahead of competitors in their markets and strategic acquisitions will continue to be key drivers of their quarterly results.

Olson said last week’s announcement of the robotic mower “far exceeded our expectations in terms of interest and the number of social media and other outlets that picked that up.”

“We continue to bring new products to market that meet customers’ current and future needs, driven by our strategic investments in the key technology areas of alternative power, smart-connected and autonomous solutions,” Olson said in the release.

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