Toro Q2 Earnings Call Highlights
Key Points
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- Toro beat Q2 expectations and raised its full-year outlook after reporting 8% net sales growth and adjusted EPS of $1.60, its second straight quarter of double-digit adjusted earnings growth.
- Professional segment led the quarter, with sales up 9.1% and margin improving to 20.3%, driven by strong demand in golf, grounds, landscape contractor, and underground construction.
- Margins and cash flow improved sharply as Toro’s AMP productivity program helped boost operating performance; free cash flow rose to $266 million, and the company returned $361 million to shareholders in the first half of the year.
Toro (NYSE:TTC) raised its full-year outlook after reporting stronger-than-expected fiscal second-quarter results, with executives pointing to broad demand across its professional and residential businesses, improving margins and benefits from its productivity initiatives.
Chairman and Chief Executive Officer Rick Olson said The Toro Company delivered second-quarter net sales growth of 8% and adjusted earnings per share of $1.60, marking the company’s second consecutive quarter of double-digit adjusted earnings growth. He said the results were driven by “strong demand and improving margins” despite macroeconomic and geopolitical headwinds and higher inflationary pressures.
“This disciplined approach is delivering results,” Olson said, citing the company’s priorities of accelerating profitable growth, driving productivity and operational excellence, and empowering people.
Professional Segment Leads Growth
Vice President and Chief Financial Officer Angela Drake said total second-quarter sales were $1.42 billion, up 8.1%, or 5.7% organically. Adjusted operating margin rose 70 basis points to 14.4%, which Drake said was the company’s highest operating margin in the past 12 quarters.
The Professional segment generated net sales of $1.1 billion, up 9.1%, or 6% organically. Segment earnings were $224 million, with margin rising 40 basis points to 20.3%. Drake said the improvement was driven by volume, productivity and net price realization, partially offset by material cost.
Olson said Professional segment growth was broad-based, including mid-single-digit sales growth in golf and grounds, high-single-digit growth in landscape contractor, and low-double-digit organic growth in underground and specialty construction.
In underground construction, Olson highlighted demand for the JT-120 horizontal directional drill, which he said is designed for uptime and difficult job-site conditions. He said customer response has been strong, with a “robust and growing order pipeline.” During the question-and-answer session, Olson also cited demand for the JT21 compact horizontal directional drill, which he said is used in applications such as fiber-to-the-home installation.
Olson said the Ditch Witch underground business was a “very strong contributor” to the quarter, supported by sustained demand and improved production output. He said operations teams in some cases doubled production to meet demand.
Residential Margins Improve
Residential segment net sales were $310 million, up 4.1% organically. Segment earnings were $30 million, while margins increased 430 basis points to 9.8%. Drake attributed the improvement to net price realization, productivity and volume, partially offset by material, manufacturing and freight costs.
Olson said residential sales grew 4% in the quarter. He described the residential channel inventory situation as more normal than in recent years, after the company worked through higher field inventories in prior periods. He said demand exceeded expectations, and the company had “good flow” from its facilities.
Inventory levels remain healthy in the Professional segment, with underground and golf “largely normalized,” Olson said. However, he said field inventory for landscape contractor and residential products is somewhat below desired levels as the company works to meet elevated demand in areas such as zero-turn mowers.
Asked about consumer demand, Olson said some traditional residential customers appear to be “buying down” toward the lower end of the company’s range. However, he said higher-end homeowners buying professional-grade landscape contractor products have been less affected, while true landscape contractors remain healthy.
AMP Program Supports Margin Expansion
Executives repeatedly pointed to Toro’s AMP productivity program as a key factor behind margin improvement. Drake said strategic facility closures, reductions in salaried workforce, and divestitures of non-core businesses and product lines contributed to stronger margins.
President and Chief Operating Officer Edrick Funk said Toro delivered its highest level of operating margin in three years through productivity and operational execution. He said AMP remains on track to deliver $125 million in run-rate savings by the end of fiscal 2026.
Funk said the program includes lean principles, Kaizen events and continuous improvement projects. He also described technology initiatives across the company, including industrial collaborative robots, AI-enabled vision systems, machine learning tools to verify component accuracy and augmented reality to verify weld specifications.
“AMP is about even more than cost savings,” Funk said, adding that teams are using technology to enhance capabilities and drive innovation.
Guidance Raised as Cash Flow Improves
Toro raised its fiscal 2026 sales growth outlook to a range of 4% to 6.5%, compared with prior guidance of 3% to 6.5%. The company now expects adjusted EPS of $4.50 to $4.62, up from its previous range of $4.40 to $4.60.
Drake said the updated guidance reflects strength in the Professional segment, which is now expected to grow 5% to 7% for the year. The residential sales outlook also improved, and the company now expects full-year residential sales to be about flat, despite challenging consumer confidence and inflation.
Drake said the revised EPS midpoint reflects a $0.10 per-share second-quarter beat, partially offset by material and fuel inflation of about $0.16 per share and a roughly $0.04 EPS headwind from a higher tax rate due to geographic earnings mix. Planned productivity and pricing actions are expected to offset about $0.16 per share.
For the third quarter, Drake said Toro expects total company sales to rise in the mid-single digits, with Professional sales up mid-single digits and Residential sales up low single digits. She said margins are expected to be lower than in the second quarter due to normal seasonality, inflation and tariff pressures, and the timing of mitigation actions.
Free cash flow was $266 million in the quarter, up $181 million year over year, primarily due to lower inventory levels. Drake said free cash flow conversion was 125%. Toro returned $361 million to shareholders through share repurchases and dividends in the first half of the year.
Tariffs, Acquisitions and Golf Demand Discussed
During the Q portion of the call, Funk said the net tariff impact on fiscal 2026 guidance is expected to be minimal. He said the company now estimates gross tariff expense of $120 million, up from a prior $100 million estimate, but expects about $20 million in refunds during the fiscal year. Drake said the company expects to accrue about $8 million of the anticipated refund in the third quarter, with the remainder in the fourth quarter.
Olson said the integration of Tornado is progressing well and contributing more than two percentage points to top-line sales. He said Tornado’s growth is slightly better than anticipated and that the need for soft excavation is significant and growing as more jurisdictions require safe uncovering of underground utilities.
On golf, Funk said demand and orders have been stronger than expected, particularly after prior discussion about whether there could be an “air gap” following strong growth. He said golf equipment demand has remained solid, while irrigation continues to benefit from a long pipeline of projects.
Olson closed by saying Toro is making progress in electric, smart, connected and autonomous solutions, while also exploring applications of artificial intelligence in areas such as autonomous navigation, research and development prototyping, simulation and back-office processes.
About Toro (NYSE:TTC)
The Toro Company (NYSE: TTC) specializes in the design, manufacture and marketing of a broad range of outdoor environment equipment for residential, commercial and professional markets. Its product portfolio includes lawn mowers, utility vehicles, snow throwers, irrigation systems and landscape maintenance equipment. Toro's offerings span walk-behind and ride-on mowers, zero-turn radius mowers, snow blowers, sprinklers, drip irrigation products, spreaders and specialty turf maintenance machines tailored to golf courses, sports fields and municipal parks.
Founded in 1914 and headquartered in Bloomington, Minnesota, Toro has built a century-long legacy of innovation in the grounds-care industry.
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