Toro Co (TTC) 2002 Q2 法說會逐字稿

Welcome to the Toro company's second quarter conference call. During the presentation, all participants.

Welcome to the Toro Company's second quarter earnings conference call, during the presentation, all participants will be in a listen only mode. Afterward, you will be invited to participate in the question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. As a reminder, this cough is being recorded Wednesday, May 22nd, 2002. I would now like to turn the conference over to Mr. Ken Melrose, Chairman And Chief Executive Officer of Toro. Please go ahead, sir.

Thank you, Chris. Good morning all and thank you for calling in this morning. We're conducting the second quarter conference call from our headquarters in Minneapolis. I have with me our chief financial officer, Steve [Wolf] an our director of investor relation Mr. Steve [Keen]. Both will assist me, as you're usual in the Q and A part of this call. As usual, I'd like to have you keep in mind that during the call, we'll make certain predictive statements to assist you in understanding the company's results. I know you all are aware of the difficulties in making predictive statements in a highly seasonal and cyclical business. Our 10K details some of the important risk factors that may cause actual results to differ from those in our predictions. Well, let me review the highlights of the quarter. I trust all of you have seen your financial results that were reported early this morning. Once again, we have some new and unusual wrinkles in our income statements, so I thought I'd spend a bit more time, as I did before, going through it in some detail. Now, if you have a copy of your press release, in front of you, you may want to follow along. We put a chart in there that I think will help clarify our results. And I'll kind of go through that for you now. Looking at the second quarter, you will see that our reported diluted earnings per share was $2.91, against a reported EPS of the previous year's first and second quarter, of $2.28 or 63-cent difference. Now, that doesn't give you an accurate picture of year-to-year comparison, so we have to make a couple of adjustments. One is we received $1.8 million as a federal tax refund relating to our company's foreign sales corporation. This was a redetermination of taxes, paid out in our fiscal year's '96/97 and '98. So this windfall that occurred in our second quarter amounted to 13 cents. So we should deduct that from the $2.91. Now, over on the last year's second quarter side, we need to adjust the $2.28 that we reported, by adding back the expense or deducting actually, the amortization of goodwill that we, along with everyone else, took, as a charge to earnings before we adopted the new accounting rules. So that was 21 cents. So if you make the subtraction of 13 cents on this year's quarter adding that to 21 cents on last year's quarter, you get a comparison of this year, earning $2.78, versus last year, earning $2.49. So the adjusted diluted earnings per share growth is actually 39 cents, or 11.6%. So that's a fair comparison. We're pleased with that, because it's again double-digit increase, but we-the way we're reporting really overstates that earnings difference. Now, if you go to the year-to-date, six months, we have even more adjustments. We reported 65 cents for the six months, against last year's $2.38 reported. Here again, we have to make the two adjustments that I made for you in the first quarter. One is the foreign sales corporation tax benefit, and now it's not 13 cents, but it's 14 cents on an earnings per share basis, and the reason for that is over the six months, our number of shares outstanding actually is less, and so the earnings is a penny more. But it's the same million-eight of tax refund. On the other side of the ledger is the goodwill that we have to add back in, and for six months, that's 32 cents. Then, as we reported in the first quarter, we had two significant one time charges. One is the impairment charge that acompanied our change in accounting regulations. That was a dollar 91 cents, relating to our ag irrigation business. A dollars 91 cents then has to be added bag into the 65 cents that we reported. Again, we announced closure of two plants and some other one time restructuring expenses, and that amounted to 51 cents that we would add back into the 65 cents. There's a minor adjustment to the six months for last year. Again, it occurred in the first quarter that we indicated in the release last time, and also in the conference call, of a reversal of an accrual that had to do with the closing of our [Sardis], Mississippi plant, and that amounted to 3 cents. So that has to be deducted from the six months of last year. So when you-when you make these adjustments to what we reported, you would get an adjusted diluted earnings per share on an ongoing business basis of this year, $2.93, versus last year, of $2.67. So that's a difference of 26 cents and a 9.7% improvement. Almost 10%. But not quite. We look at that, because that gives us a much better sense of how the business is performing against the way the business performs last year. So I apolgize for going through that convolution, but I think it's important for you to understand what's really happening versus what we're reporting as per GAP accounting. As we stated in the release, we are indeed pleased with our earnings which continues to increase at double digit rate, which has been our target for the year and each quarter. Our revenues were flat and we need to explain that a little bit. What's happening at our business today, a phenomenon that's not unlike what other companies are understandinging at this time, has to do with the intensity of our channel partners to manage down their, their inventory to improve their turn. That's going on with our distributors, dealers, with irrigation wholesalers, with our mass retailers, like Wal-Mart or Home Depot, Lowes, they're all trying to improve their turnover and the way they do that, other than improving their sales, is to, to get their inventories down to a - so it reflects a higher turn for the year. So they're trying to get their orders closer to the marketplace demand, and ordering less for stock. This isn't unlike our own 5-by-5 initiative in regards to asset management. We're trying to do the same thing, we have been for the last few years. Everyone's trying to reduce the amount of inventory in the supply chain, by just ordering smarter, taking shipments closer to when the product is actually retailed. the good news I think in all of this, despite of the lateness in the spring season, due to economy and weather, what have you, we are still experiencing excellent retail growth in the majority of our product lines even though it's not reflected in our shipment levels. As existing investors though are managed down, as we go through the season, and reorders start coming in, the demand pul phenomenon will bring in shipments in closer adjustment with end-user demand. So we expect the second half to see a closer relationship between retail and shipment. [Reporter note} Live webcast went down just now. Now working off website archive after searching for several minutes. In the first quarter revenue growth is coming from the residential division, our new walk power mowers, which we talked about for the last two or three calls have been very successful at both the Home Depot and our Toro dealers. We are evening experiencing upside in the category, as the retail is better than both our customers, the dealers and the Home Depot, and better than we,expected as well. So our-this walk power mower initiative, as I said, is going very, very well, we're quite pleased with it. Our retail irrigation line, in the residential segment, we have two brands, [Lawn Genie] and Toro, so on both or brands, that's continuing to do very well, as a result of some new product introductions the retail demand is strong, and in this particular case, the field inventories were very low, as in the case with all of our irrigation components. I'll get into professional irrigation in a bit. While our electric blowers and turners are down, in terms of our shipments, retail sales are averaging double digit growth. And we're still forecasting a strong season. Our riding products, the tractors are the only lawn and garden line that is lagging at retail, even though the zero turn radius, the [Time Cutter Z] product segment continues to be strong. That's the new product line we introduced last year. Turning now to our other product segment, our professional group, that group reported lower revenues, caused by the late spring and high beginning field inventories but at the same time, like in the consumer side, the professional side, by and large, is experiencing better retail sales. So that good news, too. This was the inventory issue that was too high, as we started the year, was driven by our landscape contractors products, both in the Toro brand and the Exmark brand. So we've been making that adjustment note from the beginning of the year we have a shortfall in our plan. We don't expect to make up all of it, but we do think the category, that is the landscape/contractor category, which has been growing so nicely for us, in the last several years, we think it will show more strength in our numbers in the second half. the golf business, on the other hand, is showing signs of strength in both shipments as well as in retail. Partly due to better-better inventory, better inventory situation in the field and also the introduction of some important new products, like the new Groundsmaster 4500 and 4700 products. They have gone well, and our new golf sprinkler line, the 800 series, that's done very well. In fact, we are especially encouraged with our whole irrigation business as a stream of new products begin to emerge and the product quality issues that we talked about for the last 18 months are getting not only corrected in the plants, but are instill traiting into the retailers and end users' hands, so we know the quality issue is being addressed effectively, albeit taking some time to get all the old product flushed through the system. And but as that does happen, the business will continue to improve. Our [rescon] business, both for Toro and our other brand, ear tro are up significantly over last year. That's a situation where we started the [rescon] business with no field inventory, so we didn't have that phenomenon we have more-or-less in the residential segment. and the landscape contractor segment. Now, our 5-by-5 initiatives, covering asset and supply chain management our in plant three configurations and cost of goods sold initiatives, that continues to be high priority, of course, with both the management and all of our employees. It's resulted in improved margins and reduced expenses that are beginning to show in our financial statements the plant reconfigurations, including the closings of Evansville, Indiania, and Riverside, California plants, and the shifting of product to more appropriate manufacturing sites there, all of that, which is a complex operation, they're all proceeding on schedule, and on budget, so we're pleased with that. The destruction to the marketplace in the flow of product has been minimal and we're looking forward to the additional gains that will occur next year, when all of these moves are finally in place and we get the benefit of all 12 months of a new cost basis for the products in those plants. We have now completed six months of fiscal '02. I think we've accomplished quite a bit, but there's certainly more to do We do continue to be optimistic for the year as the weather improves and as field inventory settle to the customers targeted levels, bringing shipments in more alignment with our retail movement. All that causes us to be somewhat optimistic for the balance of the year. So therefore, we're estimating our per share earnings for the third quarter to be between $1.55 to $1.65. Moreover, we're raising our estimates for the year to $4.85 to $4.95 per share, reflecting the progress that we've experienced down here in the first six months. Overall, we continue to be very satisfied with our current earnings result, given the ongoing market conditions, both here and abroad. I will now open it up for our questions, as I said before, our head of industrial relations and CFO are with me to help address some of your questions. Okay?

Ladies and gentlemen, if you would like to register a question for today's question and answer session, you may do so by pressing the 1 followed by a 4, you will hear a three-tone prompt to acknowledge your request. If your question has been answered and you wish to withdraw your polling request you may do so by pressing the 1 followed by the 3. If you're on a speaker phone, please pick up your handset before asking your request. One moment please for the first question. The first question will come from Aaron Ravens [Scott] with with Jenny Montgomery Scott. Montgomery Scott. Please go ahead.

Congratulations, gentlemen. Regarding the landscaper business, could you provide a little more color exactly how far it was down and do you think long-term dynamics have changed at all?

Well, let me answer that in reverse. The long time dynamics are changing from the standpoint that they're more competitors in the marketplace, there are better competitors, John Deere for example has entered the business here recently and they will be a strong competitor. You know, five-years ago, it was made up of a lot of small niche players, and now, now it's becoming more professional, and the level of competition is going to be stronger. So that, that will slowly change the marketplace. As for the-so we're still experiencing double-digit growth at retail for both Exmark and the landscape contractor business. But we unfortunately, last fall, it looked like that there was an opportunity for a late fall with more selling, and so we, and I think, our whole industry took advantage of that and shipped more product into the marketplace and was didn't turn out to be warranted because the weather turned terribly dry in most major markets and the inventory just sat there. So we got off to a bad start, and I think that would be reflected in the industry shipment numbers. Quantify that? We're off mid-teens, in terms of against our plan. But like I said, we'll-we'll make up, we think, some of that, but not all of that, for the year.

Okay. Your taxes were 33%. Do you see that to be your normalized rate going forward?

Yeah, hi,, Steve Walt. That will be the rate going forward. We got the one time. And that's down from 37 because of the goodwill amortization and our foreign sales structure, and then we have the million-8 pickup. That's a one time for this quarter, but going forward you can use 33.

Thank you very much.

Once again, ladies and gentlemen, to register for a question, you will need to press the 1 followed by the 4. Gentlemen, I am currently showing no additional questions at this time, please proceed with your presentation or any closing remarks you may have.

Well, thank you very much, gentlemen and ladies for listening this morning. I hope the lack of questions is a reflexion of your approval of what we're doing. We, of course, just to summarize, are feeling very good about the prospects for the year. Most of our businesses, as I said, are doing well at retail. The field adjustments that are going on are really healthy long-term for our industry. That's a good thing, that will bode well for us, as well as our whole industry, in the future. The 5-buy-5 initiative is continuing to give us a benefit. Next year, it will be even stronger for us from a cost eeffectiveness standpoint, and lastly, the point I'd want to make is the irrigation business is finally seeing light at the end of the tunnel and is making some nice improvement, we think that will continue. So again, thank you for joining us this morning and we'll look forward to visiting with you in another three months. Good-bye.

Ladies and gentlemen, that does conclude the conference call for us today, we thank you for your participation and ask that you please participation and ask that you please disconnect your line.