Toro Co (TTC) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to The Toro Company fourth quarter and year-end results conference call. My name is Melanie, and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of today's conference. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference, Mr. Michael J. Hoffman, Chairman, President, and Chief Executive Officer of The Toro Company. Please proceed, Mr. Hoffman.

Thank you, Melanie. Good morning, ladies and gentlemen. Thank you for joining us for our fourth quarter earnings conference call. With me here this morning are Steve Wolfe, our Chief Financial Officer, Tom Larson, Treasurer, and John Wright, Director of Investor Relations.

Before we begin, let me review our Safe Harbor Policy. Please keep in mind that during the call, we will make certain forward-looking statements to assist you in understanding the Company's results. You're all aware of the inherent difficulties in making predictive statements. So the Safe Harbor portion of the Company's press release, as well as SEC filings, detail some of the important risk factors that may cause actual results to differ from those in our predictions. Our press release was issued this morning by business wire, and can also be found in the investor information section of our corporate website, TheToroCompany.com.

Now let's take a look at our consolidated results for the fiscal year and the fourth quarter ended October 31st, 2006. We'll also briefly review a summary of our performance for the past three years of our 6+8 initiative, then finish with a topic many of you have asked about, the framework and goals of our next three-year initiative, as well as the outlook for fiscal 2007.

First of all, I'm pleased to report that fiscal 2006 was another year of solid financial performance for The Toro Company, with record net sales, record net earnings, and a double-digit improvement in net earnings per share. This was also the final year of our 6+8 initiative, which in our view, was a rewarding and successful chapter in Toro's long-term journey of continuous improvement. Many have you may recall three years ago when Ken Melrose introduced 6+8. He said, and I quote, "The goals for this initiative are two-fold: Achieve more than 6% profit after tax, and grow revenues at an average rate of 8% or better by the end of fiscal 2006. We will do this by unleashing the potential of all our employees in activities that will increase productivity an innovation throughout our operating and manufacture systems." These were worthy goals established to sustain our momentum and to challenge us to continue raising the bar.

As usual, our employees delivered. To countless projects that generated millions of dollars in cost savings, and thousands of hours in productivity gains. They drove process improvements that not only made it easier for our customers to do business with us, but also created a strong platform for growth and profitability improvement in the future. Over the course of the three-year initiative, we achieved 7% compounded revenue growth, just shy of our 8% goal. This was a solid performance, given the external factors that surfaced the latter half of the initiative. We executed well against our strategy to increase the international portion of our revenues to 30% or more, starting with 21% in fiscal 2004 to 25% in fiscal 2005, and ending with 27% this year.

An even more compelling story lies in our profit after-tax performance, where we surpassed our goal in each of the three years. You'll recall we turned in 6.2% in fiscal 2004, a significant improvement from 5.5% at the end of '03. The next year we raised it to 6.4%, and I'm pleased to report today that we achieved 7% for fiscal 2006, the best in Toro's history. It was a challenging environment in F06 where external factors impacted the entire industry. We saw some softening in our residential business caused by economic uncertainly and rising fuel prices that delayed consumer spending during the spring and summer months. These factors also caused a slowdown in our landscape contractor business, which we mentioned in our third quarter call. We responded as we said we would by working with our channel partners to manage down field inventories as well as Toro inventories. All in all, we had a strong year of earnings improvement, but fell short of our top-line expectations. We view this as a short-term issue, however, and we're confident in our ability to return to higher revenue growth in fiscal 2007.

So here are the highlights as reported in this morning's press release. For fiscal 2006, net earnings rose 13% to a record $129.1 million, while net earnings per diluted share rose nearly 19% to $2.91. As you know, we continue to use our strong cash flow from operations in more than $190 million to return value to share hold officers the form of increased dividends and the repurchase of 3.4 million shares of common stock. In addition, these activities have exceeded $.5 billion over the course of our three-year, 6+8 initiative. Net sales for fiscal 2006 rose 3.2% to a record $1.836 billion, carried by another strong performance in our professional segment. This was a good year for innovative new products, and we particularly benefited from growing brand awareness among professionals and homeowners outside the U.S. As a result, international sales climbed 12.6% for the year. Our heightened focus on the global market place combined with growing investments in in-country resources and relationships will give us a strong platform to accelerate our international growth going forward.

As you know, Toro's fourth quarter is typically smaller, and this year was no exception. As we cautioned in our last call, our homeowner and landscape contractor businesses were dampened by a variety of external factors. For the quarter, net earnings per diluted share were $0.10, down from $0.14 last year, while net sales declined 2.3% to $329.5 million. As we reflect on our performance in 2006 and throughout our 6+8 initiative, we are more committed than ever to to accelerating growth through strategies and investments to better serve our customers. In each of the past three years, we've ramped up investments in research and engineering as a percent of sales, starting with $41 million in F03 and ending with $57 million in F06, which was a 9% increase over last year. We're also prepared to meet the long-term needs of our customers by staying in front of the technology curve, like smart water sensing technologies, alternative fuel sources and robotics. Our center for advanced technology, a team of talented and entrepreneurial engineers and agronomists, continue to partner with leading research universities to explore breakthroughs in turf management and irrigation that will build on Toro's legacy of innovation and excellence.

Well, that's an overview of the year and the fourth quarter. Let's take just a few minute to look at our segment results, beginning with professional, since it comprised over two-thirds of our revenue. This team once again turned in a solid performance for the year, and we continue to be well-served by the strength of our brands, our focus on customer care, and our long-standing loyal relationships with our customers. Worldwide sales for fiscal 2006 were up 6.9% to 1.2248 billion, and up 1.8% for the quarter. Much of the slowdown for the quarter came from our landscape contractor businesses, where we believe that the economic factors caused a delay in the typical replacement cycle for these customers. We did, however, see an increase in retail activity later in the fourth quarter, and that has continued.

Around the world, our golf, sports field and grounds, and res-com irrigation activity remained strong all year. We introduced a number of new turf and sand maintenance products for golf courses and sports field, while our Toro-branded irrigation systems commanded a good portion of the domestic course renovation projects and the global new course construction projects. With residential and commercial irrigation contractors, our Toro and Irritrol brands continued to make a strong showing in 2006. Operating earnings for the professional segment were up 9.8% for the year, a declined 14.6% for the fourth quarter, due to increased investments in marketing and services along with higher warranty costs.

In our residential segment, worldwide sales were down 2.9% for the year in the face of economic uncertainty that dampened consumer enthusiasm for purchasing new yard care products. Despite the decline, we did have some bright spots including the new line of Toro lawn and garden tractors, the increasingly popular family of TimeCutter Z zero-turning radius mowers, and strong demand for our electric blower products.

Revenue growth internationally improved by double digits in 2006. In Europe, homeowners embraced our Toro branded snow throwers, while pulp products continued to gain ground in Australia. In United Kingdom, Hayter celebrated their 60th birthday by introducing two models of rear roller mowers that leave a distinctive, professionally striped finish.

For the quarter, revenue declined. Preseason snow thrower shipments and retail movement were a little softer than expected due to the trend for the channel to buy closer to retail and to lower snow falls last year. However, field inventory levels are in good shaped, and we are very much encouraged last week by the strong orders that came in from parts of the Midwest that were blanketed by a foot or more of new snow. It's been 70 years since Toro introduced its first power mower to homeowners. Since then we've built a strong reputation for innovation, dependability, and reliability. We remain committed to this business and to preserving our brand leadership through a strong line-up of new products we have ready for 2007.

Going to operating results, you've seen the press release, but I'd like to highlight a few things. We have a positive story to tell about gross margin in fiscal 2006. In part, because professional products, which are more profitable, comprised a greater portion of our sales mix. Moreover, we experienced some easing of the commodity cost rate of increases that's pressured us the past couple of years, and selective price increases coupled with ongoing savings from lean in our operations contributed to improving gross margin to 35%, up from 34.6% in 2005.

SG&A expense as a percent of net sales was 24% for the year, improved from 24.3%. We had favorable insurance claims experience, which lowered our self insurance costs. We also benefited from our ongoing improvement efforts in our office and administrative processes. As we said in our third quarter call, we intended to reduce Toro inventories and certain field inventories by year-end, and I'm pleased to report these levels are in good shape as we move into fiscal 2007. All in all, our financial condition remains sound, and you can refer to the tables for additional details.

That's it for the year 2006. Now I'd like to spend a few minutes sharing our vision and framework for Toro's next three-year initiative called Grow Lean, as well as our outlook for fiscal 2007. Before I get into the details of our new initiative, however, I want to provide some context for those who aren't familiar with the long-term Toro story. Back in 1998, the Company faced some major financial challenges, both internal and external. While we did report a small profit that year, these challenges inspired our management team to relook at our residential business and the Company as a whole. Thus began our long-term journey to improve financial performance and shareholder value.

In 2001, we launched our first three-year initiative called 5 by Fivee, and quickly recognized the power of rallying employees around a common vision and goal. 2004, we followed 5 by Fivee with our next three-year initiative, 6+8. Our six-year, compounded results are very solid; 5.4% average net sales improvement, and 19.1% average net earnings improvement. These were achieved through a series of deliberate changes in the collective efforts of more than 5,000 Toro employees around the world. What we learned during 5 by Fivee and 6+8 will serve us well as we take the Company to even higher levels of performance and strength in our new initiative, Grow Lean. We know we have to grow faster. We know we have to get leaner.

We also know it's a challenge to keep employees motivated and engaged to do even more in yet another three-year initiative. So contrary to Mark Twain who famously said, "I didn't have time to write a short letter so I wrote a long one instead," we took our time to write it short and well so that all employees can contribute to Toro's performance in this next initiative. Grow Lean is just that, short and to the point. While on the surface, it appears similar to 6+8, our next initiative is thoughtfully and strategically crafted to drive continuous improvement in growth and profitability. In 6+8, we continue to drive towards cost reductions and profitability. We just got started focusing on revenue growth. With Grow Lean, we've turned it around. Our priority is growth, while at the same time, we'll take steps to become a world-class, lean enterprise. With Grow Lean, much of our growth will come from existing strategies, such as international acceleration and also from our core businesses, we'll aggressively pursue underserved markets where we're gaining momentum, growth share wherever possible, and listen more intently to our customers. We're on a mission to find big ideas to deliver customer value solutions that exceed expectations. We'll do this faster than ever before.

We'll also execute many lean methods to make us more nimble, efficient, and profitable. Our world of opportunities starts on the inside. So we'll continue to focus on those systems, processes, and metrics that will integrate Lean into our business routines at all levels of the organization and beyond. To prepare for these challenges, we recently announced leadership realignment to enhance our overall management strength. Dennis Himan, an experienced and proven Toro leader, is now serving as Group Vice President, and will direct our growth in most of our professional and international businesses. Phil brown, who joined Toro in 1993, is now heading up the markets served by Toro dealers as Vice President of our consumer business and our landscape contractor business for the Toro brand. We're also very pleased to welcome Pete Ramstad in a newly created role as Vice President of Business and Strategic Development to help us focus more systematically on new growth opportunities, especially acquisitions. He will put his experience and perspectives to work in leading our acquisition, new business development, and advanced technology research efforts.

As in 6+8, we have two primary goals. The first is to achieve net sales of 8% or more on average over the next three years. While we'll work to drive the majority of this with our current businesses, we recognize the need to add new businesses, so you can see the importance of Pete's new position. Secondly, we want to deliver a consistent after-tax return on sales of 7% or more. I would add that we're also very cognizant of the value in establishing some goals and metrics around asset management. We're still in the process of defining these, and we'll share the details of these at our next call.

From the beginning of our journey, we have generated solid momentum. Now we will accelerate our strategies over the next three years that will help us achieve long-term growth and profitability. As we look ahead to fiscal 2007, we expect to report a 10% to 12% increase in net earnings per diluted share on revenue growth of 5% to 7%. For our first quarter which is typically smaller, we expect to report earnings of 30% to 33% -- $0.30 to $0.33 per diluted share. Remember, we're coming off a comparatively strong first quarter in 2006, and our intention as we come out of the gate in 2007 is to continue to manage our inventory and production closely as we prepare for our prime selling season. With that, let's open it up to your questions. Melanie?

[OPERATOR INSTRUCTIONS]. Please stand by for your first question. Your first question comes from the line of Jim Lucas with Janney Montgomery Scott. Please proceed.

Thanks. Good morning, guys.

Good morning Jim.

Couple of questions. First, you've been very helpful and given us some of the early color of Grow Lean, and we'll look forward to the asset management goals. Can you talk about any changes, if any, that you've made to the incentive comp plan with the new initiative?

I guess what we're prepared to say about that is we have -- we do have employee incentives around this, and in the past, the employee incentives have been tied to the profitability. In this new initiative, Grow Lean, there will be more to that. We haven't talked to the employees yet, so I guess I'm just --

Okay. I understand. Fair enough. Second, with regards to the acquisition pipeline, clearly bringing in a new person shows that this is an area that is going to be getting some renewed attention. Can you talk about what the pipeline is looking like, both from a volume standpoint as well as valuations?

Well, I think we'll be able to talk about that more crisply, if you will, in future calls, because that's one of the responsibilities Pete will have. I mean, we certainly have continued to look at acquisitions. I think what we're sharing with you now is that we needed to get more systematic about it, and as long as as it's a bit of a part-time job for all of us here, it wasn't getting the focus it needed to get. And so I wouldn't say the pipeline is necessarily changed. It's something that is always evolving, and as we've talked with you in the past, a lot of these companies that we would look at are private companies and a big part of our -- well, that opportunity is tied to, often to an event. We just need to be prepared for that event. So building relationships with those companies and trying to maybe serve as a catalyst to trigger an event, we think makes sense, and that will be -- Pete will be on point to do that for the Company.

Okay.

I'd just add to that, Jim, the trend that you were alluding to on multiple certainly is going up, not down, based on the dollars that are out there today. There's more and more dollars in the marketplace chasing fewer deals, and it is driving prices up to some extent. So part of that discipline process Mike talked about will be making sure we're looking at these in a light that we can get the proper return with those valuations starting to inch up a bit.

Okay. And two final questions, unrelated. One, can you talk a little bit about the international opportunities? That's been a very good story the last few years and looks like you have some good runway. I'm not sure if there's any additional color you can talk about, the Hayter integration by now having a design center closer to Europe. And secondly, could you talk about the debt, which I believe you've got a bond coming due this year? And what, if any, plans you may have there.

I'll leave that one -- this is Mike, Jim. I'll leave the second one for Steve, and I'll answer, or try to answer the first one. International continues to be a growing part of our portfolio. Certainly our intention is to have that growth accelerate, not change the portfolio because the domestic businesses are soft. So the challenge will be to get the domestic businesses growing and the international continuing to grow even more so. And to that end, we believe there is a lot of opportunity in the international environment. Golf continues to be a strong growth factor, particularly in Asia, eastern Europe. We've talked about that in the past. Nothing has changed there. That's going to be a driver of growth, and Toro's position is very strong around the world with golf, both irrigation and equipment. So that's a plus.

As you think about the infrastructure being developed outside the U.S., which is commercial infrastructure, the need for residential, commercial irrigation ramps up there. And again, as a major player in that business, we should benefit from that as well. And then we look at Europe, and there are certain areas in Europe, that's the largest market in the international business. We look at Europe as -- maybe there are growth opportunities in eastern Europe which some of that is new business. There are growth opportunities in western Europe for us to -- with more focus to take share, particularly in the grounds business. We've been somewhat golf-centric there. We're expanding our focus there on grounds, working with our distributor partners, and beyond that, there are opportunities in the consumer business as well. So we think Europe can be -- we can grow the business in Europe, while the overall market may not grow as much, our position within the market can improve.

Okay.

On the debt question, Jim, this is Steve. We're as we speak in the process of reviewing what we do with the bond we have coming due in June. We have a $75 million bond which was part of the hardy acquisition debt that we issued. And we're looking at that on -- now the easy answer is take cash, given the cash that we're generating. That's probably not the best cost to capital answer, so we're looking at the best way to do that. We put some more debt back on the balance sheet. There are a number of different instruments you can use to do that, and we'll have more on that at the February call. We'll have that pretty well straightened out, if not done, and we can give you more information on it. But we're looking at the best way to do it from a cost to capital standpoint.

Great. All right. Thanks a lot.

Thank you, Jim.

Our next question comes from the line of Eric Bosshard with Cleveland Research. Please proceed.

Good morning.

Good morning, Eric.

Two things, first of all, in terms of the acquisition focus and the new position you've put in place, can you talk about the thought process with this, if this is a strategic kind of have to do, or a strategic would be nice to do?

Well, we believe that the majority of our growth is going to still come, be generated internally, and so the -- and Pete with participate in that part as well with his involvement with the Center for Advanced Turf Technology and just a general business development. Pete has worked with us in the past as part of our enterprise planning process. He's a very smart man, and so I think he will help there. But back to your point, acquisitions, we're going to be very -- as we said, very disciplined about pursuing them and finding the right ones. We're not going to try to force that and just make deals just to make deals, and so are they essential? We think they're important. We think there will be some. We thing if we do it with more intentionality, the chance of having good ones, finding good ones, and integrating good ones into the Company will be much higher.

Is there anything within the international acquisition realm that you look at and say boy, these are the acquisitions we can really add value to, this is where we want to focus? Is there an area that stands out where you could leverage or create the most value for an acquired business?

I think there are opportunities in every one of the -- I'll say the areas. There are professional -- there's a whole group of professional opportunities, there are game-changing kind of acquisitions, enterprise-shaping kind of acquisitions, if you will. There are division-extending kind of acquisitions that are out there. There are international acquisitions. And so we will be in the process with Pete leading this of kind of widening the lens and looking more broadly. And we've talked with you about our priorities. Would we love to find the right professional business, international company that would nicely fit into the portfolio? There are some, and I'll just leave it at that.

Okay. And then secondly, the -- I understand that you had a good 1Q last year, but you made some favorable comments that appeared about shipment trends here recently and snow, et cetera, and I guess I was just interested in understanding a little more the 1Q guidance and your sense of the momentum of the business in total as we head into '07 because you've given, as is your practice, pretty conservative guidance, especially on the bottom line.

Eric, this is Steve. We have a -- we're pretty comfortable going into the year, as we always tell you at this time of year, the first quarter isn't a big one. But it's one that we had a good, strong start last year, go back and look at the numbers. We know there's some things in the first quarter that are going to be a little softer. Snow. Our snow year will not be as good as last year. In fact, as you know, we haven't had much snow until last week. That helped a bit. But given the fact that last year's snow was down from the prior year, we new this year's sell-in was going to be off. So you've got some of that. And as we get further into the year, we are seeing a little bit, even from last year, of buying closer to retail, so our shipments are getting pushed out a little bit. So in our normal style, we're going to come out of the gate on a fairly conservative basis, and we'll look at how that quarter shapes up and what it means for the year and guide you as we get into the second quarter.

Okay. And then just one last question, if I could. In terms of the price-cost situation, as you think about '07, can you just update us on how you're seeing your material costs trend and your selling prices trend, and if that relationship, which I think has probably been negative the last couple of years, might become a positive one in '07?

I don't think it will be positive. I think what we're seeing is we're going to get less price this year than we did last year. Probably going to get a 1% to 2%, something in that range. We had probably a percent higher than that in '06. We're still seeing pressure on certain commodities, although not as dramatic as we saw in '06. So when you look at steel, prices are still going up. We think they're going to go up incrementally from where they were this year, only maybe not quite as much. We probably had incremental commodities cost of -- in the area of $13 million in '06 over '05. And we think '07 won't be quite that high, but it may be in the 12 range, 10 to 12 range. So we will get a little price. We are seeing some price increases. We still think in spite of that, with Lean and some of the things that we have going, we're going to be able to make some modest, flat to modest improvements on margins as we go into fiscal '07 anyway. So headed in the right direction, but we're still seeing, I would say the biggest pressure is probably on the commodity side.

Thank you very much.

Thanks, Eric.

Our next question comes from the line of Sam Darkatsh with Raymond James. Please proceed.

Good morning, Mike. Good morning, Steve.

Good morning, Sam.

Three questions, and my last question I think you just half answered it. First, for Q4, I understand it's not a tremendously meaningful quarter from an EPS standpoint, but your sales ended up being at the low end of your guidance, yet your earnings per share was above your guidance. What individual margin line items positively surprised you in the quarter, based on what you had previously forecast three months back?

Well, I don't think it's any one thing. And we caution you against looking at the quarter. You've got to look at the year. Because a lot of those things are timing pieces that may go in your favor, may not. We did have some of those things like incentive expense, we had a big pick-up because we didn't perform at the same level over plan in '06 that we did in '05. So there are different things in and out of that category. You had some mixed pick-up with the professional side, gives you a little better margin. That might have been a little more than we had expected. So it's just a number of things in and out that you don't know until you're done where you end up there.

Okay. That leads me into my next question, then. The other segment, the other operating segment, not other income but the other operating segment, how should we look at that in terms of the effects of operating income in '07 versus '06? It was a favorable 15 some odd million dollar swing in '06. Would that -- would you expect to maintain the $60 million level or so, or would it go back towards the '05 levels, or how should we look at that based on currency, based on insurance, based on the incentive comp? How should we look at that?

That's a good question. Again, for the year, we had a lot of things that went favorable, and that drove that number down to the 69 that you're talking about. We think as you go forward, you ought to look at the '05 number as probably a better gauge than the '06 number. '06 was lower than we would have expected, and some of those things we probably won't get as we go into '07. So as you do your modeling, look more at the '05 number than you do at the '06 number for an indication of where you ought to be.

Okay. So then follow-up on that, if you back out the other income, and you back out the interest expense, what you just said, I guess, means that there may be a $15 million swing or so negatively, '07 versus '06, which comes to about -- assuming my math is right, about $0.22 of EPS headwind in '07, you're guiding to 10% to 12% APS growth, which means you're actually growing 18% to 20% earnings on a year-on-year basis, if you back out the $15 million swing on other -- on that other segment. That means that your operating profit, excluding other, would be up maybe 80 basis points, again, if you exclude other. And I guess you sort of half answered where you're going to get the 80 basis points from your response to the prior question, when you said well, you look to get maybe selling price hikes of maybe 1% to 2% or so and with $10 to $12 million of commodity inflation, that would give you again, if my math is right, maybe about $6 or $8 million favorable in '07. But where would the additional favorable delta occur on the margin side in '07?

You've asked about 15 questions there in that. But I think your one assumption that I would question is we aren't going to get that $15 million back. A lot of those things will not occur again in '07 in that other segment. So you can't just back that off. You've got to go back and look at the old '05 numbers and look at that as more representative of where you're going to be. And we can -- I don't have all the -- every line item here with me, and this is probably not the forum to do that in. But we can go over that further if you want to. But we won't get that back. You've got to look at the SG&A as a percent of sales being flat to slight improvement, as a percent of sales is the way to look at it in '07 versus '06. Now that says you've got to get top line to be able to leverage that, and the guidance we've given you on top line is 5% to 7%. So if we're able to get that as a percent of sales, we'll get some pick-up in SG&A.

Okay. All right. I probably misspoke then, or at least wasn't real clear in my question. I can follow-up off-line on that, Steve, that's fine. Last question. When you said that retail activity late in the quarter picked up, is that snow or is that irrigation or is that lawn equipment? What specifically picked up late in the quarter?

We were talking about the landscape contractor business, and that had been -- particularly had been a bit soft, obviously when we ended the third quarter and shared that with you and that continued at the start of the fourth quarter. But the last few months, last two to three months, the landscape contractor business has been gaining momentum back, which is a good signal to us that this was as we had expected it or thought it was, I won't say an anomaly, but a short term issue that we felt in the spring-summer season related to gas prices and the economy and so on. And as we've said to you, this equipment is used hard, and it gets used up, and ultimately, they have to replace this equipment, and we're seeing that pick-up as we do comps versus last year at the same time.

So in the residential side, you did not see a pick-up late in the quarter? Maybe I misunderstood then your prepared remarks, then.

The residential -- the residential side of the business falls off from a retail standpoint of spring and summer goods, so it's not very meaningful. And some of the other professional businesses were very solid in that same time period. Snow is kind of the wild card for us at this point in time, and snow is kind of two pieces; the preseason piece, the end-season piece. We knew the preseason piece was going to be somewhat soft this year because of the snowfalls from last year were not as good as prior years, and so we predicted that. We probably saw even more, I will say, kind of some hesitancy on the channel to pull those inventories down. Our snow inventories are in great shape right now in the field. To pull those down and just kind of when the event is heading their way, get on the phone and call us. We saw that happen with the snows that rolled up through Chicago and Milwaukee, and we had very strong reorders. So that's a -- that's something we hope, as the rest of the season plays out, we'll get elsewhere. And we'll always come back to snow is a small part of the business. It's certainly nice to have, but we don't necessarily count on it.

So if you look into the '07 selling season, would you expect sell-in and sell-through to be pretty much even with each other, the field inventory levels are such where sell-in should equal sell-through.

Sam, part of that, if you remember at the third quarter conference call, we made a point of saying we had a little higher field inventory in two spots, international and the landscape business.

Correct.

We wanted to work that down, and we also had about $20 million of additional inventory on our own books that we wanted to get worked down. And we were able to do that. So we got the Toro inventory, as you can see, is pretty flat, and if you took the exchange piece out of it, it would even be down from where it was last year. And the field inventory, because of some of the retail that Mike talked about in the landscape side, has worked down better too. So we did what we said we were going to do. The field inventory levels, and particularly snow, the snow field inventory levels are even lower than we had expected. So we think that's going to clear the shelves pretty well. And we need a couple more storms like the one we did last week. But all of that says we think the field is in pretty good shape as we go into '07.

Excellent. Thank you very much, gentlemen.

Thank you, Sam.

Sir, you have no questions at this time. [OPERATOR INSTRUCTIONS]. Your next question comes from the line of Seaver Wang with Utendahl Capital. Please proceed.

Good morning. Just want to kind of follow up on, or talk a little bit about sell-ins for when the lawn and garden season starts again. Is it -- do you think the second quarter will be -- have, I guess, kind of slower sell-ins because of the last -- the last couple years have been -- people have been very optimistic, but it's kind of fallen off towards the end of the season. So do you think that -- are you getting a sense from the retailers that -- or from the people and professional that maybe they're going to be more conservative in the second quarter?

Seaver, this is Mike. Good morning. I guess what I would say to that is that given our earlier discussion around inventories, inventories are in pretty good shape across the board, residential to the professional businesses, and so we would expect, especially with the number of new products that we've got in place for F07, that we'll talk more about it at the end of the first quarter. We would expect the sell-in maybe more weighted towards the residential business to be solid as we work with retailers like the Home Depot and dealers. I don't think we see -- expect to see -- it may be a little closer, which is in between that first and second quarter, but nothing -- we don't believe that will be an issue. It actually should be an opportunity for us.

So, I'm sorry, you said that the new products were going to be for the residential market?

Well, it's across the board. We have a lot of new products coming in the professional side of the business and golf and landscape and irrigation. We have a lot of new products coming in the residential area as well. And so the -- kind of preparing for the spring selling season for the depots and dealers, they will be getting those products as we approach the season. It's just a question of to what degree, will it be in the first versus second quarter.

Okay. Thank you.

Sir, there are no further questions at this time. Please proceed to closing remarks.

Thank you, Melanie. And once again, thank you, ladies and gentlemen, for your time, your questions, your interest in Toro. In the end, our performance in fiscal 2007 and certainly throughout the next three-year initiative, Grow Lean, lies with our more than 5,000 dedicated Toro employees who are working hard around the world to exceed our customers' expectations. We believe they're the best in the business, and our experienced leadership team here is ready to support and encourage them in this next important phase of our journey. So we look forward to talking with you again in February, and we'll discuss the results of our first quarter. Thank you, and have a great day.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the presentation, you may now disconnect.