Toro Co (TTC) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to The Toro Company third-quarter earnings conference call. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to our host for today's conference, Mr. Michael J. Hoffman, Chairman and Chief Executive Officer of The Toro Company. Mr. Hoffman, please proceed.

Thank you. Good morning, ladies and gentlemen, and thank you for joining us for our third-quarter earnings conference call. Here with me this morning are Steve Wolfe, our Chief Financial Officer, Tom Larson, Treasurer; and John Wright, Director of Investor Relations.

Let's begin with our forward-looking statement policy. Please keep in mind that during the call, we will make certain forward-looking statements as of today which are intended to assist you in understanding the Company's results. You are all aware of the inherent difficulties, risks and uncertainties in making predictive statements. So the Safe Harbor portion of the Company's press release, as well as SEC filings, detailed some of important risk factors that may cause actual results to differ from those in our predictions. Our earnings release was issued this morning by Business Wire, and can also be followed in the Investor Information section of our corporate website, thetorocompany.com.

With that, let's turn to the results for our third quarter and the nine months ended August 3, 2007. We're three-quarters of the way through our year and the state of our business is sound. We believe we are gaining share, as our retail sales are generally outpacing the market, driven by an unprecedented level of innovative new products. Inventory levels for both Toro and the field are down, and we continue to generate new efficiencies and cost reductions as part of our ongoing GrowLean initiative. All this and more bodes well for the remainder of fiscal 2007 and beyond, in spite of the soft revenue growth this quarter.

We've come through a good portion of our prime selling season in an environment that was challenging for the entire industry. Toro and its family of distributors, dealers and retailers managed the effects of weather, mixed economic signals and continued high fuel costs that impacted buying decisions among professionals and homeowners alike.

As you can see in this morning's release, revenue growth for the third quarter was basically flat compared to last year, while it was up 2.5% for the first nine months of fiscal 2007. Once again, international lead the way. Sales for the quarter rose 5.9%, in large part due to a strong demand for golf and sports field and grounds equipment. As healthy golf course construction continues around the rest of the world, Toro is in a unique position to offer innovative products, a well-respected brand and a legacy of market leadership. For the nine months, international revenues were up 9.9%, carried by a strong showing from equipment along with Residential, Commercial and Micro-irrigation systems. Excluding the effects of currency, the year-to-date increase would have been 5.4%.

On a worldwide basis, growth was dampened by the previous season's mild winter, which shifted the timing for most of our snowthrower shipments from the third to the fourth quarter. Now remember, these products represent just 4% to 5% of our overall revenue. They are also our most volatile. The preseason that we're nearing is going to be impacted by the lower snowfall levels during the last snow season. We do, however, anticipate good customer acceptance for a new generation of single-stage snowthrower products that are just coming off the production line. I will share more about this a bit later in the call.

Despite this tough environment, I'm pleased to report that The Toro Company turned in another quarter of record net earnings of $42.5 million or $1.02 per diluted share. For the nine months, this brings us to a record $135.9 million or $3.23 per diluted share.

There are several factors that contributed to this performance -- most importantly, the ongoing lean efforts in our plants to improve gross margin by achieving greater efficiencies and cost reductions. At the same time, as we noted in our last call, we took the first steps in piloting a lean pull system that is designed to reduce inventory and improve our cycle time. This is a critical component in our long-term strategy to improve working capital to the teens. This part of our lean journey has just begun, and we fully expect to encounter some bumps in the road ahead. Even so, we look forward to accelerating our efforts around this important initiative.

That is a quick recap of our performance year to date, so with that, let's take a look at our segment and operating results. In our Professional segment, sales for the third quarter rose 3.8% to $332 million, while year-to-date sales were up 3.9%. These gains were derived from continued worldwide demand for new turf maintenance products, including the Reelmaster 5000 and Groundsmaster 7200 series mowers. These big workhorses improved operator productivity, while delivering the finest quality of cut on golf courses, sports fields and grounds. On the water management side of this segment, shipments of Residential, Commercial, Irrigation Systems rose significantly in Asia, while water-saving Micro-irrigation products continue their steady rise worldwide.

In the landscape contractor market, a closer analysis reveals a healthier situation than the numbers reflect. Our retail sales continue to outpace shipments, leading to further reductions in field inventory throughout the supply chain. This is a part of our broader focus on asset management that leaves us well-positioned as we approach the end of the season. Earnings before taxes in the Professional segment showed a nice improvement for the third quarter, at $70.9 million, up 13.5% from the previous year. Much of this came from gross margin improvements due to the cost reduction efforts, as well as lower warranty expense, favorable currency exchange rates and product mix.

In the Residential segment, sales for the third quarter declined 8.5% to $133 million. Year to date, our sales are nearly flat, despite strong retail demand for riding products and walk power mowers.

One of the bellwethers in this segment is the new generation of high-performance zero-turn radius TimeCutter Zs offered by our dealers and The Home Depot. For some time, we've talked about our long-term strategy to invest in these innovative higher-growth products with the anticipated decline in the popularity of traditional lawn and garden tractors. Like any successful new product, when we listen well to our customers and deliver what they want, sales follow. That is why our dealers are calling this their most exciting product category of the season.

The other front-runner was our new line of Toro walk power mowers. As we've said before, these products, with the right features at the right price, are a perfect addition to our lineup.

Offsetting these gains for the quarter and the year to date, as I mentioned earlier, were lower worldwide shipments of snowthrowers. Last season's mild winter caused customers to delay orders to the fourth quarter, not unlike our experience in the past. We are, however, encouraged by early interest in our new generation of Toro power clear snowthrowers. Designed from the ground up, these single-stage snowthrowers offer more features at the same price points as previous models. Homeowners can now choose between two or four-cycle engines, with an easy-to-use unique chute control system. These products are now making their way into the channel.

Earnings before taxes in the Residential segment were $8.2 million for the quarter, a decrease of 5.8%. However, earnings for the year were up 25%, based on lower warranty and marketing costs.

Well, that's the segment results. Now, let's take a look at operations, where once again our lead story is gross margin, which year to date has improve to 36.4%, compared to 35.3% in fiscal 2006. While a number of things impacted margin, the primary factors were productivity improvements, driven by our ongoing lean efforts, followed by a favorable product mix. In addition, selected price realization and currency helped boost the results for the nine months.

For the quarter, SG&A expense as a percent of net sales rose slightly to 23.1%, due to last year's low insurance claim experience rate. For the nine months, SG&A is even with 2006. As we've shared with you before, we expected this to be a difficult comparison year. We will continue to focus on improving SG&A leverage wherever we can, while ensuring strategic investments in areas that will support long-term growth like engineering, research and development.

Our effective tax rate for the quarter was 33.4%, compared to 32.6% in the same period for 2006. Last year's rate reflected a favorable resolution of a prior year's tax return. We expect the full-year effective tax rate to be 33.5%.

Due to solid retail sales year to date and a corresponding reduction in field inventory, accounts receivable at the end of the quarter totaled $380 million, down 3.6% on essentially flat sales. At the same time, net inventories declined $11.6 million or 4.5% from the end of fiscal 2006. Obviously, we are pleased with the direction both of these are going as we take initial steps in our working capital improvement effort.

Finally, our cash position at this point in the year is quite good. Our seasonal balance of cash was up nearly $70 million, with $50 million coming from replacing maturing debt with the proceeds from our public debt issue that we obtained last April at a more favorable interest rate. The remainder was attributed to year-to-date cash flow from operating activities which increased on the strength of earnings growth and improved asset management.

Let's close the presentation portion of the call this morning with some thoughts about finishing the year and positioning Toro for fiscal 2008. Our family of dedicated employees around the world will continue to collaborate, innovate and deliver the results we need to win in the market. Even with the lower growth to date, growth is top of mind for all of us, and we will continue to drive our enterprise strategies to grow our core businesses and pursue opportunities outside our internal development.

One of these areas is strategic acquisitions. As I'm sure most of you have read, last Friday we announced the successful acquisition of Rain Master Irrigation Systems, based in Simi Valley, California. For more than 25 years, Rain Master has been a market leader of innovative irrigation central control systems and other products. With annual revenues of approximately $10 million, Rain Master boasts a particularly strong market presence on the West Coast. With its complementary distribution network and technology expertise, this purchase will strengthen our position in the growing water management market. These products will be an excellent extension to our popular Irritrol brand, and we hope will become a controller of choice for professional contractors and commercial applications. We are very pleased to welcome Rain Master's CEO, Jim Sieminski, and the 35 Rain Master employees to our water management team.

Well, we are now into the final quarter of what we believe will be a solid fiscal year. While our revenue growth is less than satisfactory, it is a predictable outcome, based on market conditions, as well as our strategy to improve asset management and working capital. As we advised you last quarter, our ongoing efforts in this important focus area of our GrowLean initiative may cause some short-term revenue impacts as we move to a leaner business model.

Given our abundant offering of new products, coupled with solid retail signals worldwide, we expect to continue our retail momentum in the fourth quarter. In addition, we will focus on our lean implementation and capitalize on all that we have learned in our prior initiatives.

Taking all of these internal and external factors into account, we now expect net sales for fiscal 2007 to increase approximately 3%. We have also narrowed our previous guidance range toward the upper end for an increase in net earnings per diluted share. We now expect to earn between 13% to 14% for the year.

So with that, let's open it up for your questions.

(OPERATOR INSTRUCTIONS). Seaver Wang, Utendahl.

I was just wondering if I could get a little bit more details on the landscape contractor market. Besides fuel, were there other factors affecting that particular market?

Well, I think as we have been talking about, last year we had the issue -- actually, the last couple of years -- with landscape contractors delaying purchases. That is less the case this year. I said earlier that while our shipments are down somewhat, the landscape contractor business is actually quite healthy. It is performing -- we get industry data in terms of what is being shipped into the market.

Certainly, we are a part of that, but we also are tracking retail -- which products are retailing. Our landscape products are retailing actually fairly well, so that the net result is we're pulling field inventory down, and as we have said, that bodes well for the future and as we set up 2008. So it is not the same situation as it was last year or the year before. It is more about pulling field inventory down.

Then for the snowthrower shipments being shifted to the fourth quarter, is that significant? Is that a sizable shift going into the fourth quarter compared to other years? I guess I'm suggesting -- are you suggesting that there could be a pretty good pop in the fourth quarter, just because of the shift?

Well, I think what -- go back to the snow business overall, and that is that the preseason, the season we're heading into, is always going to be mostly influenced by the prior year's snowfall, and last year was a fairly mild winter. So we know the preseason this year is going to be somewhat soft, which caused the shift from the third to the fourth quarter, in snow shipments.

That could go 180 degrees next year, depending on what the snowfalls are like the coming year that we are going into. While it may swing the Company revenues by a point or two, it causes a bigger swing within the Residential segment, because that represents 30% of the Company's revenues. So if you have -- it's a much bigger factor for the segment, but not for the Company overall.

So I think we knew the snow business was going to be somewhat soft in the preseason. We are prepared for that, with our shipments; we have moved those from the third to the fourth quarter.

But more importantly, we're positioning ourselves well. We have got some new products that will be in dealers in The Home Depot, a brand-new lineup of single-stage, which is the core part of the snow business for The Toro Company, with some really innovative features on them, not unlike what we have done with our walk power mowers in the past. So we think that will create a lot of interest and good potential for us to take more share, even in a somewhat softer market.

If you could give a little bit more color on how you're transforming to more of a pull system? Can you kind of describe what you are doing with people down the channel and so on, and the actual actions taken?

Okay, well, thank you. We are learning a lot about pull systems. It's not been something that has been part of our history, if you will. As we continue to get educated and start doing some assessment and moving this into our plants, when you're going to put a pull system in place -- and I by no means have the most expertise here. That is a good question for our Head of Operations, Sandy Meurlot.

But you really have to do this end-to-end. You don't do just a piece of it in the plant. You've got to do it from the customer all the way back through the plant to the suppliers. We've had some help from the outside to come in and help us with the education. We have got some great people within the Company that have had experience doing this. We have started to put some tests in place, some pilots in place, if you will. In our plant in Tomah, in our plant in Beatrice, but again, extending that out through, then, kind of the whole supply chain, as well as with distribution.

We would say we've got a lot to learn, but from the involvement we've had so far, in the few months that we have been engaged in it, I think we would say we see a lot of opportunity for the Company. It is going to be essential if we are going to really execute against our working capital goal that we have shared with all of you.

Eric Bosshard, Cleveland Research.

This is actually [Mark] stepping in for Eric. In terms of your full-year guidance, it seems like you're no longer assuming the majority of your profit in revenue growth to be in the fourth quarter. Is there something that has changed relative to 90 days ago, when you did expect the majority of the year-over-year delta to be within the fourth quarter, not the third quarter?

Well, the first thing is obviously, we performed better in the third quarter than we expected. As we kind of go down the list, we feel pretty good about what is going on out in the marketplace with retail. It is not as good as it could be -- some of that is obviously impacted by the economic environment and weather -- but still relatively good. We want to keep driving that, keep driving that retail.

Now, along the way, as we put this working capital initiative in place, we want to continue to work on managing inventory. Some of this is about degrees of freedom we have. So the mix may shift a little bit back towards a little lower gross margin products in the fourth quarter. We are going to be working on setting up next year. We have always used the fourth quarter to really set up the next year. So we want to deliver what we said we were going to deliver for the year. The fourth quarter is a small quarter for us, but really position ourselves for the following fiscal year in 2008. So if we have some room to manage inventory even more aggressively, then that is an option we may choose to do.

The second question -- in terms of the quarter and your now 200 to 300 basis points lower sales guidance for the year, how much of that can you attribute to your lean initiatives, and then how much is just due to the slowing in the rest of the business?

That is a good question. I don't know that we have kind of analyzed it that way. I know that snow has probably cost us a couple of points.. There are some other factors within the businesses. Obviously, a piece of it is lowering field inventories and the whole lean focus. So I guess I can't get real specific with you on that. I don't have the numbers here.

Then finally, on international, the trend is a little bit slower this quarter versus the prior three quarters. Has anything changed in the international markets, or is there any timing issues within the numbers?

Well, the first -- the international Professional business is still very strong, robust. The growth of golf outside the US continues to be very strong. Our position there is very strong. The third quarter was more about the international Residential business, snow being the major impact there, to a smaller degree. Some Residential products out of [Hader] in the UK. But I would say to you that international segment for us -- or the international business, the Professional segment is still very strong.

Ryan McLean, Janney Montgomery Scott.

Just a first quick housekeeping question. What was the impact of currency on sales for the quarter?

For the quarter, it was about $4 million, and for the year, $18 million on the top line.

The next thing I wanted to talk about is just looking at Residential sales, which you reported down 8.5%. You mentioned that snowthrower shipments were the main culprit here, but it's only 4% to 5% of your entire business. Is there anything else that is going on with that that maybe led to some of the weakness?

It is for 4% to 5% of the full Toro number, but when you take in as a percent of 30% of our revenues it becomes a much bigger factor. The third and fourth quarter are always the larger quarters for snow. So it doesn't -- it affects the Company to a much lesser degree than when you look at it within the segment.

Was that 30% of revenues for the third quarter that it usually is? Is that what you said?

No, I was just saying that Residential products represent 30% of our revenues. So when you take snow down within -- for the Company, snow been 4% to 5%, well, it's a much bigger percent of, obviously, the segment results.

The other thing is we saw a very good increase in operating margins in the Professional segment. Obviously, you have been talking about your GrowLean initiative. That is probably part of that. Is there anything you would like to expand on, on why you're able to have such a good increase in margins on the Professional side?

Really, we were pleased with the margin overall -- not just the Professional side, overall. But it is a couple of things.

One, you mentioned the GrowLean initiative that we have been working on. That is creating some fairly significant productivity for us. In fact, we are now starting to see a lot of our GrowLean savings helping offset, plus commodity prices, which is good. That should continue, assuming commodity prices don't go out of sight.

So we're seeing a lot of productivity from that. Within the results that you see here, you had a bigger portion of our sales coming from Professional, and as you know, the margins there are higher than Residential. So that helped us both for the quarter and for the nine months.

The the other piece Mike touched on was new products. Anytime you have new products in the marketplace, particularly the innovative type products that we're accustomed to on the Professional side of the business, you can command better margins on those products, at least on the front end. So you combine all those things -- it ended up with some very nice results, both for the quarter and for the year to date.

Sam Darkatsh, Raymond James.

First off, when do you suspect, Mike, that the sell-in is going to begin to approximate sell-through? At what point do the field inventories become lean enough, but also healthy enough where that should not affect the top line anymore?

Well, that is a good question. I will let you do some of the math. As you know, we put this working capital goal in place to drive our working capital from 29% down into the teens. You know how big a number that is. Some of that comes from different places, but part of that is inventory [at or] part of that is inventory in the field.

So it will take a little time. Now, it was also influenced by how strong retail is. If we can accelerate retail, that doesn't necessarily mean that our shipments -- while they will still be lower than they could be, as it relates to retail, they could still be very sound shipment levels.

We have got some challenges -- there's some tension within our goals. As you know, in our GrowLean initiative, we have got the goal of driving our revenues on a compound basis of 8%. Obviously, we're not going to get there this year.

A piece of that, as we have talked in the past, is around acquisitions. The good news is we are now organized, and put process in place, and are looking at those carefully. We were really pleased to do the first one with Rain Master.

So that is going to be a key part of kind of that growth portfolio as well. Because there is some tension around the growth -- driving the growth, while also working the working capital initiative and driving the inventories, here and in the field, down as much as we want to.

So when will it happen? We're going to try to manage this carefully. You know, there could be some additional bumps along the way. Well, there could be, but we think we will keep our hands around that and not let them be -- Minnesota potholes, rather just some lighter bumps, if you will.

But it sounds like it is going to -- it may take at least a few quarters before we see, quote-unquote, more normalized throughput through the channel? Is that what you're getting at?

No, I think what I'm saying is it is going to be stretched out longer (multiple speakers).

Clearly, it will be a long time, but is it step function or is it a smooth, constant issue? How should we look at it over the next few quarters or so?

I wish I could be more precise with you, but at this point, we don't believe it is a step function. We will manage it kind of incrementally along the way.

Second question -- I guess it is sort of related to that. You did a terrific job with the margins this quarter, in a tough operating environment. Based on the fact that the asset management is going to get a major examination over the next few years or so, there may be some pressure on absorption rates through the facilities, at least versus where they might have been if you had just been -- they had been not focused on field inventory. How should we look at gross and operating margin expansion with a low to mid-single-digit sales growth rate over the next few years or so? How much is still left on the table, and what leverage could there be if your top line is a little bit more modest?

A lot of that was not tied to the sales increase, because we did not have a dramatic sales increase. So when we look at where the margin gain came for the quarter, even through the nine months, it is those two or three things that Mike talked a little bit about and that I talked about earlier, and that is leveraging your operations through the lean activities to make sure that we're getting productivity, that we're taking cost out of product.

The Residential side of this business is a constant cost reduction business. You have got to be looking at ways to be able to do that to keep your margins and increase them. So we think there's still a long way to go, in terms of all of those initiatives -- our GrowLean, our productivity initiatives that we have in the plants. As you have seen in the last couple of years, our margins have tended to improve somewhere in the 0.5% to 50 basis points per year.

That includes the absorption issue that you're talking about. We're going to have to find a way to -- if, in fact, we're getting more efficient and we are producing more with less, you are, by its nature, creating capacity. So it makes the top-line growth side of that that much more important, that we're able to grow and use up that capacity and continue to create more as time goes on.

So there is still fuel in the tank. We have said all along with lean, we're in the early innings of that, so it is not unlike you are talking about when the sell-through catches up. We still have a ways to go before we are out of gas in that tank.

So over the next year or two, a 30 to 50 basis point improvement is not out of the question, and then beyond that it remains to be seen? But is that how we should look at it?

I think that is a good assumption, yes.

Third question -- and Mike, you mentioned that you believe you gained share based on retail data. That is also to be commended. With respect to what we can see as investors, I believe John Deere came out and said that their CC&E business was up 4% if you adjust for the LESCO business, which is a little bit higher than what you guys were looking for.

Could you help investors understand why those two -- why there might be differences in there that may or may not have to do with share? Or could you help us reconcile those two numbers, where your sales are flat and their sales of up 4%?

Yes, I would say this -- first of all I don't want to spend a lot of time on the comparison. You can imagine that we look at that. I'm not sure the quarter's a really good reflection. I think rather, because you have some shifts in quarter to quarter, and we're a big player in snow and they are not.

But if you look at overall year to date -- which is, I think, a better comparison -- without their acquisition, they are at 2%. We're at 2.5%. So they are similar. But again, you have got to be careful looking at the numbers, because it really depends on what initiatives underway. I think as a company, they have been focused on asset management as well, maybe longer than we have. Not maybe -- I believe longer than we have.

So I think when you look at the year-to-date number, you would say 2% versus 2.5% -- it's similar.

With respect to the Residential engines, I think you might be looking at alternative supply for next year. Has that been determined as of yet, and what does that mean for engine costs for you on that Residential side of the business?

Well, we don't get into talking about engine costs. I think the -- well, I think it's fair to -- let me start with this, that yes, the strategy is in place. Where we start is it starts with the Toro overbrand, or the Lawn-Boy overbrand. For some of the OEMs where the brand may not be as strong, then the importance of the engine brand comes into play. There are good engine brands out there, and we have used Briggs & Stratton in the past and Tecumseh in the past, and Kohler and Kawasaki. We have good relationships with most of these engine manufacturer companies. Obviously, you watch this closely -- there are more and more kind of alternatives.

So with all of that said, and as we look to fiscal 2008, one of the things that you all are well aware of is some of the issues that were going on with Tecumseh and their Brazilian situation. At this point in time, we are in, I guess, an agreement with using primarily Briggs & Stratton engines for the larger part of our walk power mower volume.

Now, I would say to you, we have used -- well, Tecumseh has been the primary supplier in the years past. We have used -- this is not, I will say, a significant change. We have used Briggs & Stratton engines on our cast deck products, and we have used Briggs & Stratton engines on our steel deck products sold through The Home Depot and dealers, on the upper -- in the past, it has been on their electric start model on the upper end. This next year, it will be kind of across the line.

So that is where we are currently. Briggs & Stratton has been a long-standing good supplier and partner to Toro over the years, and Tecumseh was as well. They just ended up having to go through some very difficult times, and you are well aware of that.

I guess what I mostly getting at is that -- does this make it more expensive for you to procure engines for next year, or it's essentially a push from a profitability standpoint? I'm trying to get a sense of how we should look at the margins for next year on the Residential engine business.

Yes, again, we don't get into disclosing that information. But I guess I would say it this way, that we have a very competitive offering from the suppliers. I think Briggs & Stratton looks at The Toro Company as an important iconic kind of brand. They want their engine on it and they have been very competitive. I guess I will leave it at that.

James Bank, Sidoti & Company.

While we're on the Tecumseh topic, why was Briggs & Stratton chosen for the larger volume of your walk power mowers over a Kohler or a Honda?

Well, the fact is within that category, it is really about what engines fit kind of the needed specs and price points. So we have used all of those engines in the past in different models, higher-end models if you will, cast deck models, Lawn-Boy.

So I'm talking here really in kind of the high-volume walk power mower segment, which is different. We use a lot of Kohler engines on our riders. We use a lot of Kohler engines on our landscape contractor products, as well as Kawasaki.

So that is kind of the background. We continue to use some Honda engines, but for the high-volume, it is about the set of specs and the appropriate -- how competitive the cost is.

Again, if I could just jump back to the snowthrower business, I'm still slightly confused with the fact that it is 5% percent of your business, but you do explain that once you get into that 5% being in the 30% of your Residential sales. So would you say that there was no other weakness in any of your product lines in that Residential sales segment?

You know, snow was really the bulk of it. We did have one less electric trimmer SKU in the home solution products that was not part of the offering this year. But that is the smaller part. It was really snow in the quarter.

In terms of your innovative products -- I don't know if I caught this or not -- if you could just break out what that contributed to growth in the quarter?

We don't have that specific number. What we have talked with you about is new products --

I'm sorry, new products.

What we've talked to you about is new products as a percent of our sales. Again, our definition -- just to kind of remind you, our definition is products that were introduced this year or the prior two. So we try to keep this three-year rolling average. It was something we introduced last year or even the year before, and is kind of just getting started.

So if you go back to fiscal 2005 and 2006, we were kind of in the low 30's. I think we may have slipped even into the high 20's for one year. I don't have that number here in front of me. But as we've said to you, in 2007, that number was going to be over 40% and has continued to track there.

That has been, I think, a key part of our success in the marketplace, with the -- well, again, the market -- we see retail has been pretty good. It is not because the economy or the weather have been terrific. It has been more our performance against other players in the industry, if you will.

So that is true on the Residential site with walk power mowers. Our new TimeCutter Zs that were introduced were quite successful. We introduced new landscape contractor products. All the way up to our Commercial products, like the new fairway mower that was introduced last year, this year being the first kind of full season. It has just been a terrific success.

Then, also, I see here you mentioned that your position was improved in most of your businesses. If I could ask specifically about the com/res or just the Commercial Irrigation, and how Rain Master is going to help you build higher market share? Because I believe that was a segment that I think you were underperforming for a little while. You maybe only hit about 11% or 12% market share. Had that one improved, and is Rain Master going forward going to help you improve that more?

Yes, it will. I guess you say we have not performed as well for a little while. Well, it depends on how you want to define a little while.

So this is one of those you can go back a couple of decades -- and I won't take a long time here, but I will say we used to have a very large share of that Residential/Commercial business, in that I will say 40% range. We don't have time to go through all the history. But we have been working to build that back. When you put the Toro and Irritrol brands together, then we are probably in the kind of upper teens in terms of market share.

The trend -- this has been a challenging year for irrigation. Weather has played more of a role there, and in a negative way, than elsewhere. Nonetheless, we continue to see some progress on the Residential/Commercial side, and some of that is due to the new products that we have brought about. We believe the Rain Master acquisition, the central control system that will couple up on the Irritrol side, will be a great complement to that business and strengthen their position.

For Rain Master, are you able to disclose what you paid for that? Did you? Did I miss that?

No. We didn't disclose the price. We said this was about a $10 million revenue opportunity, and will not affect '07 earnings to any great extent.

Steve, actually, this last one is for you. How many shares did you repurchase in the quarter?

About 550,000.

(OPERATOR INSTRUCTIONS). Seaver Wang, Utendahl.

I just had a quick question on raw material costs and the selective price increases you had mentioned earlier in the call.

We have continued to see commodities going up. There isn't any doubt about that. There are some other culprits that kind of raised their heads this year, one of those being hydraulics. We have seen a big increase in hydraulics. But as I mentioned earlier, we have been able to offset a lot of that with our lean initiatives, which we will continue to do.

But as we go forward, we continue to watch steel. Steel has moderated a little bit, although we're hearing rumblings that that is going to take off again. Then resins is our second-largest commodity that we watch, because of the plastic products we make, both on the Consumer side and the Irrigation side.

So we think that we spent -- I think we told you last year in the area of $9 million, $9 million to $10 million in additional costs and commodities, and it will probably be somewhere in that same range this year for fiscal '07.

And you have more than offset that with the lean initiatives?

We have for nine months, yes.

Then the price increases you had mentioned selectively in certain segments?

Over the Company, when you look at the Company as a whole, it has been somewhere in the 1% to 2% range.

Is that more on the Professional site?

Yes, I think we have talked in the past, it is always easier to get price when you're selling innovative products on the Professional side. So the bulk of that would have been on the Professional versus Residential.

There are no more questions in the queue. I would now like to turn the call over to Michael Hoffman for closing remarks. Please proceed.

Thank you, and to our participants, thank you for listening and for your questions. As you have heard this morning, the state of our business is sound. We have the right fundamentals in place and we are well-positioned for the remainder of fiscal 2007 and 2008. Retail is favorable. We are partnering with our distributors, dealers and retailers to reduce inventories throughout the supply chain. We're delivering the innovative new products and services our customers need most.

So we will look forward to talking with you again in December to discuss our year-end results and offer a preview into our second year of the GrowLean initiative. Thank you, and we wish you all a good day.

Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day.