Toro Co (TTC) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Toro Company third quarter earnings conference call. My name is Josh, and I will be your coordinator for today.

(Operator Instructions)

I would now like to turn the presentation over to our host for today's conference, Mr. John Wright of the Toro Company. Please proceed, Mr. Wright.

Thank you, Josh, and good morning, everyone.

Joining me this morning for our third quarter earnings call are Mike Hoffman, Chairman and Chief Executive Officer, Steve Wolfe, Chief Financial Officer, and Tom Larson, Vice President and Treasurer. I would also like to introduce Kurt Svendsen, who will now serve as Director of Investor and Public Relations. In this transition, I will be moving to Director of Business Development. During the past five years, it has been a privilege to represent Toro to the investment community, and I know Kurt will do an outstanding job in his new role. Some of you have already had the opportunity to meet Kurt; for others, we will reach out to you in the weeks ahead.

Let me now begin with our customary forward-looking statement policy. Please keep in mind that during the call, we will make certain forward-looking statements 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 earnings 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 earnings release was issued this morning by Business Wire and can also be found in the Investor Information section of our corporate website, TheToroCompany.com.

I will now turn the call over to Mike.

Thank you, John, and good morning, everyone. Before I get to our results for the quarter, I would like to take a minute to thank and recognize John for his many contributions to our Investor Relations effort. By way of background, John joined Toro in 1996 as a marketing leader and transitioned to his IR role in 2005. In the last five years, he's done an excellent job leading the IR team and working with many of you. John has helped us, as Sir Winston Churchill once said, drive change in the right direction. On behalf of Steve and all of us here, thanks John. We are now counting on you to be as successful finding the right opportunities in business development and in the M&A arena. And John knows, we have a strong cash position.

So moving on, let's now discuss the results for the third quarter and where we stand for the year. With our prime spring and summer selling season winding down, we are pleased with our performance and execution on many fronts. What is very encouraging is that the entire Toro team, both our employees and channel partners, were able to accomplish these results in an economic environment that has recently become more sluggish, along with a range of weather conditions that included pockets of drought and areas of excess rainfall. Through it all, with our strong customer focus and innovative new products, we drove significant sales and profit and captured additional share in several key categories. Our Professional business led the way with double-digit increases across all markets, while our Residential business posted another quarter of healthy gains. Other positives included margin expansion, a strong balance sheet, and further improvement in working capital, which continues to be a great story. Steve will discuss these items in detail later in the call.

But first, I would like to take a step back and update you on the state of our markets in terms of how our products and customers are faring. In our core golf business, the latest industry data suggests that rounds played in revenue at US golf facilities are off slightly, compared to last year. Internationally, golf development in China continues to be a very strong story, and other projects in Asia are starting to come online after being delayed last year due to the global economic crisis. Meanwhile, in Europe, we have yet to see any meaningful pick up, particularly in Spain, Portugal, and Ireland, where real estate development has declined dramatically.

In spite of the challenges, the golf business is getting better. Golf irrigation projects are moving forward, and we are seeing courses slowly resume their capital equipment purchases, with a focus on core products, particularly greens and fairway mowers. Also, the new Groundsmaster 4300 contour rotary mower has experienced a strong product launch, and our newly acquired deep-tine aerators and top dressers are now fully integrated into the Toro lineup. Toro's improved offering in these categories puts us in a solid position to capture additional business going forward.

While demand has been slow to recover in some regions, our relationships with customers around the world remain strong. Recently, we met with golf course architects, course developers, and superintendents at the 150th Open Championship at the recognized birthplace of golf, that being St. Andrews in Scotland. For Toro, we are proud of our longstanding relationship with St. Andrews as their official provider of turf equipment and precision irrigation systems. It is truly amazing the amount of work that goes into preparing for such an event, especially for a course that experiences some of the harshest conditions you can imagine. I would personally like to commend the entire St. Andrews Links Trust team, including Alan McGregor who is retiring as Chief Executive at the end of this year. We congratulate Alan for his leadership at St. Andrews and send our deepest appreciation for the trust he placed in Toro.

In the sports field and grounds arena, the municipal side of the business remains down from last year, with state and local budget deficits near all-time highs and tax-based revenues down significantly. Where we have seen the greatest upside is through the military and federal government segments, as they continue to spend on grounds maintenance. From wins like the Army golf contract in 2009 to the improved product positioning and better understanding the needs of purchasing managers, we are making progress and growing our competitive position.

Last month, we also had the opportunity to host grounds professionals from municipal, collegiate, and professional sports entities at our corporate headquarters. These events are critical to our future success, as they enable us to connect directly with our customers to better understand how they use our products and share insights for new product development. Speaking of customers, we also had our equipment and irrigation products showcased at the All England Lawn Tennis and Croquet Club for the 2010 Wimbledon Championships. We look forward to our ongoing relationship with this world-class venue and helping them and the other sites around London prepare for the 2012 Olympic Games.

Shifting to the landscape contractor market, the second half of the season has historically marked the end of the buying cycle. However, the improved customer demand we experienced the first part of the season certainly carried into the early summer months and provided Exmark and Toro brands with added momentum moving into the fall cleanup. In fact, channel feedback indicates our product offering is the best it has been in years. Let me highlight a couple. We continue to take share in the stand on category through strong customer acceptance for our innovative Toro GrandStand and Exmark Vantage stand on machines. And the new Exmark commercial 21-inch product line has been a strong seller, with all signs indicating this product hit the mark with the right specifications, performance, and price.

In the Residential area, this continues to be a good story, with demand up in most product categories. Major strength for the quarter and year-to-date has come from riding products, particularly Toro's popular TimeCutter Z and new Titan Z, where we continue to gain share. With a focus on performance and productivity at key price points, these machines have driven strong sales activity at dealers and key retailers.

Last quarter, you might recall, we mentioned several Toro and Lawn-Boy mower models that received high marks by a leading consumer magazine. That same publication recently awarded Toro three of the top four ratings in the electric hand-held blower category. The Ultra Blower Vac took top honors, followed by the Super Blower Vac at number two and Rake & Vac in the fourth spot. This recognition speaks volumes to our product -- to our focus on product innovation, and is great news for Toro and our retail partners. I would like to personally congratulate the product team for these outstanding results.

In the agricultural market, our micro-irrigation business for the year continues to see solid growth in Mexico, Latin America, and eastern Europe. While there has been some pressure in the permanent crop segment due to economic factors, demand for row crops like vegetables and berries remains strong, where our Aqua Traxx drip tape is a leading solution for growers. In addition, there is a growing awareness among consumers about sustainable practices in agriculture, as they care about how food is grown. For Toro, this trend favors our strong position in the drip irrigation market, as our products help growers precisely irrigate their crops to maximize efficiencies and available water, energy, and labor, all while improving crop quality and yields. So with that, I will now turn it over to Steve to review our financial results for the third quarter and the first nine months.

Thanks, Mike, and good morning, everyone.

For the quarter, net sales grew 16.2% from the previous year to $458.9 million, driven by double-digit sales increase in all our Professional segment businesses and continued solid growth in our residential business. Both segments benefited from better product availability and customers purchasing closer to retail demand.

On the earnings front, we posted net income of $33.4 million or $1.01 per share, compared to $0.54 in the same period last year. For the first nine months, net sales were up 9.6% to $1 billion, $353.1 million. Net income was $90 million or $2.66 per share, up from $1.73 in the same period last year.

Looking at our individual business segments, starting with Professional, worldwide sales for the quarter were up significantly at 21.8% to $317.9 million. Year-to-date sales increased nearly 10% to $880.3 million. The strong performance in Professional was fueled by increased demand in the landscape contractor category, driven by continued momentum for new products. Worldwide orders for golf maintenance equipment and irrigation systems are much improved over last year as a result of increased golf projects and the successful introduction of several new products. And while the housing market has been slow to recover, sales of professionally-installed residential and commercial irrigation products were up for the quarter on strong acceptance for Toro's new Precision Series Spray nozzles.

Net earnings in the Professional segment for the quarter totaled $62.7 million, up $23.2 million from the same period last year. The increase was largely driven by higher sales volumes and favorable manufacturing variances due to increased production. For the year-to-date, Professional segment earnings were $156.1 million, up $29.7 million from the first nine months of fiscal 2009.

Turning to Residential, worldwide sales for the quarter were up 7.6% to $135.8 million with sales increasing 11% to $462.6 million for the first nine months. As Mike mentioned, sales grew on the strength of our industry-leading zero-turn riding machines, while our international business received a nice boost from strong orders for walk power mowers, increased snow shipments, and higher sales of Pope irrigation products in Australia. These gains were somewhat offset by slightly lower snowthrower sales in the US, reflecting efforts to ship closer to retail demand.

Net earnings in the Residential segment for the quarter were $10.7 million, roughly equal to the same period last year. While margins improved on favorable product mix, SG&A was higher due to increased marketing and warehousing expense. For the year-to-date, residential segment earnings were $49.2 million, up $17.1 million from the first nine months of fiscal 2009.

Now, to our key operating results. Gross margins for the quarter expanded by 130 basis points to 35.2%, driven by favorable product mix and lower manufacturing variances due to higher than anticipated sales volumes and productivity improvements. Year-to-date, gross margin grew by 90 basis points to 34.4%. While commodities negatively impacted margins for the quarter, they remain favorable on a year-to-date comparison. Going forward, we do expect some upward pressure on commodities for the balance of the year.

Moving to SG&A, we continue to leverage our leaner cost structure and spending discipline. For the quarter, SG&A increased on a dollar basis by 14.5% to $107.8 million, but declined as a percent of sales to 23.5% from 23.9%. For the first nine months, SG&A was up 6.2% to $319.7 million but decreased as a percent of net sales to 23.6% from 24.4%. In both periods, SG&A dollars were up due to higher employee incentive expense on improved financial and operating performance. However, SG&A as a percent of sales declined in both periods, reflecting structural cost reductions and continued spending disciplines.

The other income line was up $6.4 million for the quarter, due to expenses incurred last year for several legal matters and income this year from our investment in the Red Iron Acceptance joint venture. Interest expense declined by 4.2% for the quarter and 3.4% year-to-date. The decline in both periods was primarily the result of lower average debt levels. Our effective tax rate for the quarter was 35.7% compared to 36.6% last year. The decrease was due to evaluation allowance last year for a foreign subsidiary, somewhat offset by this year's expiration of the federal research and engineering tax credit. For the full fiscal year of 2010, we currently expect our tax rate to be about 35%.

Now to the balance sheet, where our execution and reducing working capital continues to generate significant results. Accounts receivable for the quarter declined by nearly $100 million or 37% from the prior period. The improvement was almost mostly attributable to the sale of receivables to Red Iron Acceptance, which is fully operational and serving thousands of dealers and distributor partners across North America. Trade payables increased by $49.7 million from last year's third quarter, due to our supply chain initiative and increased production at manufacturing facilities. And net inventories were up by $16.6 million or 10.3% from the same period last year. While our inventories increased modestly, field inventory was down even more on a year-over-year basis. We will continue to manage the amount of overall inventory needed to supply our supply chain and to support our end user demand.

As mentioned in our second quarter release, we met our goal of driving our 12 month average net working capital as a percent of sales down into the teens. While improvement in this area of inventory happened over the last two or three years, the impact of our efforts on accounts receivable and trade payables have ramped up over the last year. We will drive the measurement down through the remainder of fiscal 2010, and when we expect it to stabilize, in the mid to low teens. I am pleased to share that during the quarter we were able to further improve our 12-month average net working capital position, which now stands at 15.4%.

While still in a recovery year, the combination of strong earnings performance and the resulting benefits of our working capital initiatives generated record cash from operations of $157.4 million to the first nine months, compared to $119 million last year. One of the ways we return value to shareholders is through dividend payments and share repurchase. For the year-to-date the Company repurchased $135.3 million of company stock, compared to $55 million in the prior year.

That wraps up our results for the third quarter and year-to-date. I will now turn it back to Mike for some concluding comments.

Thank you, Steve.

With our summer selling season winding down, as I said earlier, we are pleased with the strength of our markets, our improved earnings performance, and strong financial position. However, we remain mindful of the sluggish nature of the overall economic recovery. Therefore, we now expect earnings for fiscal 2010 to be about $2.70 per share on a revenue increase of approximately 10% to 11%. Remember, the fourth quarter is our smallest revenue and profit quarter, as we wind down the year and position the business for the upcoming fiscal year and the start of the next spring selling season.

Let me conclude with a few comments on some of the product categories where we expect to see continued momentum for the final quarter of the year. In the area of precision irrigation, we expect to enjoy strong new product sales, led by Toro's Precision Series Spray nozzles, T5 rotors, and the Lynx central control system for the golf market. We anticipate a good fourth quarter for the link system installations, as superintendents are more likely to upgrade their central control system in the fall as play tapers off. We are also excited about our soon to be released Precision Series "rotating" nozzles. These and other breakthrough technologies will help advance our position in this critical arena and deliver water-saving solutions to our customers.

On the rental side of the business, large national account customers are beginning to release budget dollars, which is a signal that the rental market is slowly returning. This bodes well for Toro and our new line of dedicated stump grinders, log splitters, and wood chippers recently acquired from US Praxis. In the trencher market, our new TRX trencher is building share, with sales up significantly over last year, and the STX stump grinder is gaining great traction in this new category for Toro. These acquired products, combined with our internally-developed TRX and STX machines, formed an improved lineup, making Toro more important to rental outlets.

In preparation for the upcoming snow season, Toro and our channel partners are in excellent shape. Strong snowstorms last year helped lean out field inventory levels, setting us up nicely for this selling season. In addition, we will be introducing several innovative new products at key price points, allowing for expanded placement at dealers and key retailers. In the single stage category, this includes the Power Clear Two Ten and the electric-powered 1800 Power Curve. And for two-stage products, we are introducing new models in the Power Throw and Power Max categories. We look forward to updating you on these products during our next call.

In closing, our employees and channel partners remain committed to building long-lasting relationships with customers around the globe. In July, we hosted our fifth annual WaterSmart Symposium, educating the water purveyor community about precision irrigation solutions that result in measurable savings, all while improving the health of landscapes. Additionally, at this time of the year, we always look forward to the upcoming key industry trade shows as another opportunity to connect with our customers and introduce new products for the coming season. This includes the GIE Expo in October and the Irrigation Association Show in December.

Last, in anticipation of an exciting upcoming event, we are working closely with Jim McKenzie, Director of Golf Course and Estate Management at Celtic Manor in Wales and his team as they prepare to host this year's Ryder Cup on the new 2010 course, designed specifically for this event. Toro values our relationship with Celtic Manor and is honored that they chose to use our precision -- our maintenance equipment and precision irrigation systems to keep the course in top playing condition. Our team will do their best to help Celtic Manor's staff host a great competition that we can both be proud of.

This concludes our formal remarks. Let's now open it up for your questions.

(Operator Instructions)

And our first question comes from the line of Jim Lucas of Janney Montgomery. Jim, you may proceed.

Thanks a lot. Good morning, guys.

Good morning, Jim.

John, well, nice talking to you, and look forward to working with you, Kurt.

Thank you.

Thanks, Jim.

First off, Steve, just housekeeping -- FX impact on the top line in the quarter?

For the quarter was 3 -- about $3.5 million.

Okay. And this Other income line -- Other the infamous category -- with Red Iron now up and contributing more, how should we think about, from a modeling perspective, the contribution from Red Iron, whether on a quarterly or annual basis?

Yes, the accounting on that gets pretty complicated when you get into it, and the other income line that you're talking about is one piece of it. But when you look at Red Iron, it really affects net sales, margins, SG&A -- it's in three or four different spots. And when you net all that out, Jim, it doesn't make a lot of money. And if you remember when we talked about Red Iron to start with, we didn't go into this to -- necessarily to make this a huge profit center. We -- it's an EBA -- the EBA benefit of redeploying that capital is the reason we did it.

The other thing was to make sure that we had an ongoing source of capital that we didn't have to be concerned about when we go through economic downturns like we just did. So, the accounting of it ends up in four or five different spots on the P&L, but when you net it out, when you look at bottom line, it's probably a slight negative in '10 and will be a slight positive in '11.

Okay. That's helpful.

And then, Mike, as you are starting the budgeting process for next year -- and I appreciate this time of the year, you are not talking about fiscal '11 -- but just wanted to talk big picture about how you're thinking about the environment. Obviously, a strong new product pipeline, you have seen depressed end markets coming back to life this year. Inventories -- not only have you done a good job, but the field managing a lot more closely. So, as you are starting the budgeting process, and obviously a lot of macro concerns out there. How are you thinking about the macro environment going into 2011?

Well, I think it -- I think the Fed Chairman used the term unusually uncertain. And what I would say for us is, we will work very hard to close out the quarter, the fourth quarter, to leave us well-positioned for fiscal '11. And that there is a lot of uncertainty today, inconsistency, things are up, things are down, and it's tough to have a trend line to look at. So, I would say that for this enterprise, we will work very hard to build a plan that will allow us to be flexible, and we certainly will talk more with you about that in December.

But the good news is we are staying focused right now to make the fourth quarter as good as we can and set ourselves up to be in good shape as we start the next fiscal year. I wish I could say more, but I don't really have a lot more to say.

Okay. And finally, on the new product side -- I don't know if it's on a trailing 12 months, year-to-date, how you have it -- was wondering if you had a vitality index number, but secondarily, you've had the standard category, you've got links, you've got the Precision nozzles. As you look out to the pipeline next year, is it a -- still a collection of singles and occasional doubles, or do you have anything in the pipeline that could be potentially a little bit bigger splash for you?

Well, there you go. We'll talk about that in December with you. But I would -- in terms of the index, we do have one, and we've discussed that in the past. So we use a new product measurement, what portion of our revenues are coming from new products that have been introduced in the current year or prior to. So this is -- it's a run rate, and our, kind of our threshold, if you will, is to keep that over 35%. I would tell you it was slightly over 50% in last year, in a very difficult economic environment, which helped us get through that with the market contraction we faced, and we talked a lot about that last year and taking market share, and almost across all businesses and categories.

And that has continued in 2010, and we expect that to continue into 2011. And so, we would be in the mid to high, 45% to 50% new products as a percent of our revenues coming from things we've introduced in 2011, 2010, and 2009. Okay. So, I think that vitality index is, remains -- has been strong, remains strong.

Great. Thank you very much.

Thanks, Jim.

And our next question comes from the line of Eric Bosshard of Cleveland Research. Eric, you may proceed.

Good morning, guys. This is Mark, stepping in for Eric. In terms of the fourth quarter outlook, your implied sales guidance is in that 15% range. Can you give us some color on what's the key driver pro versus consumer, you talked about new snow products. Is that the biggest benefit, or do you see strong double-digit growth in both consumer and pro in the upcoming or current quarter?

Mark, this is Mike. If you look at kind of our year-to-date numbers, they're similar for both segments, and we would expect that to continue through the fourth quarter. So, the fact is that snow will be a driver for the Residential business. There's no doubt. We didn't ship as much in the third quarter as compared to last year, and we have -- we talked about it last year, we had a product that actually moved into the first quarter of 2010. That won't happen this year. So snow will be a driver for the Residential business. We continue to have strong demand in riding products there as well.

And then when you get to the Professional businesses, we expect -- again, you always have to put it in the context of a very small quarter for us, but we expect to continue to have good, solid growth off of last year in both the golf and the landscape businesses. So, more balanced, I guess, would be our expectation at this point.

And when you look at trends in the third quarter, particularly within the Pro business, can you talk about how the demand trends progressed through the quarter? Did it improve? I think post your 2Q call, you talked about some softness out there that seems to have abated. And then if you can talk about trends through the quarter I would appreciate that. And then also in terms of your Pro growth up 22%, can you give us some sort of read on how strong golf was, how strong irrigation was, and how strong landscape contractor was relative to that 22% growth?

Yes. So, going back to the comment on the last quarter, we first started seeing that on the Residential side, and it was more -- it raised a concern about, is this going to have an impact kind of for the overall economy. We have -- you have read about that. We have certainly seen that. The word sluggish has been used a lot in the May, June, and July time periods. And so now, it turns out that it didn't slow the Professional business as much, and so we saw -- worldwide we saw a continued good demand for, if you will, recovery for golf products, both outside the US but also within. And we've talked about that in the past, that we knew there were a lot of capital purchases put off last year as they struggle to get through an even more uncertain environment, and some of that business has come back.

It hasn't returned, by any means, to its peak level that we would have seen in '07 and '08. And in the landscape contractor business the same thing. Customers used that product up and so we saw not only a -- some recovery there, but we have a lot of new products again in that space for us, with the stand on mowers, second year for Toro, first year for Exmark, all those are kind of driving incremental revenues for us, as I mentioned the 21-inch Exmark mower has been a good new product in that category. So that begs the question, is you say looking forward, we are going to stay focused on closing out fiscal 2010 in a strong way. How that will carry into 2011 -- I think it will be much influenced by the macro economic signals we are seeing.

In terms of the quarter with the Pro up 22%, can you give us a break down on what performed better than 22% and what was softer than 22%?

Yes, I would say that the landscape business was particularly strong on the Exmark side, international was particularly strong, and commercial was up for the year.

Okay.

And I think we said it earlier -- almost everything across the professional spectrum, all the businesses were up double digits.

So, wasn't that a function that landscape contractor was up 35% and golf was up 5% to 10%? Everything -- it was strong--?

They all performed very well, Mark.

Great. Perfect. And then just real quick -- inventory up 10% at the end of the quarter, is that -- should we read that as you're still somewhat chasing demand, or is that a better indication on where you think demand goes from here?

I would, just to be clear that -- inventory continues to be a work in process as part of the working capital initiative, and so there's no doubt the increase in demand this year. When we started the year, we would not have guessed in our wildest dreams we be up, as we were looking at kind of the economic recovery, the degree which we are, and so it caused a lot of scrambling throughout our operations and ramping up. Good performance by our plants and our supply chain partners and getting products in.

And so you saw a little bit of that -- kind of that momentum of trying to recover from a production standpoint, swing up a bit on inventory. And when you look at it overall, while our inventory is up, our inventory is up somewhat, our field inventory is actually down to a greater extent than that at this point in time. So all in, inventory is in very good shape. So, I wouldn't look at the signal that our inventory is up a little bit as a concern. I mean I think it's fine.

Great. Thanks, guys.

Thanks, Mark.

And our next question comes from the line of Mark Rupe, Longbow Research. Mark, you may proceed.

Hey, guys. This is Andy, in for Mark. Great quarter. Just real quick on the Residential segment margins. It looks like, you saw a little bit of improvement there on the Residential end, but it seems like we saw a little bit of decrease in the segment margin. Could you give any color into that?

Sure. This is Steve.

It's -- first of all, it's a small quarter, so it doesn't take a lot to change it. But what really happened there is we had some expenses that were a little higher, some marketing expenses and some warehousing expenses in that particular quarter, and you really need to look at the year-to-date. The year-to-date number is still very strong. So there isn't anything unusual in that, was just more timing of expenses that drove that down. If you look at the kind of the run rate, the two years if you used the same run rate it is under $1 million difference. So they're just small numbers.

Okay. Great. Thanks a lot, guys.

Our next question comes from the line of Jim Barrett of CL King and Associates. Jim, you may proceed.

Good morning, everyone.

Morning, Jim.

Mike, you mentioned the market share gains in a number of areas which is impressive. Considering John Deere indicated yesterday their sales in turf were up 10% to 15%, does that overall imply that you're taking share from some of the smaller companies primarily.

Well, you have to put it into a specific market or context, are we talking golf, are we talking landscape, we talking residential. And we have discussed that in the past. What we have -- a strong market share, very stong market share in the golf arena, both in equipment and irrigation and we saw a good progress improvement in that last year. Even with the difficult economic environment, and so I would say our position there is solid. We get some industry measurements and pay close attention to those and so I would not say we've lost any market share and that's a -- in the golf arena there are only a few players if you will and so we have a pretty good handle on that.

The landscape contract arena I would say our market share has increased. Largely because we have been able to bring some new products and categories out, and we've got -- and in existing categories, have brought some new products out like the new Ride-On Laser, Z and the Toro G3. Then the Residential business solid performance of the walk power mower side and we think our share has held or improved there and clearly on the riding side with our 0 turn mowers, the consumer 0 turn mowers we've seen some share growth. So all-in, we think -- really comprehensively, true last year and largely true this year. We have -- something we are always measuring and trying to understand but feel good about our share position.

Well, on a unrelated topic, can you update us on acquisitions and I -- A, would be pending change in tax laws. Are you noticing an increased inclination of sellers to negotiate?

No, I don't think so. It is still a matter -- as we've told you all along, we're looking for the right deal that works for us that has the right elements to it and it's a matter of finding a seller and -- that is willing to sell at what we're willing to pay. So I wouldn't say a big change in terms of willingness to sell over the tax laws. It may have some impact but that hasn't affected our ability to close the deal at this point.

Thanks, Steve. Then my last question also on acquisitions I know you have mentioned in the past that water management irrigation is an area of interest. Are you fairly agnostic as to what end markets a perspective irrigation acquisition would serve, i.e. golf versus ag, for example?

We are interested in -- we are in all of those businesses -- we're in golf, we're in residential, we're in commercial, we're in agriculture and all -- we use the term precision irrigation systems, whereever precision irrigation systems are used we want to be.

So might that -- might mean that down the road you might make an acquisition of something that serves strictly agriculture, for example?

Jim, we look at any and all and as I said we are in the agricultural market today, we have some industry-leading products like our Aqua-Traxx tape and so, sure, we are always looking, as Steve said.

Okay. Thank you very much.

Thank you, Jim.

Our next question comes from the line of Beth Lilly of Gabelli. Beth, you may proceed.

Good morning, Mike and Steve. Congratulations, John, on your new position. I wanted to ask more of a longer term strategic question. And that is you backed away from setting a three-year goal this year, understandably given the environment and everything. And you've had two programs in the place -- two or three, I can't remeber, and -- in terms of siitting through your targets, do you anticipate as you lay out your goals for 2011, that you will be able to lay out a three year plan?

Well, Beth, no. I will tell the rest of the audience, Beth had the opportunity to come in here and speak to the Toro team some four years ago and did a marvelous job and challenged us as an investor in a number of ways and actually played a role in helping us think about things like working capital. So we thank you for that because you know the kind of success we've had there. So to your question we will talk about this in December. We will have a goal, a strategic goal. We did not do that this year because we looked at fiscal 2010 as a recovery year, and we are clearly well on the path to recovery. And some things have improved faster than we anticipated at the beginning of the year which is a good thing. We are four years away from our 100th anniversary in 2014. So that's as much foreshadowing of the next initiative as I will do at this point. But thank you, Beth.

That's great. So not to put you on, put you on the line, but it sounds like you're going to be willing to commit to some longer term targets coming next year?

Sounds like that.

How about a four year plan?

We will talk with you in December, Beth.

Thank you very much, you guys.

All right.

At this time we are showing no further questions available. Mike Hoffman, you may proceed.

Well, thank you all for your questions and your interest in the Toro Company. We do appreciate your confidence and trust. We will look forward to talking to you in December to discuss our year-end results and our next initiatives. Take care.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.