Toro Co (TTC) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to The Toro Company fourth-quarter earnings conference call. My name is Jennifer, 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. Kurt D. Svendsen, Director of Investor and Public Relations for The Toro Company. Please proceed, Mr. Svendsen.

Thank you, Jennifer, and good morning, everyone. Joining me this morning for our year-end earnings call are Mike Hoffman, Chairman and Chief Executive Officer, Steve Wolfe, Chief Financial Officer, and Tom Larson, Vice President and Treasurer. Let me now begin with our customary forward-looking statement policy. Please keep in mind that during the call we'll make certain forward-looking statements which are intended to assist you in understanding the Company's results.

You're all aware of the inherent difficulties, risks, and uncertainties in making predictive statements. For the Safe Harbor portion of the Company's earnings release, as well as SEC filing, details 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. With that, I will now turn the call over to Mike.

Thank you, Kurt, and good morning, everyone. First, let me say I very much appreciate the good work and performance of the entire Toro team who delivered strong results for fiscal 2010, and they are committed to sustaining this momentum into 2011. This past year we weathered some challenges, made some difficult decisions, but stayed our strategic course by focusing on our customers and continuing to make investments in innovation. In fiscal 2010, our markets improved, and our financials are now once again moving in right direction. Revenues increased during the year up 11%, with double-digit gains in both our professional and residential segments. Profits are also back in a growth mode, with earnings per share increasing 61%.

While our market certainly rebounded in 2010, I believe that Toro more than excelled serving those markets because of the passion and execution of our team, including our employees and channel partners. This was evident in our commitment to innovation, developing new solutions to meet end-user customer needs, and customer service. For example, the investments we made earlier in engineering and new product development are now yielding benefits, helping increase penetration in key categories, and resulting in new products accounting for half of our total sales -- well exceeding our ongoing internal goal of 35% per year. As a reminder, our definition of a new product is one introduced in the current or previous two years, so a three-year average.

On the operational side, through the ongoing use of lean tools we are improving our flexibility and creating a more efficient logistics model. This includes our new state-of-the-art European parts distribution facility in Belgium, and our whole goods distribution center in Tomah, Wisconsin, both of which opened in October. And in the area of working capital this year, marked the achievement of our in-the-teens goal, further leveraging our assets and improving our liquidity. There are many more success stories across the enterprise that made a difference this year, and will continue long into the future. We'll touch on some of them throughout the call.

Now I would like to shift gears and provide a little color on key headlines within our markets, starting with our core golf business. New golf projects are taking off internationally, particularly in Asia. And while recent industry data suggests rounds played in revenues at US golf facilities are down slightly compared to last year, October rounds were up almost 20% versus 2009. Existing courses are increasing their purchases due to real needs and improved confidence.

While access to credit remains challenging for those courses that have experienced some financial stress, as the credit situation continues to improve, this will help them acquire funds and obtain the much-needed equipment to replace aging fleets that have been maintaining turf through the economic downturn. In fact, an independent industry survey showed the number-one area in planned spending for golf courses would first come in the way of turf-maintenance equipment. Our golf customers continue to buy well into the fall, with nearly all Toro equipment categories showing year-over-year growth.

Also, the introduction of Toro's Lynx irrigation central control system has been very positive, with sales exceeding expectations. For those not familiar with this product, it is a completely new control system that is easier to use and enables course operators to integrate critical irrigation components to maximize efficiencies in water and energy. This includes, for the first time, our TurfGuard wireless sensors that monitor soil moisture, salinity, and temperature. Many conversions have already taken place, with others scheduled to convert now that the golf season is behind them. We expect this new technology to gain further momentum in the coming year.

Turning to the landscape contractor and grounds category. Among landscape professionals, our Toro and Exmark brands experienced a strong year. We recently had a chance to meet up with channel and end-user customers at the GIE+EXPO in Louisville, where most attendees expressed optimism for a strong spring season. Fueling this optimism is our powerful lineup of new products for 2011 and the continued success of products launched the past couple of years, such as the Toro and Exmark stand-on units. In addition, Exmark dealers are excited about the new Quest zero-turn mower, which will allow them to serve large-acreage owners at more competitive price points.

While the severe contraction in new construction impacted our residential and commercial irrigation businesses, we posted gains for the year by pursuing share growth, renovation projects, and existing systems upgrades. We benefited from our strong portfolio of irrigation solutions, led by our Precision Series Spray and Rotating Nozzles, as customer concerns around water availability and cost drive demand for more efficient systems. Many of these water-saving technologies are on display, as we speak, at the Irrigation Association show that takes place in Phoenix this week.

Recently released, our Precision Series Rotating Nozzles retrofit into almost any Toro or competitive head, and deliver water to the turf through a series of rotating streams powered by Toro's unique rear drive technology. To mention a few others, we introduced the Irritrol Climate Logic controller, with a remote weather sensor that automatically adjusts irrigation run times to save water and energy, and the new Rain Master Eagle Plus 'smart' controller, that allows users to monitor their irrigation system remotely. These technologies and others will help advance our position in this critical space.

Shifting to residential, our lineup in mowers, zero-turn riding mowers, and snow products has been very competitive, helping grow these categories over last year. Our dealers have good access to available credit, and their inventory levels are in excellent shape. As for new products, we also have a strong mix of new residential offerings at the GIE+EXPO. This included the all-new TimeCutter SS, with an innovative feature called smart speed control, which we believe will help get first-time users into this category, as it allows operators to choose the best ground speed to fit their mowing needs.

In the snow category, preseason retail is off to a good start in electric, single-stage, and two-stage models, after late snowfalls last year leaned out field inventories. More recently, we saw strong retail activity as a big storm hit here in the Midwest this weekend, dumping nearly a foot of snow in some parts of Minnesota before pushing on through Chicago and then east. We are seeing healthy demand driven from new products, including the electric 1800 Power Curve and the expanded placement with a two-stage Power Max at a key retailer.

Reinforcing our leadership in innovation, a leading consumer magazine once again recognized Toro with top honors in both the gas single-stage and electric snowthrower categories. For the year, the publication selected our residential products as top picks in seven categories. A truly outstanding honor, and an testament to our focus on meeting the needs of our customers. Looking at a newer market for us, the rental category has shown signs of recovery, with much of the improvement coming in the back half of the year.

As this market continues to recover, we stand to benefit from previous investments in new products, including the TRX walk-behind trencher, the STX stump grinder, along with those obtained through the US Praxis acquisition. This includes our new lineup of Toro-branded stump grinders, log splitters, and wood chippers, which were rolled out at the recent GIE+EXPO and Tree Care Industry Show. We will continue through the national rental show in March. These machines clearly put Toro in the market for both rental and tree-care professionals.

And lastly, a couple comments on precision irrigation and agriculture, a growing market for Toro. Demand for drip technologies continued to gain ground in 2010. Through improved delivery capabilities and strong acceptance for our patent-pending Aqua-Traxx PBX drip products, Toro grew slightly faster than the market. We also made gains through several other new products introduced over the past 18 months. So with that, I will turn it over to Steve to review our financial results for the fourth quarter and the year.

Well, thanks, Mike, and good morning, everyone. As reported in this morning's earnings release, net sales for the year grew 11% from the previous year to 1 billion and 690 million dollars driven by increased sales across our professional and residential businesses. On the earnings front, we posted net income of $93.2 million, or $2.79 per share, compared to $1.73 last year. For the fourth quarter, net sales increased 16.9%, to $337.3 million. Just like the year, we experienced strong revenue growth in both segments. Net earnings for the quarter totaled $3.2 million, or $0.10 per share, compared to a net loss of $0.02 in the same period last year.

Looking at our individual business segments starting with professional, worldwide sales for the year were up 12.4% to 1 billion and 85 million dollars. On a quarterly basis, professional sales increased 24.1%, to $205.2 million. Our solid performance in both periods was the result of sales growth across all businesses, with benefit in the fourth quarter from a lower reduction in field inventory compared to the same period last year. Shipments in the landscape contractor category were up considerably on demand for new products and improving market conditions.

Showing signs of further recovery, worldwide sales for golf maintenance equipment and irrigation systems were driven higher by increased capital investments, new golf development projects, and strong acceptance for several new product introductions. We also experienced a nice boost in the rental category, due to additional capital investments made by rental companies, incremental sales related to the acquisition of US Praxis, and the addition of new rental representative groups across the country. Net earnings for the professional segment for the year totaled $173.8 million, up $46.1 million from last year. The increase was driven largely by higher sales volumes, gross margin improvement, and leveraging of SG&A expenses. For the fourth quarter, professional segment earnings were $17.7 million, up $16.5 million from last year.

Moving now to residential, worldwide sales for the year were up 10.7%, to $589.7 million. For the quarter, residential sales increased 9.6%, to $127.1 million. Leading the way was improved sales for riding products through expanded placement and continued demand for competitively priced Toro zero-turn mowers. Worldwide shipments for snow products were up due to significant snowfall last year that cleared out field inventory and positive response to a redesigned line of snow products.

Internationally speaking, orders improved on favorable exchange rates and market demand for products and zero-turn mowers in Australia. Net earnings in the residential segment for the year totaled $58 million, up $11.6 million from last year. Residential earnings grew on increased sales volumes and margin improvement, aided by favorable mix and cost-reduction efforts, somewhat offset by higher commodity costs. For the fourth quarter, residential segment earnings were $8.8 million, down $5.5 million from last year. The decline in quarterly earnings was due to higher commodity costs, particularly resins, and unfavorable manufacturing variances.

Now to our key operating results. Gross margin for the year expanded 60 basis points to 34.1%, driven by overall favorable product mix and lower manufacturing variances on improved sales volumes -- somewhat offset by higher commodity costs experienced later in the year. For the quarter, gross margins declined 100 basis points to 32.9%, primarily due to higher commodity costs, particularly residence, and the comparison against the LIFO benefit in the fourth quarter of fiscal 2009.

Going forward, we expect margins to be flat to slightly improved, with price realization of a little over 1% and our assumption that commodities will face some upward pressure in the coming year. SG&A for the year was down 90 basis points to 25.1%, and for the quarter decreased 160 basis points to 31.3%. For the quarter and the year, SG&A as a percent of sales declined on increased leverage across larger sales volumes and continued benefit from cost reduction efforts. SG&A expense for both periods was impacted by higher employee incentive expense, due to improved financial performance.

For fiscal 2011, we expect modest leveraging of SG&A, as employee incentive expense returns to more normal levels. The other income line was up $8.9 million for the year, due to expenses incurred last year on several legal matters, and income this year from our investment in Red Iron Acceptance joint venture. Interest expense declined 2.6% for the year, primarily the result of lower average levels of outstanding debt. Our effective tax rate for the year was 34%, compared to 34.4% last year. The slight decrease was due to a valuation allowance last year for a foreign subsidiary, and a refund related to transfer pricing issue, somewhat offset by the expiration of the federal research and engineering tax credit. Looking ahead, we expect our tax rate for fiscal 2011 to be between 34.5% to 35%.

Turning to the balance sheet, net inventories were up $18.1 million or 10.3%, a response to higher demand across most product lines. Accounts receivable at fiscal end was down slightly on a sales increase of 11%, mostly benefiting from the full implementation of Red Iron Acceptance. And showing solid improvement, trade payables were up $34.1 million, or 37.4%, due to sourcing efforts and the impact of our supply chain initiative.

As previously announced, we reached our strategic goal of driving our 12-month average net working capital as a percent of sales down into the teens in the second quarter, and continued to make meaningful improvement throughout the year, finishing just under 14% at fiscal year-end. When we announced this initiative back in 2007, Toro had roughly 30% of sales tied up in working capital. Improving this measure by more than 50% is a major accomplishment under any circumstances, but the task became even more difficult in an environment of declining sales like we experienced in 2009. We will maintain our disciplined approach in this area, and expect working capital levels to continue into the mid-teens.

Even though we remain in a period of recovery, the combination of solid earnings growth and working capital benefits generated cash from operations of $193.5 million for the year. As reported last week, the Company's Board of Directors raised Toro's regular quarterly cash dividend to $0.20 per share, from the previous quarterly dividend rate of $0.18 per share. The Board also authorized the repurchase of 3 million shares of common stock, in addition to the 1.3 million shares remaining on a prior authorization. For the year, Toro repurchased $136 million worth of common stock. This wraps up the results for the year. I will now turn it back to Mike for some concluding comments.

Thank you, Steve. As mentioned earlier, it was a good year for Toro on many fronts. While there remains a level of economic uncertainty, and we are always thoughtful regarding Mother Nature, we are encouraged by the overall health of our business and the many accomplishments of our highly talented team and our prospects for the future. Therefore, we expect fiscal 2011 net earnings to be about $3.20 per share, on a revenue increase of approximately 5%. For our seasonally smaller first quarter, we expect to report net earnings of about $0.40 per share.

We remain optimistic about the return of our professional markets and the continued performance of our residential business, both of which are expected to support sales and earnings growth in the next fiscal year. We anticipate new golf growing outside the United States, with recent winners of major golf events from countries like Germany, India, and Korea bringing greater visibility and participation to the game, furthering the development of new golf facilities.

We will continue our commitment to customer valued innovation. We enter 2011 with a strong offering of products to meet the needs of our customers, driven by recent introductions and products set to launch in the coming year. We anticipate sales from new products to account for the largest percentage of total sales in recent history, a measurement that reinforces our leadership in our markets. Due for a release in the spring to the golf market is our new line of Toro TriFlex riding greens mowers in gas, diesel, and electric hybrid models, along with the Toro eFlex walk greens mower, with the industry's first lithium ion battery-powered drive system.

Supporting our landscape and grounds customers, we are introducing a new lineup of Exmark zero-turn mowers for customers that seek commercial-grade performance in a value package. For large-acreage customers like municipalities, Toro is introducing the new Groundsmaster 360, with its four-wheel steering system, a unique product we believe will help drive share growth in this important grounds category.

In the irrigation arena, we expect continued momentum for Toro's water-efficient Precision Series Spray and Rotating Nozzles, and for residential customers, we are excited about the introduction of the all-new Toro TimeCutter SS with smart speed control, as I mentioned earlier. And in micro-irrigation, our Toro Aqua-Traxx product continues to gain ground with drip irrigation, earning a larger share of irrigated agriculture worldwide. As such, we are underway with the development of a manufacturing plant in Eastern Europe, to add capacity and serve increasing demands in that region for precision irrigation in agriculture. This move puts Toro closer to this growing market, as micro-irrigation becomes a larger part of our business.

As a result of this new manufacturing operation, we expect CapEx for fiscal 2011 to be about $60 million, with depreciation and amortization in the upper 40s. As for our profitability, we have begun the recovery. Earlier this year, we announced to our employees a one-year initiative called "5 in One" with a goal to return to levels first achieved to our "5 by Five" initiative in 2003. I'm pleased to report that we surpassed our target of reaching 5.5% profit after tax. Some of you are probably wondering about our next initiative, and we will have more to share shortly. But as we have not yet announced this to our employees, we won't be talking a lot about it today.

In closing, we are committed to driving growth and strengthening our profitability by finding ways to drive cost out of the system, while building on the strategic actions made in the past to further improve gross margins and leverage SG&A costs. At the same time, we will continue to explore strategic adjacencies that could serve as new business platforms for the future, with a focus on professional, international, and water-related markets. We have increased our investment in new business development, and are aligning efforts across the organization to pursue growth and invest in the right opportunities.

In spite of the recent economic challenges over the past ten years, Toro has become more global in sales, more profitable, and leaner in its working capital needs. These improvements have provided a solid foundation, and one we can build upon to create new opportunities for growth and value for shareholders as we move towards our 100th anniversary in 2014. This concludes our formal remarks. Now let's open it up for your questions. Jennifer, back to you.

(Operator Instructions) Your first question comes from the line of Jim Lucas from Janney Montgomery. Please proceed.

Thanks, good morning, guys.

Good morning, Jim.

Good morning, Jim.

First, on the new product front, very busy year, gave a lot of good statistics, highlighted a lot, and -- across the whole portfolio. So, in 2011, is this going to be more of just building on the momentum of what was introduced this year, or how do we think about the new product introduction schedule?

Jim, this is Mike, and it's really bold. So when we use that three-year average, the products that were now introduced in 2009 and 2010 certainly will fuel some that growth and performance in the respective markets. Now, with that said, we have a number of new products coming, new platforms coming in 2011. Like, I mentioned the Groundsmaster 360 -- a whole new approach concept in this four-wheel steer that we believe has the potential to be a real game changer in that market. Bringing products -- we have a very strong position in the golf market, as you know, with greens mowers. We're reinventing those categories, both in the ride and walk, with products like the hybrid diesel electric with the lithium ion walk greens mower. Those are all brand new.

When you get to the residential segment, we talk a lot about the importance of zero-turn products in our portfolio, in an area that -- we have a strong position both professionally and residentially, and a whole new platform coming that will be in dealers and at the Home Depot. And with some great features on it, particularly the smart speed control. As you know, one of the issues customers have -- I would say new customers -- to zero-turn mowers is, it doesn't have a steering wheel. And so, being able to use this feature to -- if you will slow down the machine so the steering control doesn't react quite as fast. It's a great way to introduce new customers to the product. So, there's a -- there's a lot going on, and it is a combination of both, what we've introduced in 2009 and 2010, but all the new stuff coming in 2011. Our plants are going to be very busy with new stuff in 2011.

Okay. Okay, that's helpful. And, on the capital allocation strategy, got to always ask the standard question of what are you seeing in the acquisition pipeline these days?

Well, you've always got to ask the question and we've always got to give you the same answer, and that is, we continue to work that whole arena, opportunities within our markets, the adjacencies. Obviously, we would like to be bringing more of those forward. As you know, we're going to be very thoughtful about how we pursue those, and so the bottom line is -- I would say it hasn't changed a lot. One of the issues that we had as we went through the economic downturn is the valuations -- a bit of -- particularly for the private owners. They remembered what their businesses were worth, and that made them more reticent to consider them putting them on the market, and that's changed somewhat. So, bottom line is, we continue to work it, and as it -- as we make progress there, we'll share that with you.

Okay. And then finally, I appreciate your comments on the next initiative, but I would guess that you knew the question would be asked anyways. And when you look at the success you had on five on five, six plus eight, grow lean -- you have targeted margin improvement, you have targeted revenue growth, you have targeted working capital, and you've been very successful in all of those regards. So, as you look forward, maybe asking for a little sneak peak here. Is it more of just fine-tuning areas that you've already targeted in the past, or are there still unchartered territories that you could go after?

I think -- if you use the grow lean as an example. That was -- there were kind of three legs on the stool -- revenue, profitability, and working capital -- obviously, with the economic downturn we weren't able to achieve the revenue, and that played a direct -- that had a direct impact on the profitability. We were able to achieve the working capital. I would tell you that the next initiative won't include working capital in terms of a transformational change. We've made great progress and have the real success for the enterprise. So it is going to be more about -- ultimately it's going to be more about growth, and it is going to be more about more efficient operation and the profitability that would follow that. That's probably as much as I would say today.

Okay. Thank you.

Thanks, Jim.

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

Good morning, guys. This is Mark stepping in for Eric.

Good morning, Mark.

In terms of your sales growth for 2011 at 5%. Can you just add a little bit more color on your expectations by segment, pro versus consumer, and how you come up with 5%? And then, also, you what see outside the US and in the US relative to that 5% growth?

Yes, I guess I would start with we expect relatively more growth professionally than residential. I think the residential growth will be modest. And so -- on the lower side of 5%. We're not going to get into detail on that, but the residential business has held up relatively well in 2009 and 2010. We have new products coming there, and on the other hand, we also know that that's tied to the economy, and even maybe to a greater extent to Mother Nature. So, that's one where we'll see. The landscape contractor leg of the stool, if you will -- we expect good solid performance there. That's more of a US business.

Now, we did -- some of the growth that we achieved there last year came by way of the year-over-year inventory reduction that we achieved out in -- that we achieved the year before. And so, we would put that, again, kind of at the positive side. Golf -- probably more balanced. Golf growth outside the US will be -- will be a positive factor. Growth within the US, we'll see. The markets are recovering. We believe that we have some new products to take to those customers, but as yet, we don't know exactly what their spending is going to be. So, I guess, that's the bulk of the growth story.

And then, in terms of just your general comments this year versus a year ago at this time, it seems like you have more new products. It seems like your comments on the end markets are a little bit more favorable. The 5% sales growth versus the 11% growth this year, where is the difference? Was it simply this year had a lot of pent-up demand, and like you mentioned, inventory reduction benefit from the year prior? Or, can you help us reconcile the difference between 11% growth in 2010 and your 5% growth outlook for 2011, given the more positive commentary?

Yes, let's go back. Part of what happened in 2010 was a recovery from 2009. And so, when we started the year out, there was even more uncertainty. I'm going back to when we started 2010 out, there was more uncertainty, and the markets did recover faster than we expected. And so we got -- if we contracted 20 points in 2009, we got a little more than half of that back. Now, there is certainly still some uncertainty out there, but we feel relatively better, which is why we are looking at some sales growth, 5% sales growth in FY2011, as contrasted to when we started FY2010, we were looking essentially at zero.

So it's -- everything is relatively better. There is still -- there are questions out there regarding the economy, Mother Nature is always a factor in our consideration at this point in the year. The bulk of our large selling season is still in front of us. And so, on a comparative basis, we would say 2011 looks more favorable than 2010. We think the 5% is about right as we look across all of our markets. And we were obviously surprised in 2010, which put some real pressure on our manufacturing operations as we had to ramp up -- we didn't anticipate it would recover as fast as it did. I think we're in a better position this year to manage through that.

Steve, just real quick on the gross margin comment, I think you said flat to up slightly in SG&A. I think modest leverage. Can you add a little bit more color, is flat to up slightly zero to 50 basis points on gross margin, or can you just at least give us a little bit more color on the quantification there?

Yes, that's probably a -- probably a good range. [Flat] on margin will depend on what happens with commodities and what we can -- price realization we end up getting. And we talked about a little over a point, maybe, in price realization. That should offset some of the commodities. But we are seeing, as I mentioned earlier, some pressure on things like resins and steel. So we are -- we're just giving a smaller range there because we don't know yet where that is going to end up.

Okay. On the SG&A side, what are you expecting for leverage there?

Same type of range. And the big thing there are employee incentives, and the improved financial performance employee incentives for 2010 are much -- are higher, those will be down and give us a little -- a little leverage on SG&A as we go into FY2011.

Thanks, guys.

Thanks, Mark.

Thanks, Mark.

Your next question comes from the line of Jim Barrett from CL King & Associates. Please proceed.

Good morning, everyone.

Good morning, Jim.

Good morning.

Mike, a general question on the professional business in the US. I -- my general understanding is distributors have reduced inventory. Do you feel that inventory levels currently or anticipated inventory levels in the spring are adequate to provide proper service levels? Or, assuming the economy further recovers, will distributors have to rebuild their inventories?

We would -- I guess I would say all in from an inventory standpoint. We feel pretty good about the system inventory. And I'll use that both in the professional context as well as -- as well as residential, but specific to professional. And there is the case where if we use golf, customers, it's a little more of a planned purchase against the capital budget, and you have a few more degrees of freedom in terms of timing. And so, we managed that supply chain very carefully, thoughtfully, so that we could get a good forecast from our distributors. It's basically moving the product from Toro to our distributor to the end user. So it's really one step.

So to answer your question, we actually -- I think we can manage the field inventories at the level they're at, and perform well in serving our customers. That requires us to probably be a little more flexible back here. Things like putting the new Tomah distribution center in that's a mile away from the plant will help us do that. That's just an example of improving the whole supply chain. So, we are not looking in fiscal 2011 at inventories -- increased inventories driving our revenues. We are going to be very, very -- as I said, thoughtful and planful about how we manage field inventories.

It ties back to our working capital discipline, and we think we can serve -- with our inventory levels that are out there today, we think we can serve customer groups well, whether that's the golf customer, the landscape customer. The residential customers we have to be particularly careful, because if it's not on the shelf on Saturday morning when the customer goes in to get it, or when the snowstorm happens if it's not on the floor at the dealer or the retailer, that's where we stand the risk of losing shares. So, each --

I understand.

-- has to be managed differently. But we have good systems in place.

Good. And when we look backwards toward fiscal 2011 within professional, the 12% growth. Could you give us some broad strokes what the relative growth was for golf, irrigation, landscaping?

They were all up nicely over 2009. Landscape would have led the way. Golf, both domestically and internationally, recovered nicely. And those are the two key parts of the professional business. But even some of the smaller businesses were up -- even residential, commercial irrigation was up, while construction remains largely contracted. I think there, the new products have helped us take a larger share of a smaller pie. So, all of the professional businesses are feeling good, and again, residential was not up as much, but neither did they contract as much in 2009. So, year-over-year, a strong residential performance as well.

Okay. Well, thank you very much.

Thank you.

Your next question comes from the line of Budd Bugatch from Raymond James. Please proceed.

Good morning, Budd.

This is actually Stephen Gregory with Mandalay Research. Can you provide some color on your e-commerce vision going forward, and how do you guys plan to sell more on shopToro.com?

Well, we are obviously always looking at how we're getting our products to our customers. And so, the fact is that our -- we have strong channel partners out there in retailers and dealers, and they play an important role for us, not only in getting those products to market, but the service that follows. We have a very limited offering on shopToro.com, and I would say it's not a material -- in going forward.

Anytime you're -- we have -- the partnerships we have with our channel partners are important, and so, are there cases where we could sell an end user directly and not have the channel be part of that? Well, you could, but there are consequences to that and the service that follows. So, we approach that very carefully and thoughtfully, and even when we have an opportunity to do that, we always explore that specifically with the channel.

Do you think shopToro.com competes with your channel? Is that why you don't have a big presence in just kind of keeping something out there?

Well, anytime you're -- as a rule, customers don't like to compete with their suppliers. Our channel represents our customer. So if we're selling directly to an end user, I guess you would say we're competing with our channel.

Okay. And what are your plans for shopToro.com in the future? Are you going to eventually shut it down? Or what are you looking to do with that?

It serves the purpose, kind of, I will say, at the margin. But it -- it, again, I would say it's just not a material channel for us today.

Okay. And final question going forward. How do you guys plan to do -- deal with promotions? Are you working with Facebook, Twitter, a lot of the new social media sites to get your message out there as to why customers should buy Toro products? So, are you working with Facebook, Twitter, et cetera? Different types of social media sites and doing promotions that way? What type of promotions are you doing to get customers excited about your products?

Yes, I'm not sure this group is the best set of experts to talk about that. The fact is, we are looking, certainly, at how things are evolving in that whole space of social media, as you say, with Facebook or Twitter. And being not the most technical or advanced person in this space, I won't have a good answer for you, other than to say we have some really good people who are well acquainted with that and are looking at what should we be doing with Facebook, both in terms of getting the information out there and leveraging that as a tool. So, it's a good question. We don't probably have a particularly good answer, but it's something that we'll -- we'll continue to work on.

All right. Well, thank you very much.

Thank you.

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

Good morning, gentlemen. This is Josh, actually, standing in for Sam.

Good morning, Josh.

Good morning, Josh.

Good to talk to you. I just want to dig into some of the housekeeping items on the guidance a little bit. For the EPS guidance for next year, are you assuming anything in particular that we should know about with regards to share count, given the repurchase program?

Repurchase will be an ongoing part of our use of cash, and we will look at that as well as the acquisitions Mike talked about, and seeing how we best spend those monies. But we will have some level of share repurchase in FY2011. We have not committed to an amount or a timing of that. It's a little early in the year. As things progress, we'll do a little more there. But yes, there will be some share repurchase in there.

Okay. And then, looking at, just again, the positive outlook on the end markets and also the new product flow, any sense of how much of your 5% would be driven by improvement in the industry as a whole versus the success of your new products and things like that?

That's a good question, Josh. I would say it's probably a combination. It's always a question to what degree will your markets recover and grow, and to what degree will you take share within those markets. And as we talked, we felt as we moved through the difficult year in 2009 while our markets contracted dramatically, we were able to take -- make good share progress, if you will, in smaller markets.

As we finished FY2010, I would say most of that was about the markets recovering versus our share gains. Our share positions were solid. In some cases, we advanced. And so, as we look at 2011, we expect some of that to come by way of market recovery, and some of it we do have, as we talked about, a number of really interesting and somewhat game-changing products. Now, those newer ones that we introduce this year will help -- will help drive growth to some degree in 2011. But as much looking forward -- particularly where you have game-changing products like the Groundsmaster 360 that I talked about.

So, we'll be taking that out and demoing that with our customers, and we'll get -- we'll certainly see, I think, some sales results from that this year. But much of the momentum that will carry on into future years as people put the products like that in their capital budgets. So it really is one of those -- it depends. We'll see more immediate response in some of the residential products, because they'll be on the floors of retailers, and that's more of a -- I won't say -- well, planned purchase for the homeowner -- not as much of a long-term capital kind of decision that you see on the golf or the municipality side.

Okay. And just looking at the line-item guidance again next year and contribution margins, I think you normally run around 30%. And if I assume a little bit lower interest expense next year, and kind of trying to back into it, it looks like your contribution margins may be a little bit below that next year. Is there any reason for that, or are you assuming they will be fairly similar next year?

Yes, probably. It just depends. A lot depends on what happens to the top line. If we get the 5% and we do better than that, those margins should come up a bit. It depends on the mix. The mix certainly helps that. So, we think that's -- we're in, somewhere in that 20% to 25% range as we go into FY2011.

20% to 25% contribution margin?

Incremental margins.

Incremental margin. Okay. Thank you very much.

Thanks, Josh.

Your next question comes from the line of Mark Rupe from Longbow Research. Please proceed.

Hey, guys. This is Andy in for Mark.

Hi, Andy.

First off, I would like to add my congratulations on the quarter. As far as the pricing is concerned, I think you mentioned about 1% price realization. Could you give any color on maybe timing of the price realization, and also where you expect to see that pricing come from in terms of either product type or segment?

Yes, that's a broad question. I guess I would answer it this way, and that is that, as we've said in the past and as continues to be true today our ability to drive price -- I mean, we price not to cost, but we price to what the market will bear and the competitive environment. And so, we've always had relatively more pricing -- I don't want to say, freedom is maybe not the right word, but discretion on the professional side. So we'll see. If we're using a little more than 1%, 1% to 2% in terms of price realization overall, we will see more of that on the professional side. Some of that has already been put in place.

On the residential side, it's difficult to change prices. When you have a lawn mower that sell for $299, you really don't want to change it to $309 or $319. What you would rather do is look for the new product that will replace it -- that you find ways to drive costs out, to make it more efficiently, all those kinds of things. And so, we have less price -- and then, as a result of that, when the new products come out, it really doesn't show up in price realization, right? It shows up as a new product. So, it's kind of a long story to the pricing question, but we will see more price, if you will, on the professional side, and somewhat less on the residential side, but that gets masked a bit on the residential side because of the new products.

Okay, that's helpful. And, just finally, in terms of the (inaudible) margins on the residential side, I'm just kind of looking back at the past several quarters. It seems like they've been recovering fairly -- fairly strong. Maybe this recent quarter, would you say it's fair to say that (inaudible) margins on the residential end may be a little lighter than you expected, or was it within the range that you were looking for?

It was. I would say a couple of things. It was a small quarter, one. Certainly, where there was some commodity impact as a result of the resin issues. Remember, though, the residential didn't contract like the professional businesses did. So, we were benching against a reasonably good FY2009 fourth quarter, as well. And then we had -- to that point, we had, from a manufacturing standpoint, as we contrast fourth quarter 2009 to 2010, we had some additional manufacturing variances. When you put all of those together, what we would say is, look at the year, don't look at the fourth quarter. We don't believe it's a trend. We think the residential margin trend is solid and will continue.

Okay. Fair enough. Well, thanks a lot, guys.

Thank you.

Sir, you have no questions at this time. Mike Hoffman, please proceed to closing remarks.

Well, thank you, Jennifer, and I would thank all of our listeners for your questions and interest in The Toro Company. We wish you all a safe holiday season. We will look forward to talking with you again in February to discuss our first-quarter results. Thank you, and have a great day.

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