Toro Co (TTC) 2014 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 Parita and I will be your operator for today. (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 -- Amy Dahl, Managing Director of Corporate Communications and Investor Relations for the Toro Company. Please proceed, Ms. Dahl.

Thank you, Parita, and good morning, listeners. Our earnings release was issued this morning by Business Wire and a copy can be found in the information section of our corporate website, thetorocompany.com.

Joining me for this call are Mike Hoffman, our Chairman and Chief Executive Officer; Renee Peterson, Vice President, Treasurer, and Chief Financial Officer; and Tom Larson, Vice President and corporate controller.

We begin with our customary forward-looking statement policy. During this call, we will make forward-looking statements regarding our business and future financial and operating results. You all are aware of the inherent difficulties, risks, and uncertainties in making predictive statements.

Our earnings release as well as our SEC filings detail some of the important risk factors that may cause our actual results to differ from those in our predictions. Please note that we do not have a duty to update our forward-looking statements.

And with that, I will now turn the call over to Mike.

Thank you, Amy, and good morning to all of our listeners. Six weeks ago, we passed the threshold from our first to our second century in business. We enjoyed celebrating the milestone with events involving customers, channel partners, and employees from around the world.

We were honored to be joined by the governor of the state of Minnesota, Mark Dayton, and the mayor of our hometown of Bloomington, Gene Winstead, on July 10, our birthday. Both dignitaries officially proclaimed the day Toro Day for the state and the city.

This morning, we are pleased to announce record third-quarter sales and earnings results in the first earnings release of our new century. It is a gratifying way to begin our 101st year in business and to prepare to bring fiscal 2014 to a successful finish.

Net sales for the third quarter increased 11.3%, while net earnings per share increased to $0.87. Year-to-date sales increased 6%, with earnings of $2.82 per share. Both our professional and residential segments achieved double-digit sales growth for the quarter, with an 11.9% increase in professional sales and 13% growth in residential sales.

The professional segment performance was driven primarily by strong retail demand for large turf equipment, golf irrigation systems, micro-irrigation products, and equipment from our landscape contractor portfolio.

The growth of residential sales was due to early-season demand for snow throwers and continued strong domestic sales of zero turn riding equipment.

Following a brief commentary on the state of our business through the first nine months of the fiscal year, Renee will discuss our financial and operating results in more detail.

We begin with our golf businesses that, as expected, picked up nicely during the quarter, following a slow start to spring. Strong demand fueled solid gains across our golf equipment and irrigation offerings alike.

As mentioned during our last call, our new Multi Pro sprayer and heavy-duty Workman vehicle with an automatic transmission have both been hits with golf customers. Our innovative golf greens products are also doing well, with greens rollers in high demand.

Renovations and upgrade projects have the golf irrigation business tracking ahead of last year. Innovations like our new INFINITY sprinklers, coupled with our Lynx and Turf Guard systems, are helping us win projects and are contributing to our industry-leading market share.

Our landscape contractor businesses delivered strong results and continue to do well and track well ahead on a year-to-date basis. Demand for our zero turn riding equipment and new mid-size walk power mowers remains strong.

The increased cash flow that contractors earned from last winter's robust snow clearing business generated solid sales results during the first half of the year. The momentum continued in the third quarter and helped fuel the positive year-to-date performance.

The professional rental and construction businesses improved their year-to-date performance as we build our portfolio and accelerate growth in this area, including extending our presence in the underground business. The residential and commercial contractor irrigation businesses slowed during the quarter as a result of weather extremes that saw excessively cool, wet conditions in certain regions and severe drought in others. Commercial specification sales helped offset some of the overall impact.

As previously mentioned, our residential segment's strong quarter and year-to-date growth was fueled primarily by early-season channel demand for our snow throwers and ongoing retail demand for zero turn riding products. Also, the introduction of innovative products and increased placement helped our electric handheld category increase sales for both the quarter and the first nine months.

Walk power mower sales were up slightly for the quarter as a result of the expanded placement of our all new Lawn-Boy line. The late spring and early supplier-related rework issue lowered overall domestic walk power mower sales year to date, but with the rework behind us and more favorable weather trends, we will continue to capitalize on sales opportunities.

Our international business grew on both a third-quarter and year-to-date basis. Professional sales benefited from increased golf irrigation activity, generated by both new system and extensive renovation projects. International residential sales increased mainly due to snow thrower demand in Canada and stronger sales of Hayter products in Europe, somewhat offset by lower sales of Pope products in Australia.

Finally, micro-irrigation sales were up for both the quarter and the first nine months, driven largely by demand for our Aqua-Traxx tape offerings.

We are pleased with our overall results for the third quarter and believe we are well positioned for a solid finish to the year. I will now turn the call over to Renee for a more detailed discussion of our financial results.

Thank you, Mike, and good morning, everyone. As we reported earlier this morning, net sales for the quarter grew to $567.5 million compared to $509.9 million for the same period a year ago.

We also delivered net earnings of $50 million, or $0.87 per share, compared to $0.68 in the third quarter of fiscal 2013. Year-to-date net sales were up 6% to $1.759 billion. We achieved net earnings of $163 million for the first nine months, or $2.82 per share, compared to $2.53 per share a year ago.

Professional segment sales were up 11.9% for the quarter to $384.7 million. As Mike discussed, the strong professional sales growth for the quarter was the result of retail demand across our golf, landscape contractor, and micro-irrigation businesses as well as a return to a more traditional equipment purchase pattern.

As we have discussed during previous calls, last year, the Tier 4 transition pulled typical third-quarter channel demand into the first half. Year-to-date professional sales were up 3.4% to $1.209 billion.

Professional net earnings for the quarter totaled $74.8 million, up 23.7% compared to last year. For the first nine months, professional segment earnings were $244.7 million, a 4.8% increase compared to the same period last year.

Third-quarter residential sales grew 13% to $175.7 million, driven by early channel demand for snow product and continued retail demand for zero turn riding equipment. Year-to-date residential sales increased 11.7% to $533.7 million.

Net earnings in the residential segment for the quarter totaled $18.7 million, a 24.1% increase from last year. Year-to-date earnings were $60.7 million, up 16.9% compared to the first nine months of fiscal 2013.

Gross margin for the third quarter increased 70 basis points to 35.6%, primarily due to favorable product mix and realized pricing, somewhat offset by higher commodity costs. However, gross margin declined by 10 basis points to 35.8% year to date due primarily to higher commodity cost, unfavorable segment mix, currency exchange rates, and the now completed supplier-related rework issue we mentioned earlier.

We now expect gross margin to improve by about 10 to 20 basis points for the year.

SG&A as a percent of sales decreased by 50 basis points for the quarter to 22.9% and by 50 basis points year to date to 22%. The SG&A improvement for both the quarter and the first nine months was due to the leveraging of expenses over higher sales volumes. Consistent with our year-to-date results, we expect our SG&A rate for the full year to be slightly lower than last year.

Operating earnings as a percent of sales increased 120 basis points to 12.7% for the quarter and by 40 basis points to 13.8% year to date. Our productivity initiatives continue to have a positive impact.

Interest expense for the quarter was $3.6 million, down 7.2% from a year ago. Year-to-date interest expense was down 10.1%. Both the quarter and the year-to-date interest change was due to an increase in capitalized interest from large capital projects.

Our effective tax rate for the quarter was 29.4% compared to 30.5% last year. The change was primarily due to a one-time benefit. For the first nine months, the tax rate was 31.7% compared to 31% in 2013, when the Company benefited from the retroactive reinstatement of the Federal Research and Engineering Tax Credit. We expect the tax rate for the year to be about 32.5%.

Turning to the balance sheet, accounts receivable for the quarter totaled $215.6 million, up 6.7% on a sales increase of 11.3%. Net inventories for the quarter were up 13.5% to $293.8 million.

Third-quarter trade payables were $169 million, up 36% from a year ago. The inventory and the trade payable increases are primarily due to prebuilt product and recent purchases in anticipation of market demand.

Our net working capital as a percent of sales stands at a 12-month rolling average of 14.9%. During the third quarter, we repurchased 285,000 shares of stock and there are 2.8 million shares outstanding under our authorization.

I will now turn it back to Mike for his concluding comments.

Thank you, Renee. Fiscal 2014 has been a good year for Toro to date, with revenues up 6%, and we expect to close out the year with similar growth in the fourth quarter.

First, golf equipment sales made solid progress, rebounding from the slow start to the season this spring. We have successfully closed a number of equipment packages, and distributors' open order banks remain sound.

The industry Tier 4 transition should be nearly complete by year end, leveling the competitive landscape with the lower-priced pre-Tier 4 offerings working their way through the system. If favorable weather continues and the positive course revenues hold, we are well positioned to capitalize on fourth quarter sales opportunities.

Our golf irrigation business is also tracking well, with ongoing course installation and renovation projects. Golf course professionals continue to turn to us for the latest advances in irrigation technologies.

We are honored that the world-renowned Gleneagles Golf Resort in Scotland has entrusted us to serve their turf maintenance equipment needs as they prepare to host the prestigious Ryder Cup next month. We take our responsibility of helping Gleneagles provide the finest playing surfaces very seriously. We are proud to have our innovative products supporting this premier tournament at an exceptional venue.

While our landscape contractor businesses retail momentum typically slows as fall takes hold, sales prospects looks promising on the strength of customers' enthusiasm for our latest innovations, including the 8000-series rider, featuring its unique high-capacity collection system.

The Toro sports fields and professional grounds business should benefit in the fourth quarter from new state contracts we mentioned during our last call. The positive sales trend our professional rental and construction businesses have developed is expected to carry on into the fourth quarter due to the ongoing residential and commercial construction activity.

We also continue to grow our underground dealer base and plan to bring our new 121-horsepower RT 1200 riding trencher to the market this fall.

The ongoing construction activity will also offer opportunities for our residential and commercial irrigation and lighting businesses. New products, like our rapid set rotors and our new Elements lighting lines, are being well received.

Our precision irrigation solutions appeal to water-challenged regions as practical means for maximizing scarce water reserves. As long as the weather cooperates, the turf maintenance equipment category of our residential business is positioned to build upon the retail momentum through the fall. The fourth quarter should also deliver strong snow thrower shipments and retail sales activity.

We expect our international businesses to benefit from strong snow thrower demand in Canada and continued golf projects. As always, foreign exchange volatility and social and political unrest in troubled regions all pose unique challenges.

Finally, micro-irrigations' importance in the quest to marshal precious water resources and tackle the world's food shortages presents long-term opportunities for growth. The positive sales trends we discussed, along with the ongoing success of our productivity initiative, should help drive earnings gains.

We now expect revenue growth for fiscal 2014 to be about 6%, with earnings per share for the year of about $2.94 to $2.96. As always, we will remain flexible and prepared to respond to the market conditions.

Let me close with this thought. During our recent centennial week celebrations, I was reminded of a forecast made by our third president, Ken Goit, in 1945, as the Company emerged from the World War II years.

Goit said, quote, our Company enjoys a most excellent standing in the industry, which has been built over a long period by years of good products and fair dealing. In my judgment, we are now on the threshold of considerable future expansions by continuance of our already established policies, close quote.

Ken Goit's forecast proved accurate. The continuance of our founder's commitment to good products and fair dealings got us to where we are today and we believe is a key to our future success. Our employees and channel partners recognize the importance of these simple truths and are committed to providing exceptional products and services to our customers around the world.

We thank our loyal employees and channel partners for their dedication and hard work. Together, we are focused on continuing the considerable future expansions Goit and our predecessors foresaw.

This concludes our formal remarks. We will take some questions at this time, so Parita, back to you.

(Operator Instructions) Mark Herbek, Cleveland Research Company.

First question as it relates to the changing dynamics for the transition with Tier 4. Can you guys give us some color on how you're thinking about that impact as we move into 2015?

I guess, specifically, the higher prices that will be associated with Tier 4, what the impact could be on gross margin? Just any color you can share with us would be appreciated on -- as you transition to what would probably be mostly Tier 4 final product mixture.

Well, I guess I would start with saying that this is a part of the golf equipment business and large turf outside of golf, and so there's certainly is, on those products, some additional cost, but it's an industry cost that will largely be passed through to consumers.

Now with that said, how do we help them offset some of that cost? Can we bring some technology that will result in more productivity, as an example? It's not going to be a material change for them, so it will have to get absorbed.

And all of the people in the industry will work on that, but I don't think you're going to see a, because now there are largely just Tier 4 final products versus a mix versus pre-Tier 4 that existed before, any kind of a step change in any of the markets we serve with large turf equipment.

What has been the feedback on the price gap between Tier 4 final and Tier 4 interim? I guess I'm just trying to think about it from a unit perspective. If the prices are going up 10% or 20%, what will that impact be on unit growth in this business going forward? Just curious what the feedback has been to this point?

Yes, we have some customers who have already opted for the Tier 4 final products as contrasted to the pre-Tier 4 products, so it really depends on the customer and what they are looking for. But again, Mark, I don't think you're looking at a significant change in unit volume or in customer acceptance.

This -- other industries have gone through this and it really hasn't changed that. It's just -- again, can we find ways to bring more innovation and more productivity -- and again, we look at golf on a global context and so -- golf and/or large turf.

So it's going to be a mix, but as we looked at 2015, we do not see the -- being more weighted towards Tier 4 final products being any kind of a serious issue.

And in regard to 2014, do you guys have any estimate on how much of the business was Tier 4 final versus Tier 4 interim on products that you are transitioning? Just trying to get a sense for -- what was it, 20% of the business this year that was Tier 4 final?

It was more than that. And again, it was a mix and even some of the products back in 2013 were Tier 4 final.

Yes, right.

And so I don't have a specific number for you, but it's swinging now the other way where most of the products are Tier 4 final.

Okay. And last question, just inventory levels in the field exiting the summer and moving into the fall, can you comment on inventory levels, both within residential and professional?

Yes, inventory levels are in good shape. They are slightly up from the end of the third quarter last year. But I would take you back to when we ended the second quarter in 2013, we were concerned that inventories had built and we said we would correct it by the end of the third quarter.

And we did and they were in excellent shape at the end of the third quarter last year. And they are up slightly from that now, but that would also say they are in really good shape as we head into the fourth quarter, where we expect retail to be strong in a number of categories.

All right, thank you, I appreciate it.

Sam Darkatsh, Raymond James & Associates.

A couple questions. First off, it looks like you built inventories late in the quarter based on where your payables were going. And I think you cited that it was anticipation of growth. Specifically, where were those inventories built, either on a product line basis or an end market basis?

Well, we did have a good Q3 as well as we expect to have a solid Q4. And looking ahead, in particular, as Mike mentioned during the call, the snow -- we expect to have a strong snow preseason, so that's a piece of it.

And then continuing on with our landscape contractor and residential businesses having a good fall as they close out the season. So I think it's across the portfolio.

Okay. And then with respect to gross margin, I think that you had originally pegged gross margin expansion of about 30 basis points for this year and now it's 10 to 20 basis points. What is the causation of that variance versus original expectations?

Sam, you are correct and we would have liked to have made a little more progress in gross margin this year than we have, but really looking at where we are at year to date, being down 10 basis points and having a pretty good read on what we expect Q4 to look like, we felt it was prudent to adjust accordingly.

We will continue to work hard to improve our gross margin. Our productivity initiative remains strong. We also had an impact of segment mix as we look at Q4.

With residential, we expect to be higher based on the snow than professional, maybe than an average year. And we've been pleased that we've been able to leverage our SG&A expenses and be able to deliver our growth for our overall EPS guidance.

But in terms of variance versus your internal plan, where does the primary variance come in gross margin?

More than anything, it relates to mix.

Okay, got it. And then final question and it's related. I know, Mike, you are probably going to be loathe to talk about fiscal 2015 expectations at this juncture, but at least with respect to gross margins, can you give us a sense of what you are looking at from a commodity and input inflationary situation right now and what that might mean for pricing in gross margins next year?

Well, you're right, we will talk much more about that on the next call. And we are in that timeframe right now where we are evaluating our F15 plan and pricing and all of that that goes with that.

And then as we've said, we price to what we think the market will bear as contrasted to pricing to cost. We certainly consider cost as a part of that. And so we know -- as everybody has mentioned, there will be some pressure on some of the commodities. We are watching that. We are very mindful of that as we put our plans together.

I think -- maybe this is more directionally, we have made steady improvement in our gross margin. And it's not as though we are saying we're going to stop, and Renee just mentioned we didn't make quite as much as we had hoped.

We had a couple of issues creep in this year, like the rework issue on the walk power mowers that we talked about in the last quarter. So we're not going to kind of foreshadow that other than to say directionally, we would continue to work on that.

Directionally, we will continue to work on SG&A and the leverage that goes with that. And we'll be talking about Destination Next with you, but first, we're going to talk with our employees about it, so you'll have to wait a quarter, sorry.

Where are you seeing the pressures right now, either from an input cost or a commodity-based cost right now?

We're not seeing a big movement from a commodity standpoint. But Sam, I would say that where we are seeing some upward pressure is in steel and resin. Those would be the two areas.

Very helpful. Thank you very much, folks.

Josh Borstein, Longbow Research.

Just a follow-up on a question Sam asked you -- just remind us how you buy your commodities and whether you hedge at all?

We do hedging of our foreign currencies overall, and so you don't see a lot of volatility within the quarter. From a commodity standpoint, we often have annual contracts or fixed-term contracts that are in place for a period of time as well.

Okay, so if you were to see any kind of movement up or down say, in steel, how long before that flows through the P&L?

That will vary. As you know, we're -- from a production standpoint, looking at our seasonal business, we are ramping down before the ramp-up will begin as we head into fiscal 2015.

And as you know with steel, it's really not a hedged market. You're going to have some contracts in place, but it's different than being able to hedge resin or aluminum or some of those other commodities.

Okay, thanks. And switching over to the residential segment on the snow products, you had mentioned people stocking up in anticipation of a strong retail season. Is that typical? I was under the impression that 4Q was more the preseason for snow products, rather than 3Q.

So snow is -- as we've talked in the past, it's highly variable. The most variable part of our business. And there's a predictable part and that's the preseason and then there's a bit of an unpredictable part and that's just what Mother Nature is going to do in season.

And when we have a preseason like the one we're going into right now, which is we're coming off a significant snow year, then not unusual for demand to be much earlier. Products have started to retail already in August.

People are out -- they are ahead -- again, small numbers, but they are ahead of last year, because people remember what they went through and they're getting ahead of the game. And so it is not unusual for our channel to pull stuff -- where we know it's going to be a very strong preseason, to pull inventory in in the third quarter.

And I can go back and contrast it to previous third quarters, where the preseason was not going to be very robust and then most of it will be closer to that September, October timeframe. But this year should be a very strong one and they want their products earlier.

Thanks. And then switching to the golf side, it seems like you are seeing some nice demand, despite golf rounds played being down year to date, at least through June. Could you talk a little bit how you reconcile those two things?

Well, I'll start -- golf -- there's been different press out there and people talking about the demise of golf. A couple of things I would say. I think that's exaggerated, from our standpoint. There certainly is going to be a bit of erosion of the number of courses in the US, and we've said that all along the way.

Now, golf rounds on a days open basis is actually up this year. There's been more rain days, but the fact is, the spending in the golf clubs and the golf rounds are actually positive, one.

And the other thing may be more important for us is we look at golf on a global basis. And so there, yes in the US, in the 16,000 give or take courses in the US, there will be some erosion as we look to the future. We don't expect to see wholesale change there.

But on the other -- the rest of the world also has a similar number of courses for the 6 billion to 7 billion people. There will be -- continue to be the growth in building golf courses around the world. So when we look at it on a global basis, golf will continue to be a good part of a good business and a good part of our portfolio and we think long into the future.

Clearly, the industry is also working on trying to engage people in the game in different ways to leverage the assets and the courses in different ways. And that will continue.

But it isn't as though -- as I step back and I think there's a Golf Digest kind of quoted to Mark Twain -- the rumors of my demise been greatly exaggerated. And I think that's -- we believe that's true for golf, especially on a global basis.

Great. And then just one follow-up for me on sticking with golf, on irrigation side. How much of the growth, whether it's just replacement or new systems, do you think is just coming from a better overall market versus you guys taking some market share out there?

I think it's more -- if you're talking golf, it is more the industry itself as opposed -- our share is already quite high. And that maybe improving somewhat, too. We introduced some new products, like our INFINITY Head, which is a terrific innovation and an advancement.

And so in the US, most of the systems are replacement systems to existing golf courses. Internationally, it's more weighted towards new. So it's probably some of both.

Great. I appreciate it, thank you.

Robert Kosowsky, Sidoti.

I was wondering, Mike, if you look at your growth rate for this year, you are projecting 6% topline growth. Beginning of the year, it was 4% to 5%. And I'm wondering what drove that sales growth higher over the course of the year?

Was it all snow? And any of these changes in markets create tough comps into next year? Are there any easy comps into next year? Just high-level thoughts about how you see that playing out?

Yes, clearly snow was the probably number one factor and as you know, that -- year over year, to what degree can you count on that? We will see the snow part of our portfolio swing up or swing down influencing the whole Company by a couple of points. So that is number one.

But the rest of the business is retail. The rest of the businesses are sound. And so I think as you ask questions looking forward to fiscal 2015, I guess I would say -- I would start well, as we go through our plans, to what degree is the economy continuing to move in the right direction?

Hopefully that will -- albeit slow, it still is positive. Mother Nature, the weather impact. We got through this year -- and snow goes on the positive side of the ledger. But I would tell you, the spring business -- we ended up having a spring season in the US -- I'm talking primarily -- similar to 2013, which wasn't a favorable at all.

And so as you think about 2015, what's the probability? I'm not going to go into probabilities here, but the fact is it still goes on the positive side from the ability to comp against that. So they're going to be a lot of variables, but across the portfolio, the businesses look like they're moving in the right direction.

Okay. And then also I guess building on the retail side of the business, where do you think the market is going to be for retail mowers on the residential side?

When?

For this year, what do you think it was?

Well, I think from an industry standpoint, saw, I think, some pressure on the walk mower business, although our business performed in spite of that quite well. And some of that ties back to the spring discussion we just had.

On the more planned purchases on riders, that has been more favorable. And again, we are in an area where we -- our offerings are largely in the zero turn products, not in the more traditional tractors and the market continues to move that way.

So that's a bit of an advantage for us. So that's -- both those are going to be solid for us for the year now as we think about it relative to 2015. We would expect to see that trend to continue.

Okay. And then do you see any risks or weakness in micro-irrigation in California, just given how pervasive the drought is there?

Short term, we've talked about this before, I believe. But short term, there's an implication where some farmers given a water allotment may fallow some fields. And there's a lot of irrigation in California that is still inefficient, flood or other, as opposed to micro.

I think the fact is, strategically, it's a benefit, because as farmers move towards -- knowing what their water reserves are going to be and if they're going to be less, them being able to use them more precisely is clearly to their advantage. So short term, a little bit of implication, but long term, clearly positive.

Okay, thank you very much and good luck.

Jim Barrett, CL King and Associates.

Mike, a few questions for you and one for Renee. The discontinuation of the Dixon brand by Husqvarna, the sale of Dixie Chopper as well -- is the commercial landscaping market -- is that -- are your consolidators -- are your competitors consolidating and do you view this as an opportunity to gain share? How should we think about the changes in that market?

Well, I think the -- I think you mentioned Dixie Chopper. That was not a consolidation --

Correct

Because that company had an offering in that space and that company was purchased out of a difficult situation. And so is there a consolidation going on? Not materially.

We're certainly a major player in that space with both -- on the professional side with both the Toro and ExMark brands and then on the residential side, more weighted to Toro.

The professional business has largely moved to zero turn products for those who are riding zero turn, whether they are sitting in them or zero turn, whether they are standing on them.

Back to the earlier question, more of the change we're seeing is with the transition of the residential business towards zero turn more productive products versus the more traditional tractors. So I don't think the deals you mentioned are relatively small and we will see how they play out, but it's not going to impact the industry much.

Understood. And can you broadly discuss across your key categories where you stand in terms of market share performance year to date?

Well, very broad, we have very strong share in golf, in both equipment and irrigation. And we have sustained -- some areas improved that, where we talked about bringing new products, like the INFINITY sprinkler into play on the golf irrigation side.

In the landscape contractor arena, again, strong portfolio of products, with both the ExMark and Toro brands, and bringing out new products in that space, like the 30-inch walk behind heavy-duty mowers.

Some of these things are impacted by weather. The drought in California has certainly impacted the -- some of the walk power mower business -- heavy-duty walk power mower business out there, but that's a market-wide issue.

So strong share and moving in the right direction in the landscape contractor arena. In the residential arena, we went through a tough spring. I think our walk power mowers, as I mentioned, performed well.

We got some -- we drove some improvement with the launch of the new Lawn-Boy line and we brought out the SmartStow under the Toro brand. Both those helped, I think, drive our performance and our share. And solid performance in the zero turn.

And then some of the new younger businesses, micro-irrigation, we are working on growing that share globally. That business is going through a lot of change. And the rental and construction business, I would also say we saw share gains. We're younger in that business and we are making a lot of -- we are making appropriate investments in products and channel, and we've seen the improvement drive results in the rental channel.

The underground business is just getting started, but we've brought those new products to market. I just mentioned in the script here earlier. The RT 1200 will come to the market. This is a large 121 horsepower riding trencher that will come to the market under the Toro brand this quarter.

Good. That's very helpful, thank you. And Renee, you may have touched upon it. With a 36% increase in your trade payables, is that largely buying parts for manufacturing snow blowers or are there other products you've identified as worthy of increased inventory purchases?

It was really the strength of ending Q3 and then building product in anticipation of a solid Q4. So snow was certainly a piece of it, but really across the rest of the portfolio as well.

I see. And thank you all very much.

Thank you for your question. This concludes the question-and-answer session. Ms. Dahl, please proceed to closing remarks.

Thank you for your questions and interest in The Toro Company. We look forward to talking with you again in December to discuss our results for the fiscal year. Thanks and have a great day.