Toro Co (TTC) 2017 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to The Toro Company's Second Quarter Earnings Call. My name is Kevin, and I'll be your conference operator today. (Operator Instructions) As a reminder, today's conference is being recorded.

I would now like to turn the presentation over to your host for today, Ms. Heather Hille, Director of Investor Relations and External Communications for Toro Company. Please proceed, Ms. Hille.

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

On our call today are Rick Olson, President 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 prediction. Please note that we do not have a duty to update our forward-looking statements.

With that, I will now turn the call over to Rick.

Thank you, Heather, and good morning to all of our listeners. We are pleased to have delivered record second quarter sales and earnings results. Net sales increased 4.3% to $872.8 million, while net earnings per share grew to $1.08. Increased sales of our golf, rental, BOSS and landscape contractor equipment drove Professional segment sales growth of 2.6% for the quarter. Our Residential segment also achieved gains for the quarter due to demand for zero-turn riders, walk power mowers and Pope Products leading to an increase of 8.4%. Following a brief commentary on the state of our businesses through the first half of the fiscal year, Renee will discuss our financial and operating results in more detail.

We begin with our Professional segment, where our golf equipment business led the way in the quarter, driven by strong market interest in our recently launched innovations. Two notable examples are our latest series of lighter-weight Reelmaster fairway motors and our Greensmaster hybrid riding greensmower. Project wins and demand for our new Workman GTX vehicle line in both the golf and sports fields and grounds markets also contributed to the quarter.

The golf irrigation business had a more subdued quarter. Excess rainfall and the late arrival of spring delayed installation projects. However, we are well positioned with a number of pending projects, and customers are enthused by the ongoing advancements and water-saving technologies that our products offer, including the Lynx Dash that we introduced early in the second quarter. Lynx Dash, a comprehensive dashboard, is a standalone service that can be integrated into existing Lynx central control systems. It pulls in real-time weather information from third-party weather providers and delivers enhanced diagnostic information about the current site conditions. The enhanced information helps superintendents and grounds crews make better decisions regarding their irrigation practices.

Next our rental business also had a good quarter. The compact utility loader market remains strong as did demand for our stump grinders. Our Tracked Mud Buggy that we launched during the first quarter sold well and is receiving high marks from users for its quality and performance.

Coming off a strong first quarter, BOSS enjoyed a good second quarter despite fewer snow events in the latter part of the season. The BOSS team remained busy completing the developments of a number of new products in preparation for the preseason orders later this year.

Our landscape contractor business saw strong retail demand in the first quarter for our new zero-turn riders. This trend continued through the second quarter. These heavy-duty riders provide the power, performance, comfort and durability contractors value, along with a unique tool-carrying capability that helps make the most of their crews' work day. Instead of making multiple trips to and from their truck to retrieve trimmers, blowers and other hand tools, they can be carried on-board the mower so that multiple tasks can be completed while the operator is at the site.

After a strong first quarter, our micro irrigation sales slowed in the quarter due to delayed plantings in the U.S. as fields in certain markets were soaked by heavy early rains, which made irrigation system installations challenging.

Moving to the Residential segment. Enthusiasm for our new TimeCutter HD zero-turn riders and the timing of our annual Toro Days retail events coincided with favorable April weather conditions, resulting in solid retail of the TimeCutters and our residential walk power mowers. Favorable weather conditions also helped boost sales of Pope Products in Australia, further strengthening our residential second quarter results.

Along with the positive Pope results, our international businesses benefited from sales related to our Perrot acquisition and landscape contractor equipment activity. Strong shipments of walk power mowers to Canada and good market acceptance of our new TITAN HD riders in Europe also contributed to the quarter.

I will now turn the call over to Renee for a more detailed discussion of our financial results.

Thank you, Rick, and good morning, everyone. As we reported earlier this morning, net sales for the quarter were a record $872.8 million compared to $836.4 million for the same period a year ago. We also delivered net earnings of $120.5 million or $1.08 per share compared to $0.94 in the second quarter of fiscal 2016. Year-to-date net sales were up 5% to $1,039,000,000. We achieved net earnings of $165.5 million for the first 6 months or $1.48 per share compared to $1.29 per share a year ago. Unfavorable currency exchange rates negatively impacted sales for the quarter by approximately $3 million and by approximately $6.4 million for the year.

Professional segment sales were up 2.6% for the quarter to $610.9 million. Year-to-date, professional sales were up 5.2% to $982.7 million. Professional net earnings for the quarter totaled $149 million, up 5.2% from $141.6 million in the same period last year. The growth was due to increases across several businesses, but particularly from our golf equipment and rental offerings. For the first 6 months, Professional segment earnings were $217.2 million, a 6.9% increase compared to the same period last year. Sales of our golf, landscape contractor and rental and specialty construction products were largely responsible for the growth.

Second quarter Residential segment sales increased 8.4% to $258.1 million. The increase is primarily due to demand for zero-turn riders and walk power mowers, driven by new products. Year-to-date residential sales were up 4.2% to $398.5 million.

Residential segment earnings in the quarter totaled $35 million, consistent with last year. Year-to-date earnings were $51.6 million, essentially unchanged compared to the first 6 months of fiscal 2016. Increased freight costs associated with the timing of new product shipments and a specific product warranty expense negatively impacted earnings.

Now to our key operating results. Second quarter gross margin was consistent with a year ago at 36.2%. Commodity headwinds, increased freight costs and segment product mix had negative impacts on results, which were offset by productivity improvements and price realizations. Gross margin was consistent on a year-to-date basis at 36.7%.

SG&A expense as a percent of sales was 18%, an increase of 30 basis points for the quarter compared to a year ago, but remained flat at 20.9% year-to-date. The change for the quarter was primarily due to increased incentives and warranty expenses.

Operating earnings as a percent of sales for the quarter were 18.3%, a decrease of 20 basis points, and 15.8% year-to-date, which is consistent with this period a year ago. Interest expense remained flat for the quarter and was slightly higher year-to-date.

Our effective tax rate for the quarter was 23.9%, down from 31.5% a year ago. For the first 6 months, the tax rate was 24.1% compared to 30.3% for the same period in 2016. The decrease in the tax rate was primarily driven by the adoption of a new share-based compensation accounting standard in fiscal 2017, which resulted in a discrete tax benefit of $11 million for the second quarter and $15.9 million year-to-date.

We now expect our tax rate for fiscal 2017 to be about 26%, which currently includes an estimated full year discrete tax benefit related to share-based compensation of approximately $18 million for the year. Excluding this discrete item, our expected effective tax rate for the full year would be about 31%. The adoption of the new share-based compensation accounting standard can add variability to the company's provision for income taxes, mainly due to the timing of stock option exercises, vesting of restricted stock units and our stock price.

Turning to the balance sheet. Accounts receivable for the quarter totaled $328.5 million, a decrease of 0.4% over the same period a year ago. Net inventories for the quarter decreased 7.4% to $341.6 million. At the end of the quarter, the company's 12-month average net working capital as a percent of sales was 14.4% compared to 16.6% a year ago. We are pleased by the improvement and will continue our focus on further reduction.

I will now return the call to Rick.

Thank you, Renee. We believe we are well positioned with strong portfolios of innovative products across our businesses to capitalize on both existing demand and new growth opportunities in the second half of the year. The golf equipment business should enjoy continued momentum in the months ahead as interest remains high in products we launched in 2016. These include the Reelmasters, Greensmasters and Workman GTX units I mentioned earlier in the call, along with the Greensmaster Flex walk greensmower and the GeoLink GPS guidance system on our 300-gallon Multi Pro sprayer.

Additional product launches this year are generating similar excitement. These include the GreensPro roller, a variety of accessories for the Workman GTX, a GeoLink system for our smaller sprayer and our myTurf software, our next generation of fleet management software for maximizing equipment uptime and lowering costs.

While the correction of core supply versus demand will continue, a significant number of courses are investing in major renovations, which reflects continued optimism in the industry. These trends will likely present sales opportunities for our golf products.

We are pleased to, once again, help a key customer prepare for a major championship as the U.S. Open comes to Wisconsin's Erin Hills next month. Superintendent Zach Reineking and his crew will be using Toro Turf maintenance and irrigation equipment to optimize playing conditions for the world's best golfers. This is an important time for Erin Hills as it is their first opportunity to host a major championship. We are honored they are counting on Toro for such a monumental event.

The outlook in the sports field and grounds market indicates modest municipal budget increases for the year. We believe we can leverage our portfolio of efficient products and services to appeal to their buyers, who are looking to stretch their budgets and minimize costs.

Projections in the construction, rental and utility markets suggest continued growth for the remainder of the year, which bodes well for our rental and specialty construction businesses. We enjoyed a very successful national rental show in February, where we generated a healthy amount of orders. Retail is strong at both rental and dealer locations. Demand for compact utility loaders and acceptance of our new Tracked Mud Buggy and our brush cutter have all been strong.

Similarly, we anticipate retail of our latest landscape contractor equipment will continue at its encouraging pace through the cutting season. If the weather cooperates, our professional snow and ice management business also expects to see strong demand in the coming season.

During the quarter, BOSS completed development and is preparing for production of several new products that will launch this fall, including the FORGE 2.0 stainless steel v-box spreader, pre-wet system and unique downforce technology on straight-blade plows. The initial customer response has been very positive.

Moving to our residential, commercial irrigation and lighting businesses. We expect sales to pick up as weather shifts to more normal patterns, relieving a saturated ground condition. Similarly, our micro irrigation business should regain momentum as favorable weather takes hold. Our Aqua-Traxx FlowControl tape continues to generate strong sales.

Furthermore, the heavy rains that delayed the selling season in areas hit hard by several years of drought have importantly helped replenish water supplies. As drought-triggered irrigation restrictions are lifted, many fields that were left fallow for several seasons will likely be brought back into production. This should help increase demand for our micro irrigation products.

Next demand should continue for our innovative residential products, including the TimeCutter HD zero-turn riders and all-wheel drive walk power motors. Last month, we unveiled another game-changing walk power innovation, PoweReverse. It's a self-propelled drive system that works in both forward and reverse. Like our other Personal Pace mowers, PoweReverse adjusts to the operator's preferred walking pace while allowing them to mow challenging areas that require a lot of back-and-forth motion with less maneuvering and effort, another user-friendly, time-saving advancement that our customers will appreciate.

Finally, our international businesses are experiencing positive retailer results that vary by market on a regional basis. Our new 46-centimeter and Harrier 41-centimeter walk power mowers have been well received, and the Perrot line will continue to enhance our irrigation offering worldwide. While we face and deal with regional challenges, our international team will aggressively pursue sales opportunities wherever they arise.

Before closing, I want to salute and thank a regular contributor to these calls, Tom Larson, our Corporate Controller and Chief Accounting Officer. He has announced his retirement effective in early August. Tom has served the company for over 35 years and has done so with absolute distinction. His contributions are countless and his cultural stewardship is a worthy model for all of us. His intelligence, dedication, clear vision and wise counsel have been invaluable to Renee and me as they were to Steve Wolfe and Mike Hoffman before us. Tom is a superb professional and good friend. Thank you, Tom. You will be missed by your colleagues and friends across this strong enterprise that you have helped make so.

I also want to thank our employees and channel partners for their steadfast commitment and hard work. I know we can count on all the members of our team to stay focused on our goals and to serve our customers, drive share and deliver results for our stakeholders.

In conclusion, we anticipate delivering another successful year. We are fully aware of the global challenges that uncertain economic conditions and unpredictable weather patterns may pose to our plans. As always, we are prepared to respond.

The company now expects revenue growth for fiscal 2017 to be about 4.5%, with net earnings of about $2.35 per share. For the third quarter, the company expects net earnings per share of about $0.56.

This concludes our formal remarks. We will take questions at this time.

(Operator Instructions) Our first question comes from Sam Darkatsh with Raymond James.

Tom, congratulations on your retirement and best wishes for you in your next chapter. It was terrific working with you over the years.

Thank you, Sam.

So a couple of questions. First off, a clarification. Renee, the 31% tax rate for the year excluding the items, is that what we should think about for tax rate in the out years?

That would be the tax rate on an ongoing basis, assuming there is a 0 impact from this accounting change. It -- as we go into next year, we'll have to evaluate what type of impact we have in the future from this accounting change. So we'll evaluate that as we

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next year and provide guidance for next year as well.

Okay. And then the tax rate, the tax benefit from the new standards suggest that your operating results may have been, I think, fractionally softer than what you originally thought. Can you help with where specifically you might have seen variances internally in the quarter versus your original plan? I noticed residential margins were a little on the soft side and obviously irrigation, too, you called out. But if you could talk around where the primary variances were, if you could?

Yes, we did have a portion of the tax benefit included in our original guidance. So when we step back -- although the benefit was greater than we originally expected, we actually feel we're right on our guidance for the quarter. Clearly, there were some impacts within the quarter for residential related to the impact of freight and warranty in particular, and we can explain those. But the impact of the tax impact was greater but that would really be why we exceeded guidance versus achieving our guidance. In particular, when we talk about residential, do you want to, Rick, maybe address...

We had a couple of specific items that affected the profit for residential specifically, and those were a warranty issue, which was related to an issue on a specific product. We investigated and understand what that issue was. The corrective action has been taken, but we did reserve for any impact of that issue in our -- as reflected in our financials. The second is related to freight. As we've talked about in previous calls, we are very focused on making sure we're a good supplier to our channel. With the timing of some of the product introductions, we chose to ship in a less than fully efficient way to make sure we got product to each of our locations that resulted in a freight premium. We are working diligently to make sure that we are not only good suppliers, but that we also are efficient at the way that we spend our freight dollars as well. These were a couple of the significant items.

Do you give a ballpark quantification of the freight and warranty impacts? And are they ongoing in -- near term in 3Q? Or is that just a Q2 item -- items?

Yes, we felt that they would be Q2 impacts that we feel we've addressed them within the quarter, and we not expect them to impact. And I would say it's really the variance and the profitability year-over-year in residential.

Oh, I see. So the residential margins would have been flat out -- x those items?

Yes.

That's correct.

On a revenue basis, yes.

Got it. Last question, then I'll defer to others. The share repurchase activity was a little bit less sequentially than it was in the first quarter. I know you don't have a formulaic kind of thought -- thinking pattern around that. And sometimes it's just noise or when you're able to be in the market, but any commentary around that? Is it potentially setting you up to make some M&A later in the year? What -- how should we look at the share repo?

Sam, this is Tom. Yes, we've got -- spent, as you can see, just under $85 million year-to-date on share repurchases. I would take you back to what we said coming into the year and what we continue to say, we expect to spend at least as much amount -- or at least as much on share repurchases as we did last year, which was $112 million. So we got off to a fast start on that in the first quarter. And I'd say through the first half, we're tracking very well and somewhat ahead of that pace. So I wouldn't infer anything differently, that we've not changed our approach to that at all or anything.

Our next question comes from Jon Fisher with Dougherty and Company.

It sounds like when we look at the quarter, that there are still some opportunities, things that you talked about earlier on the last quarter to kind of aid revenue performance for the rest of the year. It doesn't sound like you've seen a pickup in California business from the wet winter there. And it doesn't sound like, at least based on your description of spring, that there was an early spring. So I guess I'd be interested in kind of the opportunities there, if you could flesh out maybe those 2 points as opportunities when we look out to the Q3?

Sure. First of all, I guess, on the spring in general, we had an early start in a lot of parts of our markets, but it's been more variable since then. So if you're in Minnesota, for example, the last several weeks have been in the 40s at times and quite wet, so it's been a little bit more varied. And the key points is a good portion of that season is still ahead of us. So I think the indications right now from a weather standpoint are actually turning more favorable, certainly with a lot of moisture in the ground, that bodes well as it starts to warm up. Specifically, to the West Coast and California specifically, it's really -- there's 2 elements to that, and it's really, first of all, the longer-term piece, the drought. There's been a significant drought relief with the much higher snowpack and a lot of rains throughout the rainy season in California. That will help us from a standpoint of reducing drought-induced restrictions on watering and irrigation. It will also bring fields back into play for our micro-irrigation business, so more acreage coming into play that have been fallowed in many cases for as much as 2 or 3 years. So that's the positive from this. The negative is that has -- it has been a very wet spring on the West Coast so that is one of our largest irrigation markets for -- both for res comm and obviously micro-irrigation as well. And a number of those projects have been delayed. So as it starts to dry out, there's adequate moisture in the ground. We believe that we'll gain back a lot of those projects and that, ultimately, it does create some opportunities for the micro-irrigation business a little bit longer term.

Okay. And on the pricing, just given how strong revenues have been through the first 6 months and listening to you talk about the opportunities for the rest of this year, the demand environment just looks and is, based on my checks, really strong. Are you still in the 1% to 2% pricing environment? Or is demand strong enough that you're actually able to get more pricing than the 1% to 2% range?

Yes, we really -- first of all, just to clarify, we price -- we do price for the market. So the types of things that you're talking about are in play. And we have variation across our businesses. We tend to get more price in areas where there is more engineered content, and it's more of a professional product that can see the return on investment for those innovation. But that being said, we are in the 1% to 2% range that we've previously talked about, but there is variation, obviously, across our product lines.

Okay. And just final question and then I'll drop off. It sounds like the international business during the quarter was overall fairly attractive. To the extent you can add some detail to that or quantify growth or percent of revenues from international would be appreciated.

Sure. I would say international in general, the year-to-date has been more positive and in general, the outlook, I think, the macroeconomic environment for international business is better. I just reviewed GDP growth for a number of our key markets and it's picking up to be a little bit more positive. We did also gain from the addition of our Perrot line, which is really going as expected, if not exceeding our expectations so far. That have added some revenue and really have complemented our irrigation lineup worldwide. Again, they've got leading market share in Europe, particularly for sports fields and grounds, and that's been a great complement to our business. So overall, we feel good about the international business. It's been several years of challenging economic environment, but some signs that, that's getting a little bit better.

Our next question comes from Mike Shlisky with Seaport Global.

I first wanted to just touch on some of your snow business, particularly the part that covers residential. I was just kind of wondering, I saw there were some pretty big storms across the U.S. in mid-to-late March. And I was curious if you can tell us if that helped to clear out some of the inventories at some of your retail partners going into the spring?

Yes. Overall, the snow season we would call a good but not a great snow season. The season started a little bit slow, had a very solid December and then the remainder of the season was quite variable, especially by region. So it ended up being a good, not necessarily a great, snow year. And these storms in the later part of the season did help us. They were fairly regional. I think Stella was the last big storm. But what it did do, Mike, is it did help us clear out some inventory in the field. So we feel like we're in good condition from a field inventory standpoint, which should set us up for a decent sell-in to the preseason of this fall.

Okay. And then just on BOSS quickly fill up on that part of it. It's now the end of May. Are we now in the midst of the early order season for the next period -- for next season? And can you just tell us, if so, how that's gone so far?

Yes. So far, it's a little bit early for the BOSS business. But so far, indications are good for BOSS, in spite of not outstanding winters, we have done very well with the new products. So the extendable plows, the plows for lighter-weight pickup trucks have all been very popular. And this is, just to keep in mind, it's maybe a little bit less directly tied to the weather conditions because it is a capital purchase for the contractors, but type of things like new truck sales as well and these are planned purchases. Over time, if there's a change in revenue for the contractors that could affect it, but it's less immediately reactive to the conditions than, for example, the snow-thrower businesses. But BOSS is tracking well. We're ahead of where we were last year and the outlook looks good, especially with the new products that we have slated, for example, the down-pressure with -- on our straight-bladed plows that include a system that provides down-pressure but it also allows the plow to float and a number of the other innovations that we talked about in the prepared remarks. So we feel positive about BOSS going forward, definitely.

Okay. And then just turning to your both micro and golf irrigation. Just wanted to ask it sounds like both were kind of impacted by the weather during the quarter. Does that suggest that some of your deliveries and sales may have been pushed out into the third quarter? Or did you miss the installation season with golf courses up and running at this point and some of the plants -- I mean, crops are already in the ground by now?

Yes, really for the most part, we would say it's a timing type of thing more than anything else. So we -- the trends that have been driving more golf irrigation installations continue, the willingness of golf courses to invest in some of the new technologies that are helping to move that a little bit faster, so that doesn't change. And we're still, really, we believe in the early stages of a replacement cycle for a lot of golf courses that were built during the boom times, let's say, of the '90s if you consider may be a 15- to 20-year lifespan for those systems. So we don't believe that projects have been lost. We believe that it's a timing thing at this point.

Our next question comes from Tom Mahoney with Cleveland Research.

My question comes on the outperformance you guys are seeing in golf this year relative to last year. How much of that do you account for better end-market demand in that part of the business? And how much of it is the share gains from new product that you guys have seen?

Well, first of all, we do believe that the outlook for golf continues to look a little bit more favorable, so I had a chance to travel and visit a lot of customers in one of our key markets several weeks ago. And I would say from my own perspective in talking to them, certainly much more optimistic about the game itself and the industry related to golf. So really, anecdotally, in this case, relating waiting lists for memberships and revenues being up and play being up. So fundamentally, we continue to believe that those -- that the outlook for golf looks more positive. And then -- but on top of that, we do believe that our new products provide a substantial benefit to us in the marketplace and we would believe that we are taking share in this case. So the products, for example, just to give one example, the Triplex greensmower is actually a ride on 3 cutting units of greensmower but it operates like the walk greensmower that traditionally has been the highest-end type of mowing that you can do. So as the superintendents are challenged with labor availability and management, that's a product, for example, that gives you the results of a walk type of mower, but it has the productivity of a riding mower. So that's really kind of our sweet spot. So we do think that, that helps us take share as well.

Great. And then my follow-up is just on the revenue guidance increase. To what extent does the 100 basis point increase reflect the upside year-to-date versus more favorable expectation for the rest of the year? And then just on top of that, is there anything we should be thinking about from a flow-through to the bottom line perspective in the remainder of the year?

I think as far as revenue goes, it really reflects both. So it reflects the performance so far year-to-date, a growth of 5%, but also we expect the latter part of the year to be positive as well. As I have said earlier, a good portion of the growing season -- or, excuse me, the peak season is still in front of us here, but we continue to feel good about the remainder of the year.

Our next question comes from David MacGregor with Longbow Research.

Tom, congratulations on your requirement. All the best for whatever may come next.

Thank you, David.

I guess, first question I wanted to ask was on golf. I know there was a lot of talk within the channels of lead time extensions earlier in the quarter, not just Toro but for some of your competitors as well. Was this the earlier-than-normal start to warm weather, delayed new product introduction availability or something else? And do you feel you've caught up by the end of the quarter? If not, does that suggest an incremental source of growth in 3Q from the delayed fulfillment?

Well, as I mentioned, the underlying drivers of the golf business are looking more positive, so the macro environment for golf is good. We have worked closely with our channel partners to make sure that we don't lose any opportunities as a result of a little bit higher demand maybe than we originally projected. So at this point, we believe we are -- we have plans in place to make sure we cover the demand through the period. We also, in our case, one -- a bit of a challenge for us was the alignment of several large packages that happened early in the year. So those are -- the timing is never quite certain and we had several significant wins early in the season that required delivery on a very short notice. So that was a specific factor for us, but we are working very closely between the business and our operation team to make sure that we don't lose any opportunities.

Congratulations on those wins. I guess, there have been some previous questions on the irrigation. And I guess, we heard as well that there's a good second half coming in the irrigation. I guess the question is if you get an upturn in the irrigation spending, does that cut into the turf equipment sales as the clubs have a finite CapEx budget?

Yes, really for the most part. Similar to the comments about contractors, these are planned budgets. So this is already a part of their long-term plan. And so I would not say that there's a trade-off there. They've got a long-term plan. The irrigation system needs to be replaced and they also need to replace their equipment on a regular basis.

Okay. Last question for me is on landscape contractor, and I guess given that the fellow that plows my snow is also the fellow that cuts my grass, are you seeing any signs that the slower snow removal season this past winter cut into the contractor's earnings and, hence, his ability to purchase new mowing equipment?

We're not necessarily seeing that, especially with the larger snow contractors. They tend to structure their agreements with their customers so that they have some set annual contracts as well as per plow type of arrangements. So we're not necessarily seeing that. And again, we had a decent snow year this last year, especially in the markets where we're particularly strong.

Our next question comes from Joe Mondillo with Sidoti & Company.

Just a preface, I was getting cut off a couple of times on the call. So if I ask anything that was already asked, I apologize. My first question regarding SG&A. Seems like SG&A was up. It was up more than I was expecting. In particular, it looks like the corporate costs outside of the segment costs were up quite substantially, about 15% actually, it looks like, by my calculation. Just wondering what is going on there. And then also in a -- and related to that, it looks like the corporate costs were up 25% in the second quarter of last year. So is there anything seasonally that's changing regarding the second quarter in SG&A costs?

Yes, I think the item within corporate would be -- it's a really a timing adjustment more than anything year-over-year. And it relates to incentive costs and in particular, some of our sales incentive costs that are -- were doing substantially better if you look at our year-to-date sales performance this year versus last year and that we record those, many of those incentive costs in our other segment. And those are better -- we have better performance being at 5%. And I think last year, we were above 1% or something like that, about 1.7% sales year-to-date. So the primary driver within corporate is incentive. If you look more broadly at SG&A across the enterprise, then warranty would also come into play, and we talked about warranty within residential. I think your question is in corporate. When we look -- and throughout the year, we'll continue to look, Joe, at ways to leverage SG&A as we grow. We'll continue to invest in growth in new products from an R&D perspective, but we recognize that one of our goals is to look at ways of leveraging SG&A as well.

Okay. In regard to the revenue guidance, the 3% to -- the 4.5%, which is up from 3% to 4%, is that largely organic growth? And if so, where exactly is that coming from? I know you're going to have a pretty easy comp, I believe, at the Residential segment on the back half but...

Yes. I'll let Rick answer the latter portion, but just to -- the 3% to 4% included Perrot, the Perrot acquisition, and it's not a material number. So the change from 3% to 4% to 4.5% is not driven by Perrot. Perrot would have been in the original baseline, so it's not the driver in the change. And if you want to talk to maybe the drivers of the change...

Yes. So ultimately, it's organic growth is where it's coming from and particularly if you included Perrot at this point. And the answer to where it's coming from, it's really broad-based. It's quite balanced across the businesses. We see opportunities to grow in all of our businesses for the second half of the year. So we've, obviously, got some very strong areas with new products like landscape contractor and some really exciting products in residential as well, but the golf business and sports field and grounds business also has a lot of opportunity. So it's pretty, pretty balanced.

Okay. So broad-based, is there anything openly eye-opening to you regarding the market itself that's sort of driving that? I mean, it feels like maybe the economy wants to start to accelerate, not sure if we're necessarily seeing it, but is there anything glaring to you that's sort of is driving the overall business demand? Or is it -- do you pin it towards mostly your R&D and the product innovations that you, in particular, are coming out with?

It's really all those things. So we -- where we have new products, which is really a key focus for us on the innovation side, we believe that gives us, obviously, a competitive advantage that we would grow in spite of the macro conditions. But there's no perfect kind of macro indicator, but we talked about consumer confidence as one that does tie -- tends to tie, new housing starts. I know the monthly numbers for those kind of fluctuated a little bit for the last couple of months but, in general, they're at a fairly historically higher than typical levels. So those are the general economic outlook in a sense, is that we believe helping in general.

Okay. And then just last one for me. I was wondering if you could comment on the competition that you're seeing relative to the last 5 to 10 years. How was that sort of playing out in both of the businesses?

Yes, competition is really hard to talk about in general because it's very specific to the markets, but you can imagine in some of the residential spaces, especially entry-level products, those tend to be very competitive in some of our markets where there are a lot of competitors, which also tend to be in the residential area. To some extent, landscape contractor, there continues to be competition. The Professional businesses have probably been more stable from a competitive standpoint. They tend to be the same competitors that have been there in the key markets. So I would say no major competitive shifts at this point.

Our next question comes from David MacGregor with Longbow Research.

I wanted to just go back to the golf irrigation for a moment. And people we've spoken with in the industry have indicated that installation labor is very tight right now, and this is having an inflationary impact on golf irrigation projects. And I guess if this were true, I could see where clubs might elect to accelerate their project timing plans to avoid higher costs next year or the following year. Are you seeing any evidence of this?

I have not. I don't have knowledge specifically of that being a driver that people accelerating projects to meet higher labor costs. But one of the things that we do talk about with some of our products like the INFINITY sprinkler is there are significant labor savings opportunities from an ongoing maintenance standpoint. I know that's one of the things that's attractive. It's a completely top serviceable head. So instead of sending a crew out that has the dig-up section to remove the head and put it all back down again. This is a Phillips screwdriver, take the cap off and repair it, so -- but I know that those types of features have been especially attractive to golf courses, and I would assume that's because labor has become more of a challenge.

This concludes the question-and-answer session. Ms. Hille, please proceed with closing remarks.

Thank you for your questions and interest in Toro. We will talk with you again in August to discuss our third quarter results. Thank you, and have a good day.

Ladies and gentlemen, that concludes today's presentation. You may now disconnect, and have a wonderful day.