Toro's (TTC) Q2 Earnings Beat Estimates; Shares Rise

Shares of The Toro Company (NYSE:TTC) gained around 1.9%, a day after the company reported its second-quarter fiscal 2016 (ended Apr 29, 2016) results on May 19. Toro’s earnings improved over 15% to $1.89 per share from $1.64 in the year-ago quarter. Earnings surpassed both management’s guided range of about $1.75−$1.80 per share as well as the Zacks Consensus Estimate of $1.80.

Toro’s net sales increased 1.2% year over year to $836 million in the quarter, driven by strong sales in the professional segment, particularly for landscape contractor and golf products at the start of the key selling season. The top line, however, missed the Zacks Consensus Estimate of $863 million.

Operational Update

Cost of sales in the quarter declined 2% year over year to $533 million. Gross profit came in at $303 million, up 7.5% year over year. Gross margin expanded 210 basis points year over year to 36.2%, aided by favorable commodity costs, productivity improvements and product mix, with stronger sales in the professional segment.

Selling, general and administrative expenses increased 3.2% to $148.1 million. Operating profit improved 12% year over year to $155 million. Operating margin was at 18.5%, up 170 basis points year over year.

Segment Performance

The Professional segment’s sales increased 7.7% year over year to $595 million. The improvement was largely driven by strong demand for landscape contractor, golf and specialty construction equipment. Operating profit at the segment was $141.6 million, up from $120.8 million in the year-ago quarter.

Net sales at the Residential segment decreased 11% year over year to $238 million due to reduced channel demand for zero turn riding mowers, offset by higher sales of walk power mowers driven by demand for new products. Operating profit at the segment edged up 0.4% year over year to $35 million.

Financial Update

At the end of second-quarter fiscal 2016, Toro had cash and cash equivalents of $174.6 million compared with $109.3 million at the end of second-quarter fiscal 2015. The company generated $137 million in cash from operating activities for the period of six months ended Apr 29, 2016, compared with $95 million in the comparable year-ago period. At the end of the reported quarter, total debt reduced to $361 million from $409.8 million at the end of the prior-year quarter.

The company announced a quarterly cash dividend of 30 cents per share. The dividend is payable on Jul 12, to shareholders on record as of Jun 21, 2016.

Outlook

Toro raised its net earnings per share guidance to the new range of $3.90−$4.00 from the prior band of $3.85−$3.95. The company, however, lowered its revenue growth guidance and expects it to be flat to up 2%.

Toro witnessed mild winter conditions earlier this fiscal year that resulted in higher inventory levels. This along with expected softer preseason retail demand for snow products will present a headwind in the second half for shipments of residential snow and BOSS professional snow and ice management equipment.

Additionally, Toro is focused on innovation, productivity and profitable growth. However, it is concerned about adverse weather or economic conditions which could impact demand.

Toro currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks in the consumer discretionary sector include American Public Education, Inc. (NASDAQ:APEI) , Belmond Ltd. (NYSE:BEL) and Cable ONE, Inc. (NYSE:CABO) . All these stocks sport a Zacks Rank #1 (Strong Buy).



AMER PUB EDUCAT (APEI): Free Stock Analysis Report

BELMOND LTD (BEL): Free Stock Analysis Report

TORO CO (TTC): Free Stock Analysis Report

CABLE ONE INC (CABO): Free Stock Analysis Report

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