The Toro Company Reports Second Quarter Results

• Acquisition of Charles Machine Works completed ahead of schedule with
  favorable first month results
• Second quarter sales increase 9.9 percent to $962.0 million, fueled by
  acquisition
• Reported quarterly EPS of $1.07; adjusted quarterly EPS of $1.17
• New full-year EPS guidance of $2.90 to $3.00 and full-year revenue
  guidance of about $3.2 billion, both inclusive of Charles Machine Works

BLOOMINGTON, Minn.–(BUSINESS WIRE)–The Toro Company (NYSE: TTC) today reported net earnings of $115.6
million, or $1.07 per share, on a net sales increase of 9.9 percent to
$962.0 million for its second quarter ended May 3, 2019. In the
comparable fiscal 2018 period, the company delivered net earnings of
$131.3 million, or $1.21 per share, on net sales of $875.3 million.
Adjusted 2019 second quarter net earnings were $126.0 million, or $1.17
per share, compared to adjusted net earnings of $130.3 million, or $1.20
per share in the comparable 2018 period, a decrease of 2.5 percent.

For the first six months, Toro reported net earnings of $175.1 million,
or $1.62 per share, on a net sales increase of 9.9 percent to $1,565.0
million. For the first six months, adjusted net earnings were $182.7
million, or $1.69 per share, compared to adjusted net earnings of $182.4
million, or $1.68 per share, in the comparable 2018 period, an increase
of 0.6 percent. Please see the tables for a reconciliation of financial
measures calculated and reported in accordance with GAAP, as well as
adjusted non-GAAP financial measures.

“The first half of 2019 has been dynamic for The Toro Company,” said
Richard M. Olson, Toro’s chairman and chief executive officer. “We
continue to be excited about the transformational acquisition of Charles
Machine Works, while managing through unfavorable weather conditions in
key regions. Poor spring weather, particularly in April, across much of
the United States and Australia not only negatively impacted demand for
spring turf products, but it also caused disruption in our supply chain
and shipping capabilities. However, despite these headwinds, we have
finished the first half of the year with solid revenue growth,” said
Olson.

“We are very pleased with the initial integration of our largest
acquisition, Charles Machine Works, and we are encouraged by the synergy
opportunities we are already executing on and expect to achieve over
time. The residential business also enjoyed positive revenue momentum in
both the quarter and year-to-date results. We continue to gain market
share in key categories and expect profitability in the residential
business to improve later in the fiscal year, as commodity costs
moderate and as we see the anticipated benefits of productivity
improvements.”

“Looking ahead, warmer spring and summer weather should arrive soon to
help spur turf equipment sales. We are also encouraged by the prospect
of a good snow preseason sell-in later in the fiscal year, positive
integration momentum, as well as synergy and margin improvement
opportunities associated with the acquisition of Charles Machine Works.
Further, we are excited about our innovative new product introductions
as we head into our key selling season and we believe we are well
positioned to build on our strategic initiatives as we enter the second
half of the fiscal year.”

In the third quarter, we expect adjusted net earnings per share of about
$0.70 to $0.75. For the full-year, we are providing new adjusted net
earnings per share guidance of about $2.90 to $3.00 and new revenue
guidance of about $3.2 billion. These estimates are inclusive of Charles
Machine Works and assume a return to normalized weather patterns for the
remainder of the fiscal year.

SEGMENT RESULTS

Professional

• Professional segment net sales for the second quarter were $723.5
  million, up 9.6 percent from $660.4 million last year. For the first
  six months, professional segment net sales were $1,178.5 million, up
  10.8 percent from the comparable 2018 period. For both periods, the
  addition of Charles Machine Works, as well as growth in our landscape
  contractor, BOSS® snow and ice management and rental and specialty
  construction businesses contributed to the results. Somewhat
  offsetting the growth for both periods were lower shipments of
  domestic golf and grounds equipment and irrigation product, due to
  delays caused by supplier issues and poor spring weather.
• Professional segment earnings for the second quarter were $150.1
  million, down 9.0 percent from $165.0 million in the same period last
  year. Professional segment earnings for the first six months were
  $238.1 million, down 1.2 percent from $240.9 million compared to the
  same period last year. The segment earnings for both periods include
  purchase accounting adjustments related to the acquisition of Charles
  Machine Works.

Residential

• Residential segment net sales for the second quarter were $232.1
  million, up 9.4 percent from $212.2 million last year. For the first
  six months, residential segment net sales were $377.3 million, up 6.4
  percent from $354.7 million last year. For both periods, the increases
  were primarily due to strong demand for domestic walk power and
  zero-turn riding mowers and increased shipments of snow throwers.
• Residential segment earnings for the second quarter were $22.0
  million, down 16.2 percent from $26.3 million in the comparable period
  last year. Residential segment earnings for the first six months were
  $35.1 million, down 16.5 percent from $42.0 million in the same period
  last year. The decreases in both periods were largely due to the
  unfavorable impacts of tariff and trade related cost increases.

OPERATING RESULTS

Reported gross margin as a percent of sales for the second quarter was
33.4 percent, a decrease of 360 basis points compared to the prior year.
Adjusted gross margin as a percent of sales for the second quarter was
34.4 percent, a decrease of 260 basis points compared to last year. For
the first six months, reported gross margin as a percent of sales was
34.3 percent, a decrease of 280 basis points over the prior year.
Adjusted gross margin as a percent of sales for the first six months was
34.9 percent, a decrease of 220 basis points compared to last year. For
both periods, increased inflation and tariff-related costs, product mix
and continued supply chain challenges contributed to the decline,
partially offset by pricing and productivity improvements.

Selling, general and administrative (SG&A) expense as a percent of sales
for the second quarter was 19.1 percent, an increase of 160 basis points
from the same period last year. For the first six months, SG&A expense
as a percent of sales was 21.0 percent, an increase of 60 basis points.
For both periods, acquisition integration and transaction costs
contributed to the increases compared to the respective periods last
year.

Second quarter reported operating earnings as a percent of sales were
14.3 percent, a decrease of 520 basis points compared to 19.5 percent in
the same period last year. Adjusted operating earnings for the second
quarter were 16.4 percent, a decrease of 310 basis points compared to
19.5 percent last year. For the first six months, reported operating
earnings as a percent of sales were 13.3 percent, a decrease of 340
basis points compared to 16.7 percent last year. For the first six
months, adjusted operating earnings as a percent of sales were 14.7
percent compared to 16.7 percent, a decrease of 200 basis points
compared to the prior year.

The effective tax rate for the second quarter was 15.8 percent, compared
to 22.4 percent for the second quarter of last year. The adjusted tax
rate for the second quarter was 19.9 percent, compared to 23.0 percent
last year. For the first six months, the reported tax rate was 15.5
percent, down from 34.7 percent in the comparable period. The adjusted
tax rate for the first six months was 20.2 percent, compared to 22.6
percent for the same period last year. With the addition of Charles
Machine Works, the company now expects its full- year effective tax rate
to be about 20.5 percent.

Accounts receivable at the end of the first quarter were $428.6 million,
up 30.0 percent from last year. Net inventories were $611.3 million, up
54.8 percent from last year. Trade payables were $391.7 million, up 28.9
percent from the comparable period last year. These increases were
largely due to the acquisition of Charles Machine Works.

About The Toro Company
The Toro Company (NYSE: TTC) is a
leading worldwide provider of innovative solutions for the outdoor
environment including turf and landscape maintenance, snow and ice
management, underground utility construction, rental and specialty
construction, and irrigation and outdoor lighting solutions. With sales
of $2.6 billion in fiscal 2018, The Toro Company’s global presence
extends to more than 125 countries through a family of brands that
includes Toro, Ditch Witch, Exmark, BOSS Snowplow, American Augers,
Subsite Electronics, HammerHead, Trencor, Unique Lighting Systems,
Irritrol, Hayter, Pope, Lawn-Boy, MTI Equipment and Radius HDD. Through
constant innovation and caring relationships built on trust and
integrity, The Toro Company and its family of brands have built a legacy
of excellence by helping customers care for golf courses, sports fields,
construction sites, public green spaces, commercial and residential
properties and agricultural operations. For more information, visit www.thetorocompany.com.

LIVE CONFERENCE CALL
May 23, 2019 at 10:00 a.m. CDT
www.thetorocompany.com/invest

The Toro Company will conduct its earnings call and webcast for
investors beginning at 10:00 a.m. CDT on May 23, 2019. The webcast will
be available at www.streetevents.com
or at www.thetorocompany.com/invest.
Webcast participants will need to complete a brief registration form and
should allocate extra time before the webcast begins to register and, if
necessary, download and install audio software.

Use of Non-GAAP Financial Information
This press release and
our related earnings call contain certain non-GAAP financial measures,
consisting of adjusted gross profit, operating earnings before income
taxes, operating earnings, net earnings, net earnings per diluted share
and effective tax rate, as measures of our operating performance.
Management believes these measures may be useful in performing
meaningful comparisons of past and present operating results, to
understand the performance of its ongoing operations and how management
views the business. Reconciliations of adjusted non-GAAP measures to
reported GAAP measures are included in the financial tables contained in
this press release. These measures, however, should not be construed as
an alternative to any other measure of performance determined in
accordance with GAAP.

The Toro Company does not attempt to provide reconciliations of
forward-looking non-GAAP EPS guidance to projected GAAP EPS guidance
because the combined impact and timing of recognition of these potential
charges or gains is inherently uncertain and difficult to predict and is
unavailable without unreasonable efforts. In addition, we believe such
reconciliations would imply a degree of precision and certainty that
could be confusing to investors. Such items could have a substantial
impact on GAAP measures of financial performance.

Forward-Looking Statements
This news release contains
forward-looking statements, which are being made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements are based on management’s current
assumptions and expectations of future events, and often can be
identified by words such as “expect,” “strive,” “looking ahead,”
“outlook,” “guidance,” “forecast,” “goal,” “optimistic,” “anticipate,”
“continue,” “plan,” “estimate,” “project,” “believe,” “should,” “could,”
“will,” “would,” “possible,” “may,” “likely,” “intend,” “can,” “seek,”
“potential,” “pro forma,” or the negative thereof or similar
expressions. Forward-looking statements involve risks and uncertainties
that could cause actual events and results to differ materially from
those projected or implied. Particular risks and uncertainties that may
affect our operating results or financial position include: worldwide
economic conditions, including slow or negative growth rates in global
and domestic economies and weakened consumer confidence; disruption at
our manufacturing or distribution facilities, including drug
cartel-related violence affecting our maquiladora operations in Juarez,
Mexico; fluctuations in the cost and availability of raw materials and
components, including steel, engines, hydraulics and resins; the impact
of abnormal weather patterns, including unfavorable weather conditions
exacerbated by global climate change or otherwise; the impact of natural
disasters and global pandemics; the level of growth or contraction in
our key markets; government and municipal revenue, budget and spending
levels; dependence on The Home Depot as a customer for our residential
business; elimination of shelf space for our products at dealers or
retailers; inventory adjustments or changes in purchasing patterns by
our customers; our ability to develop and achieve market acceptance for
new products; increased competition; the risks attendant to
international relations, operations and markets, including political,
economic and/or social instability and conflict, tax and trade policies
in the U.S. and other countries in which we manufacture or sell our
products, and implications of the United Kingdom’s process for exiting
the European Union; foreign currency exchange rate fluctuations; our
relationships with our distribution channel partners, including the
financial viability of our distributors and dealers; risks associated
with acquisitions, including those related to our recent acquisition of
Charles Machine Works, such as delays or failure by us in achieving the
net sales, earnings and any cost or revenue synergies expected from the
acquisition, delays and challenges in integrating the businesses,
business disruptions due to the acquisition, impacts as a result of
purchase accounting adjustments and unanticipated liabilities or
exposures for which we have not been indemnified or may not recover;
management of our alliances or joint ventures, including Red Iron
Acceptance, LLC; the costs and effects of enactment of, changes in and
compliance with laws, regulations and standards, including those
relating to consumer product safety, accounting, taxation, trade and
tariffs, healthcare, and environmental, health and safety matters;
unforeseen product quality problems; loss of or changes in executive
management or key employees; the occurrence of litigation or claims,
including those involving intellectual property or product liability
matters; and other risks and uncertainties described in our most recent
annual report on Form 10-K, subsequent quarterly reports on Form 10-Q,
and other filings with the Securities and Exchange Commission. We make
no commitment to revise or update any forward-looking statements in
order to reflect events or circumstances occurring or existing after the
date any forward-looking statement is made.

THE TORO COMPANY AND SUBSIDIARIES
Reconciliation of
Non-GAAP Financial Measures (Unaudited)
(Dollars in
thousands, except per-share data)

The company has provided non-GAAP financial measures, which are not
calculated or presented in accordance with accounting principles
generally accepted in the United States (“GAAP”), as information
supplemental and in addition to the most directly comparable financial
measures presented in the accompanying press release that are calculated
and presented in accordance with GAAP. The company believes these
measures may be useful in performing meaningful comparisons of past and
present operating results, to understand the performance of its ongoing
operations, and how management views the business. Such non-GAAP
financial measures should not be considered superior to, as a substitute
for, or as an alternative to, and should be considered in conjunction
with, the GAAP financial measures presented in the accompanying press
release. The non-GAAP financial measures in the accompanying press
release may differ from similar measures used by other companies.

The following table provides a reconciliation of financial measures
calculated and reported in accordance with GAAP, as well as adjusted
non-GAAP financial measures, in the accompanying press release for the
three and six month periods ended May 3, 2019 and May 4, 2018:

Contacts

Investor Relations
Heather Hille
Director, Investor
Relations
(952) 887-8923, [email protected]

Media Relations
Branden Happel
Senior Manager, Public
Relations
(952) 887-8930, [email protected]

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