Toro's Strong Product Line to Support Growth - Analyst Blog

CEO Michael Hoffman of Toro Co. TTC discussed the company's growth drivers for fiscal 2014 during its second-quarter fiscal 2014 conference call on May 22. Backed by its strong product lineup and an aggressive promotional calendar, this worldwide provider of turf and landscape maintenance equipment as well as irrigation solutions is poised to deliver revenue growth in the remainder of 2014.

According to Hoffman, despite an unfavorable spring, Toro's end markets remained strong. The company's landscape contractor business outlook remains bullish. With favorable weather expected ahead and given its best ever product lineup for both contractors and acreage customers, Toro will deliver strong revenues in fiscal 2014.

Toro is launching additional products that include extensions of its popular zero-turn line featuring rear discharge decks, direct collection systems and smart technologies and a brand new line of 21-inch heavy duty mowers with added durability and improved bagging performance. These products are in sync with the company's practice of delivering superior value to its contractor customers.

Coming to segment-wise expectations, Hoffman stated that the professional grounds business should benefit from improved weather conditions that will boost sports activity and revenue for local sports associations. The launch of the new 100 inch deck option for Groundsmaster 360, will enhance its productivity, and thus enhance its appeal to local sports and municipal agencies.

With temperatures rising, the prospects for the golf equipment business will also mount. As rounds played rebound, greens fees and course revenues follow, which should lead to additional equipment purchases.

Golf irrigation sales will remain strong as innovations like INFINITY sprinkler series provide a competitive advantage and will enable the company win new projects globally. However, Hoffman remained cautiously optimistic about the residential and commercial contractor irrigation field. Water use restrictions in drought-stricken regions will be a deterring factor. However, contractors have projects in hand and Toro's strong product portfolio will help them take advantage as business heats up.

The low voltage lighting contractor business should see an uptick in sales now that the conducive weather is providing contractors the opportunity to demonstrate and install lighting systems. Toro has exciting new products lined up for release -- a line of professional grade aluminum alloy lighting products called Element, which extends the scope and price range of its lighting portfolio. The launch of Element's is expected to act as a catalyst for continued growth.

The professional rental and construction business is also expected to deliver continued year over-year growth. New home construction estimates indicating a more gradual growth throughout 2014 may be offset by increasing commercial construction. Improved weather and positive commercial construction forecasts bode well for both equipment rental and purchase prospects.

New products will be making it into the field for the first time in the third quarter. The initial build of the RT1200, a 125-horsepower riding trencher is underway. The Pro Sneak 365, a new Tier-4 compliant unit, will also be launched later this quarter.

Even though the second quarter sales for Toro's residential equipment business experienced some delays, Hoffman stated that it is well positioned for late spring and early summer sales. The innovative new Toro walk power mowers featuring SmartStow and the new 42-inch time cutter zero-turn rider have been received well by retailers. The refreshed line of Titan zero-turn mowers for large acreage owners and an expanded electric product lineup featuring new 24 and 48 volt cordless models, further strengthen the appeal of Toro's residential portfolio.

So far in fiscal 2014, Toro's international businesses results were affected by currency fluctuations. However, steady regional recovery of golf tourism, along with the need to replace aging golf and grounds fleets, provide ground for optimism. Golf irrigation sales are expected to benefit in the third and fourth quarters from a number of planned new installations as well as renovation projects.

Overall, favorable temperatures and precipitation are needed to assist the extension of the growing season and help drive retail in both its residential and professional segments. The upcoming product launches are expected to be growth drivers.

The company thus expects revenue growth of about 5% to 6% for fiscal 2014, with net earnings of about $2.90 to $2.95 per share. The company expects to net earnings of about 82 cents per share for the third quarter.

Toro currently carries a short-term Zacks Rank #3 (Hold). However, some better-ranked stocks in same sector include Gorman-Rupp Co. GRC, Blount International Inc. BLT and Snap-on Inc. SNA. While Gorman-Rupp and Blount International sport a Zacks Rank #1 (Strong Buy), Snap-on carries a Zacks Rank #2 (Buy).