Good day ladies and gentlemen and welcome to the Toro Company third quarter earnings conference call. My name is Jasmine and I will be your coordinator for today. At this time, all participants are in a listen-only mode. (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 to Mr. Kurt D. Svendsen, Managing Director of Corporate Communications and Investor Relations for the Toro Company. Please proceed, Mr. Svendsen.

Thank you and good morning. Joining me for our third quarter and earnings call are Mike Hoffman, Chairman and Chief Executive Officer; Renee Peterson, Chief Financial Officer; Tom Larson, Vice President and Treasurer and Blake Grams, Vice President and Controller. We begin with our customary forward-looking statement policy. During this call we will make certain forward-looking statements which are intended to assist you in understanding the company’s results. You are all aware of the inherent difficulties, risks and uncertainties in making predictive statements. The Safe Harbor portion of the Company’s earnings release, as well as SEC filings detail some of the important risk factors that may cause actual results to differ from those in our predictions. Our earnings release was issued this morning by Business Wire, a copy can be found in the Investor section of our corporate website, thetorocompany.com. I'll now turn the call over to Mike.

Thank you, Kurt and good morning to all of our listeners. The favorable spring weather conditions we enjoyed across much of the United States during the first half of the year took a dramatic turn this summer with a record setting heat wave and the worst drought the country has seen in over 50 years. Extreme lack of moisture across most of the country coupled with the continuing global economic issues slowed the robust sales momentum we generated during our first two quarters. However our third quarter results still outpaced fiscal 2011 and we delivered improved revenues, gross margin and earnings per share in spite of the weather and economic challenges. While net sales for the quarter only grew 1%, earnings per share increased 22%. For the first nine months, net sales increased 6.8% while earnings per share rose 21%. While currency exchange for the international business was somewhat negative, it had very little impact on the quarter and year-to-date results for the company. As reported in our earnings release earlier this morning, the slowdown we experienced during the quarter, required an adjustment to our EPS guidance for the year 2010 which still represents a 14% of improvement over last year, even with the sense for investments we made for acquisitions this year. Renee will discuss our financial and operating results in more detail later in the call. Several of our key businesses, most notably professional golf, landscape contractor and grounds and micro irrigation continued to perform well in North America. Our residential markets which are more immediately impacted by swings in mother nature saw industry-wide slowdowns due to the drought. Even with the drought, our overall year-to-date retail numbers remain favorable across most businesses. International sales however had a tough quarter in virtually all areas. European economic troubles, excessive…

Thank you Mike for that special recognition and good morning everyone. Net sales for the quarter grew to $504.1 million compared to $501 million for the same period a year ago. We delivered net earnings of $40.5 million or $0.67 per share compared to $0.55 in the third quarter of fiscal 2011. Year-to-date net sales grew to $1,619.4 million compared to $1,515.9 million through the third quarter a year ago. We achieve net earnings of $129.3 million or $2.13 per share. This compares to third quarter fiscal 2011 earnings of $112.6 million or $1.76 per share. Our professional segment sales were up 4.4% for the quarter to $361.1 million. Year-to-date sales were up 7.7% to $1,100.9 million. The professional segment net earnings for the quarter total $78.5 million and 9.6% increase over last year. For the first nine months professional segment earnings were $211.3 million up at 12.5% compared to the same period last year. Our residential sales for the quarter or down 7.9% due a $135.9 million, which is almost entirely attributable to the reduced shipments of Toro. Year-to-date residential sales grew 5.2% to $505.4 million. Net earnings in the residential segment for the quarter total $10 million up 116.6% from last year. Please keep in mind that last year we incurred a one time $4.5 million pre-tax cost associated with the walk power mower rework issue that resulted in decline in earnings. For the first nine months of this year, residential segment earnings were $51.2 million up 20.3% from the same period a year ago. Now, to our key operating results. Third quarter margin improved 118 basis points to 35.3%. [Prices] increases across most businesses favorable segment and product mix and reduced [rebar] cost all helped offset lower margins from acquisitions and inflationary commodity costs. Year-to-date gross margin…

Thank you Renee, the drought that ravaged much of United States slowed turf equipment sales throughout the industry, sluggish retail sales particularly in our residential and landscape contract businesses resulted in our finishing the quarter with higher build inventory than a year ago. Right sizing the field inventory levels as we prepare for a successful 2013 along with weather conditions and ongoing economic issues all contributed to our decision to adjust our fourth quarter guidance. Company now expects revenue growth between 4% and 5% for the year and fiscal 2012 net earnings to be about $2.10 per share which includes and $0.8 expense associated with the investment in the integration of the Astec and Stone Equipment acquisitions. The adjusted guidance also means our destination 2014 employee engagement initiative has been negatively affected by the current market conditions. After a successful start in 2011, our revenue outlook in 2012 has fallen short of the organic growth roll of $100 million per year and the opportunity to exceed $2 billion for the first time in the company’s history. But given the short fall in residential sales due to the drought and the shortfall in international sales due to economic issues in Europe, the gap was too much for even strong performance in golf and micro-irrigation to make up. On a positive note, our focus on quality, cost and productivity is helping to deliver results and the other goal of our destination 2014 initiative operating earnings improvement. Continued gross margin expansion and SG&A leverage have to our position for another positive step in bringing operating earnings 12% or above by 2014 and favorable commodity and cost trends and the probability for better comparable winter and summer weather next year, offer signs that our external environment maybe more conducive to progress on both revenue growth and operating earnings improvement in 2013. While somewhat disappointing considering the business and external environment 90 days ago, the guidance still implies full-year record levels of revenue and earnings per share for the company. Thanks to our solid product portfolios and the hard work of our dedicated employees and channel partners, we look forward to a successful conclusion of fiscal 2012 and solid positioning for the coming year. This concludes our formal remarks. We will now take your questions, so Jasmine back to you.

Thank you. (Operator Instructions) And your first question will come from the line of Eric Bosshard with Cleveland Research Company. Please proceed.

A question for you on the revenue outlook; in terms of the $100 million of organic growth a year, when you look at the share it seems like whether there are some other issues outside your control limit to that. I am curious as you expect about that that you will build that number in 2013; I would love you to answer and put into context the feel at this point for you to take field inventories down and how we should link that to how you think about 2013 revenue growth?

Okay, well to be clear, we'll talk in more depth about 2013 on our call in December so we're in a planning process as we begin. I think the field inventory situation will start there and that's reflected in our current guidance; that's one of the reasons we made the change and so we will I think go into the year in a solid position there and then you know back to your question on the goal $100 million of organic growth. We will still be you know that will be still our goal; we are not immune to macro economic and mother nature’s situations, but we would look to drive that and hope there is more in kind of a near term context and we’ve already seen some range hopefully diminish there; we saw the same thing happen last year down in the Southwest, in the Texas area and that recovered pretty nicely. But the job was certainly more pervasive this year. So on the weather side, the mother nature side, as we look at fiscal -- we wrap up ‘12 that’s really been the tail of a great pre-season because of the snow, you know year ago last followed by a pretty marginal in season because it didn’t snow last year followed by a great spring, followed by a pretty marginal summer. We will be looking at those same kinds of things as we build the up ’13 plan. The other wildcard there obviously is the economic situation of what’s going on in Europe and how will that impact kind of the global economic environment and so as much as we know of that there today, we are watching that, we are not anticipating a step change, but that’s something that we will be keeping a keen eye on and being compared to the nimble and flexible depending on which way that trends.

When you think about, so just to get perhaps a little more color on the field inventory reductions; it seems like your dealers and distributors have had a great run for the last 24 months or 12 months or how do you want to frame it. How should we read or how are you reading the need to pull some inventory out of the field after that route and what’s driving that I guess is the question?

Yes it’s a good question I probably said that not quite right in the last comment, because that was in -- that the inventory situation is really in a quarter context and so when you look at our outlook for the year, the current guidance for the year, that’s much more about mother nature and the economic situation. So we will adjust the field inventory, set the stage nicely for 2013 in this next quarter that’s now reflected in our guidance, obviously then that’s to hold our revenue growth down in the fourth quarter, but with that said, we will go into 2013 with field inventories in very good shape as we did this year.

And then just one another question if I could, when you talk about specially two parts of margin growth between 2013 and 2014, are there any sort of large pockets of opportunity that you have in your mind that you see why we need to get to that goal?

Well we wish it was like one thing we could to solve the problem or make the difference, the answer is no, its not one thing; it’s many things and going throughout the whole business looking from top to bottom on the P&L, we will need to drive gross margin improvement that will be through utilization, through hopefully buying our materials better with below that continuing to look of opportunities to leverage SG&A, but leverage it the right ways of continuing to kind of investments we want to make in engineering and R&D and for the future and trying to look at other areas where we can be more efficient. And then I would say that, that’s one thing Renee has really taken point on is I’ll take enterprise productivity from the top of the P&L to the bottom and we are making good progress there, but it’s not one thing, it’s many things.

I would agree with you Mike; I think it’s a journey that we’re on and we made good progress this year by continuing work ahead.

Your next question comes from the line of Michael Wherley with Janney Capital. Please proceed.

I just want to get a little bit more of an update on the integration of the acquisitions and specifically I want to know how much of the $0.08 of the impact for the full year has already hit the first nine months and how much is left in the fourth quarter, but I would like to hear what you guys are doing with Astec and how that’s progressing?

Well, I can comment. First of all on the essence of acquisition integration expenses. They are split on a pretty linear basis across the second half of this year. So about half of that in Q3, half of that in Q4, more heavily weighted toward SG&A.

And Mike regarding where we are in the process. So both of these businesses, we think created opportunities that clearly are going to require some work, but put us in to some new arenas or strengthened positions in arenas and so Astec is certainly more of a change for us. Again as we look to bring those products in some of our manufacturing operations and we can do that pretty straight forward. You know, it's not a bridge too hard if you will. The Stone products we are bringing in to our operation down in Nebraska and all that’s going well. I think we’re building some momentum there. We will see this come to fruition a bit at least in the market as we get to the key trade shows in that for fiscal 2013. So for example, the rental show which will take place early in 2013. You know, back up five years, we had a pretty minimal presence there. You'll go to the rental show this year and you will see the Toro Company as a major player and that’s not just connecting to the rental industry, but all through the rental industry because the customers, the end users or users and the contractors and construction people. So we're actually very excited by that.

What can you say about the tier 4 product development for Astec?

Yes, Astec will face the same sort of thing that others in the industry are facing. We are you know some combinations as we look to the evolution long term, it will be well be, well be all regulations along the way. We have a little more timing in some cases depending on which product it is and whether it's 75 horsepower and under or 75 horsepower and higher. We are allowed to carry some engines forward and so the good news for us on tier 4 which is why the Astec fit in nicely is we understand tier 4 pretty comprehensively as we look at it and its impact on our commercial business and so we been able to take some of that learning and experience and apply it to the Astec side and everything is very much on track there.

Okay. And then just moving over to the residential, the walk power mowers been up, I thought was kind of a surprise given the drought, even if you know a lot of that strength within areas not hit by the drought. I was wondering is part of that, part of the fact that, that was up slightly because of this build up of field inventories.

I would say the organization is very focused on retail and we believe you take care of retail and everything else takes care of itself. So on the walk power mower side, would answer that by saying we've outperformed the industry and that helped offset in that category the drought issue coupled with the new product we had in place, the TimeMaster 30. So that is you know a combination of those wares. We talked you know, the largest impact in the quarter was snow last year's third quarter and fourth were great snow quarters for us because we were heading into a terrific pre-season. This year got very much you know the other book end. So we will manage through a much more limited pre season in snow and that’s really impacted the third quarter and that’s reflected in the fourth quarter guidance as well.

Okay. And then just lastly on the drought, do you think that that helped your professional sales in the residential and sort of municipal irrigation?

Not a lot. To some degree, one of the things that happens with that business. The business is solid and performing, but when things get to a drought like condition, it actually kind of goes the other way. So when things are dry, it can influence irrigation more positively. When things move all the way to a drought, what usually happens is water bans are put in place and it actually swings the other way a bit. But with that said our residential, commercial irrigation business is solid. Particularly in the US here, it’s under more pressure as are all the other businesses. In the international markets, I guess I am saying more specifically EMEA or Europe.

Your next question comes from the line of Robert Kosowski with Sidoti.

Yeah I would first like to ask a question on the margins on the professional and the residential segments. On the professional side, it was like the operating leverage is very strong and on the residential side, operating income was actually up even though the sales were down relative to adjusted third quarter fiscal 2011. and I was wondering if you can kind of talk about may be how much of a benefit you saw from productivity improvements versus perhaps price and raw materials may be weakening throughout the quarter and what's in the leverage to sort of drive those kind of strong margin performance.

Well if we look overall from a gross profit perspective, as we come in to on in the formal remarks, we did see the impact of price. We believe from a total year perspective, our price has offset higher commodity costs overall. Within residential, we did have the walk power mowers screw issue last year which is about $4.5 million in total with the majority of that being recognized within cost of goods sold. But overall, we are seeing you know the benefit of productivity across the organization. As Mike mentioned it is not one single project where we are seeing that benefit, but we do have a number of initiatives under way and are seeing results. You might remember also last year commodities ran up in the first half of the year and just based on our buying patterns, we didn’t see that impact until the second half of the year. So it is also important to think about that from a comparable basis, when you think year-over-year but year to date gross profit is up 40 basis points and we do expect to see continued modest improvements for the total year beyond that 40 basis points.

Okay so more than 40 basis points across margin expansion for the year.

Correct, so good effort underway.

Okay and then also looking at the -- I guess taking in field inventories down, is this going to hit more of the residential segment or the professional segment at any kind of segment outlook you can give us for the fourth quarter regarding revenue declines and you know operating margin declines?

For that it is pretty much across the board

So equal on both segments?

Yeah I mean I don’t have the precise numbers here, but we would look to making some adjustments on the professional side, some adjustments on the residential side.

Okay and then, Mike it seems like you are little bit you know constructive on Golf going to 2013. I was wondering if you can kind of give us some kind of industry data for industry perspective on what you saw for golf capital spending growth this year. How far do you think we are from those '07 peak and what do you think we can see for next year?

It’s a good question. As I said in the earlier remarks, so golf retail is certainly favorable I am talking about US obviously Europe there are somewhat more pressure but if you look at the large market, the US market, retail is favorable and up nicely, and some of that can expect to mother nature last year, the weather patterns of the cold wet kept people off golf courses in many areas. This year while the hot dry conditions are more likely to have people still playing and so even in drought rounds [play] can go up and we saw that happen this year. So [rounds] are up nicely. That’s a positive economic consequences for the golf courses and as a result as I said earlier, we would expect to see some of the benefit, little bit of the benefit near-term but more of the benefit as they put their capital budgets in place for 2013. So when you think about our industry, the markets we serve, immediate effect in residential because of mother nature whether that’s a snow storm or lack of rain and not getting a (inaudible) or is difficult to cut. Landscape in same place in the middle and you get over to the golf side and certainly more delayed or latent impact as a result of the good weather for golf rounds that we’re seeing this year. So that's kind of long winded answer but we would expect that to have a positive impact on golf in 2013 and equipment irrigation opportunities.

Okay and do you have any idea of how far away are right now in 2012 versus the 2007 like aggregate capital spending in the industry?

We don't that here but its probably not for golf alone its probably not back and all the way there and there maybe a bit of new normal variable so I think you know we continue to see, may this equipment having than leverage for longer period of time and that certainly add a bit tailwind for us even as we look forward.

And then finally do you have any revenue number you need to get to 12% operating margin?

Well, that's the good question I think we answer as we certainly want to find ways to continue to grow the company not that's independent but the goal if they are in some ways independent goals. So whatever the revenue number is we will work very hard to get to 12%. I say that what the understanding that depends on what happen as we when through the recession in 2009 that we better earlier good trick but its not I will say the 12% is not fundamentally based on the revenue numbers.

Your next question comes from a Sam Darkatsh from Raymond James. Please proceed.

Good morning and this Josh filling in for Sam. I want to understand to change the guidance just a little bit better can you give us a sense of how much of the cut was due to the third quarter the senior prior expectations and any detail on what part of it might have missed versus how much is lower fourth quarter expectations because of the channel inventories?

Well, for again the guidance numbers for the year so we're going end with field inventories in good shape so the implication as you know applied the guidance obviously in the fourth quarter but as we talk earlier the 4% to 5% revenue growth with field inventories ending up in good shape is much more about the macro factors of economic issues in Europe, drought issues in the US and what factors into something early the expected pretty soft preseason.

So were there any major variances in the third quarter from your expectations when you last guided?

Well yeah the third quarter is clearly impacted by the so when we sat here in May and we guided seven to eight for the year it almost couldn’t have done better from a mother nature standpoint and it got materially worst obviously with the drought and we add to that Europe has not gotten better if anything it hasn’t slightly worst, so everything that happened in the third quarter was largely negative and then the field inventory because of some of those things field inventory built so much, we will adjust for the year because now reflected in our 4% to 5% guidance.

Following on the comment on Europe how much or what can you quantify the currency effect on your international sales?

Again as we said it’s (inaudible).

Well I can speak from an overall standpoint, Josh currency had a negative impact of about of $3 million on revenue for the company for the quarter, so fairly minimal overall a little bit more negative from an international perspective and year-to-date it's also very minimal about $1 million of favorable impact, so not a big impact year-to-date either.

Okay. That’s what I was looking for and then if I could sneak one more in on the (inaudible) preferred team talked in the past about building up some inventories because of some potential go forward from Tier-4 standards and so on. Can you give us any sense of '13 might depart from normal seasonality on the pro side because of the timing of the new standards?

Now, that is very much a work in progress. To be clear on the inventories, those inventories are our inventories not the field inventories. So it's not going to, its revenue impacts are really not about '12 to '13. It will be, this is just on a balance sheet issue not the issue with at least slightly higher at the end of 2012. So with that said, as we start to look to 2013, you know, we’re still working through that and what will be kind of the flow of that product and material for implications. We don’t have precise numbers around that yet.

Your next question comes from the line of Jim Barrett with CL King & Associates. Please proceed. Jim Barrett - CL King & Associates: Mike, could you give us an update on the state of the golf industry in China currently and what's the outlook there longer term?

I don't know that that’s changed kind of materially since we last talked. It did slow down last year as a result of some central government actions. When we talked with folks at the golf show, they’re doing business over there. They’re saying they start to see that relax a little bit but it’s a small market with huge potential and that’s why we’re very focused on not just China but throughout Asia. So it has been still a little bit sluggish in the China, Korean markets, but moving forward, the bright spot has clearly been Japan and remember Japan has couple thousand plus courses whereas China has a few hundred, right and so the Tsunami, much bigger, much more mature market, the Tsunami had a major impact on that last year and we're seeing that recover very nicely this year so that can bode as well going forward. Jim Barrett - CL King & Associates: And then on a separate subject, considering that you’ve expanded your end markets with these recent acquisitions, how did the acquisition pipeline look; should we expect additional small deals in ‘13?

Yeah, we would tell you that our philosophy and our position hasn’t changed. We have good covered backup, we have good cash flow, we have good capacity to do more. We’re working hard to get these ones so that we've done here recently not just Astec and Stone but a couple of ones before that, good results from ones like year before which is Unique Lighting and Lawn Solutions. So we have the capacity to do more and we will continue to look at that. Our primary focus on deploying capital would be to find ways beyond internal organic growth would be to find the right kind of acquisitions to bring into the company and so we’ve got dedicated people working on that that are looking not just in the US but around the globe. Beyond that, I guess I wouldn’t say anymore. Jim Barrett - CL King & Associates: And then just a question for you Renee, can you give us an update on what your outlook is for inflation or pricing, your key inputs going into next year?

Well, we are still working through the plan. So we have not completed that effort at this point. We do, as you do, we do tend to see some of our key commodities trending to be a little bit down; steel was down a little bit now we'll see that remains the same way or not, but we're seeing year-over-year in fiscal 2012 higher commodity costs but not the pressure that we saw in the past. So you know steel down a little bit, engines and hydraulics pretty much flat and resins actually have seen some upward pressure.

(Operator Instructions) Your next question comes from the line of David MacGregor with Longbow Research. Please proceed.

You were talking about walking mowers and the observation was made that you have outperformed the industry and I wonder if I could just start by asking to expand a little further on that?

You can and I guess I’ll respond by saying there are certain areas where we have better industry data, other areas not as good, we have pretty good industry data for what walk power mowers and so we can see what is the shift into the industry and how we’re performing against that and so where you might have expected year-over-year some decline, we've seen some improvement. So walk power mowers are trending favorable and it’s like I said its based on good shipment data and additionally we have really certain cases good bellwether data from major retailers; our retail and our position and so I think that's between those two we're able to say with confidence that our walk power mower results are solid.

Can you talk about where you think you may have gained that share or were you picking up slots in large retail or maybe just a little more color there will be helpful?

Yeah, it’s good question; I don’t know that we had an additional skew expansion this year I think it was similar some of the models changed a bit which probably helped I think we set off to such a really strong start there at the beginning of the fiscal year, we captured a lot of that early, but a lot of things have been softer we have seen that. So we have a partnership with a major retailer and overtime they continue to be we will say strategically the right choice and that partnership has worked really well and it’s a combination of us innovating around the product and some build aspects and working with them on great merchandising and it’s been a successful formula today.

I guess within the context of your guidance, your expectation is that that will continue?

Yeah, well our guidance, to be clear our guidance is through the end of 2012 so that’s 90 days and we are not in a large walk power mower – I mean we have strategic sales are a bit solid, inventories there solid, now we are moving into the fall products and snow, but certainly the expectation looking forward is we will work hard to sustain that partnership and bring them the right things for continuing that.

Gross margins got a 180 basis points lift there, can you just talk a little bit about the extent to which stronger pro versus res mix contributed to that lift?

Yeah that definitely is a factor; I would say kind of in order it’s probably prices, probably the biggest driver year-over-year and we price to market not to what the commodities are doing. Then I would say the second factor is probably favorable pro versus residential mix and then within the segments also we have some favorable product line mix as well. It is important to also remember that in the residential segment last year, we had that walk power mower screw issue that I mentioned earlier and that was about $4.5 million. So that’s also a driver. Those are probably the three biggest drivers for the gross margin improvement.

A question on just the acquisitions, so you had indicated $0.08 of negative impact associated with the integration of the acquisitions. I think last quarter you had been talking about $0.15 to $0.20 and the possibility may be closer $0.10 to $0.15 for the next year. Do we sort of conclude from this change that things are moving a little better than you anticipated or may be just talk a little to that point?

The biggest driver is the split. David, if you consider that, that’s a big driver. We're going to come in a little bit favorable from the peer standpoint to the overall acquisition, but the biggest driver is the (inaudible).

Okay, sorry about that and then finally just you indicated $125 million of expected free cash flow for the year. How is that changed given the revised guidance?

Yes, we are expecting that free cash flow will be down from that level, primarily based on the change in inventory as well as just slightly lower operating income, so we would estimate that range to be between $100 million to $110 million.

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Thank you Jasmine and thank you all for your questions and interest in Toro. We look forward to talking with you again in December to discuss our fiscal 2012 year-end results. So wish you all a good fall and a good day. Thank you.