Good day ladies and gentlemen and welcome to The Toro Company's First Quarter Earnings Conference Call. My name is Sara and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s conference. [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, Nicholas Rhoads, Managing Director of Investor Relations for The Toro Company. Please proceed Mr. Rhoads.

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, Chairman and Chief Executive Officer; and Renee Peterson, Vice President, Treasurer, and Chief Financial Officer. 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 materially from those in our predictions. Please note that we do not have a duty to update our forward-looking statements. In addition, during this call, we will reference certain adjusted non-GAAP financial measures and metrics. Reconciliations of historical adjusted non-GAAP financial measures and metrics to reported GAAP financial measures and metrics can be found in our earnings release or on our website. The company believes these measures and metrics 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 adjusted non-GAAP financial measures and metrics 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 and metrics presented in our earnings release in this call. With that, I will now turn the call over to Rick.

Thanks and good morning. Fiscal 2020 is off to a positive start and we're encouraged about the season ahead. The team's focus on our strategic priorities of profitable growth, productivity, and empowering people was key to our sales and margin momentum in Q1. We also announced a strategic acquisition to complement our organic growth. Looking at our financial results, although the first quarter is typically a smaller quarter, thanks to the efforts of Toro's dedicated employees, we achieved record net sales and earnings. We generated net sales of $767 million, up 27% over the prior year and we delivered adjusted diluted earnings per share of $0.64, up 21%. Results were primarily driven in the Professional segment by the addition of Charles Machine Works, continued demand for BOSS snow and ice management equipment, and net price realization, and on the residential -- in the residential segment by the initial delivery of Zero-Turn riding Mowers to the Tractor Supply Company. During the first quarter, we announced the acquisition of Venture Products and I'm happy to report that we closed on Monday. Venture Products which manufactures under the Ventrac brand is a respected provider of turf, landscape, and snow and ice management equipment. Ventrac machines are valued for their versatility, multi-season attachments, and hillside capabilities. Our people share a similar value-based culture with strong commitments to innovation, quality, and customer service. I want to formally welcome the Ventrac team to The Toro Company. Turning to our operating performance for the quarter. Our Professional segment net sales grew 31% reflecting incremental contributions from the Charles Machine Works acquisition and positive contributions from the BOSS golf and grounds and irrigation businesses. Charles Machine Works through its family of businesses with iconic brands such as Ditch Witch, American Auger, Trencor, Subsite, HammerHead, and Radius generated strong…

Thank you, Rick and good morning everyone. The Toro Company is comprised of a balanced portfolio of products to enhance our customers' productivity across the season. Charles Machine Works adds incremental revenue and is less seasonal, due to the use of these products in multiyear, infrastructure and telecom projects, such as 5G and the focus on underground installation and maintenance. Our ongoing focus on operational excellence and synergy capture should yield improved margins across the portfolio over time. This enables the company to allocate capital across a variety of alternatives, including acquisitions, dividends, debt paydown and share repurchases. While certain factors do lie out of our control, the portfolio of businesses allows us to adjust to shifting-weather situations and changes in customer demand to provide consistent long-term growth and generate healthy free cash flow. Q1 was no exception. Even though Q1 is a smaller quarter, we were able to exceed the expectations we set for ourselves, based on our ability to adjust to changes in channel demand and product mix, while maintaining our focus on our strategic initiatives of growth, productivity and people. We reported net sales of $767 million in the quarter, a 27.3% increase from the first quarter of fiscal 2019. Diluted EPS was $0.65 for the quarter compared to $0.55 last year. Adjusted diluted EPS increased 20.8% to $0.64. For the first quarter, professional segment net sales increased 30.7% to $594.7 million. The revenue growth was primarily driven by the Charles Machine Works acquisition, which added incremental sales of $161 million. Excluding Charles Machine Works, professional segment sales were lower as compared to a strong Q1 of 2019. During Q1 2020, we realized lower shipments of landscape contractor products, as we focus on managing field inventory. This was partially offset by sales across most of our professional…

Thanks, Renee. Our record performance in the first quarter, customer response to our innovative new products and the outlook for our key markets give us reason for optimism in 2020. For the full year, we continue to expect revenue of about $3.6 billion and adjusted diluted earnings per share of $3.33 to $3.40 inclusive of the Venture Products acquisition. For the second quarter, we expect adjusted diluted earnings per share of $1.28 to $1.33. As always, we have a watchful eye on factors that could pose challenges to our performance, such as unfavorable weather, trade policy and regulatory actions and the impact of coronavirus. Given the focus on coronavirus, I'd like to spend a moment providing our current thinking on its potential effect on Toro. First and foremost, we are focused on the health and safety of our employees and other stakeholders. We are monitoring the situation and taking appropriate precautions including those recommended by government agencies. In addition, we have a number of internal planning groups that are helping us to prepare for various scenarios. In terms of our supply chain, we are closely observing the evolving situation in real-time and taking appropriate steps to minimize disruption. Our team, including those on the ground in China is working diligently with our suppliers to maintain a steady flow of components. We currently expect a modest financial effect from supply chain disruptions in fiscal 2020. From a revenue standpoint, at this time we do not expect a material impact in 2020. We have minimal sales from geographies that have been most affected by coronavirus so far. While the situation is evolving quickly, our guidance reflects our best estimate of how these factors may affect our second quarter and full year performance. Let's review prospects for our businesses going forward. Starting with…

[Operator Instructions] Our first question comes from the line of Mike Shlisky with Dougherty & Company. Your line is now open.

Good morning everybody.

Good morning.

Good morning.

I'd like to start off with the inventories the -- that are on your balance sheet not the ones that are in the channel, but on your own balance sheet. Those were a little bit elevated in the quarter versus previous quarters. I know you have some of the Charles Machine Works stuff in there. But is there any way you can give us a sense as to whether you've got a plan to bring that number down from a dollar perspective with next couple of quarters here?

Yes. So the biggest factor Mike is the Charles Machine Works inventory year-over-year as far as that increase as well as we had indicated our intent to kind of build a little bit ahead of the season given the introduction of a new mass retail channel partner and then some inventory from landscape contractors just given the weather situation that we had in 2019. As we look throughout the year, we do intend to bring down that inventory level. And that's included in our free cash flow conversion estimate of about 100% for the year. So the biggest driver that we'll see is that inventory level coming down as we go through the year.

Okay. Great. Also I want to ask about your gross margin in the quarter. Those are some of the best we've seen in a couple of years. You have mentioned a couple of tailwinds like the cost of freight, maybe some material cost, et cetera. How sustainable are those items for the rest of the year do you think? Do you think you've got some of that locked in here? Or is it an uncertain environment with the pricing there?

Yes. We really did feel good about our gross margins in Q1. And I commend the team for their continued focus on productivity and synergies. We did see more favorable commodities and net price realization more heavily focused on the Pro business segment than residential. As we look for the year, Mike, we do expect to see some gross margin improvement for the year, but not at that same rate year-over-year. So we just don't expect -- part of it was also a favorable product mix in Q1, especially in the residential segment.

Okay. Got it. I wanted to touch on Ventrac as well. You've closed it just this past I think it was Monday you said. But is there any change to the guidance or anything? And I was curious is it just too small kind of move the needle? Are there a lot of one-time items to kind of watch for this year? Or is it definitely be a long-term accretive deal for you?

Yes. I'll start just a little bit about Ventrac. So it's about $100 million in revenue based on the prior year revenue. We're only going to see a partial year this year. So it's a little bit smaller from that perspective. It is immediately accretive from an EPS standpoint excluding one-time items. So we would adjust out any acquisition or integration-related costs. The profitability is within the range of the Pro segment. So we feel really good about it. It's just relatively on the scale of Toro. It's relatively small and just early in the year for it to be additive to our guidance.

Okay. And maybe one more for me. I don't want to ask you for guidance beyond what you already put out there for Q2, but just on a very broad basis. Do you think that Q2 here can be your first quarter where you have a full $1 billion on your top line or higher?

Yes. I mean, we will see how it unfolds. We don't give specific guidance on revenue for the quarter, but we'll see. I mean, part of it is depending on the type of spring that we have, but we feel good about it. And as we've talked about before, Charles Machine Works is less impacted by the weather. So that is a real plus for us as well.

Okay. Thanks. Well, congrats in advance on that, hopefully. Appreciate it.

Thank you.

Thank you.

Thank you. Our next question comes from the line of David MacGregor with Longbow Research. Your line is now open.

Yes. Good morning everyone. Thanks for taking the question.

Hi, David.

I guess just to start on the virus disruption. You noted that for 2020, there's no revenue impact expected, but in the press release with regard to the guidance you characterized the disruption is nominal. Is there any way you can talk about the impact of the $1.28 to $1.33 for the 2Q from -- I guess, it's supply channel disruptions or just whatever that might be if you're thinking already discussed but?

Right. There are several elements to the coronavirus considerations as you can imagine. First and foremost, as we talked about the safety of our employees, so it's making sure that we are keeping logical travel guidance in place and so forth. But then you look at the supply side and the demand side. On the supply side, from the first moment that coronavirus was mentioned we've been working with our suppliers. There are a handful of key suppliers for example in China that especially matter. And we have good confidence that we go through the next 30 days with no disruptions. And then they're working on plans to bridge any possible disruptions after that that take us well into mid-summer. We get into mid-summer that's kind of a normal shutdown period for us. So we really see the key right now is bridging through the spring period. On the demand side, again the exposure in the countries that have been especially affected is very important to us, but they would not be significant to the outcome from a revenue standpoint and we could likely make up for those in other areas. I think the commentary about Ventrac is one thing on the positive side that helps us balance out some of those risks as well.

Right. Thanks for covering that. Charles Machine Works, I mean you're approaching the anniversary of that transaction by all accounts it seems to have been very successful. You talked in the press release about you're running ahead of your original expectations. My recollection was it was originally about $30 million of cost synergies over three years. Can you just give us a sense of where you are on the synergy curve? And just how much ahead of expectations you might be? And as a consequence does that $30 million become a bigger number? Or is this just a timing issue where you're pulling forward and you're still on track to do $30 million?

Yes, the $30 million was $30 million over three years and we have high confidence that we will get to that number. We do see opportunities to do more. I think we mentioned on our last call that we were optimistic that there are more opportunities and it kind of opens the lens as we look at the rest of the company as well. We have taken a very disciplined approach to our score keeping in that area. So we're not counting those synergies until we can be absolutely confident that they will be realized, but we certainly see visibility to exceeding the $30 million as we have previously talked about. And that's the -- on the synergy side, but another element is really the broader element, which is the integration process itself. And that is going well ahead of schedule in terms of the restructuring that took place that was immediately in place and all of the actions that we took from a strategic standpoint with the various businesses. We're right on track or well ahead of being on track.

Right. And just to be clear the $30 million was cost synergies none of our incremental revenue synergies anticipated above that right?

$30 million was cost synergies and we didn't get specific about revenue opportunities. But there's also a working capital benefit that we see as we work more closely with the organization relative to the team here at Toro.

Right. And then certainly for me, it's just this professional landscape contractor issue where you've got, I guess it was -- there was an inventory issue last quarter as well as I recall and again it's something we're talking about here this quarter. Can you just unpack that for us a little bit, give us a little more granularity around what exactly is happening there and why this surplus is continuing on? And is it something that is going to resolve by the end of this quarter? Or do you have some -- maybe some obsolete inventory there that is going to require any -- some kind of write-off? And just a little more detail there would be really helpful.

Yes. First going backwards, there's no obsolete inventory that has to be written-off. It really is -- the story really starts last year at this time. If you remember professional segment in general was up almost 13% last year. So the comp is pretty difficult in the first quarter. All of our professional businesses are actually growing. The exception is the landscape contractor business. And last year at this time there was tremendous excitement with the combination of new products and the prospects of a strong spring. So we shipped product that ultimately did not move as quickly at retail because it was a horrendous year from weather as I mentioned I think in the prepared remarks the wettest -- second wettest at least season in U.S. history. So that just did not move as quickly at retail and we expect to have that corrected through the second quarter and you'll see growth across all the professional business we expect in the second through the year-end. All this is reflected in our guidance. And really for the first quarter, the quarter went precisely as we had planned. So this was a planned adjustment to our inventory that we put into the year.

Okay. Thanks very much.

Thank you. Our next question comes from the line of Tom Hayes with Northcoast Research. Your line is now open.

Good morning. Thank you for taking my question.

Good morning. Tom.

Rick, I was wondering maybe you could provide a little bit more detail on the rollout to Tractor Supply, maybe your thoughts on does that apply -- does the initial loading applied to all locations? Or you -- just kind of your thoughts on how that's playing out so far?

Yes. The -- our association and our projects with Tractor Supply is going extremely well. The relationship is growing stronger every day with them. And we've -- we're right on track with where we expect to be. We actually shipped more product to Tractor Supply in the first quarter than we expected. That's really an agreed-upon shipment rate based on the initial steps at the stores and what the initial response has been from a customer standpoint. So the bottom line is it's going exactly as planned. And the good thing really for the entire residential business is that it provides additional critical mass for us to invest in products, in the brand and marketing that really strengthens the business for all of our partners, so other mass -- very important mass retailers plus our dealer network. And -- yes, the bulk of the shipments will still take place in the second quarter. So that's true. We just -- we did ship a few more units in the first quarter.

Great. Appreciate the color. And then I guess just secondly circling back to Michael's earlier question on inventory levels. As far as channel inventory levels, it's been kind of a snow season last month or so. Maybe just your thoughts on channel inventory on the snow side of the business?

Yes, we are -- we're generally in good shape on snow inventory. The market in the Northeast was a little slower because of less snow. So that's a little bit higher there. But on average, our snow inventory is in solid shape at a very, very strong start to the season. And we have at the same time, we -- our share in the Midwest is very strong and that's where a lot of the snow events took place early in the year. So we're in good shape from a field inventory both on the residential side and exceptionally good position on the BOSS side.

Thank you. Appreciate the color.

Thank you.

Thank you. Our next question comes from the line of Sam Darkatsh with Raymond James.

Good morning, Rick. Good morning, Renee. How are you?

Good morning, Sam. Good.

Good morning.

A few questions most of mine have been asked and answered. If we could return back to the unfortunate coronavirus topic. Give us a sense generally speaking, what percentage of your overall SKUs have Chinese-based components? And are they overweight in any particular product vertical? I'm trying to get a sense of margin-wise, if this becomes an issue? Or where would it -- where would we see it mostly transpire?

Yes. We wouldn't have an exact percentage of content. We have that information. We don't have it right in front of us here. It would be a bit higher exposure more on the residential side of things, just in general than it would be on the commercial side. That's not to say that, there wouldn't be key components that would be part of commercial products. But in terms of the volume of COGS, it would be more on the residential through probably homeowner type of products.

And then you mentioned I think you have some critical vendors in the area that you're in very close contact with. And for 30 days you envision no disruptions. I don't remember the exact verbiage you used where you said you had plans with them -- contingency plans post 30 days. Can you do a little bit more unpacking in terms of what specifically those plans might look like? And what assumptions are included there in terms of how quickly the vendors might have to get up and running or what their utilization rates might look like as opposed to now?

Sure. And we are -- we have those plans in place across our global supply chain. So I'll probably talk a little bit about China, but the same holds true whether it's Italy, South Korea, Japan or any secondary suppliers that might be supplying top -- core suppliers somewhere else. So we have -- our team, specifically looks at every part number and when it needs to be in our plants, what's on the Water as -- if you think about it, there are six weeks of shipping time. There's actually a continuous flow of products still coming by Water even, if they extend the lunar New Year as they did. And just in terms of the status of our key suppliers in China, they are approaching 100% at this point. So they're well above 75% expect to be at 100% within two weeks. We have a small plant in China that also is up and operating. So the -- what we would build in all the way through the period that I talked about March and beyond, we do not expect the effect to be material for us. We have a plan in place. What we would expect to see is some premium and freight because some of those products we would not put on a boat we would use air shipping. And the challenge that we're looking at right now is availability of freight carriers. So that's the one of the areas that we're working right now to make sure that we've got carriers that can fill those gaps. We might see some random short-term sorts of disruptions on our lines, but we don't expect that to be significant. And keep in mind, we're kind of tapering into -- we will be tapering into the summer months, where we frequently have shutdowns in our plants just as a normal seasonal exercise. So that will play into our benefit plus as we mentioned we're in good shape from an inventory standpoint finished goods.

And then my last question is more of a high-level question. If my math holds and it doesn't always, but if my math holds, it looks like guidance for the year kind of suggests organic sales growth in the low single-digit range thereabouts. I'm trying to figure out why that might be? Though I would think just looking at the easy professional comparisons next three quarters the tractor supply effects underpinning resi. I'm trying to understand, why organic wouldn't be higher than that like mid to high single digit? I know you're naturally conservative, but you mentioned the channel inventory is essentially in good shape and/or getting repaired near term both in landscape and in snow and then coronavirus you're not anticipating any material sales impact. So I'm trying to understand, why the extra conservancy as it relates to the season and the organic sales expectations?

Yes. I would just say that as we look forward, it's still early in the year. And so projecting greater growth until we see how the season unfolds and what the year has just isn't normally how we would provide guidance. We just --

We'll be in a much better position in the second quarter having the experience of spring will be well along. By that point, we'll be in a better position to offer more guidance on the year. In the context of our coronavirus discussion and some of the other factors that we talked about, we're staying with our guidance for the year. If the season plays out well there maybe opportunities beyond that.

Thank you both very much. Appreciate it.

Thank you.

Thank you.

Thank you. Our next question comes from the line of Joe Mondillo with Sidoti & Company. Your line is now open.

Hi good morning everyone. Just a sort of follow-up on that prior question related to weather. Could you update us at this point in time in the season how you're thinking about weather especially relative to the context of what you saw last year?

Yes. So weather last year was among the worst springs at least in my memory of my association with Toro. So it was -- in the Midwest we had some of the most significant snowfalls of the season in April. And that pushed out some of the normal spring activities and excitement about the spring well into the mid-summer. So what we've built into our plan this year is what we would call a normal weather pattern which means normal breaking of the spring. At this point we know that the warm-up has started in the south particularly and we're seeing a normal pattern at this point. So that's where we've -- and that is what we've built into our plan at this point.

And so if we do see a normal weather pattern, I guess maybe again to sort of follow-up to the prior question wouldn't we see pretty good growth just -- even if it's normal and I'm here in the Northeast and it's supposed to be -- it's 50 degrees last -- yesterday. It's supposed to be in the 50s today it could be better than normal. But even in a normal scenario when you see considerable growth compared to last year?

I think if we see a fantastic early start to spring and it flows directly into a decent summer there's opportunity for us to do better. We've built kind of a nominal level in at this point. And we were coming off a couple of years where we were excited about the spring and then April turned out to be a surprise. So we've built in what we think is the right forecast for the weather at this point, but it's back to a more normal situation.

Okay. And regarding the professional segment, it looks like if I'm doing the math correctly your organic revenues were off year-over-year 5% in the quarter itself. And you mentioned landscape there a turn and you stated that the inventories now are sort of right sized. So number one, going forward you think growth returns? And number two, in terms of the margins it looked like even on those organic rev declines, your organic margins expanded quite a bit. Could you walk us through what the main driving factor to the margin -- the organic margin expansion once?

Well maybe could I take the margin piece and then Rick can come back to the revenue growth. Well if we look at the margin expansion, it was good across the business and we really did see the benefit from our focus on productivity and synergies. We were in a better commodity environment from a commodity and tariff standpoint. And the net price realization helped as well but more biased towards the pro versus the residential. So we do expect to see benefits from a gross margin standpoint continue probably not at that same rate year-over-year of improvement Joe, but we do continue to expect to see improvement for the year as we go through the remainder of the year.

And regarding the timing of growth we would expect that to -- we will need to get through the first part of the spring that happens largely in the second quarter. But into the third quarter and the second half of the year that's where LCE our landscape contractor business starts to show growth as well.

Okay. And I guess last question just -- I know one person already asked. But in terms of the snow equipment sales, we saw a minimal snow up here in the Northeast but I know BOSS is more so in the Midwest. How would you characterize the snowfall in the Midwest this year? And just to sort of clarify looking at the back half of this fiscal year, you're sort of characterizing inventories are sort of normal. So based on what we saw in the Northeast I guess, minimal snowfall you're not anticipating a big effect related to channel inventories in the back half of the year?

No we're not. And the way from a Midwest perspective we had a very strong start to the snow season this year. So on average with a probably below average performance in -- starting in January, February so it averaged out probably to an average year but it was a tale of two extremes. So it was a pretty extreme. November-December timeframe created a lot of demand all the way through retail that helped us to be in good shape from a field inventory. The Northeast though is that exception. So that was not the case there. But that's been kind of the second year in a row for that situation. So it did not drive a lot of incremental shipments last year.

Okay, great. And just lastly, Renee, could you just repeat what your sort of expectations were for products or residential margins? I know you --

Margins. Yes, what I had mentioned is, we did expect residential margins would be similar in Q2 to what we saw in Q1, because, as Rick mentioned, the bulk of the Tractor Supply shipments will occur in Q2. So we're going to see higher growth than we would normally see in residential in the quarter. We expect the second half to moderate, so Q3 and Q4 at a lower level. And from a full year standpoint, we would expect residential margins in the low teens.

Okay, great. Thanks a lot. Have a great day, everyone.

Thank you.

Thank you.

Thank you. Our next question comes from the line of Tim Wojs with Robert W. Baird. Your line is now open.

Hey, everybody. Good morning.

Good morning.

Good morning.

I have two questions. So the first, just on Ventrac. Could you just talk about what the overlap between that business and your current Toro distribution businesses today? And then, I guess, how fast would or could you kind of fold that business into Toro distribution? And I guess, kind of, just talk about any plans to kind of mitigate any of those types of disruptions?

Right. Well, first of all, on the overlap, the -- one of the reasons why we have been so interested in those product categories and specifically Ventrac and Venture Products Incorporated is, they are, to a great extent, complementary to our existing product lines. So the strength in multi-purpose articulated tractor feeds into our landscape contractor business, or contractors that feeds into our acreage owners. And they really appreciate the multi-purpose capabilities, including switching from snow to summer products and just the host of versatility that comes with that product. We've also seen a lot of application for the products in manicured turf areas and also golf courses, for rough areas, for slope mowing and so forth. Those are all areas that are complementary to our existing product lines. In terms of the plans for the channels, they have two primary channels through the dealer network, which does have some overlap with our existing dealers and some that are in competitive dealers. And then, the turf side of things, which is through distribution similar to our commercial golf and grounds distributors today. And in all of these cases, we have a plan going forward. We're in the process of executing that now and it's too early to talk about those before we get into the specific execution of those. But the expectation is, we would be picking the strong partners from a dealer standpoint and making the best decisions for the turf business going forward.

Okay. Okay. That's helpful. And then, one of your customers is -- on the residential side is resetting their outdoor power aisle to really emphasize more of the lithium-ion and kind of battery technology. And I'm just kind of curious how Toro fits there, in terms of maybe new placement versus prior placement, if you can maybe talk about that kind of reset for you guys?

We are extremely excited about the transition that's taking place to electric, specifically, lithium-ion and have been very pleased with what we're doing with our channel partners. For me, personally, I just opened up magazine, I think, of Popular Mechanics or something and the Toro walk power steel deck mower was listed as the top-rated product. And I think what we're seeing is, something that we talked about, which is, it's not a novelty to be a battery-powered product at this point. It's really coming back to features and benefits and performance and with alternative energy or power options. And we feel very positive about our ability to compete there and the response on the products that we've introduced so far has been very positive. So, for us, from a product standpoint and partnering with our key channel partners, we feel very good about where that can go.

Great. Thanks for the time. Good luck on the rest of the year.

Yes. Thank you.

Thanks, Tim.

Thank you. Our next question comes from the line of Eric Bosshard with Cleveland Research. Your line is now open.

Two things. First of all, I was not totally clear on where you see channel inventory now, especially in the landscape contractor business. I understand what happened over the last 12 months, but can you just summarize where you think channel inventories are now relative to where those customers would like them to be?

Yes, we finished the year last year with a higher inventory level, to some extent internally plus field inventory. So it's not at an extraordinary level that's out of the range of things that we've seen. But we would expect to work through the inventory through the first and second quarters. I don't -- specifically, I don't have, for example, a number for 2020.

Yes. No. But Q1 is in a strong retail quarter. So it's not as though there's a lot of retail that occurs within that quarter. So it's fairly similar to where we would have ended in Q4.

And that's really the reason why it extends into the second quarter as the first quarter is a lot about shipments, but not so much about retail except for snow.

Related to that underlying demand then and I understand it's a harder quarter to read. But obviously you've spent time with your customers that shows over the last 90 days or so. The underlying landscape contractor demand how does that feel now and through the year?

I just spoke with some of the representatives from our businesses in the landscape contractor area and they feel very positive about it. Particularly in the Midwest there has been good snow revenue and that has not always been the case in the past and they're optimistic about the spring. The past couple of years have been tough from a delayed project standpoint. And if we get a more normal season this year they're ready to go.

And then lastly, I think Renee you may have commented that there were areas of the business that were better than expected or the business in total was better-than-expected in the quarter. Can you just more narrowly define where you performed ahead of expectations in the quarter, specifically interested on the revenue line?

Yes in particular we had mentioned that the shipments to Tractor Supply, originally we would have anticipated those to be in Q2. And based on -- as Rick had mentioned based on mutual discussions and how the stores were being set for the initial rollout, some of those shipments came into Q1. And so that drove some of the residential growth and also part of our beat for the quarter as well.

Okay. Thank you.

Thank you.

Thank you. We do have a follow-up question from the line of David MacGregor with Longbow Research. Your line is now open.

Yes, thanks for taking the follow-up. I guess a lot of progress here just year-over-year in terms of the presence and the visibility of the Toro brand in alternative energy. And the earlier question was asked about the Home Depot reset. And I guess, I would just like to -- maybe in the last couple of minutes of the call here just -- Rick if you could just help us understand kind of that market. How you think about secular growth rates you -- still kind of in the early innings of that category. And how that might differ from pro versus residential? And just kind of some bigger thoughts in terms of the growth opportunity and alternative energy?

Great. If you look at the electric portion, the battery portion of walk power mower, for example it's growing. It's still relatively the smaller portion of the power that's provided to those products. Engines are going to be around for a long time. So they're not going to be obsolete anytime soon, but we are extremely excited and we had prioritized alternative energy a number of years ago along with smart connected products and in autonomous. And for us, it's fulfilling to see now the products being introduced and to see the response in the marketplace. So we think there is good opportunity to grow. In many cases, it's displacing of the gas-powered products. So it's not all incremental for us, but our experience so far has been very positive and the response to the products has been very strong. Just the last thing I would mention is, we do have the ability to leverage across our businesses. So there may be -- it's moving faster in some areas like the residential walk power mower area. And we can leverage that experience into other areas and vice versa like the commercial side of things. So we're excited about the growth and we expect that to continue.

Can you say how much of the current offering is manufactured by you versus sourced?

With regards specifically to battery?

Yes. Just the entire battery power product offering. It's -- and you talk about The Dingo and TriFlex and the Flex-Force. And just as you think across the entire line structure of alternative energy, how much of that is manufactured versus sourced out?

With the exception of some cases in the residential area, it's manufactured by us. Technology is coming from us.

Okay. And you don't want to give us a growth rate you don't want to quantify, how you're thinking about the growth opportunity?

I wouldn't have that right now to be able to quote that to you.

Okay. Terrific. Thanks very much.

Thank you.

This concludes the question-and-answer session. Mr. Rhoads, please proceed to closing remarks.

Great. Thanks for your questions and interest in the Toro Company. We look forward to talking with you again in June to discuss our second quarter results. Thank you.

Thank you for participating in today's conference. This concludes the presentation. You may now disconnect. Good day.