Good day, ladies and gentlemen, and welcome to the Toro Company Fourth Quarter and Full Year Fiscal 2024 Earnings Conference Call. My name is Marvin, and I'll 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 [Technical Difficulty] for replay purposes. Now, I turn the presentation over to your host for today's conference, Julie Kerekes, Treasurer and Senior Managing Director of Global Tax and Investor Relations. Please proceed, Ms. Kerekes.

Thank you and good morning, everyone. Our earnings release was issued this morning and a copy can be found in the Investor Information section of our corporate website, thetorocompany.com. We have also posted a fourth quarter earnings presentation to supplement our earnings release, along with an updated general investor presentation. On our call today are Rick Olson, Chairman and Chief Executive Officer; Angie Drake, Vice President and Chief Financial Officer; and Jeremy Steffan, Director - Investor Relations. During this call, we will make forward-looking statements regarding our plans and projections for the future. Forward-looking statements are based upon our historical performance and current expectations and are subject to risks, uncertainties, and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these factors can be found in today's earnings release and in our investor presentations as well as in our SEC reports. During today's call, we will also refer to non-GAAP financial measures, which we believe are important in evaluating the company's performance. For more details on these measures, the most comparable GAAP measures, and a reconciliation of the two, please refer to this morning's earnings release and our investor presentations. With that, I will now turn the call over to Rick.

Thanks, Julie, and good morning, everyone. During fiscal 2024, we delivered net sales growth in an extremely dynamic operating environment, enhanced our best-in-class distribution network, and began to successfully execute on our major productivity initiative we call AMP and we introduced exciting new products that help our customers succeed with innovations they value. As we close out the year, our market leadership position across all our businesses remains strong. Our innovative product lineup is extremely compelling and we are confident in our ability to deliver value to our shareholders into the future. Looking at our full-year financial performance, we reported net sales of $4.58 billion, which were up about 1% over last year. This marks our 15th consecutive year of top-line growth and demonstrates the strength of our balanced portfolio, as well as the disciplined execution by our talented team. We delivered exceptional net sales growth for underground construction products and golf and ground solutions. Our team substantially increased production within our manufacturing footprint as we strategically managed output to address strong end-market demand and satisfy our customers. This sustained demand continues to keep order backlog elevated for these businesses. Top-line growth for the fiscal year was also exceptional in our residential segment. This was driven by successful new product introductions that exceeded expectations, along with the strength of our mass channel, including the first 10 months of our new strategic partnership with Lowe's. This relationship is off to a fantastic start, highlighted by our respective leadership in the zero turn mower category. We were honored to be recognized by Lowe's as Vendor of the Year for their seasonal and outdoor department. The strength in these areas helped offset industry-wide dynamics affecting other parts of our portfolio. These dynamics included the post-pandemic correction and macro caution we're navigating with lawn…

Thank you, Rick, and good morning, everyone. We were pleased to deliver net sales growth in the quarter and for the full year. At the same time, we drove productivity and net price benefits and continued to make progress in addressing elevated order backlogs and field inventories. Consolidated net sales for the quarter were $1.08 billion, up 9.4% from Q4 last year. Reported EPS was $0.87 per diluted share, up from $0.67 in the fourth quarter of last year. Adjusted EPS was $0.95 per diluted share, up 34% from $0.71 a year ago. For the full year, net sales of $4.58 billion were up from $4.55 billion last year. Reported EPS was $4.01 per diluted share. This compares to $3.13 last year, which included a non-cash impairment charge in our Professional segment. On an adjusted basis, full-year EPS was $4.17 per diluted share, down slightly from $4.21, a reflection of product mix with growth weighted to our Residential segment. Now to the segment results. Professional segment net sales for the fourth quarter were $913.9 million, up 10.3% year-over-year. This increase was primarily driven by higher shipments of golf and grounds products and underground construction equipment, as we address the sustained demand that has kept order backlog elevated and net price realizations. This was partially offset by lower shipments of compact utility loaders as expected, given that field inventories have replenished and lower shipments of snow and ice management products also as expected, given elevated field levels heading into the season. For the full year, Professional segment net sales decreased 3.2% to $3.56 billion and comprised 78% of total company net sales. Professional segment earnings for the fourth quarter were $169.7 million on a reported basis, up from $124.5 million last year. When expressed as a percentage of net sales, earnings…

Thank you, Angie. We entered the new fiscal year with confidence and optimism. In an environment that has included industry-wide headwinds in some of our markets for the past few years, we've improved our operational capabilities and invested in innovation to position the company for long-term growth. Importantly, our business fundamentals and market leadership remain strong. Looking ahead, we are keeping a close eye on macro factors, including the economy, consumer and business confidence, and the geopolitical environment. We're closely monitoring the benefits and risks of any potential policy changes under the new administration and are prepared to take actions as appropriate. I'll now comment on the demand dynamics in our specific markets. For underground construction, we expect demand to remain strong, supported by both public and private multi-year spending. We have visibility into the compelling runway of projects to address global infrastructure needs, including communications, utilities, and data centers. Infrastructure spending remains a positive outlier in the broader construction industry with consistent growth projected for the foreseeable future. For Specialty Construction, which includes our Toro Dingo and Ditch Witch SK lines of compact utility loaders, field levels have been replenished across the industry. For the rental market, which is a meaningful part of specialty construction, expectations are for a return to mid-single-digit growth next year, following three years of double-digit growth. Next month's American Rental Association show should provide some initial visibility into 2025's order patterns. We'll be watching this along with demand trends in construction and landscape markets, where we expect some macro caution for homeowner projects. For golf and grounds, rounds played and new golfer data reinforce that the industry has sustained momentum worldwide. This in turn reinforces the durability of demand. We expect continued emphasis on equipment and irrigation investments for existing courses as well as…

[Operator Instructions] Your first question comes from the line of Eric Bosshard of Cleveland Research Company. Your line is now open.

Thanks. Two things. I guess, first of all, the residential profit contraction in the quarter was a little different than I guess what many 4Qs have looked like. Anything unique or any way you could help us better understand the Residential profit performance in the quarter?

Good morning, Eric. Yes, I'll take this one. So, we anticipated a tougher quarter in Q4 for Residential. We had less volume as usual and mix also played a role with that with snow and more entry-level zero turn mowers. We also have focus on being a good supplier, which we mentioned in our prepared remarks, and that drove some increased freight, some manufacturing efficiencies, and some additional programming as well. Overall, just a reminder, if you look at the full year, we're at about 8% operating margin -- residential margin for the year.

Yes. And then, Rick, I thought it was helpful to hear a lot of tailwinds that you see within the business as we move forward. I guess the question is 90 days ago, I think the expectation was Pro up 15% and it was up 10% in the quarter. And I know there was talk of 5% or perhaps a path to 5% growth in 2025 and now it's zero to 1%. And so I guess my question is with the tailwinds certainly intact, like what's different in terms of the revenue performance in Pro in the quarter and the total outlook in 2025?

Yes. I think if you -- first of all, good to hear from you, Eric. If you look at the Pro business, if you look at just in general, our outlook for next year, it does reflect a little bit of the caution that we saw and started to talk about in the third quarter, particularly with those the homeowners that are buying the professional products on the landscape contractor side. So that's part of what continues into next year as well. We have yet to see how that plays out along with other factors. And then keep in mind, snow has -- we're off to an okay start, I guess, for the season, but that's factored in as well. We do see, obviously, continued strength in Pro from the major areas where we've had backlog, the underground construction, and golf and grounds, which are in extremely healthy conditions. So it's really these other factors. CULs were off a little bit, and we see some adjustments taking place in that as we get into the first part of the year. But we're well positioned in our markets from a leadership standpoint and well positioned for the future for Professional growth. I think it just reflects the caution that we talked about in the third quarter.

Okay. Thank you.

Thank you. One moment for your next question. And your next question comes from the line of Mike Shlisky of D.A. Davidson. Your line is now open.

Yes, hi, good morning and thanks for taking my questions here. [Multiple Speakers] hey there, guys. Hey, can you give a little more detail on the AMP It Up initiative that you mentioned, Rick. Looking at your slides here, it's got a nice-looking logo. I guess I'm curious how it differs from the original AMP program that you've got here. I guess is it an amped-up version of what you're already doing? And a little bit more about what's involved. Does it involve taking more employee suggestions and rewarding them for it? Or are there other things we should be thinking about here?

Well, first of all, I'll let Angie talk about this. She's actually our sponsor of AMP, and AMP It Up is really an extension of our AMP initiative. If it's - if you recall, Mike, you've got a lot of history with us. You understand some of the employee initiatives that have been really central to -- for focusing our employee base on what's really critical. In this case, we're really compounding the emphasis on our AMP initiatives, amplifying maximum productivity, by really focusing our entire employee base on productivity, cost improvements, efficiency, lean factors, et cetera. And with that, Angie, did I kind of cover it?

Yes, that covers it really well. This year is going to be -- or this time it's going to be a two-year employee initiative. And just a reminder, it's our internal goal, it's not guidance, but it will be a profitability focus, like you mentioned, Mike, with all employees being focused on profitability. So really aligned with that productivity initiative that Rick mentioned and for all of us to go look for ways to become more profitable.

Okay. Fair enough. I also want to ask about your autonomous products that you've mentioned a few times in your comments, Rick. It sounds like it's going to be a bit of a larger launch than maybe previous tests have been. It sounds like this is a real retail launch here. Any thoughts as to what the penetration might be after the first year? Maybe secondly, after the 50, like what's the curve you expect to see here given the product and kind of what it delivers? It might differ by the Residential versus the Professional group. Just kind of thoughts as to what that might mean mix-wise and margin-wise over some period of time would be appreciated.

Thank you, Mike. Yes, you are correct. This is a pretty significant launch across three areas. So it includes both our golf, it includes our golf business, the commercial equipments with the turf tracer and the Haven on the consumer side or the homeowner side. If you look at penetration, we don't have specific numbers that we're talking about at this time, but the penetration would be higher in the kind of the order that I gave them. So higher penetration in golf and the commercial applications. The residential business is already a very competitive business from a robotic standpoint. So just by nature, there are a lot more players there. But this is really the fruits of the labors of many people and the investments that we've made through the years. These are really astonishing technology if you have a chance to see it operate, see these machines operate and it's really an indicator of more to come. I would just add, Mike, it's probably the reason why you're asking the question, but the timing could not be better as our customers are extremely concerned about labor availability as we go forward. So there's more interest than ever. So it's been -- there's been a lot of work that has gone into these products and this technology and the timing of introducing could not be better.

Exciting, Rick. Thanks so much for the discussion. I'll hop back in the queue.

Thanks, Mike.

Thank you. One moment for your next question. Your next question comes from the line of David MacGregor from Longbow Research. Your line is now open.

Yes, good morning, everyone. Thanks for taking the questions. I guess I wanted to start on the residential business and you had stronger than expected growth in the fourth quarter, but first quarter guide is down mid-single digits. Can you just discuss the extent to which fourth quarter programming and promotions may have pulled forward unit volume from first half 2025?

Yes, good to talk to you, David. And really, if you look at the first quarter guide, it's really consistent with what I mentioned before, it really reflects what we talked about in the third quarter, more caution from our homeowners as we head into this year, the lower snow even relative to last year. And as we -- consistent with our commentary previously, the channel has a lot of snow products in it right now. So even as we're getting a little bit of snow happening, it's drawing down that field inventory and it creates more of an opportunity for the second half for us. So, that's -- the snow itself is a headwind. And we'll, Lowe's will be part of the snow story as we get into the second half of the year. Yes, those are probably some of the bigger factors. And then if you look at, if you do look at our forward projections on residential, we would be taking out the Pope divestiture that becomes part of it. And bottom line, the positive side is what's driving our business there is a great product lineup with the investments that we've made in that area. So, any caution that you see there just reflects what we talked about in the third quarter. It's still kind of the off-season for the spring products. So we'll really see how that flows and the macro factors that were there, if there's improvements in those.

Right. So I have a follow-up question, but I just want to clarify here. So you're saying that pull forward was not an issue here in terms of the strength in 4Q versus the weakness in 1Q?

Nothing unusual for us pull forward -- with regard to pull forward. It's an atmosphere right now where there is a lot of industry-wide promotion. The independent factors that we can see we're actually in a better -- significantly better field position than our competitors. You also can get -- there are factors, for example, new product introductions, Exmark, our Exmark team introduced a new laser from the platform. I think we mentioned in our prepared remarks, those have entered the market. So there are a lot of factors, but we don't have any discomfort about pull forward in the fourth quarter.

Okay. And then my follow-up question is just with regard to the 2025 guidance, and you've talked about net sales growth relatively flat, maybe up 1%, but you've got your margins, adjusted gross margins up and not slightly. I mean, there's no word slightly in there. So you feel like you're setting up for a pretty good incremental performance, incremental margin performance. I was wondering if you could just sort of talk about the puts and takes within that incremental margin performance. What is driving that strength in 2025?

And Angie can maybe speak to the specifics, but just in general, it reflects our strategy to position ourselves next year with -- even if there is lower growth on the top line, we want to position ourselves to be able to improve profitability. That's reflected in AMP. It's reflected in the actions that we've taken that we've described even workforce reduction, those kinds of things, but positioning ourselves to be able to improve profitability. And if we are surprised to the positive, we won't regret positioning ourselves to be more competitive as well.

That's great.

Yes. But I'll just also add that some product mix, we expect some additional snow and it will be better in the back half than it is in the first half.

Great. Do you expect that raw materials would be a good guy next year?

I think we're pretty stable on our commodities overall. Some favorability maybe to continue into the first half of 2025.

Got it. Thanks very much.

You bet.

Thank you.

Thank you. One moment for your next question. Your next question comes from the line of Tim Wojs of Baird. Your line is now open.

Hey, everybody. Good morning.

Thanks.

Good morning.

Maybe just my first question is maybe just the EPS kind of cadence for the year. So thanks for the Q1 comments. I guess as you think about the rest of the year, I mean, should we expect or are you expecting earnings growth on a year-over-year basis for the remaining three quarters? Or is the guidance kind of more second half weighted than that? Just trying to kind of think about how that -- how we should kind of pace earnings through the year.

So, we haven't guided specifically for the rest of the year there. But our cadence is typically that our second and third quarters are our largest quarters as is typical. We do expect to close into a more normal backlog by the end of F25. And for sales and EPS both, we expect our second half to be greater than our first half really because of that snow and lawn care field inventory being in a better position.

Okay. And I guess on the backlog, you ended the year at $1.2 billion, you kind of chewed through a fair amount of that. I mean, what are you kind of implying, when you say normalized backlog and kind of ending the year at a normalized number, what are you kind of implying for that? And I guess within the $1.2 billion, how much of that today is golf and how much today of that is underground now?

Yes. The two largest remaining areas that you called them out are golf and grounds and underground. And what we've talked about is getting down to a more normal run rate. I mean the positive thing about those two remaining areas is the long-term demand trends for them look to be extremely positive. So our goal this year is to bring them down to the more long-term run rate, because the demand looks quite durable there. And I mean, the good news, we also have offsets. We have businesses that are going through a correction right now that we would expect to return to contributing to that as we get into this year. So it really speaks to the strength of the portfolio. We've been able over the last two years to really weather those corrections in those markets with the business that we're talking about here with underground and golf and ground.

I would just add to that. We've made progress in both of those businesses for volume for golf and grounds and underground construction in F 2024.

Our ability to produce within our given footprints has been a tremendous help to our business and that really speaks to the work that our operations people are doing.

Okay. So you don't have like a normal -- like you don't have like a number where you're saying like $700 million or something like that's a normal backlog or...

Yes. We've got something in mind. I think that we're thinking it's probably south of $600 million.

Okay. That's helpful. And then I guess just -- I mean on this just like mathematically, can you prevent like an air pocket in fiscal 2026 in like golf and underground? Just I guess if you're shipping backlog, you're kind of technically over shipping demand. So just if you have normal demand next year, I guess, does it like mathematically imply that those businesses are down? Just trying to understand if there's a way to kind of prevent it. I know like landscape probably normalizes, but it just seems like you could have still some kind of volatility in those businesses too.

I think the key really is the durability of the demand. So if demand continues at a more normal rate and we can return to a more normal rate of fulfilling the demand. We've got -- we have high confidence in the quality of the orders that are out there right now. In fact, we've gone through an exercise to refresh them and make sure that they're current. So, we've got high confidence in the demand that's there. We have good confidence in the future demand and our work is to manage that to a more normal level. And if there's not a collapse in demand in the market, which we don't believe there will be, we have the ability to manage that back down to a more normal rate without the air pocket that you're talking.

Okay.

And then back up to that -- yes, the backup to that plan is that we -- the strength of the portfolio, we have other businesses that will be coming back online, eventually snow will return to normal. We have the landscape contractor business that's getting healthier as well.

Okay, I understand. And then if I could squeeze one more last one in. Just on the upcoming administration, I guess, do you explicitly have anything in the guidance related to tariffs? And then how have you kind of thought about immigration? I know a lot of your products drive productivity, so that could be a positive, but is there a risk that some of your customers could actually just have a lower earnings year if they just don't have as much labor to complete the same number of jobs? I guess how would you kind of answer that question?

And maybe going backwards, as you know, most of our customers really have jobs that have to get done one way or another. So if they've got -- they're maintaining a property, let's say, or a golf course or municipality, that work has to be done. And if they are restricted on labor, they are going to be exceptionally interested in higher productivity machines, whether it's -- the ultimate would be Autonomous, but we also have many solutions that just provide much higher productivity of -- with a high-return on investment. So, that we believe demand for those products will be greater. So, we view that as a positive, although it's going to be a challenge for our customers. And then just back to tariffs, just a couple of things. We have not included the effect of tariffs in our guidance. And I would just remind that the vast majority of our products are produced in the United States and virtually all of our professional products. We do have production in Mexico for some of our more price-competitive products. And with regard to China, specifically, we've substantially reduced our China risk since 2016. So, we've done some positioning for this current situation and I think the biggest thing is we're closely monitoring all the factors and making sure that we've got mitigations in place for anything that would be negative. And then on the flip side, just making sure we take advantage of what we see as a number of very positive potential moves that are out there as well.

Okay. Thanks for all the color and answering the questions there. Appreciate it.

Thank you, Tim.

Thank you, Tim.

Thank you. One moment for your next question. [Technical Difficulty] question comes from the line Josh Wilson of Raymond James. Your line is now open.

Good morning. Thanks for taking my questions.

Hi, Josh.

Hi, Josh.

Just a point of clarification first as it relates to the 2025 guidance. When you talk about stable conditions for landscape contractor and Intimidator, does that mean you're assuming sales of those sub-segments are flat year-on-year in 2025 versus 2024?

I'd say we're still working down the field inventory for both of those. We haven't said that they're flat, but we will be working those down for both snow and lawn care field and including both of those that she mentioned. But we expect it to be better year over year.

We quoted an 80% number, I believe in the third quarter of the work that we've done to bring field inventory down. We probably would have expected that to go even further by this point, but we're probably at a similar level. So we still have some work to do to adjust our field inventory where we are in a much better position than we were last year at this time.

Got it. Thanks for that.

Thank you.

Thank you. One moment for your next question. Your next question comes from the line of Ted Jackson of Northland. Your line is now open.

Thanks very much. Skin of the teeth guided by the Q&A. Good morning.

Good morning.

My first question is pretty simple. It's kind of the flip side of the earlier question with regards to working through the backlog and then air pocket. As you normalize your dealer inventory and you, let's say, you hit your expectation of getting that normalized before you exit this year, wouldn't the flip side being the case that where we could see a pickup in your sales because you're no longer having to deal with that headwind. And that would be something that could be a tailwind for you in 2026 and perhaps even in the second half of 2025.

Yes. I think, Ted, you speak to -- I mean, there's a couple of elements of that. First of all, the movement of our various markets. So if you do -- if you did have a continuation of healthy markets for golf and underground, which we believe has a long, demand looks positive from our perspective at this point, and with the recovery potentially in landscape contractor in some of the areas that have been a little bit muted, that would be a combination that would be positive -- net positive for sales. So I think that's definitely true. True but subject to how the year plays out, macroeconomics, et cetera.

Yes. Well, at least, hey, it's going to snow tomorrow, just pointing that out, at least where we are. Second...

We're all aware of that.

So, second question, you commented in the last call that you were seeing the rental market softened. And I was looking for an update on that. I mean, if you listen to the calls during the third quarter for most of the rental houses, they're clearly kind of -- they're not getting the utilization rates they had in the past. The outlook for them is a little more subdued. They're pulling back on some of their CapEx. I mean, I know it's just -- it's just one portion of your business and not like the thing that drives everything. But what have you seen with that business as you've gone through the fourth quarter?

We did -- I think we may have called out more caution from our rental customers. That is -- it's not a huge portion, a significant portion of our specialty construction business, the compact utility loaders, Toro and Ditch Witch. And two sides of that, so the national rental -- rental people have done some capital investments over the last several years. So their fleets are relatively more new. And I think the caution that they've seen is just in some of the construction areas that have resulted in less rental. You probably -- they have obviously much better commentary on that than we do. On the independent rental, those tend to be more towards homeowner projects, landscaping projects, et cetera. And that's where we see very similar kind of caution to our homeowners that shows up in landscape contractor or landscape contractor professional fees and residential business. So we think that we expect that to kind of move with the consumer confidence and other factors, the macro factors that we've talked about and more normalizing.

Okay. I'll leave it too. The feedback queue will be out later today. Is that correct?

That's correct.

Okay, great. Thanks for taking my questions.

All right. Thank you.

Thank you.

This concludes the question-and-answer session. Ms. Kerekes, please proceed to closing remarks.

Thank you, Marvin, and thank you, everyone, for your questions and interest in the Toro Company. We wish you a safe and joyous holiday season. We look forward to talking with you again in March to discuss our fiscal 2025 first quarter results.

Thank you for your participation in today's conference. This does conclude the presentation [Technical Difficulty]