Toro Q3 2025 Earnings Report

Toro EPS Results

• Actual EPS: $1.24
• Consensus EPS: $1.22
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: $1.18

Toro Revenue Results

• Actual Revenue: $1.13 billion
• Expected Revenue: $1.16 billion
• Beat/Miss: Missed by -$24.60 million
• YoY Revenue Growth: -2.20%

Toro Announcement Details

• Quarter: Q3 2025
• Date: 9/4/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, September 4, 2025
• Conference Call Time: 11:00AM ET

The Toro (NYSE:TTC) Company (NYSE: TTC) specializes in the design, manufacture and marketing of a broad range of outdoor environment equipment for residential, commercial and professional markets. Its product portfolio includes lawn mowers, utility vehicles, snow throwers, irrigation systems and landscape maintenance equipment. Toro’s offerings span walk-behind and ride-on mowers, zero-turn radius mowers, snow blowers, sprinklers, drip irrigation products, spreaders and specialty turf maintenance machines tailored to golf courses, sports fields and municipal parks.

Founded in 1914 and headquartered in Bloomington, Minnesota, Toro has built a century-long legacy of innovation in the grounds-care industry. Early breakthroughs included the introduction of residential rotary mowers in the mid-20th century and the development of commercial zero-turn mowers in the 1960s. Over the years, Toro has expanded its technological capabilities through in-house R&D and strategic acquisitions, developing advanced digital irrigation controls, robotic mowers and precision spraying systems aimed at improving water efficiency and operator productivity.

Toro operates manufacturing facilities and distribution centers across North America, Europe, Asia-Pacific and Latin America, serving a diverse customer base that ranges from homeowners and landscape contractors to sports turf managers and public-sector maintenance programs. Its products are sold through a network of independent dealers, mass merchandisers and e-commerce channels, supported by a global parts and service infrastructure. Toro continues to emphasize sustainable solutions in outdoor maintenance, leveraging its global footprint to introduce environmentally responsible technologies and support partners in water-scarce regions.

Toro Q3 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Adjusted EPS of $1.24 beat expectations despite a 2.2% year-over-year net sales decline to $1.13 billion.
• Positive Sentiment: Professional segment net sales rose 6% year-over-year with margins expanding 250 basis points to 21.3%, led by underground construction and golf and grounds.
• Negative Sentiment: Residential segment net sales plunged 28% year-over-year to $193 million, with earnings margin collapsing to 1.9% amid cautious homeowners and elevated promotions.
• Positive Sentiment: The AMP productivity program has delivered $75 million in annualized cost savings and is on track for $100 million by 2027, helping offset $45 million in incremental tariffs through pricing and efficiency gains.
• Neutral Sentiment: For fiscal 2025, Toro forecasts full-year net sales flat to down 3%, professional revenue up slightly, residential down mid-teens, and adjusted EPS of about $4.15.

Presentation

[Operator]

Day, ladies and gentlemen, and welcome to the Thorough Company's Third Quarter 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 the end of today's conference. As a reminder, this conference is being recorded for replay purposes.

[Operator]

I would like to turn the presentation over to your host for today's conference, Heather Lilly, Managing Director, Corporate Affairs. Please proceed, Ms. Lilly.

[Heather Hille, MD - Corporate Affairs at The Toro Company]

Good morning, everyone, and thank you for joining us for The Toro Company's third quarter twenty twenty five earnings conference call. I'm Heather Hilli, Head of Investor Relations. On the line with me today are Rick Olson, Chairman and Chief Executive Officer Edric Funk, who was recently named President and Chief Operating Officer and Angie Drake, Vice President and Chief Financial Officer. Rick, Edric and Angie will provide an overview of our third quarter results, which were released earlier this morning and discuss our priorities and outlook for the remainder of the year. Following their remarks, we'll open the phone lines for a question and answer session.

[Heather Hille, MD - Corporate Affairs at The Toro Company]

As a reminder, any forward looking statements that we make this morning are subject to risks and uncertainties, including those described in today's earnings release, investor presentation and most recent SEC filings and may cause actual results to differ materially from those contemplated by these statements. Also in our remarks, we'll refer to certain non GAAP financial measures, which we believe are important in evaluating the company's performance. Reconciliations of all non GAAP numbers to the most directly comparable GAAP number are included in this morning's press release, which along with a third quarter presentation containing supplemental information is posted in the Investor Information section of our corporate website. With that, I will now turn the call over to Rick.

[Richard Olson, Chairman & CEO at The Toro Company]

Thanks, Heather, and good morning, everyone. We delivered third quarter adjusted earnings that exceeded our expectations, though persistent headwinds in our residential segment require us to take a prudent approach to our full year outlook. As a leader in innovative solutions for the outdoor environment, we are well positioned to benefit from powerful secular growth trends, including record golf participation and multiyear infrastructure investment cycles. The benefit of these trends is enhanced by our focus on leveraged technology investments and operational excellence, which we believe will drive significant value for our customers and shareholders. Our third quarter results reflect this strong positioning.

[Richard Olson, Chairman & CEO at The Toro Company]

We strategically capitalized on continued momentum within our Professional segment, especially for our underground construction and golf and ground solutions, where robust demand for our innovative products and net price realization drove 6% year over year growth with margins expanding two fifty basis points year over year. Total consolidated net sales in the quarter were $1,130,000,000 down 2.2% from the same period a year ago. Half of this decline was due to prior year strategic divestitures of noncore assets. While impacted by headwinds in our Residential segment, our commitment to operational excellence and strength in Professional enabled us to achieve adjusted earnings per share in the quarter of $1.24 exceeding our expectations. Our full year guidance reflects near term consumer caution and residential market pressures, which Angie will detail shortly, I am confident in the Toro Company's trajectory.

[Richard Olson, Chairman & CEO at The Toro Company]

We are seeing sustainable margin improvement in our Professional segment, demonstrating our ability to drive profitability even in a mixed demand environment. Channel inventory is clearing meaningfully, particularly in residential, setting up a cleaner foundation for the 2026 selling season. Our order books remain healthy in key professional categories, and we continue to launch innovative products that resonate with our customers. Most importantly, the secular trends driving our golf and infrastructure businesses remain intact with multiyear visibility that supports our growth investments. These factors combined with our productivity initiatives position us to emerge stronger as markets normalize.

[Richard Olson, Chairman & CEO at The Toro Company]

To support this trajectory, we further intensified our operational improvements to control costs and identify additional opportunities for greater efficiency. We moderated the impact of higher material and manufacturing costs through initiatives that drove productivity improvement and realization of net pricing gains. We also continue to benefit from our AMP productivity program, which has now delivered $75,000,000 in annualized cost savings and remain on track to deliver at least $100,000,000 by 2027. Additionally, although supply chain strategies we began implementing in 2018 are limiting our exposure in the current global tariff environment, we continue to monitor and respond to their impact on our business. While we are protecting our profit margins through thoughtful and selective price increases as necessary, we're also working diligently to ensure our products remain competitive by offsetting the effects of tariffs through productivity improvements.

[Richard Olson, Chairman & CEO at The Toro Company]

Within golf, growing participation levels are sustaining already strong momentum and driving incremental equipment and irrigation investments. And underground construction is benefiting from a compelling runway of infrastructure projects. By maintaining our position at the forefront of innovation in alternative power, smart connected products and autonomous solutions, we continue to drive significant customer value and differentiate our offerings. Our professional businesses continue to capture share in markets experiencing structural growth. At the recent BMW Championship, we showcased our innovative Toro Spatial Adjust irrigation control software paired with TurfRAD moisture sensing technology.

[Richard Olson, Chairman & CEO at The Toro Company]

Industry professionals experienced these groundbreaking precision turf management solutions firsthand. Following the event, attendees expressed strong enthusiasm for these cutting edge advancements and their potential to transform golf course maintenance through meaningful water usage reductions. During the third quarter, we began shipping the all new Ventrac 45RC, offering dual operation modes for steep terrain, whether seated on the tractor or operating remotely from up to 500 feet away. This advanced system combines intuitive controls with industrial grade durability to enhance the remote operation experience in demanding environments. We launched two new specialty construction products, Attract E Bingo and Attract Electric Ultra Buggy, establishing the most comprehensive fully electric material handling and compact utility loader portfolio in the market.

[Richard Olson, Chairman & CEO at The Toro Company]

We continue to build on the strong performance of our underground construction portfolio with steady improvements in output and favorable customer response to new directional drills and vacuum excavators, including the innovative JT21 drill, the AT JT120 and the W8 hydrovac. We have invested in R and D and capacity while divesting noncore construction assets to sharpen our focus and effectively meet demand. The innovation and superior quality of our Exmark branded equipment combined with favorable weather in key regions, drove higher than anticipated landscape contractor orders during the third quarter. Customers valued the performance and durability of the Lazer Z lineup and productivity enhancing features, including our exclusive Adapt technology for quick tool free deck adjustments. Before turning the call over to Angie, I'd like to acknowledge the participation of Edric Funk on this call and hope you will join me in welcoming him today and in the future.

[Richard Olson, Chairman & CEO at The Toro Company]

A twenty nine year veteran of the Toro Company, most recently as Group Vice President of Golf, Grounds and Irrigation, Edric has been appointed President and Chief Operating Officer and has assumed responsibility for all global businesses and our integrated supply chain operations. I'm excited to be collaborating with Edric in his new capacity and know his leadership will propel our company's profitable growth and competitive position. I want to thank our employees and channel partners for their ingenuity and resourcefulness in advancing the product innovations and technology driven solutions that enhance our customers' productivity. These advancements are critical drivers of our profitable growth and reinforce our confidence in the Toro Company's future. Now Angie will provide additional details and insights on our third quarter results and outlook for the remainder of the year.

[Angela Drake, VP & CFO at The Toro Company]

Thank you, Rick, and good morning, everyone. We delivered solid operational performance in the quarter with adjusted diluted EPS of $1.24.0.6 dollars above the same period last year and better than our internal expectations. Consolidated net sales for the quarter were $1,130,000,000 down 2.2% from Q3 last year as we annualize on the prior year divestitures of company owned dealers and Coke products, which account for about half of the quarter's sales decline. Reported EPS of zero five four dollars per diluted share included a non cash impairment charge of $0.62 per diluted share or $81,000,000 pretax compared to $1.14 in the third quarter of last year. This impairment of the Spartan trade name is the result of persistently lower homeowner demand and slower market recovery.

[Angela Drake, VP & CFO at The Toro Company]

Our third quarter segment results reflect the variability in demand environments across our markets, driving growth in the pro segment and creating challenges for the residential segment. Professional segment net sales for the third quarter were $931,000,000 up about 6% year over year, driven primarily by higher shipments of underground construction and golf and grounds products and net price realization. We achieved this growth in the quarter despite the unfavorable current year revenue impact from our 2024 strategic divestitures of company owned dealers. Professional segment earnings for the third quarter were $199,000,000 up 20% year over year, resulting in an earnings margin of 21.3%, up from 18.8% in the prior year. We delivered this two fifty basis point increase in profitability through a combination of productivity improvements, net price realization, net sales leverage and our purposeful initiatives to reduce costs.

[Angela Drake, VP & CFO at The Toro Company]

These favorable contributors were partially offset by higher material and manufacturing costs. Residential segment net sales for the third quarter were $193,000,000 down 28 year over year. This was due to lower shipments across the segment as homeowners deferred big ticket purchases. In addition, channel partners remain cautious about inventory in the current environment due to continued volatility and consumer confidence. We are encouraged by the meaningful reduction we have seen in field inventories as distribution partners sell through current stocks.

[Angela Drake, VP & CFO at The Toro Company]

This inventory level positions us well for the twenty twenty six spring selling season. Residential segment earnings for the quarter were $4,000,000 or 1.9% of sales compared to $33,000,000 or 12.2% of sales last year. The decrease was primarily due to lower volume, higher sales promotions and incentives to drive demand and inventory valuation adjustments, partially offset by productivity improvements. While residential remains challenged by macro factors, our decisive actions to right size operations and reduce field inventory position us for improved performance as consumer confidence returns. Now turning to our operating results for the total company.

[Angela Drake, VP & CFO at The Toro Company]

Our reported and adjusted gross margins for the quarter were 33.734.4% respectively compared to 34.835.4% respectively in the same period last year. Year over year changes on both the reported and adjusted basis were primarily due to lower net sales volume, higher material and manufacturing costs and inventory valuation adjustments, partially offset by productivity improvements, net price realization and favorable product mix. SG and A expense as a percentage of net sales for the quarter was 20.8%, a meaningful improvement from 22% a year ago. Given the decline in net sales for the quarter, this result was particularly compelling, driven by deliberate AMP program measures as well as lower marketing costs. Operating earnings margin, including the noncash impairment charge, was 5.7%, down from 12.8% in the same period last year.

[Angela Drake, VP & CFO at The Toro Company]

On an adjusted basis, operating earnings margin was down 10 basis points to 13.6% due to lower volume. The third quarter reported effective tax rate was 7.4% compared with 17.3% last year. The decrease was primarily due to the impact of non cash impairment charge and a more favorable geographic mix of earnings this year, partially offset by lower tax benefits recorded as excess tax deductions for stock based compensation in the current year period. The adjusted effective tax rate for the third quarter was 17.3% compared with 18% a year ago. Free cash flow through the third quarter was $292,000,000 a year over year increase that was largely due to net favorable changes in working capital.

[Angela Drake, VP & CFO at The Toro Company]

This resulted in a free cash flow conversion rate for the quarter of 90%. During the quarter, we invested $90,000,000 in share repurchases, bringing our year to date total to $290,000,000 This reflects our confidence in cash generation and our commitment to returning value to shareholders, while maintaining balance sheet flexibility for continued investment in technology innovation and new product development. Year to date, our actions have generated favorable momentum in our return on invested capital. Looking ahead to the 2025, we are excited about the continued strong demand and stable supply for our underground construction and golf and grounds businesses. At the same time, we anticipate continued pressure both from homeowner demand and channel caution that affected our third quarter results.

[Angela Drake, VP & CFO at The Toro Company]

With this backdrop and based on our current visibility, inclusive of anticipated tariff impacts, I will lay out our full year guidance. For fiscal twenty twenty five, we expect total company net sales to be at the low end of our guidance range of flat to down 3%. We expect Professional segment revenue to be up slightly year over year, while the Residential segment is expected to be down mid teens. We continue to expect total company adjusted gross margin to improve on a year over year basis. We now expect adjusted operating earnings margin to be flat to slightly lower than prior year.

[Angela Drake, VP & CFO at The Toro Company]

Looking at segment profitability, we continue to expect Professional segment earnings margins to expand versus the prior year. However, economic headwinds from homeowners are expected to pressure residential segment earnings margins resulting in a year over year decline. Finally, we expect adjusted diluted EPS to be at the low end of our prior guidance range at about $4.15 These projections also assume normal weather patterns aligned with historical averages for the remainder of the fiscal year. Additional elements of our full year guidance include interest expense of about $60,000,000 capital expenditures of about $90,000,000 and an increase in our free cash flow conversion guidance to about 110%. The strategic actions we discussed, our AMP transformational productivity initiative and our tariff mitigation strategies are delivering immediate benefits and positioning us for improved operating leverage as markets normalize.

[Angela Drake, VP & CFO at The Toro Company]

Our Professional segment continues to perform well. Our innovation pipeline remains robust and our strong cash generation supports our investments in continued growth as well as returning capital to shareholders. We are resolutely managing factors within our control as we navigate the current environment, and we remain keenly focused on returning our business to sustained profitable growth. With that, I'll turn the call over to Edric.

[Edric Funk, President & COO at The Toro Company]

Thank you, Angie, and good morning, everyone. I'm excited to join you this morning, and I look forward to engaging with all of you in the coming months. Since joining the Toro Company in 1996, I've had the privilege of working with and leading talented teams across all our segments to strengthen our competitive advantage, advance our technology innovation and accelerate the development and delivery of exceptional solutions for our customers. As I transition from my most recent position, leading golf, grounds and irrigation, I'd like to acknowledge the diligent efforts of our team in driving innovation and delivering profitable growth. Our partnership with the Ryder Cup, which will be held this month at the Bethpage Black Course in New York, exemplifies our market leadership and provides a global platform to demonstrate technologies that are already generating significant commercial interest.

[Edric Funk, President & COO at The Toro Company]

We also recently launched our new Geolink Mow autonomous fairway mower. This introduction complements the robotic platforms that we released earlier this year and is another example of leveraging technology across the company to deliver customer value solutions. As I begin my new role, I'm excited for the opportunity to partner with our leadership team to strengthen the performance and resilience of our business. We're doing that by strategically investing in value generating technology and innovation and by optimizing our global supply chain operations. We're already taking decisive steps with our AMP productivity program, tariff mitigation initiatives and prudent capital investment strategies to position the company for accelerated growth when the macro environment recovers.

[Edric Funk, President & COO at The Toro Company]

While both streamlining our footprint and aligning our production capacity with demand have resulted in lower current year revenue, we are confident these are the right strategic decisions for our business. We are laser focused on delivering earnings growth independent of revenue expansion, And we're committed to investing in the core businesses and growth opportunities that ensure enduring value for all our stakeholders. Now Rick has a few closing remarks.

[Richard Olson, Chairman & CEO at The Toro Company]

Thank you, Edric.

[Richard Olson, Chairman & CEO at The Toro Company]

The Toronto company is positioned to deliver long term value through our focus on key growth markets and operational improvements. As we navigate a challenging environment, we are being proactive and purposeful in taking steps to accelerate our performance. We are strengthening our product innovation and technology leadership with a continuous pipeline of new offerings that elevate our customers' performance. We are aggressively pursuing opportunities for greater operational efficiency that align our costs and capacity with near term demand. We are focused on returning value to shareholders by maintaining a disciplined approach to capital allocation, balance sheet flexibility and strong cash flow.

[Richard Olson, Chairman & CEO at The Toro Company]

Now, Edric, Angie and I would be happy to take your questions.

[Operator]

And And your first question comes from the line of Mike Shlisky of D. A. Davidson and Co. Your line is now open.

[Michael Shlisky, MD & Senior Equity Research Analyst at D.A. Davidson]

Yes. Hi, good morning. Thanks for taking my questions. I wanted to start with a professional second question and how it relates to consumer. Has the professional landscape channel, which has some consumers that on the large acreage side that come over to buy from new dealers.

[Michael Shlisky, MD & Senior Equity Research Analyst at D.A. Davidson]

Is that part of your business still waiting for that next leg up because of the consumer challenges? So I guess I'm kind of wondering, would you have had organic growth even higher in professional had not been for that small chunk of consumer does shop in the professional channel?

[Richard Olson, Chairman & CEO at The Toro Company]

Comments about the landscape contractor business. In total, that business actually grew in the third quarter. And that was the combination of a very strong demand from professional contractors themselves, particularly responding to the new products that one of those which I mentioned, the Exmark new laser, which is kind of the flagship of Exmark and really kind of the standard in the industry. So the latest version of that product, great response to that. And then that strength of demand from the true contractors made up from still muted demand from homeowners that would typically be in that market.

[Richard Olson, Chairman & CEO at The Toro Company]

So overall, we grew landscape contractors. That was a combination of strong contractor demand and lower homeowner demand. The homeowners are acting much more like they do in the residential side at this point. So good question.

[Michael Shlisky, MD & Senior Equity Research Analyst at D.A. Davidson]

Great. And then sticking with Professional, this was a it looks like a record third quarter for Professional from a margin perspective and just going back a bunch of years in my model. You noted things like having lower marketing costs in some of your in your press release. I guess, is that part of the AMP program or are those permanent reductions or are those just temporary? Just trying to see if Professional has entered a new and a higher margin range going forward after this great performance here.

[Michael Shlisky, MD & Senior Equity Research Analyst at D.A. Davidson]

I'd also be curious about mix and professional, whether that was a role in the strong margin as well.

[Angela Drake, VP & CFO at The Toro Company]

Yes, Mike, mix did have an impact. In the quarter, we continue to see strong demand from our underground and golf and grounds businesses and saw increased production output as well. So that made an impact there. We did have a very strong quarter up two fifty basis points on operating margins for the Professional segment. So continues to be a strong story there.

[Angela Drake, VP & CFO at The Toro Company]

And AMP, yes, your question about AMP. AMP did have an impact. We saw strong impacts year over year in our cost savings related to transformational productivity efforts, a lot of that coming into the professional segment, but overall total company. So we took let's see, in our quarter, we had $21,000,000 worth of in year realized savings from AMP. So year to date or project to date, that's actually at $51,000,000 For F '25, we're sitting at 50 or sorry, dollars 47,000,000 in realized savings for the year.

[Michael Shlisky, MD & Senior Equity Research Analyst at D.A. Davidson]

Great. Thanks for that, Angie. And maybe the last one I've got for you. If we see a rate cutter even to before the end of the year, the calendar year, I guess, will that improve the resi outlook in any kind of decent sized way or do you need to see a cadence of rate cuts going to 2026 to really see the consumer respond to lower interest rates?

[Richard Olson, Chairman & CEO at The Toro Company]

We would all be speculating exactly on how the consumer would respond, but they're looking for a trigger to be more positive. So it's fundamentally part of the lower consumer confidence that we see right now, the fact that interest rates are higher. So an interest rate cut or the start of cutting would you would have to imagine would be seen as a positive to consumers, give them some confidence to make those bigger ticket purchases, which they've been hesitant to do in the last really the last couple of years.

[Michael Shlisky, MD & Senior Equity Research Analyst at D.A. Davidson]

Okay. Fair enough. I'll pass it along. Thank you.

[Richard Olson, Chairman & CEO at The Toro Company]

Thank you, Mike.

[Operator]

Thank you. We'll move it for our next question. And our next question comes from the line of Samuel Darko of RJS. Your line is now open.

[Sam Darkatsh, Managing Director at Raymond James Financial]

Yes. Hey, Rick, Angie, Edric, how are you? Good morning.

[Richard Olson, Chairman & CEO at The Toro Company]

Morning, Good morning.

[Sam Darkatsh, Managing Director at Raymond James Financial]

A few questions. First off, your residential business, I guess I'll just ask it as it relates to your market share of sell in and sell through. I know two of your big retailers, Lowe's and Tractor Supply, both called out the lawn and garden category as being a positive, a favorable category for them. So how are you feeling about your market share, floor plan your floor space at those retailers and your prospects for growth in those two customers next year?

[Richard Olson, Chairman & CEO at The Toro Company]

I think importantly, we have maintained our market share through an incredibly sort of extreme cycle through the last few years. This is a business that historically has grown over a couple of decades by 3%. And within the last five years, we've had some plus 20s and some minus similar amounts. So this is something that we've not experienced before. The positive thing is that we have maintained our market share through that process.

[Richard Olson, Chairman & CEO at The Toro Company]

So it really reflects the cycle that the market is going through. Specific to our year over year business and related to Lowe's specifically for us, it's kind of a tough comp for us from a shipment standpoint. Our business, to a large extent driven by the Lowe's selling, was up 53% in the last third quarter. That's from a comp standpoint. And in the current environment, it's the hesitant homeowners that we talked about along with all consumers at this point on big ticket items that has them more hesitant to make purchases.

[Richard Olson, Chairman & CEO at The Toro Company]

The good news is that retail has been strong through the latter part of the season. It was a slow start to the season. So the retail, some of which you're seeing reported in those retailer reports has been strong later in the season. That's for us made up for some of the slow starts in the early portion of the season. But what you see is hesitancy, particularly by dealers to restock at this point in the current environment.

[Richard Olson, Chairman & CEO at The Toro Company]

So that's most of the dynamic, again, holding market share, seeing the benefit of longer retail with those channel partners. And the good news is even though they're not taking more stock, we are further adjusting the field inventory, which sets us up for a healthy F-twenty six.

[Sam Darkatsh, Managing Director at Raymond James Financial]

And then my follow-up or segue question to that, Angie, you mentioned, and this is no surprise, obviously, but the residential margins are expected to be down this year. To what degree are you expecting the margins to be down? What do you peg as, I guess, normal resi margins at this point? And what's the likelihood that 2026 is going to look like that sort of normal margin profile in this segment?

[Angela Drake, VP & CFO at The Toro Company]

Yes. As we talk about residential margins, we said that those would be for the full year, those would be lower year over year from last year's 7.9%. So we do expect those to be a little lower with all of the things that we've talked about impacting those residential margins this year and this past quarter. From a normal basis, Sam, those are typically somewhere in that 8% to 10% margin range. Although we expect to get to that over time, we likely will not in F25.

[Angela Drake, VP & CFO at The Toro Company]

And we expect to get closer to that sometime in the near future. I think like Rick said, it really the actions that we've taken this year have really set us up for a stronger F26, whether those are one time reductions like E and O, things like that, that will set us up for a better F26.

[Sam Darkatsh, Managing Director at Raymond James Financial]

And then my last question, and I apologize if you covered this in your prepared remarks and I missed it. What are your expectations now for year end backlog and the prospects for pro growth next year? Thanks.

[Richard Olson, Chairman & CEO at The Toro Company]

Yes, we would expect year end backlog to be substantially reduced from previous years as we work down to a more normal order cycle and lead times. There are a lot of dynamics there. Timeframe in which customers are ordering is also pulling in back more towards normal. So, I think we previously had commented that the underground construction in some categories would extend well into 2026. Golf and grounds should be close to normal, although the recent order trends indicated that we'll spill into next year in some categories as well.

[Richard Olson, Chairman & CEO at The Toro Company]

So continued good prospects for growth, but returning more to a normal cadence versus driven by the back order open orders.

[Sam Darkatsh, Managing Director at Raymond James Financial]

So you're still thinking '26 is a growth year comfortably for pro?

[Richard Olson, Chairman & CEO at The Toro Company]

For pro, yes.

[Angela Drake, VP & CFO at The Toro Company]

Yes. Yes. We're still seeing land, ground and underground. Expect the, you know, the the professional that we talked about earlier with our landscape areas. The contractor is still very strong as well, and we've got a good book of orders in front of us.

[Sam Darkatsh, Managing Director at Raymond James Financial]

Thank you much.

[Richard Olson, Chairman & CEO at The Toro Company]

Thank you, Sam.

[Operator]

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

[David Macgregor, President at Longbow Research]

Yes. Good morning, everyone, and welcome, Andrew.

[Edric Funk, President & COO at The Toro Company]

Good morning, David.

[David Macgregor, President at Longbow Research]

I guess I wanted to start off just on the AMP program. You'd expect it to reinvest 50% of the benefit and take the remaining 50% to the bottom line. So with the $75,000,000 that you referenced this morning, what's been taken to the bottom line so far?

[Angela Drake, VP & CFO at The Toro Company]

Good morning, David. The $75,000,000 is program to date savings. So that's run rate savings. So those will be annualized cost savings that we expect to get in the future. For our project today, actually I'll go back to our F-twenty five of in year realized savings, which means what we should have expected to see potentially in the P and L.

[Angela Drake, VP & CFO at The Toro Company]

And that for this year is $47,000,000 to date through 2025. A lot of that is impacting the P and L in the ways of things that you're seeing with SG and A savings, some of the footprint rationalization that we've done, capacity. But we're also having to offset some of the costs that we're seeing in this homeowner volume reduction and tariff headwinds, overall under absorption and some lower volumes. But we're using some of that also to fuel our continued innovations in technology. So you're not seeing those directly related to AMP because we are reinvesting a big portion of that this year into the other things that I've mentioned.

[Richard Olson, Chairman & CEO at The Toro Company]

And even though it goes to offset some of the specific challenges this year with lower volume, etcetera, in residential, those are run rate savings. So they will continue in the future. And where we start to get relief from some of those factors where we're spending it today, those benefits will still be there in the future.

[David Macgregor, President at Longbow Research]

Right.

[David Macgregor, President at Longbow Research]

And I guess you're talking about 2027 or the 2027, but you appear to be, at least on a run rate basis, three quarters of the way through this program already. I guess the obvious question is the potential to see this target raised over the remaining two years of the planning horizon.

[Angela Drake, VP & CFO at The Toro Company]

Yes, you're exactly right. So we're very excited about the progress that we've made with our AMP initiative and we've had great success to date. We're tracking well ahead of with our $75,000,000 of run rate savings towards that $100,000,000 goal. So when we give our guidance in Q4, I think we'll be prepared to talk about AMP two point zero or AMP squared.

[David Macgregor, President at Longbow Research]

Okay. Sounds good. Look forward to that. Second question is on tariffs. I guess just talk about your success to date with tariff mitigation and what impacted tariffs, I guess, net of mitigation actions have on third quarter margins?

[Richard Olson, Chairman & CEO at The Toro Company]

Yes. If you just a little commentary from where we picked up or picking up from the last earnings call. Last call, we talked about roughly 3% of COGS being the impact that we estimated at that point from tariffs for the year in F 'twenty five. That equates to about $90,000,000 And just one note on the $90,000,000 that would also be inclusive of existing tariffs that were there since twenty seventeen-'eighteen time frame. So the actual incremental in 'twenty five due to new tariffs would have been $65,000,000 at that time. At this point, we are estimating that the equivalent incremental tariffs would be about $45,000,000 And what's interesting is the splits, how that breaks down has shifted.

[Richard Olson, Chairman & CEO at The Toro Company]

So at our second quarter call, it was mostly about China. Even though we had small exposure, there was an exceptionally large tariff that was on the horizon that we had built in. Today, the largest portion is steel and aluminum based on the general tariffs there. Even though the vast majority of our steel comes from The U. S, it does we are affected because of the very high rates, even on a small percentage that does not.

[Richard Olson, Chairman & CEO at The Toro Company]

And then that would be followed by equal measure of China, the baseline reciprocal tariffs, a small portion of Mexico from Mexico and China, maybe $5,000,000 out of that.

[Richard Olson, Chairman & CEO at The Toro Company]

Thankfully, our products have been USMCA compliant from the start in Mexico and are currently not subject to significant tariffs there.

[David Macgregor, President at Longbow Research]

I know the AIIPA or reciprocal tariffs are sort of a point of debate right now. How much within that $45,000,000 would be the AIIPA?

[Angela Drake, VP & CFO at The Toro Company]

Don't know that we've broken it out specifically to We address the haven't broken it out.

[Richard Olson, Chairman & CEO at The Toro Company]

We can get that information.

[Angela Drake, VP & CFO at The Toro Company]

We can.

[David Macgregor, President at Longbow Research]

Okay, great. And then how much incremental pricing and mitigation traction should hit the P and L in the fourth quarter?

[Richard Olson, Chairman & CEO at The Toro Company]

So in the second quarter, we expected to offset the dollar for dollar tariffs. At this point, we see a potential path by year end be able to maintain our margins as well through a combination of the productivity measures that Angie talked about plus the careful pricing that we did in this environment as well. So we see a way to be margin neutral by the end of the year.

[David Macgregor, President at Longbow Research]

Margin neutral by the year end. Okay, good. Last question for me. Guess I just want to go back to Sam's question on residential and exploring the margin potential there and have that conversation around the professional segment margins. And I'm just thinking back prior to April 2019 Charles Machine Works acquisition, Toro was, I guess, generating consistent 20% margins in the Professional segment, as I recall.

[David Macgregor, President at Longbow Research]

Charles Machine Works was obviously dilutive and margins dropped to mid teens levels. But you've been making pretty steady progress on rebuilding those margins now despite sort of the headwinds in landscape contractor, the professional segment margins are running at a kind of a 19% annual trajectory. So I guess the question is how much upside is realistically achievable in pro segment margins given the remaining recovery opportunity that may still exist at Charles Machine Works and underground construction? I guess on top of that, recovery in the larger landscape contractor business?

[Angela Drake, VP & CFO at The Toro Company]

We do have opportunity to expand those margins. As you noticed, our SG and A spend is down. We've made purposeful cost reductions in those areas. We're continuing to see productivity improvements. We're getting the net price realization of the tariff mitigation efforts, pricing that we implemented and also additional pricing.

[Angela Drake, VP & CFO at The Toro Company]

And then also some lower marketing costs. But the piece of the homeowner that carries over into our professional segment is also impacting us somewhat there, creates us creates some manufacturing variances and capacity utilization. So if we think about those types of things and what we can take forward, there will be improvements as we continue to go forward.

[Richard Olson, Chairman & CEO at The Toro Company]

And just to acknowledge, the first thing you said, think, is Charles Machine Works and DitchWitch specifically has made tremendous progress in moving up from a profitability standpoint. So just want to acknowledge the work that's been done there by our team.

[Angela Drake, VP & CFO at The Toro Company]

And just one thing I would add. As you've noticed with our transformational productivity initiative, we are making some portfolio adjustment. We are looking at SKUs. Just this past quarter, we looked at some assets that could be potentially noncore assets and with TrendCore and the Augur boring products and are moving those out as we see necessary.

[David Macgregor, President at Longbow Research]

So within the progress this quarter on professional margins, that two fifty basis points of improvement, how much of that was productivity benefit versus pricecost and volume leverage and cost cuts?

[Angela Drake, VP & CFO at The Toro Company]

Well, we saw price up. We saw productivity improvements being an impact. So both of those are pretty big factors as well as part of the mix.

[David Macgregor, President at Longbow Research]

Got it. Thanks very much. Good luck.

[Angela Drake, VP & CFO at The Toro Company]

Thank you.

[Operator]

Thank you. One moment for our next question. And our next question comes from the line of Thomas Mahoney of Cleveland Research Company. Your line is now open.

[Tom Mahoney, Senior Research Analyst - Partner at Cleveland Research Company]

Hello, good morning. Wanted Good to look through the moving pieces in the 4Q revenue guidance. I guess first, is there a way it does look like the pro segment could be implied down year over year. Is there a way to size the divestiture impact inside that? And just speak through if there's in the remaining business, if there's any instance where maybe some has been pulled into the third quarter that comes out of the fourth quarter, anything along those lines?

[Angela Drake, VP & CFO at The Toro Company]

We did mention in Q3 that half of the decline in Q3 was related to the divestitures year over year. So that not only includes the pulp divestiture, which is in the residential segment, but also the company owned dealers in the underground construction space. So it was half of the That's

[Richard Olson, Chairman & CEO at The Toro Company]

of the fourth quarter.

[Angela Drake, VP & CFO at The Toro Company]

Yes.

[Angela Drake, VP & CFO at The Toro Company]

It will be part of the fourth quarter guide as well.

[Tom Mahoney, Senior Research Analyst - Partner at Cleveland Research Company]

And American augers remains in the future not a part of the fourth quarter guidance?

[Angela Drake, VP & CFO at The Toro Company]

So just to correct that, so American augers is still part of the underground construction. This is just a product line. It's called Augur Boring. It is just a very small component. It's not a horizontal directional drill.

[Angela Drake, VP & CFO at The Toro Company]

So the Augur Boring piece is what we sold off as well as the large trenchers. So those are the two pieces that will come out of the underground construction group.

[Tom Mahoney, Senior Research Analyst - Partner at Cleveland Research Company]

Got it. Understood.

[Tom Mahoney, Senior Research Analyst - Partner at Cleveland Research Company]

And then from a cost basket perspective, is there anything outside of tariffs to be sure to consider as we move through the second half of the year and into 2026? Or do you view the incrementals as you frame them up here pretty complete in terms of the cost and the cadence that you're thinking about looking into next year?

[Angela Drake, VP & CFO at The Toro Company]

I think the thing that you should continue to consider, you mentioned tariffs, the inflation that also comes along with that. And then also the manufacturing variances that have been related to us really aligning our production and demand. So as we look at those plants that are producing residential and homeowner products and really aligning those plus the inventory valuations that we've completed. So I think those are part of the factors that you'll have to consider for cost in Q4 and early twenty twenty six.

[Tom Mahoney, Senior Research Analyst - Partner at Cleveland Research Company]

Okay. Makes sense. Thank you.

[Operator]

Thank you. We'll move on to our next question.

[Operator]

And our next question comes from the line of Bobby Shultz of Baird. Your line is now open.

[Bobby Schultz, Equity Research Senior Associate at Baird]

Hey, good morning guys. Thanks for taking the questions. Most of mine have been answered already, but maybe just one on the golf side first. Could you give us an update on where lead times are today? And just remind us on how that compares to what normal lead times are?

[Bobby Schultz, Equity Research Senior Associate at Baird]

And give your what sort of line of sight do you have to see continued lead time improvement there?

[Edric Funk, President & COO at The Toro Company]

Yes, good question, Bobby. Happy to give you a little insight there. As I think you know, lead times have become extremely extended as we navigated some of the supply chain disruptions. We've talked before about as we got to the end of this fiscal year, we thought we'd be getting pretty close to current. And as Rick mentioned earlier, as orders continue to come in strong, there are still going to be individual models where that lead time is longer than normal.

[Edric Funk, President & COO at The Toro Company]

But we're getting to a point where we're much more current. We're certainly more current on our own production. We also have to realize, though, that ultimately the product is prepped for delivery to the customers from our channel partners. And there are still cases there where some of them are working that product through, but much more current and a much more healthier position than we were, say, this time last year.

[Bobby Schultz, Equity Research Senior Associate at Baird]

Got it. And then on Spartan Mower, I think when you guys acquired Intimidator, its annual sales were about $200,000,000 Any high level way to frame what the Intimidator Group sales are today relative to that 200,000,000

[Richard Olson, Chairman & CEO at The Toro Company]

Yes. It is now part of the landscape contractor group, but just rough ballpark, mean, it's significantly less than that because it is significantly less than it was at the time of acquisition because it has a higher penetration of homeowners. So that's probably the biggest factor. It is substantially down from where it was at the time of acquisition. That relates to the impairment that we talked about.

[Tom Mahoney, Senior Research Analyst - Partner at Cleveland Research Company]

Got it.

[Angela Drake, VP & CFO at The Toro Company]

Yeah. Was Bobby, particularly hard hit because there are a lot of more residential buyers, like Rick said. But we do believe there is value in providing a suite of zero turn mowers that are complementary to both Toro and Exmark. And this addresses a geography and a customer base that we serve we don't serve well today.

[Bobby Schultz, Equity Research Senior Associate at Baird]

Understood. Thanks, guys. I'll leave it there.

[Richard Olson, Chairman & CEO at The Toro Company]

Thank you.

[Operator]

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

[Edward Jackson, MD & Senior Research Analyst at Northland Capital Markets]

Thank you very much. I've got a couple of questions around inventories, both on your balance sheet and the dealer itself. And so just starting with the total inventory levels, would you view your current inventory levels as being kind of balanced to demand or is still still work to be done there? And then when you think about inventory levels, what would be kind of your target when it could be either like a days inventory or returns? My sense is that you're still a little heavy there and I just kind would like to get a sense in terms of where that stands and kind of what the the, you know, the target is and maybe some color in terms of how you expect to get there.

[Edward Jackson, MD & Senior Research Analyst at Northland Capital Markets]

And then on the dealer side, you know, you're you're you're positioning yourself to be set up for a solid season in 02/1926. And and you made a reference to efforts that were going to allow you to bring the dealer inventory further to ensure that you are positioned. So maybe some discussion with regards to your kind of dealer inventories, you know, and where they are now, what your actions are gonna be to, you know, put them to where it sounds like you want them to be when we get to spring. And then maybe just because we're coming up to winter, some discussion with regards to, you know, like, I don't know, mixes with regards to, like, snow products and such as well. Thank you.

[Richard Olson, Chairman & CEO at The Toro Company]

Ted, maybe I could start out talking about the fuel inventory and then Angie can finish up talking about our own balance sheet inventory. So if you look broadly across our businesses, we've made really good progress in the right directions for each of those. So first of all, underground is an area that we've been very short of field inventory. We've made good progress there, but we still have some distance to go to have the right stock at our dealers and available for immediate delivery if they need that. So we have made good progress.

[Richard Olson, Chairman & CEO at The Toro Company]

We still have more to go to add to our field inventory at underground. Golf and grounds is about right at this point, but similar to Edric's comments in some categories, we still are short field inventory. Many of the categories were in good shape at this point, and the product is flowing with good velocity through those distributors right now, those dealers and distributors. And on the residential side, good progress because of the factors that we talked about. As you said, set up well for next year, We will continue to manage that very prudently with our channel partners to make sure that we match the retail as we go forward here. So that's really our plan at this point.

[Angela Drake, VP & CFO at The Toro Company]

Our inventory go ahead, if you have a question there.

[Edward Jackson, MD & Senior Research Analyst at Northland Capital Markets]

I just it just had a little more clarity in there. So when you talked about, though, aligning and being the residential making good progress and being aligned, making sure it's aligned for the spring selling season. I mean, is that would imply that you feel I mean, do you feel like it's still a little heavy and that you have some things to do? I mean, how is it how is that going to be aligned for the spring selling season given where we are in the we're at the end of the season now to see I guess where getting at with that is like is there an actions that Toro is doing to bring those into alignment?

[Edward Jackson, MD & Senior Research Analyst at Northland Capital Markets]

Is it kind of where you want it to be given your view for '26 and there's really nothing else to do? I I guess that's kind of I'm just a little lost on that one. That's all. And then I'm to interrupt, Angie.

[Richard Olson, Chairman & CEO at The Toro Company]

I think in a general sense, we'll continue to work with our channel partners like dealers on promotional activities to help move the product through at this time of year. We are in much better position than we were last year. We'll continue to still help our dealers drive retail at this time of year, given spring is a few months away. And then just keep in mind that we're coming off two years of low snow in our key markets. That cuts across our residential business, the BOSS business, and some portion of Ventrac.

[Richard Olson, Chairman & CEO at The Toro Company]

So we do have snow inventory in some cases that's been there for a season or even two. So that is part of the sort of dealer capacity inventory that's out there that they may talk about if they're describing their inventory. At this point, it's sort of a normal preseason snow load that's out there in the channel. It's just that it was loaded in last year or the year before.

[Edward Jackson, MD & Senior Research Analyst at Northland Capital Markets]

Well, if every every winter coming into every winter, we're going to know my fingers are double crossed for lots of snow because I'd love to see that stuff go away, and I actually like winter.

[Richard Olson, Chairman & CEO at The Toro Company]

We appreciate that.

[Angela Drake, VP & CFO at The Toro Company]

Thank Our inventory has made progress. As you know, Ted, it's been a focus area for us for the all year. But we made good progress sequentially. So we're down since last quarter and down a bit since year end as well. Working first and foremost to kind of get back to our the levels that we expect and probably driving those turns above 3%.

[Angela Drake, VP & CFO at The Toro Company]

We still feel like we're a bit heavy on our total inventory. For Q3, finished goods actually went up a little bit, some of that in good inventory as we continue to get more inventory produced for our underground business and commercial to be able to fill some of that backlog. But sequentially, it was down. Our WIP inventory continues to come down on a year over year basis and then also sequentially. So we're making good progress.

[Angela Drake, VP & CFO at The Toro Company]

We know we still have work to do there, but it continues to be a focus area as well.

[Edward Jackson, MD & Senior Research Analyst at Northland Capital Markets]

So your target then would be around three turns, obviously, just an average over, say, the course of the year. That's kind of where you're trying to get yourself to go.

[Angela Drake, VP & CFO at The Toro Company]

I'd say that's my first step. I'd like to get there first and then continue to make it better.

[Edward Jackson, MD & Senior Research Analyst at Northland Capital Markets]

That's a great answer. Okay, I'll get out of line in case there's anyone else. Thank you.

[Angela Drake, VP & CFO at The Toro Company]

Thank you.

[Operator]

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

[Heather Hille, MD - Corporate Affairs at The Toro Company]

Thank you, everyone, for your questions and interest in The Toro Company. We look forward to talking with you again in December to discuss our fiscal twenty twenty five fourth quarter and full year results.

[Operator]

Thank you for your participation in today's conference. This does conclude the presentation. You may now disconnect. Good day.

Participants

Executives

• Heather Hille, MD - Corporate Affairs
• Richard Olson, Chairman & CEO
• Angela Drake, VP & CFO
• Edric Funk, President & COO

Analysts

• Michael Shlisky, MD & Senior Equity Research Analyst at D.A. Davidson
• Sam Darkatsh, Managing Director at Raymond James Financial
• David Macgregor, President at Longbow Research
• Tom Mahoney, Senior Research Analyst - Partner at Cleveland Research Company
• Bobby Schultz, Equity Research Senior Associate at Baird
• Edward Jackson, MD & Senior Research Analyst at Northland Capital Markets