The Toro Company Is A Raging Bull You Want To Own

The Toro Company Grows Along With Suburban America

One of the stickiest trends sparked by the pandemic the flight-to-the-suburbs. American’s are fleeing their tight, hard-to-distance in cities in favor of homeownership. Now, not only are American’s with homes spending more time at home, there are more American’s with homes than ever before. And with a new home comes a lawn and lawncare, and that’s great news for the Toro Company (NYSE:TTC).

The Toro Company Outperforms, Shares Fall

The Toro Company had a great calendar 3rd/fiscal 4th quarter. The company’s sales held steady on a QoQ basis to buck seasonal trends and deliver 14.5% in YOY growth. The company’s YOY growth not only accelerated from the previous quarter but it also beat the consensus by 890 basis points. For the full year, the company served up a trim 7.7% in topline growth driven by a 24% increase in residential sales.

“Residential sales were robust across all channels with strong demand for our new product lineup, accentuated by refreshed branding, an extended selling season, and stay-at-home trends. Improved demand for our professional products reflected greater business confidence from our customers and increased home investments. The integration of our Venture Products acquisition added another strong brand with multi-season products, contributing incremental sales in the quarter,” said Richard M. Olson, chairman and chief executive officer.

On a segment basis, the company reported great results for both the Professional and Residential units. Sales for the Professional segment are up 9.0% over last year with a 70% increase in profits. The Residential segment revenue is up a more robust 38.5% with a 90% increase in profitability. Profits are driven by the combination of higher realized prices and lower costs that add up to a significant amount of leverage. Notably, demand in Residential is centered on mowers.

The company’s gross margin improved 230 basis points to 35.7% to top the consensus expectation. In addition, SG&A expenses declined as a percentage of revenue adding another 290 basis points to the bottom line. At the operating level, company margins expanded by 520 basis points to 11.1%. What this all means for the bottom line is above-consensus GAAP and adjusted earnings. The GAAP earnings came in at $0.66 to beat by $0.18 while adjusted EPS of $0.64 beat by $0.18.

The Toro Company Has A Safe Yield

The Toro Company is a below-average dividend-payer in terms of its yield but above average in every other way. The company is paying out less than 35% of its earnings, has been increasing the distribution for 19 years, and at a 17% CAGR. And the balance sheet is rock-solid so nothing to fear from that angle. The company just issued an increase bringing the yield up to about 1.15% and it’s not too late to get in. The stock goes ex-dividend on 12/21.

Technically speaking, the uptrend in The Toro Company looks strong and intact. The stock made a nice recovery from the March lows, it’s moved up to a new all-time high, and positioning for another move higher. The FQ4 report caused a small sell-off but that was a knee-jerk reaction. Buyers have since stepped in to confirm support and the uptrend by bouncing off of the short-term 30-day EMA. The indicators are a little weak but bullish and confirm the bounce. There may be some price weakness in the near-term but I expect that too pass fairly quickly. A move above $93.15 would set a new high and trigger a buy.