Outdoor power equipment manufacturer The Toro Co.’s financing joint venture increased originations in the first quarter despite a decline in net sales at the parent company.
Red Iron, owned 45% by Toro and 55% by Huntington Distribution Finance, grew originations volume as a slight increase in the company’s professional segment sales overcame a decline in net sales during Q1 of its fiscal 2025, which ended Jan. 31, according to Toro’s 10-Q filing with the Securities and Exchange Commission.
Toro had net sales of $995 million, down less than 1% year over year, with growth in the professional segment offset by expected lower residential shipments, Richard OIson, chairman and chief executive, said during today’s earnings call.
“Professional profitability improvement was driven by favorable mix, positive net price and prudent expense management, in addition to productivity gains,” he said. “We drove professional segment growth by successfully increasing output for golf and grounds products.”
Professional segment customer demand remained strong in Q1, Olson said.
“Demand remains robust in golf, coming off another record year of rounds played, and order backlog remains elevated,” he said. “We also delivered on strong channel demand for our new contractor-grade zero-turn mowers ahead of the upcoming spring season.”
NOTEWORTHY: Toro is also prepared to mitigate the impact of any new tariffs as the company looks to protect its market leadership and profitability, Angela Drake, vice president and chief financial officer, said on the call.
“We have significantly reduced our exposure to China supply since the initial round of tariffs in 2018,” she said. “In addition, the vast majority of our manufacturing production takes place in the U.S., particularly for our higher-margin professional segment. We do have production facilities in Mexico, primarily for residential and irrigation products.”
BY THE NUMBERS: Red Iron’s originations improved the joint venture’s portfolio, but outstandings still trailed performance in Q1 2024. According to the 10-Q:
- Net receivables financed for dealers and distributors under Red Iron for the first three months of fiscal 2025 totaled $552.9 million, up 29.9% year over year;
- Total Red Iron outstandings landed at $960.5 million, down 0.4% YoY;
- Total receivables due from Red Iron to Toro were $31.6 million, up 23.4% YoY;
- Net receivables financed for dealers and distributors by third-party financial institutions reached $148.9 million, up 13.7% YoY;
- Total third-party financial institutions’ outstandings finished at $266.5 million, up 31.5% YoY; and
- Toro’s total investment in Red Iron as of Jan. 31 reached $48 million, down 0.8% YoY.
Despite improving professional segment sales in Q1, Toro’s net sales and residential sales declined, according to the company’s earnings presentation:
- Professional segment net sales rose to $768.8 million, up 1.6% YoY;
- Residential segment net sales fell to $221 million, down 8% YoY; and
- The professional segment’s earnings rate as a percentage of net sales declined to 7.8%, down 2 percentage points.
THE BOTTOM LINE: Despite some concerns related to tariffs and other market conditions, Toro remains confident moving forward, Drake said.
“We anticipate total company net sales to be similar year over year,” Drake said. “We expect professional segment net sales to be up low single digits and residential segment net sales to be down mid-single digits compared to the same period last year.”
MARKET REACTION: Shares of The Toro Co. (NYSE: TTC) were up 4.90% or $3.82 from market open to $74.19 as of market close today. The company has a market capitalization of $7.85 billion.
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