The Toro Company — Third Quarter Fiscal 2026 Earnings Summary

Financial Performance

• Net sales increased 8.4% year-over-year to $1.23 billion for the third quarter ended July 31, 2026.
• Reported net earnings rose 43.9% to $77.0 million, compared to $53.5 million in the prior-year period.
• Diluted EPS increased 50.0% to $0.81, up from $0.54 in the prior-year period.
• Adjusted net earnings were $126.8 million, a 3.5% increase from $122.5 million in the prior-year period.
• Adjusted diluted EPS was $1.33, up 7.3% from $1.24 in the prior-year period.
• Gross margin was 34.1%, up from 33.7% in the prior-year period; adjusted gross margin was 35.0%, up from 34.4%.
• Operating earnings margin was 9.4%, compared to 5.7% in the prior-year period; adjusted operating earnings margin was 13.9%, up from 13.6%.
• Interest expense decreased $1.3 million to $13.8 million, driven by lower average interest rates and borrowings.
• Reported effective tax rate was 28.0% compared to 7.4% in the prior-year period; adjusted effective tax rate was 22.4% compared to 17.3%.
• Net cash provided by operating activities for the nine months ended July 31, 2026, was $476.2 million, up from $348.9 million in the prior-year period.
• Free cash flow for the nine months ended July 31, 2026, was $425.1 million, compared to $291.9 million in the prior-year period.
• Free cash flow conversion percentage was 127.5% for the nine months ended July 31, 2026, compared to 90.0% in the prior-year period.
• Inventories decreased to $882.7 million from $1,036.2 million in the prior-year period.

Guidance and Future Outlook

• The company raised full-year net sales growth guidance to a range of 6.3% to 6.6%, up from the previous range of 4.0% to 6.5%.
• The company raised full-year adjusted EPS guidance to a range of $4.60 to $4.65, up from the previous range of $4.50 to $4.62.
• Management cited healthy end markets, strong customer response to new products, and disciplined execution as drivers for the guidance increase.
• Productivity initiatives are delivering margin expansion, and the team is effectively managing inventory.

Business Segments and Product Lines

• Professional Segment: Net sales reached $1,012.6 million, up 8.8% from $930.8 million in the prior-year period, driven by higher volume, net price realization, and the Tornado acquisition. Segment earnings were $211.8 million, up from $198.5 million, with an earnings margin of 20.9% (down from 21.3%).
• Residential Segment: Net sales reached $209.3 million, up 8.6% from $192.8 million in the prior-year period, driven by higher volume of walk power mowers and net price realization. Segment earnings were $12.4 million, up from $3.7 million, with an earnings margin of 5.9% (up from 1.9%).
• Other Segment: Net sales were $3.9 million, down from $7.7 million in the prior-year period.
• The Tornado acquisition contributed to Professional segment growth.
• Residential segment earnings improvement was partially offset by higher material and manufacturing costs but driven by productivity improvements and non-recurring prior-year inventory valuation adjustments.

Market and Competitive Landscape

• End markets are described as healthy with sustained demand across the portfolio.
• Customer response to innovative new products has been strong.
• The company operates in outdoor environment solutions including turf, landscape maintenance, snow and ice management, underground construction, rental, specialty construction, irrigation, and outdoor lighting.

Risks and Challenges

• Higher material and manufacturing costs impacted margins in both Professional and Residential segments.
• Product mix changes contributed to a decrease in Professional segment earnings margin.
• The reported effective tax rate was impacted by non-recurring adjustments and a less favorable geographic mix of earnings.
• Forward-looking statements note risks including adverse economic conditions, inflationary pressures, higher interest rates, abnormal weather patterns, customer budget spending levels, commodity cost fluctuations, supply chain disruptions, and risks associated with acquisitions.

Management Commentary and Tone

• Richard M. Olson, Chairman and CEO, stated that strong momentum continued in the third quarter supported by sustained demand and a focus on operational excellence and margin expansion.
• Management highlighted the reduction of inventory and improvement in working capital as key initiatives.
• The tone was confident, citing robust free cash flow and value creation for shareholders through dividends and share repurchases.

Other Key Points

• The company returned $110 million to shareholders in the third quarter, bringing the year-to-date total to $471 million.
• The company completed the acquisition of Tornado Infrastructure Equipment Ltd. on December 8, 2025.
• The company launched a productivity initiative named AMP in the first quarter of fiscal 2024.
• A non-cash impairment charge of $43.1 million was recorded in the third quarter of fiscal 2026 related to manufacturing facility and product line exits.
• SG&A expense as a percentage of net sales increased to 21.2% from 20.8% in the prior-year period, primarily due to higher incentive expenses.
• Common stock repurchases for the nine months ended July 31, 2026, totaled $358.1 million.
• Dividends paid on common stock for the nine months ended July 31, 2026, totaled $112.8 million.