Good day, ladies and gentlemen, and welcome to The Toro Company’s Fiscal 2014 Full-Year And Fourth Quarter Earnings Conference Call. My name is Mina, and I'll be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s conference. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. And now I would like to turn the presentation over to your host for today's conference, Amy Dahl, Managing Director of Corporate Communications and Investor Relations for The Toro Company. Please proceed Ms. Dahl.

Thank you, Mina and good morning. Our earnings release was issued this morning by Business Wire and a copy can be found in the investor information section of our corporate website, thetorocompany.com. On our call today are Mike Hoffman, Chairman and Chief Executive Officer; Renee Peterson, Vice President, Treasurer and Chief Financial Officer and Tom Larson, Vice President and Corporate Controller. We'll begin with our customary forward-looking statement policy. During this call, we will make forward-looking statements regarding our business and future financial and operating results. You all are aware of the inherent difficulties, risks and uncertainties in making predictive statements. Our earnings release as well as our SEC filings, details some of the important risk factors that may cause our actual results to differ from those in our predictions. Please note that we do not have a duty to update our forward-looking statements. And with that I will now turn the call over to Mike.

Thank you, Amy, and greetings to all of our listeners. Fiscal 2014 was a special year for The Toro Company that featured the conclusion of our first 100-years in business, transition to our second century, as well as the final year of our Destination 2014 journey, which we are pleased to report was a success. Also laid in fiscal 2014, we entered into an agreement on our largest acquisition to-date, the BOSS professional snow and ice management business and started off our New Year with closing on the deal. I will comment further on this exciting new business later in the call. When we launched Destination 2014 back in fiscal 2011, we committed to achieving $100 million in organic sales growth each of the program’s four years as well as 12% or better in operating earnings by the end of fiscal 2014. We achieved over $128 million in sales growth this last year, which brought our Destination 2014 four year total to over $430 million. We also achieved operating earnings of 12.1%. We’re gratified that our employees’ dedication to hard work helped deliver these solid results and made Destination 2014 a successful quest, but not our final Destination. As Mark Twain is credited with saying “if you stand still you will fall behind.” In that sprit, the combination of Destination 2014 signals not an end, but a new beginning, the start of our next multi-year employee initiative that I will also discuss later in the call. This morning, we are pleased to report that the company delivered record setting results for the fiscal 2014 year, including records for revenues, operating earnings, and earnings per share. We achieved a 6.4% increase in net sales to $2.173 billion, our operating earning grew to $263 million, and we delivered earnings per share of…

Thank you, Mike, and good morning, everyone. Sales for fiscal 2014 grew to $2,172,700,000 compared to $2,041,400,000 for fiscal 2013. We achieved net earnings for the year of $173.9 million or $3.02 per share. This compares to fiscal 2013 earnings of $154.8 million or $2.62 per share. Net sales for the quarter were $414.1 million compared to $382.4 million for the same period a year-ago. We delivered net earnings of $10.9 million or $0.19 per share compared to $5 million or $0.08 per share in the fourth quarter of fiscal 2013. For the year, we repurchased over $1.6 million shares of company stock at an average price of about $63 per share for a total cost of about $100 million. This includes roughly $37,000 shares in the fourth quarter at about $2 million. At year end, we had approximately $2.7 million shares remaining on our authorization. For fiscal 2015, we anticipate spending a similar amount on share repurchases as we did last year. Our Professional segment sales were up 3.7% to $1,477,600,000 for the year. This includes 5.1% growth for the quarter to $268.9 million. Strong demand for landscape contractor, micro irrigation, construction and rental, and golf products all contributed to the growth for the year. Professional segment earnings were $276.3 million for the year, up 8.6% compared to fiscal 2013. Professional segment net earnings for the quarter totaled $31.6 million, a $9.8 million increase compared to last year. Our Residential segment sales for the year increased 13.1% to $672.4 million. Snow throwers sales led the way followed by riding and electric products. The increase was somewhat offset by unfavorable currency movements and weather in Australia as well as the walk power, the domestic walk power mower rework issue and a late spring. The fourth quarter saw residential sales rise…

Thank you, Renee. As our Centennial calendar year, draws to a close we’re gratified to have delivered record revenues, operating earnings and earnings per share along with increasing our dividend. While there are no guarantees of favorable weather in economic conditions, we look forward to delivering another strong showing in fiscal 2015 by focusing on those things we can control. We have good reason to embark on our second century with confidence. This positive outlook is based in part on our belief that customers will continue to respond to our steady introductions of innovative products and services, our leadership and providing customer valued solutions is reflected in the recognition we received for many of our latest innovations as well as for our service to our customers. Here some examples from the last couple of months. At their annual awards dinner on October 24, their professional grounds management society presented our company with the gold medal award in recognition of outstanding and long-term achievement in support of the Green industry. On October 30, the prestigious Dubai-based Emirates Golf Club received the Efficient Use of Resources Award from the International Association of Golf Tour Operators for their highly focused and sustained approach to water management and irrigation efficiency. This was due in large part to their investment in a complete state-of-the-art Toro irrigation system that help them reduce their water consumption by more than 30%. We are pleased to announce on November 4 that world-renowned Real Madrid name peoples club of the century signed an agreement extending our preferred supplier status for irrigation and turf equipment needs. And on November 12, Popular Science named our Recycler mower equipped with SmartStow a winner in their best of what’s new award in the home products category. It is certainly gratifying to receive such recognition…

Thank you sir. [Operator Instructions] your first question comes from the line of Mr. Mark Herbek from Cleveland Research Company. Please proceed.

Good morning.

Good morning Mark.

Can you talk quickly about the snow category, obviously strong sales to this point and your ability to go back into production or potentially capture some of the upside from this point?

So, clearly we treat the snow business in two ways, the pre-season piece which is predictable and it has been a terrific pre-season, and the end-season piece is unknown, and the fact is a large part of the inventory and production has been consumed in the pre-season, probably even more than we expected. We expected a good pre-season, it’s been even stronger than that. And so to your point, we have gone back into production to some degree. As you know, with this business, you can’t chase every sale that has more variability and the same thing will apply to the BOSS business as well. So both our residential snow business and the BOSS snow business has had very good pre-seasons, we’re early in December, now the key is going to be the in-season piece that will take place in December, January, and February, and we hope to obviously see some snow falls that will help both to move any remaining product through to retail, but also set the stage for the next year’s pre-season.

In terms of the inventory levels and then you also talked about some placement wins in 2015, can you kind of reconcile the two, inventory 14% higher, but then also some of the new placement you talked about, can you add some additional color on what the new placement - where the new wins are and how much of that inventory growth is attributable to these new wins?

Yes, let me comment first to the placement and then Renee can talk to the inventory specifically, because the fact is, as you know with the seasonal business, we head into the spring business. We talked about those placements and those products will start being produced and much of that is residential/landscape business, and those products actually will be produced now as we head into the New Year. So the inventory was less about that, but the fact is with some of those products that I did talk about, the Steering Wheel Z and the All-Wheel Drive walk power motor which are residential products. That will give us expanded placement with retailers and with dealers, but that’s really not at the - that’s not the inventory - that doesn’t address the inventory question that you brought up, so let Renee talk about that.

Sure, and thank you Mike. So looking at the inventory, it’s really driven Mark by a couple of different factors. So one is that we are continuing through that final step in the transition to Tier 4, and there is also some new ISO regulations in Europe, so that’s driving some increase in our inventory. We also continue to build out some of our newer businesses and so expanding some inventory to support that growth. And then finally as I had mentioned earlier in the remarks, we do have an increase in our backlog, our orders backlog going into the year. And so, there is some impact to inventory related to that as well. As we look forward, we do expect better inventory, at year end next year it will be lower than it is - as it is right now at this year end.

And then Renee, any update, any further details on the accretion potential of BOSS and maybe the impact that BOSS might be having on the first-quarter earnings guidance?

Yes, we are still thinking about BOSS in that same range that we had talked about in the prior call of $0.05 to $0.10, and we’ve incorporated that into our total year guidance. When we look at the first quarter, I think it’s important, this is the first time that we come out with guidance for the quarter. We are seeing some growth year-over-year related to our earnings per share. It does impact, the BOSS acquisition does impact the first quarter, and we see that in the purchase accounting and it really relates to the inventory step up that occurs and that inventory will primarily flush through the P&L in Q1. So that’s also I think a driver to our Q1.

And Mark just to add on to that, we’ve always talked about this that we have, we wanted to look at the company in an annual context more than the quarter. This is a relatively small quarter; we have two relatively small quarters and two relatively larger ones, and so on the smaller ones this could be some variability even as you look at last year that the impact of snow, in-season snow last year in the first quarter that we haven’t experienced yet, so we’ve got the benefit of the pre-season part of the first quarter, but there is a lot of - fair amount of time left to figure out what’s going to happen in-season wise, snow wise in the first quarter.

All right. Thanks Mike, thanks Renee.

Thank you, Mark.

Thank you.

Thank you. Your next question comes from the line of Robert Kosowsky from Sidoti. Please go ahead. Your line is open.

Good morning everyone. Hi, Dahl.

Good morning.

Good morning, Rob.

One quick numbers question. Renee, what did you say the gross margin guidance was for 2015?

It is 10 to 20 basis points down, and the primary driver in that Rob is the purchase accounting impact?

Okay, so 10 to 20 basis points down, obviously a negative headwind in the first quarter, but then you should see margin expansion in the back half of next year, I would imagine?

Yes.

Okay. And then otherwise, it seemed like margins in the professional segment were very strong. I was wondering if there was some favorable mix in there, because it just seems like 11% and change was significantly higher than what we've seen historically in the fourth quarters.

Yes, I guess there is always, mix is always a part of that, but again we would suggest you look at the margins on an annual basis, right, and so when you look at our margins for fiscal 2014 in Pro versus fiscal 2013, they are up 80 basis points. And that’s good improvement, but with that said, they are not actually at what they would be their historical highs you know have to backup a several years for that. So, we will continue to work on that and drive the opportunity to expand that margin. Some of that is borne out of new products and innovation, driving cost out of the system, reducing higher-quality, reducing warranty costs. It’s not one thing, it’s many things.

Okay, that’s helpful. And then finally, SG&A, at least the growth rate seemed low given that you had a successful year and there are probably some bonuses to be paid. I'm wondering what some of the offsets were. So maybe some of the sources where you've gotten some productivity gains within SG&A to enable that kind of operative levers that we saw and the sustainability of that going forward.

Well, we really have focused on improving our SG&A over time; it will continue to be an area of focus for us as we go into Destination PRIME. Really we have continued to invest in R&D at a rate that is similar, so we haven’t reduced that investment and we continue to focus on any area that we take out waste. If we can reduce our warranty, improve our quality those all benefit us from an SG&A perspective. But we did have some appropriate increase in incentives that have reversed those appropriately within the numbers.

And Rob just I mean I’d add and we’ve talked about this before I mean to get to Destination 2014 and now to get to Destination PRIME is going to take some combination right, some combination of improving our gross margins as well as leveraging some SG&A. So we saw the reduction of SG&A from 242 to 235 which for us is kind of a best we’ve been at and but we see more opportunities there to continue to do - make progress there and leverage SG&A to the things that Renee talked about while sustaining strong investment in engineering and R&D.

Okay that’s helpful and then finally just the other segment was a lot more negative this year than it was last year in the fourth quarter and I’m wondering what some of the puts and takes were there.

Rob there is really one item that’s driving the majority of the change and last year in our fourth quarter we had a legal settlement, a one-time legal recovery, so that’s a biggest change year-over-year.

Okay that’s helpful. Thank you very much.

Thank you Rob.

Thank you. Your next question comes from the line of Jim Barrett from C.L. King & Associates. Please proceed.

Good morning everyone.

Good Morning Jim.

Mike, congratulations to you and your team on achieving the Destination 2014 target.

Thank you.

Thanks, my first question concerned Henderson products, was that brought to your attention prior to its sales and was that given its product line and its end-customers was that a company that was of interest to you in addition to BOSS - in addition to [both] BOSS rather.

BOSS do you mean?

Yes.

So well first, yes we were aware that was an auction and we wont go into a lot of the reasons here, but our prior focus clearly was around BOSS and right now let’s say our hands are full, but that is going very well, we think BOSS is just going to be a terrific addition like I said earlier in the remarks the cultural fit of that company with this company is hand to glow.

And certainly the product line seem like a closer fit and Renee in terms of the 50% increase in backlog, is that largely relating to snow blowers, does that also include lawn maintenance equipment and I assume it doesn’t include any BOSS.

No, really it relates to both the Residential and the Professional segments and some impact related to the regulatory changes.

I see, okay.

You know what, it was both, it was that we had strong backlogs in both segments.

Good and Renee the plastic resin costs in 2015, if that happens to track with the declining oil prices, is that a potential moderate, positive for the cost of goods?

Yes, I think it would be, however, it never seems to come down as quickly as it goes up, so we will continue to monitor that and hopefully we’ll see some benefit from them.

Okay and then last but not least. Mike is there any plan to take at least a selected price increase in 2015 on your product lines?

Yes, you go across the portfolio. I think last year we talked about realizing about 1% and this year again across the portfolio will realize some place between 1% and 2% we tend to get a little more price in Pro than we do in residential best way is for us to drive that change in residential is obviously with the new products. We have a number of new products coming in residential. So, all in it’s moving in the right direction.

Okay well thank you both.

Thank you.

Thank you.

Thank you. Your next question comes from the line of John Borstein from Longbow Research.

Good morning everyone and congrats on the year.

Thank you, Josh.

Can you talk a little bit about contribution margins going forward? I know the past few years you have maintained a contribution margin in the 25% to 30% range and was just curious on your thoughts if that level is sustainable or not?

Yes, we’ll continue to work as Mike said earlier both improving our SG&A leverage as well as our gross margin which will contribute to our incremental margins. We’ll continue to focus on pricing to market not to cost and looking at productivity and we have built those thoughts into our guidance as we go forward.

And to your point Josh I mean we clearly some of this embodied in Destination PRIME now, when you contrast Destination PRIME with Destination 2014, the operating earning side obviously the changes and as much but you have to remember when we launch Destination 2014, we had a number of recover years, if you will getting back to the level of performance we had experienced back in 2007 and 2008. And where there now, we’ve actually passed that, so does get a little harder but we continue to see opportunities for growth and leverage and higher levels of performance.

Okay, thanks for that. And then on the top-line guidance, how should we consider that in terms of res versus pro, domestic versus international? Can you weight some of those buckets for us?

Yes, we don’t break it out I know one of the comments we have gotten is as we talk about that revenue guidance to what degree will BOSS impact that versus - so organic versus acquisition. And just to be clear our top-line guidance for the enterprise is about without BOSS is about five points. Now when you factor BOSS in - but you remember the number we commented to BOSS revenues for 2014 were really peak revenues following an extraordinary season, preseason and season. And so what that may not exactly repeat and we’ve that variability in our snow business. So we’ll expect to see solid growth, similar growth of residential and professional balanced then the BOSS pieces on top of that, which will be down somewhat from their 2014 level if you will. And then and last international I mean international remains a little bit of a headwind with currency and so we do expect to see growth there, but it will be - it’ll come a little harder.

Okay. And so just to make sure I understand quickly, BOSS in 2014 I think you said did around $125 million and the expectation is for - that was an extraordinary year and so maybe they do a little less than that is the expectation for 2015?

Correct.

Okay, great.

Again these things all can change and so if we’ve that kind of winter that we experienced in the 2013/2014 season than the numbers obviously will change. That’s the variable part of the snow business and that’s we dealt with that with the residential part of our portfolio we now have - BOSS has an added we still relatively for the whole company relatively 10% of our revenues, so we think we can manage that well.

Okay, great. And then just on the margin goals for Destination PRIME, where do you see more of the margin growth coming from? Is it more on the gross side or the SG&A side?

Now I wish I could say it was one thing, it is going to have to be all things, so some of that is revenue growth and leveraging the goals with it, it’s going to be continued work on gross margin and operational efficiency and it’s going to be continued leveraging of SG&A.

Okay. And then just last a housekeeping question on interest expense, what should we anticipate for 2015?

And so interest expense will increase by about $3 million to about $18 million for the year.

Okay, great I appreciate it. Thanks so much.

Thank you.

Thank you, Josh.

Thank you. Your next question comes from the line of Sam Darkatsh from Raymond James. Please go ahead.

Hi, this is Josh filling in for Sam, thanks for taking my questions and congratulations on the year.

Thanks Josh.

Good morning Josh, thank you.

Could you specifically quantify the purchase accounting impact from BOSS?

We haven’t specifically called that out, but it is the primary driver to the declining gross margin year-over-year, 10 basis points to 20 basis points.

So at least 10 basis points? Is it fair to say at least 10 basis points?

Yes, it would be, because it is a driver that would be a fair assumption.

Okay. And that's all in the first quarter?

It will impact us in the first quarter correct, because it really - the piece that we’re talking about is that inventory step up piece and that does go through as you sell that initial inventory that you acquired with the acquisition.

Okay. Appreciate that. And then with regard to Destination PRIME and the working capital goal, which components of working capital do you expect to see the most improvement in to reach that new target?

Yes, good questions. As always it’s not one, it’s going to be all, but I would say probably the more weight on inventory and some of that what’s going on with working capital in the last couple of years with the whole tier 4, some of the new businesses that we’ve integrated into the company have caused that to rise up somewhat and it’ll have to be some from each area, so some from receivables and some from payables certainly, but more of it from inventory.

Okay. And how should we think about the other segment operating income for fiscal 2015?

Yes, our other segment is primarily our corporate expenses, there is really nothing unusual that I would anticipate for fiscal 2015.

So similar to this year?

It’s similar maybe a little bit of increase due to inflation and we’ll drive to offset as much of that as we can with productivity.

Okay. And then you talked about 1 to 2 points of price. Oil is potentially eventually a tailwind on the cost inflation side. Any other puts and takes in the price versus cost arbitrage as we look at fiscal 2015?

No, I think as Renee said earlier we’ll work hard to drive down some of the costs, these things tend to go down slower than they move the other way. So it will have to be across the board.

Thanks. Good luck with the next year.

Thank you, Josh.

Thank you, Josh.

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

Thank you, Mina and thank you everybody for your questions and interest in Toro. We wish everybody a pleasant and safe holiday season and look forward to talking with you again in February to discuss our first quarter results. Thank you.