The Toro Company (TTC) Q1 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to The Toro Company's First Quarter Earnings Conference Call. My name is Chris, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. And I would now like to turn the presentation over to your host for today's conference, Ms. Amy Dahl, Managing Director of Corporate Communications and Investor Relations for The Toro Company. Please proceed Ms. Dahl.

Thank you, Chris, and good morning, everybody. 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 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 detail 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 good morning to all our listeners. 2015 is off to a solid start based on strong channel and retail demand across our professional businesses. Our residential snow business posted modest gains for the quarter, as the heavy preseason demand we experienced during the last quarter of 2014 tapered off due to minimal snowfall during most of the quarter, but nonetheless, overall snow products retail was strong in the quarter. As we reported this morning, the company delivered record sales and earning results for the quarter. Our net sales grew to $472.2 million, while net earnings increased to $31 million or $0.54 per share. Following a brief commentary on our businesses, Renee will discuss our financial and operating results in more detail. First, the latest addition to our professional portfolio, the BOSS line of snow and ice management products. BOSS delivered a strong showing in its debut with the company by achieving solid sales results for the quarter. We're pleased with how well the BOSS integration is progressing and by the positive contributions the new snow and ice management business immediately delivered. We look forward to continued growth from this important new member of The Toro family. The longest serving player in our business portfolio, the golf equipment business, capitalized on strong channel and retail demand in the quarter. These early results reflect a general sense of optimism within the industry. Coming out of 2 of the worst spring weather years in North American recent history, back-to-back in 2013 and 2014, the golf industry is ready for a strong 2015 season. The optimism is not based on best wishes but favorable trends. Although total rounds played were down last year, the decline is directly related to the reduced number of days courses were open for play because of unfavorable weather conditions. In spite of these weather challenges, golf facility revenues for calendar year 2014 were up over 2013. And importantly, the number of rounds played on the days courses were open grew as well. Furthermore, recently released industry reports revealed that superintendent identify equipment replacement as their top priority for spending and investment. As I will discuss later on the call, we are poised with a number of innovative new products to help golf customers leverage their recruitment investments with our latest productivity-enhancing solutions. Golf irrigation sales should likewise benefit from the industry's positive attitude. We're been awarded a number of full irrigation system replacement projects for the coming year. The sales momentum of our new INFINITY sprinklers is building, as courses recognize the benefit of upgrading to this work-saving innovation. Next, to our landscape contractor businesses, registered sales gain for that quarter due to overall dealer orders, strong retail demand for zero-turn riding equipment and expanded replacements with certain large contractor firms. The heavy snow event that recently struck the Midwestern section of the United States and continued to pummel the Northeast have increased demand for contractor snow removal services, which should support increased expenditures for contractors' spring equipment fleets. Interest remain strong for our enhanced, high efficiency, fuel injected zero-turn riding offerings as well as our new stand on spreader/sprayer units. The rental business delivered moderate gains for the quarter driven primarily by the acceleration of industry growth. In 2014, the rental industry experienced a 9% boost in business and has similar expectations for 2015. Sales of our residential and commercial irrigation products mirrored industry results as unfavorable weather patterns slowed sales. We did however benefit from strong retail demand for our new Element's lighting line. Micro-Irrigation sales were down as a result of political and economic challenges overseas, particularly in the EMEA region, that were somewhat offset by stronger demand for Aqua-Traxx products in North America. Residential equipment sales were also down for the quarter, primarily due to lower shipments of zero-turn riding mowers, resulting from substituting additional snow production in the first quarter, some supply inefficiencies and the production ramp-up of new riding products. Despite the timing of shipments, the good news is that increased product placements, customer enthusiasm for our new offerings and channel demand are at all-time highs. We have addressed the supply issues and remain focused on factors in our control to increase production and address our strong open order position, while closely monitoring those beyond our influence, including the West Coast port challenges. Walk power motor sales increased for the quarter due to demand for new products, most notably our All-Wheel Drive Recycler and enhanced placements. Snow sales finished slightly ahead of our fiscal 2014 first quarter. The current heavy snowfall pattern that emerged at the end of the first quarter generated additional retail activity. And as I mentioned earlier, overall, first quarter retail was up nicely compared to the same period a year ago. Additionally, the recent storms have helped clear field inventories, setting the stage for a favorable preseason next winter. Finally, our international professional sales increased for the quarter based on demand for commercial products in Australia and Europe but were largely offset by unfavorable currency rates. International residential sales were lower for the quarter also due to unfavorable currency rates as well as some product availability issues like those experienced domestically and softness in Pope water product sales due to unfavorable weather in Australia. I'll now turn the call over to Renee for a more detailed discussion of our financial results.

Thank you, Mike, and good morning, everyone. As we reported earlier this morning, net sales for the quarter were $474.2 million compared to $446 million for the same period a year ago. We delivered net earnings of $31 million or $0.54 per share compared to $0.44 in the first quarter of fiscal 2014. Professional segment sales were up 15% for the quarter to $339.7 million due to strong channel demand and retail demand across most of our businesses, including BOSS. Professional net earnings for the quarter totaled $55.7 million, an increase of 17.3% compared to $47.5 million a year ago. Our residential segment sales for the quarter were down 8.7% to $134.7 million due to lower shipments of riding products caused by supply inefficiencies and the ramp-up of our new platform, somewhat offset by increased sales of walk power mowers and snow throwers. Net earnings in the residential segment for the quarter totaled $13.7 million, down $4.4 million compared to last year. Now to our key operating results. First quarter gross margin decreased 110 basis points to 35.6%. The decrease is primarily attributable to the purchase accounting impact of the BOSS acquisition and unfavorable currency rates, somewhat offset by favorable segment mix. At this point, commodities have been slightly favorable, and we anticipate they will continue to be slightly more favorable for the full year compared to fiscal 2014. However, for the full year we now anticipate a slight decrease in gross margin of about 20 to 30 basis points related to unfavorable currency rates and the BOSS purchase accounting. SG&A expense as a percent of sales decreased by 140 basis points for the quarter to 26.2%. The decrease reflects lower warranty, warehousing, administrative and incentive expenses. Interest expense for the quarter was $4.7 million, up $1 million primarily due to additional long-term debt associated with the BOSS acquisition. Our effective tax rate for the quarter was 26.3% compared to 33.2% last year. The retroactive reenactment of the domestic research tax credit for calendar year 2014 is primarily responsible for the lower rate. We now expect our tax rate for the full year to be 31.5%. Turning to the balance sheet. Accounts receivable for the first quarter totaled $205.3 million, up 2.7% compared to the first quarter of fiscal 2014. First quarter trade tables increase 1.5% to $195.6 million. Net inventories for the quarter were up 19.5% to $364.4 million. This level is consistent with our anticipated levels due to the addition of BOSS and production related to the final year of the Tier 4 roll out. In addition, we had higher working process tied to contingency planning for the West Coast port situation and the production ramp-up of the new residential zero-turn riding platform. As you know, we remain focused on inventory, accounts receivable and trade payables management. At the end of the first quarter, the company's 12-month average net working capital, as a percent of sales, improved to 15.5% compared to 16.3% a year ago. Ongoing improvement in working capital is one of the key goals of our Destination PRIME initiative that Mike announced during our last call. We repurchased 230,000 shares of common stock during the quarter and have approximately 2.5 million shares remaining in our repurchase authorization as of quarter end. During the quarter, we also raised our dividend by 25%. I'll now turn the call back to Mike for his concluding comments.

Thank you, Renee. F '15 is off to a good start, and we're encouraged by the prospects for growth for the remainder of the year. We have a number of exciting new products to cross our businesses that are either currently hitting the market or will be unveiled at leading industry trade shows in the weeks ahead. As always, the timely arrival of spring is important. While we've not enjoyed a normal spring for the past 2 seasons, we are hopeful that our businesses will benefit from more favorable spring weather patterns this year. We remain prepared to adjust to whatever weather comes our way in order to capitalize on demand for our latest innovations. As we stated during our last call, we are confident that we are well positioned to take advantages of our opportunities ahead in 2015. Let's take a few minutes to consider the prospects for each business. Next week, we will be meeting with golf customers from around the world during the Golf Industry Show in San Antonio. Based on industry reports I mentioned earlier and the positive outlook superintendents shared when I recently visited a number of golf courses, we anticipate a heightened degree of enthusiasm among golf show attendees. We also look forward to seeing many of you next week in San Antonio for the show. While touring our booth, you will have an opportunity to see all of our latest entries in the golf equipment and irrigation fields, including our exciting new hybrid fairway mower, the Reelmaster 5010-H. The 5010-H offers the ultimate in precision operation and cutting performance in a highly efficient hybrid design. We're confident that superintendents and golf course operators will strongly approve of the hybrid Reelmaster along with other exciting product innovations that will be featured during the show. Our golf irrigation line will also garner its share of attention next week, as customers continue to flock to our award-winning water management solutions like the INFINITY sprinklers. Although they were only released this past March, the INFINITY sprinklers have become a significant factor in the marketplace. Their sales momentum shows no signs of slowing down. This month, we were pleased to learn that we have once again been selected by the United States Army to provide golf course maintenance equipment to help care for the nearly 50 golf facilities worldwide. These facilities are enjoyed by members of the armed services and their families in the United States, Germany, Japan and Korea. Similar to golf customers, landscape contractors are optimistic about business prospects for the spring. Booking orders for our enhanced zero-turn riding platforms and our new stand-on spreader/sprayer units are strong. Cash flow generated from contractor snowplowing activity should help fund additional spring purchases. Our professional grounds business continues to benefit from our focus on working with states and local government agencies to supply their turf maintenance needs. We also continue to proudly serve all levels of sports facilities around the world. For example, we're proud to take part in Super Bowl 49 held this month at the University of Phoenix Stadium in Glendale, Arizona. Every year since 1967, when we helped prepare the field at Memorial Coliseum in Los Angeles for the first world championship game, Toro has helped NFL ground crews prepare every Super Bowl game field as well as multiple practice sites and fan recreational areas like the NFL Experience. Toro has provided not only equipment but expert agronomic consultation on managing the myriad of special challenges hosting such a mega sports event poses for turf. Demonstrating the global reach of our sports presence, last week it was announced that a full array of our grounds equipment utility vehicles and irrigation systems will be used by grounds crews across Australia and New Zealand as they host the 2015 international cricket world cup. From Arizona to Australia, you can count on Toro to help care for the finest playing fields on earth. Market conditions look positive for the rental and specialty construction businesses as well, fueled in part by the continued growth of commercial and residential construction activity. As I mentioned, for 2015, the Rental Association forecast growth level is similar to what the industry achieved last year. To participate in that growth, next week, we will unveil a new compact utility loader, equipped with unique features designed with customer input that we believe will be enthusiastically received, along with other new construction items at the American Rental Association tradeshow. The strength of the construction market should also present opportunities for our residential and commercial irrigation and lighting businesses. If more normal spring weather patterns prevails, residential and commercial irrigation projects will likely pick up. Sales of our LED offerings, including our Element's line of professionally installed aluminum lighting fixtures, continue to grow and complement our strong core copper and brass product lines. Our team at BOSS is busy preparing for the National Truck Equipment Association show in March, when we will unveil a number of new products to the trade. The late heavy snows we have recently experienced have helped round out an already good winter for the snow and ice management business. Like our snow thrower position, this late activity should help set up a promising preseason later this year for BOSS. Finally, in our residential business, we enjoyed another good snow thrower season, the combination of very strong preseason demand for the fourth quarter of 2014, the more modest in-season gains and the inventory clearing snowfalls of late adds up to a solid position for next winter's preseason sales later this year. Increased placements of spring products and strong market demand for all of our new offerings present meaningful opportunities. As spring product production ramps up and we move beyond the early supply inefficiencies, we're focused on catching up and meeting the robust demand for our new residential steering wheel and stick equipped zero-turn riding products. Our All-Wheel Drive Recycler walk power mower has also generated solid orders and early channel demand. Turning to our outlook, overall, the stage is set for another successful year. We recognize that unfavorable shifts in the economy or weather could pose challenges to our plans. As always, we are prepared to respond to the changing conditions. The company continues to expect revenue growth of about 8% to 10% for fiscal 2015 and now expects net earnings of about $3.35 to $3.45 per share. For the second quarter, the company expects net earnings per share of about $1.58 to $1.63. This concludes our formal remarks. We'll take your questions at this time. Chris, back to you.

[Operator Instructions] And our first question comes from the line of Sam Darkatsh with Raymond James. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: A couple of questions. First regarding the commentary around gross margin. First off, I missed this if you mentioned it in your prepared remarks, Amy, but -- or Amy, Renee, do the inventories step up costs, were they quantified, the accrual accounting?

We did not specifically quantified those costs, Sam, but we did indicate that, that was going to be a major driver to our gross margin for the year. And we had previously indicated that would be a drag of 10 to 20 basis points our gross margin would be down for the year. And we subsequently have revised that to 20 to 30 basis points. So one of the factors to that certainly is the BOSS purchase accounting as well as, as we look forward, incorporating the impact of the favorable commodity trends as well as some unfavorable FX. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: So the 10 to 20 basis points for the year would have been the BOSS inventory true up? Was that in effect what the impact was for the quarter? Or was it greater than you expected and thus, that's the reason why gross margin expectations for the year are now a little bit more trimmed?

No, that would have been the primary driver to our prior guidance of 10 to 20 basis points. The reason we're changing it is really again looking forward from a total year perspective and including certainly the BOSS piece as well as in our -- the outlook for commodities and for FX. And that's what really brings us to the 20 to 30 basis point erosion in gross margin from a total year.

The fact is, Sam, the currency from December has obviously weakened significantly. And so that's -- we didn't plan on that level of headwind. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: But I thought that you would have hedged your transaction impacts, Mike. So is that just because the international business is a higher-margin business overall, and that's why with the lower international sales from FX, it hurts gross margin?

We don't hedge all of it. We hedge some of it.

Yes, we...

And it was a -- the unhedged balance was obviously hit. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: Got you. Okay, that makes sense. And then I think this is a nuance here, especially mid-February. But you're raising your guidance by $0.05. It looks like there's a $0.05 benefit from tax. You've got a little bit of a headwind incrementally from gross margin versus where you were before. So where's the make up there? It looks like your sales guidance is roughly the same, although maybe you could be trending a little bit higher in your sales within that range. But where's the additional makeup from the lower gross margin other than tax?

Well, so let's go back to the starting point. So revenue guidance is similar to last. And while we expect some additional momentum, if you will, or pickup on the snow side of things, just because of what's happened during the quarter, it's -- that's largely offset by the negative change in FX, so that's the 8% to 10%. And then so the -- then you get to the primary change and that is tax. And so when you -- as Renee said, when you take, okay, commodities will be somewhat favorable but currency is on the other side of that and the BOSS piece is on the other side of that. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: Got you. And then last question, I defer to others. Share repurchase activity was roughly similar to dividend payouts in the quarter. I guess that's the second quarter in a row where share repurchase has been at or below that of the dividend payouts, which is unusual for you folks. You tend to be much heavier on the share repurchase side. Is that just a timing thing? Does it have to do with the BOSS cash outlay? Does it is have to do where the stock is overall? Why the slightly muted share repurchase activity over the last 6 months or so?

Sam, this is Tom. For the full year, in the full year context, we've said we're still looking at spending a relatively similar amount on share repurchases throughout the year. And I would say we go into different periods with plans. Depending on what the price is at certain levels, we'll buy certain amounts and we'll put programs in place. And based on those programs, it just didn't trigger as much borrowing in the defined period.

And I would just also add to that, that there was a period of time within the quarter that we were out in the market-buying shares just due to the BOSS acquisition, the timing of that announcement. So the period that we were able to purchase shares was actually a little bit shorter this quarter.

Our next question comes from the line of Jim Barrett with CL King & Associates. James Barrett - CL King & Associates, Inc., Research Division: Mike, could you tell us how much BOSS contributed in terms of sales and profit in the quarter?

So sales impact was $29 million. So it was a significant part of the professional increase, if you will, of that 15%. We don't break out earnings. All we've said is BOSS will add $0.05 to $0.10 for the year. We said that on the last call, and we've said BOSS margins are professional light, but that's as far as we've gone. James Barrett - CL King & Associates, Inc., Research Division: And is that business have a legacy of having a regional strength? Obviously, it'd be Northern U.S., but is it more Midwest, Northeast?

Yes, it did. Well, it's a good question. And so BOSS is a very strong brand. It's on a standalone brand basis, I'd say, probably it may be #1. But obviously, there's another player out there that has multiple brands. The strength of the BOSS brand is in the Midwest. Certainly our intention is to make BOSS a -- the strength of that brand across North America and international as well. And they've got a terrific team and terrific products, and we expect to accomplish that. James Barrett - CL King & Associates, Inc., Research Division: Good. And absent timing the start of spring, how much visibility do you have in terms of your end markets in the core selling season and at this point prior to at least through 3 of your major trade shows?

Yes. Well, if you go across the portfolio, and we're a company that pays close attention to what's going on at retail. We're in the early innings, if you will, largest part of our sales. But as I mentioned on the -- in the remarks, golf momentum is sound, certainly Mother Nature will play a role there. Channel demand is very strong. And we have some expanded placement of products as well as the -- some new offerings. And so, I mean, you could go across the portfolio and feel relatively optimistic about our position with placement, with new products, with the, call it the market demand, maybe the -- kind of a bit of an offset to that is the international currency thing. We'll have to see how that plays out. That's a smaller part of our revenues. But we'll be down at -- we'll have a team down at The Rental Show next week. And the rental industry is very excited, robust prospects about the market. And then hopefully our position within the market will continue to improve. So we've had really good trade shows in -- to date with the new product offerings. We've got the golf show, The Rental Show and large truck equipment show in front of us. We expect those to follow and say it sets up for a good year. Macro factors will play a role. U.S. economy relatively stronger, that's a plus; currency is somewhat of a headwind, smaller part of the portfolio. And so we're -- we sit here in February feeling in pretty good position. James Barrett - CL King & Associates, Inc., Research Division: Good. And finally, the nature of the supply inefficiencies. You mentioned a number of factors. Could you elaborate that a bit? And should I -- are you -- I assume you're suggesting that these issues are behind the company at this point with the...

Jim, there really were a couple of factors that went into this client inefficiencies. A piece of it is the West Coast port situation, which in part we try to mitigate with bringing in some higher work-in-process inventory, but that is an area that's outside of our control, and we're hopeful that, that gets resolved in the near term and that we can get back to more normal. But we'll keep focus on that. Then we also have the ramp-up of our new Residential Z mower platform. In part that was slowed because we produced additional snow inventory or products. And that, we feel like we have addressed the issues, and it's really more than anything kind of a delayed sale situation. And we feel we'll recover that demand in Q2.

And I would just add to that, Jim, that we went back into some snow production in the quarter. And it means you're kind of quickly juggling in your plants. Now that turns out to be a good decision because that snow inventory was built and based on what's going out in your part of the world, it's largely gone.

The next question comes from the line of Eric Bosshard with Cleveland Research Company.

This is Tom on for Eric today. Can you describe the $0.05 to $0.10 of BOSS accretion through the year? Can you describe the cadence of that, maybe neutral-ish in the first quarter with the step up? But then would we expect the biggest impact in the fourth quarter? And how does that play out in the second quarter and the third? Any color you guys can give us there?

Yes. Well I think you kind of asked and answered. So the first quarter would typically be a larger quarter for BOSS' contribution but with the purchase accounting that gets offset. Second and third quarters -- it is on the professional side, so it will have some third quarter influence because that stuff tends to get out there. Those products are out there a little earlier through the professional channel, but the fourth quarter will clearly be the largest. And we would say when we said $0.05 to $0.10, certainly now as the result of the kind of season we're seeing, we're in the higher side of that.

Great, great. That's helpful. And then as far the -- with the potential for the favorable spring weather, is there -- and you guys talked about the supply issues largely being behind you, is there any extra risk that those issues can linger a little bit with a favorable March? Or any risk -- any additional risk you see should we get off to that -- to a good start in the spring?

Yes. So we're certainly planned at this point for what we'll call normal. If spring was abnormally early, that would certainly put pressure on the supply chain and production and all of that. That's not unusual. We try to be nimble when those things happen. And demand is strong. So if demand continues to increase but outpaces supply, then that creates some challenges as well. But based on where we sit right now, we expect to be good suppliers to our channel partners, and hopefully, their retail will be strong.

Great, thanks. And last, last piece on the inventory up 20% year-over-year. And can you size the acquisition impact of that? I know you talked some details on some of the other pieces, but can you size the acquisition piece?

Well, we don't specifically break out that piece. But the contributing factors to the inventory increase would be the BOSS acquisition. Also the final ramp up for Tier 4 production, the final rollout of that Tier 4. And then our work-in-process is up related to the West Coast port and also the zero-turn new product transition. So those are the main factors that are driving inventory up. It is important to note that we do continue to anticipate that our inventory levels will be down at the end of the year versus where we ended fiscal 2014.

The next question comes from the line of Robert Kosowsky with Sidoti. Robert A. Kosowsky - Sidoti & Company, Inc.: Quick question on cash flows. Wondering if you expect -- and Renee, you just said inventory should be down 2015 versus 2014. Do you think working capital will be a source of cash or a user of cash in 2015?

Yes. Working capital is probably somewhat neutral. We expect inventory to be down, but as we continue to grow our sales, receivables will be up. Accounts payable probably not as big of a factor.

And I would add to that, Rob, that our Destination PRIME initiative, so over this 3 years, our goal is to take that working capital, which was 15.5% last year on a 12-month basis through '14, move that under 13%. Now it takes a little time to kind of build momentum, and we've continued to wash through the consequence of Tier 4 and some of those activities not just in the U.S. but abroad. So while, as Renee said, we may be flattish in 2015, we still have expectations of driving that down to less than 13% by the end of '17. Robert A. Kosowsky - Sidoti & Company, Inc.: Okay. Well did you use that incremental cash that you generate? Because I imagine that your buybacks and your dividends will remain relatively constant, we've been seeing over the past few years. So would you use that incremental cash just to pay down the debt you took down with BOSS?

Well, our priority from a capital allocation standpoint remains the same, as they have for long, many years, and that is if we can find another BOSS, that will be the first priority in terms of finding ways to accelerate the growth for coupling on good businesses to the company. If we don't see that, then as you commented to share repurchase and dividends, then that is an option for us. But I think we'll look at that situationally as we go. Robert A. Kosowsky - Sidoti & Company, Inc.: Okay, and then switching to the residential segment. I wonder if you could talk about the sell-in for mowers and other product into the residential segment. Are retailers more apt to take on higher inventory heading to the season, given that snow is good? Or are they basing it on last year was a pretty, I guess, stubbornly slow lawn and garden season. I'm just curious what they're -- what you're seeing going into the season.

Yes. I think we would answer that by saying that the channel demand, so this is evidence of it on both the dealer and depo side, is very strong there. Our placement is good. Our offerings are broad and comprehensive. And are they more optimistic because of snow? Well clearly, that plays somewhat of a role, so there'll be very little snow inventory taking up space in their facilities and as a result, it probably makes them a little more willing to invest. But that was the information coming from the market in terms of demand. That really preceded the kind of the snow season. It has been generally optimistic to date. Robert A. Kosowsky - Sidoti & Company, Inc.: Okay. And then finally, what's a bigger impact, the positive benefit from materials going lower over the year or the negative impact of FX?

Yes. The negative impact of FX is slightly larger than the favorability of commodities. And keep in mind, that we tend to see a lag in when commodities change versus the impact to our business because we tend to be more of a assembler of product versus a pure manufacturer. That's part of what you're seeing as well.

Next question comes from the line of Josh Borstein with Longbow Research.

Just a question on FX again. Can you quantify, Renee, the impact to either the top line or to Op EBIT?

Yes. Yes, I can. For the quarter for Q1, we had about a $5 million impact from an FX standpoint or about 1% when you look at percent to sales.

Okay. And what would you anticipate the impact to be for the full year?

Yes. We'd expect something fairly similar when we look at the full year, now assuming FX rates remain as they are. It's been somewhat volatile. Who knows what will happen from an overall currency standpoint? But assuming kind of status quo going forward, it would be a similar impact to the top line for the year. Now we do hedge a number of our exposures as well. So that's unhedged portion. And also keep in mind the impact to the bottom line is going to be less than that, probably less than about half of that impact.

Okay, so $5 million per quarter, $20 million for the full year?

Well about 1% -- our quarters are not all linear from a sales standpoint, so about 1% as far as the sales is what I would say.

Okay, great. And then just to make sure I understand what's going on with snow. So you guys had a great preseason, and that led you to go back into production to a degree. But then post-Thanksgiving the winter turned mild. I think Briggs reported that inventory was sitting on retail shelves. But since then, we've had a lot of snow again, and those have sold off the shelves. You went back into production. So is it -- at this point, are there still -- at the retail channel, is it pretty much empty? Or that would lead to a good preseason next year? Or is there still inventory on the shelves at this point?

Well you summed it up really well. So if the preseason was terrific and that continued through November, kind of even to some degree into December, we didn't see any material snow in December and January till right at the end, some of that -- so the decision to go back into production was based on that kind of momentum that was taking place early. And obviously, some hope that we would get some additional snow, and I'm not sure we expected quite this much. Well no, we didn't, let's be clear. So as a result of that, that additional production, that ability has flowed through to the channel and largely through the channel. I mean, it's not always all exactly in the right place, but the demand just because of what's happened in the particularly the Northeast, Midwest with one of those storms and particularly in the Northeast has -- will clean out the channel pretty thoroughly.

Okay. And switching to Micro-Irrigation. I can't recall the last time you guys talked about Micro-Irrigation being down year-over-year, and I know you mentioned some of the reasons for that. Another issue I was thinking that related to Micro-Irrigation is that the agricultural sector has been depressed lately. Is that negatively impacting Micro-Irrigation sales with you? Or is there a definite dynamic at play relative to, say, the sales of larger agricultural equipment?

Yes, you're right, there's a bit of a different dynamic. And so as we said in the earlier sort of comments, this is an EMEA issue largely. In fact, North America was up. And so the ag situation that's taking place in North America is more around kind of your large crops, the corns, soybeans, those kind of crops. Specialty crops where not immune. There -- that has been less the case of, maybe more of an influence there has been the drought on the West Coast, in California. And so when you look at the EMEA, it's both, call it, the overall economy and the political situation. We sell -- some of these products go into Eastern Europe, and now what's going on in the Ukraine and Russia and so we'll have to see where that goes. But it's not -- I don't think it is being influenced as much by the ag, the overall ag situation.

And just the last one for me. You talked about a number of new products and line extensions into the marketplace. What do you think your prospects are for market share gains this year? And what categories might those shares come in?

That is something we are all always focused on and driving. And so certain businesses, we have very strong shares, like in golf equipment and irrigation. But we never stop trying to do better, right? And so we have -- as I mentioned, we've got some new products like the new fairway hybrid mower coming that's creating some excitement as well as some other products, the sprayers, and there's a mix of that. We've got a lot of momentum in golf irrigation. So that's very positive. The landscape contractor arena, we've got new products there as well. That maybe as much the market, the strength of the market, especially Northern markets because of snow, as we've talked. We have new products, which we hopefully will help us with share in the rental side of the business. And our position in rental is continuing to move very much in the right direction, coupled with an overall market that's growing close to 10%. So -- and then residential, the new offerings this year strengthened in walk power mowers, which is a core business for us, strengthened on Zero Turn products, which is a core business for us, and even snow as we look for the full fiscal year, looks very positive with some of the products we're introducing. So it's pretty much across the portfolio.

And if I can just actually sneak one more in. The supply issues, Renee, there -- I guess the -- more related to the port. Is there any way to quantify the impact there that might go away in the next quarter?

Well, the impact that we saw, a lot of it was really -- drove an increase in our work-in-process inventory. It's probably one of the biggest impacts that we saw. And so we would expect that, assuming the port issues are resolved, that to also come down. And we do expect throughout the remainder of the year that our inventory in general, will decrease as we go toward year-end.

And our last question comes from the line of Jim Barrett with CL King & Associates. James Barrett - CL King & Associates, Inc., Research Division: Renee, I have a 2 or 3-part question. I really want to better understand why the impact of foreign exchange has been so modest. And sort of related question, assuming currencies stay where they are today, once your hedges do expire, how you manage your foreign exchange transaction risk, products made in the U.S. and shipped overseas? And could you refresh our memory and tell us whether you sell these products in U.S. dollars or local currency?

Okay. So first of all, we do have a hedging strategy that we've consistently used in a number -- for a number of years, so nothing new from that standpoint. That does moderate the impact in the short term, but over time, those hedges roll off. Now we would consider hedging in the future as well. So it tends to create a lag effect as far as when you're looking at the impact. What we had indicated is for Q1, we had about a 1% impact from a sales standpoint, and we expect that to be somewhat similar as we look out through the rest of the year. Not all of that hits our P&L on the same manner, and that's where I'd stated that less than half of that would be a P&L impact. All of the -- our current outlook for currencies, remaining somewhat consistent for the rest of the year, is included in our guidance looking forward. And so as we manage our hedging in the future, we'll continue to look at those opportunities to take on appropriate hedges to minimize that risk and again, manage that risk from a P&L and a sales standpoint. We do sell both in U.S. dollars in some cases and also in local currency. So we have -- we sell in both situations.

And Jim, to add to that, there's no doubt that this will create some additional challenge or headwind in the next [indiscernible]. Of course, that depends a lot on exactly what's going to happen with currency. So if you have clarity on that, please send it to us.

[indiscernible] James Barrett - CL King & Associates, Inc., Research Division: Okay, no problem.

But the other thing I would add to that is a lot of the products and a lot of the revenues we're talking about here are made in North America. And so -- by not only us but by the key competitors in the space. So it's a headwind we will share. We will have to look at our operations depending on what the expectation is, what our guess is on how long, how enduring this will be and where we're making the product. But in the near term, take golf products for example, most all the equipment and irrigation products are made in North America, by not only us, by key competitors.

This concludes the Q&A session. Ms. Dahl, please proceed with closing remarks.

Thank you, Chris. Next week on Wednesday, February 25 at 3:30 p.m. Central Time, we will be providing a brief business update from the Golf Industry Show in San Antonio. We look forward to having some of you with us in person. And for those who cannot join us, we invite you to listen via live webcast that will be accessible from the Investor Information section of our website, thetorocompany.com, together with a copy of our presentation material. We look forward to talking with you again then. Thank you, and have a great day.