Good day, ladies and gentlemen, and welcome to The Toro Company's First Quarter Earnings Conference Call. My name is Kevin, and I'll be your coordinator today. At this time, all participants are in a listen-only mode. We’ll be facilitating a question-and-answer session towards the end of today’s conference. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference, Julie Kerekes, Treasurer and Senior Managing Director of Global Tax and Investor Relations. Please proceed, Ms. Kerekes.

Thank you, and good morning, everyone. Our earnings release was issued this morning, and a copy can be found in the Investor Information section of our corporate website, thetorocompany.com. We have also posted a first quarter earnings presentation to supplement our earnings release. On our call today are Rick Olson, Chairman and Chief Executive Officer; Angie Drake, Vice President and Chief Financial Officer; and Jeremy Steffan, Director, Investor Relations. During this call, we will make forward-looking statements regarding our plans and projections for the future. Forward-looking statements are based upon our historical performance and current expectations and are subject to risks, uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these factors can be found in today's earnings release and in our investor presentation, as well as in our SEC reports. During today's call, we will also refer to non-GAAP financial measures, which we believe are important in evaluating the company's performance. For more details on these measures, the most comparable GAAP measures and a reconciliation of the two, please refer to this morning's earnings release and our investor presentation. With that, I will now turn the call over to Rick.

Thanks, Julie, and good morning, everyone. Fiscal 2025 is off to a solid start as we reported first quarter bottom line results that exceeded the expectations we shared on our last call. We delivered this result despite below average snowfall in key markets. This is a testament to our compelling market-leading lineup of innovative products with disciplined execution by our talented team and the extraordinary customer service provided by our best-in-class network of channel partners. For the quarter, we achieved total company net sales of nearly $1 billion, with growth in the professional segment offset by lower shipments as expected in residential. We drove professional segment growth by successfully increasing output for golf and grounds products. Demand remains robust in golf, coming off another record year of rounds played, and order backlog remains elevated. We also delivered on strong channel demand for our new contractor-grade zero-turn mowers ahead of the upcoming spring season. This includes our 30th anniversary Exmark Lazer Z lineup, featuring our exclusive Adapt technology to enable quick, tool-free adjustments of the deck rake. The residential segment continued to be affected by elevated field inventories of snow products. In addition, last year's first quarter included Pope Products, which we divested in Q3 of 2024. Despite the slight reduction in overall sales, we increased adjusted diluted earnings per share to $0.65 on the momentum of our Amplifying Maximum Productivity, or AMP initiative, along with improved profitability in the Professional segment. Professional profitability improvement was driven by favorable mix, positive net price and prudent expense management, in addition to productivity gains. Based on our first quarter results and our current visibility, we are maintaining our full year fiscal 2025 net sales and adjusted diluted earnings per share guidance. Due to the uncertain and rapidly changing tariff environment, this guidance excludes…

Thank you, Rick, and good morning, everyone. We were pleased to deliver adjusted diluted EPS growth in the quarter, driven by improved profitability. Consolidated net sales for the quarter were $995 million, down slightly from Q1 last year. Note that Q1 last year included net sales from the Pope Products business, while the current year does not. Reported EPS was $0.52 per diluted share compared to $0.62 last year. Adjusted EPS was $0.65 per diluted share, up from $0.64. Now to the segment results. Professional segment net sales for the first quarter were $768.8 million, up 1.6% year-over-year. This increase was primarily driven by three factors: first, higher shipments of golf and grounds products as a result of increased output to address the sustained demand that has kept order backlog elevated; second, increased shipments of zero-turn mowers. This is a reflection of strong channel demand for new models and improved field inventory levels. And third, net price realization. These positive factors were partially offset by lower shipments of compact utility loaders as expected, following last year's channel replenishment and this year's increased macro caution. Professional segment earnings for the first quarter were $127.2 million on a reported basis, up 13% from $112.8 million last year. When expressed as a percentage of net sales, earnings for the segment were 16.5%, up from 14.9%. The positive 160 basis point change in profitability was primarily due to net sales leverage, product mix and productivity improvements. This was partially offset by higher material, manufacturing and freight costs. Residential segment net sales for the first quarter were $221 million, down as expected from $240 million last year. The decrease was primarily driven by lower shipments of snow products, given elevated field inventory heading into the season, lower shipments of portable power products, the Pope divestiture…

Thank you, Angie. As I mentioned from the outset of the call, we are pleased with our bottom line performance to begin the year in what is a very dynamic operating environment. We continue to expect benefits from our market leadership and strong fundamentals, the ongoing success of our AMP initiative and the essential nature and regular replacement cycle of our products. With this and the continued agility and dedication of our team, we have confidence in our ability to deliver positive financial results into the future. We recognize the high degree of uncertainty that exists in the current macro environment. This includes the economy, consumer and business confidence and the geopolitical environment. We are closely monitoring the risks and benefits associated with potential policy and regulatory changes, including tariff developments. The situation is rapidly evolving and changing, and we will remain nimble. We are prepared to quickly make adjustments to our operations and pricing as appropriate. I'd like to emphasize once again, why we are confident and excited about our future. First, the near- and long-term prospects for our underground construction business remain extremely compelling. This is supported by a rapidly growing demand for data communication infrastructure, data center build-out and energy grid modernization, as well as the global focus on replacing aging infrastructure. In terms of the aging water infrastructure, recent surveys point to more than $630 billion in spending needed over the next 20 years to ensure safe drinking water in the U.S., with most of those dollars expected to go to clean water distribution. Outside of the U.S., a sprawling network of 30,000 miles of hydrogen gas pipeline is planned across Europe. These are just a few examples of many that support the widespread need and positive runway for infrastructure investments. We are very well positioned…

[Operator Instructions] Our first question comes from David MacGregor with Longbow Research. Your line is open.

Good morning, everyone. Thanks for taking my question. Hey, Rick, I want to start by just asking about AMP. And clearly, there's a very good level of progress being made here. But I just want to be clear around kind of the movement in some of the numbers here. You talked about $64 million run rate in cost savings to date, $50 million of that occurred in the first quarter, which is off to a great start. I guess, how much of this reached the bottom line in the first quarter, if any at all? You talked about trying to redirect a portion of that into investment, some portion across the bottom line. Trying to help us understand just how much of that might have benefited 1Q? And then just the cadence on the AMP benefits and the drop to earnings over the remaining three quarters of '25 would be really helpful. Thanks.

Yeah. Sure, David. The timing of our emphasis on productivity could not have been better in the current environment. And Angie is leading this initiative. So maybe I'll let Angie, do you want to review?

First of all, address your question on kind of the savings that we saw in the quarter. So you'll see later with the 10-Q that we have $7 million in gross realized savings in the quarter. And remember that we had mentioned that we will reinvest a portion of that. So not all of that necessarily drops to the bottom line. But everything that we have done and everything that we have reinvested, we considered in our full year outlook and included in our guidance. To your point on how we expect to see this play out over the rest of the year, we did see that $49 million run rate savings in Q1, which gets us to $64 million in run rate savings to date. The majority of that did come from the restructuring events that we did in December. And if you'll remember last year, we mentioned that we would expect to see the majority of the rest of what we have left in the $100 million run rate to be achieved in FY '25. So we still have some opportunity with other things like supply base, route to market. The things that we have mentioned are working capital and efficiencies to play out for the rest of the year. However, we haven't defined that exactly by quarter. So what we are confident -- delivering the $100 million.

Okay. And just to be clear on the numbers here, when you talk about $49 million run rate and $7 million of gross realized savings, are you suggesting that there was $42 million in expenses and the gross difference is the $7 million? I just want to be clear on the math.

No. The $49 million run rate just means that those savings will be into the future. So the $7 million is what was realized in Q1.

Okay. It's a run rate, of course, right. Okay. Thanks for that. And then secondly, can you just talk about Pro snow? I know in the residential snow, you talked about volumes were down and the inventory dynamic in the channel. But on the Pro side with BOSS, where are dealer inventories here? And how should we read through to landscape contractor in the season ahead, given -- everything we're hearing through our channel checks are that these guys had a pretty good flow season, which puts cash in their pocket, and there's obviously been deferred spending in LCE. So just trying to think through the read from Pro snow in this quarter to what DTR pro-grade, DTR could look like this summer.

Sure. I'd be happy to answer that. First of all, if you just look at the context of the winter, I know there were some kind of headline grabbing snow events. But honestly, the snow in Florida or Georgia does not really drive a lot of our snow product sales. So overall, across the U.S., snow relative to average was down about 13.5%. And if you look at the major snow markets, it was down more than 50%. I think here in Minnesota, we're down roughly two thirds. We just had a snow event in the last couple of days, may have taken a little bit off of that. But roughly, well over half reduction from norm. The different markets respond a little bit differently. And on the residential side, it tends to be heavy major events, heavy snow major events that drive a lot of the business early in the season. From a contractor perspective, the ideal event is a lighter snow event that's palpable because it can be done efficiently. And if you cover the ground that you need to clear, you get paid for that job. So a possible snow might be 1 or 2 inches, that's kind of ideal. And we did have a decent amount of those. So it helped to drive some of the business relative to the residential business a little bit better on the Pro side. So field inventories, we are down a little bit year-over-year based on -- the winter was a little bit better than last year. So in spite of my comments, it was a little bit better than last year, but still higher than we would have expected, but we've included all of that in our guidance at this point, including the knowledge of where the inventories are. The good news is with the facts that I mentioned, a little bit better, quite a few snowable events in many markets. Contractor budgets, we believe are going into the spring in better shape, in fact, good shape at this point. So that is a positive. So kind of a complicated answer, but there's a few details that kind of are different depending on which part of the business we're talking about.

No, that's helpful. Just last question for me. It'd be interesting to get your updated price cost expectations for this year. You talked about raw materials being a bad guy in the first quarter. Just how are you thinking about the price cost spread here through the balance of the year?

Yeah. For Q1, our slight -- we have slight price increase or so our price was up, our cost was up more, and that was really due to higher manufacturing and freight costs and some inflation. There is also variability in timing, but productivity improvements did offset that some. We didn't guide for Q2 on price/cost. But for the full year, we do expect to return to a more normal 1% to 2% price based on those areas that that is before tariffs. I do want to say that that's before those tariffs. But especially the businesses where demand remains stronger and we believe we can get price.

Okay, thank you very much.

One moment before our next question. Our next question comes from Tim Wojs with Baird. Your line is open.

Hey, everybody. Good morning. Maybe just a first question on some of the moving pieces on tariffs. Could you just remind us kind of how much of your COGS are related to kind of Mexico manufacturing and China supply chain? And then is there -- how big is Canada? And I guess do you produce in Canada? Or do you produce in the U.S.? Just -- if you could run through a couple of those kind of exposure related kind of items, I think that would be helpful.

Yeah. Sure, Tim. As you can fully understand, it's a very dynamic situation. We've had a task force in place since last fall with a scenario for every possibility that you can imagine, and it seems to be changing by -- on short notice. So we're working that very closely. Just to give you some overall picture of tariff exposure, first of all, the vast majority of our products are made in the United States. The backlog products that we've talked a lot about over the last couple of years, the golf and grounds and underground businesses are virtually 100% built in the United States, so very little exposure on the professional side. We do have operations in Mexico, and they would be producing some of our residential products and irrigation products. So that's kind of the -- that's the Mexico exposure in the residential and irrigation areas. But again, vast majority of overall products in the U.S. We do not produce products in Canada. We do have customers in Canada from that perspective as we do part of our global business. And then back to, I think, the first part of the question for China exposure, we've talked about that that exposure has been significantly vastly reduced from what it was back in 2017 and '18, and we last had these conversations. And it's low-single digits kind of percent of COGS. And we've built into our guidance the first round of the China tariffs that were implemented in February. We've had a chance to process that. And we'll be offsetting those within our year that's been included in our guidance. So those are probably the major areas. It gets more complicated when you start to talk about any reciprocal tariffs, those kinds of things. Those are on the board, but we don't have information to be able to respond to those.

Okay. Okay. And if the current -- if tariffs on China -- the incremental 10% in China and then the 25% on Canada and Mexico still stay intact, is there a ballpark figure in terms of what the growth impact would be for Toro in those situations?

Yeah. It's -- as I said, it's a moving target right now. So we're working through that process. But with regards specifically to China, we're currently determining what portion we could offset with -- through negotiation with our suppliers. We have the option to strategically move products, sources and so forth. So that process is in process right now, but we go through a normal process. First of all, we'll try to minimize the impact of tariffs by making sure we're represented with our industry groups, and we try to mitigate the tariffs with offsetting by changing locations of sources or manufacturing, offsetting with cost savings, negotiating with our suppliers. And then ultimately, the rest of that gets passed through in price. And all those discussions are taking place. We just haven't been able to process that relative to incremental planned tariffs at this point. The key thing for us, Tim, is that we want to, as a market leader, make sure we support our customers at the same time, protect our own business at the same time.

Okay --

And just as a reminder, as we said in the prepared remarks, we have included those February enacted Chinese tariffs in our best estimates in the guidance.

Okay. Okay. Understood. On the field channel inventory, just in kind of the Pro kind of grounds business, landscape contractor business, Rick, like where are you relative to normal at this point in kind of the year? And I guess what's the sentiment like when you talk to your distributors and dealers just around expectations for sales and just how much kind of inventory they're kind of willing to kind of hold?

I think the areas that we've talked about where we've been working down our inventory on the Pro landscape contractor side, especially the products that go -- that typically get sold to homeowners in that category. We're pretty much where we left off when we started talking about this in the latter part of last year. We're a little bit higher than we would like to be typically, but vastly improved over a year ago at this time. And it's really when you get into the key selling season where we'll have another opportunity to reset that even further as we get into the spring. But we're -- we are in position to be able to do that. The great thing is, I think we mentioned our Exmark Lazer Z introduction. New products really helped to fuel demand that help us move products faster. So we're a little bit higher than we'd like to be, much better than last year and in position for the spring in that landscape contract area. The underground business, for example, still well under where we should be with our field inventory. We feel good about where we are with the golf products. So it's really kind of isolated to a landscape contractor. As a result of a little bit less snow. We do have higher snow inventories, but that's been built into our projection for the rest of the year as well. It just means a little bit less pre-season shipment, but that's been built in now to our plan.

Okay. And then just the last one. On underground, I mean it's been mentioned as a growth driver for the past several quarters. I guess it wasn't kind of mentioned as one in Pro this quarter. So just given what you just said about the fact that field inventory could be higher there, and I assume there was still a backlog there, is it a timing issue there? Just trying to understand kind of what happened with the underground business in the quarter.

Yes. But I think you pretty much outlined it. We continue to see very, very strong demand in the underground space and feel very positive about that business. It just didn't rise to some of the other categories that we talked about as we go through the process of our comments. So are introducing new products in that area. So there's a little bit of a ramp-up taking place, it's a timing factor strictly still very positive, still a strong driver of our future.

Okay, sounds good. Thanks for the time.

Yeah. Thank you.

One moment for our next question. Our next question comes from Ted Jackson with Northland. Your line is open.

Hi thanks very much. Actually, I had three questions to ask, and two of them have been hit, but I do have a kind of a nuanced one on going back into tariffs. With regards -- so I know it's your favorite topic, Rick. But with regards to -- going back, you said you did a thing with retaliatory tariffs, but is there -- how much -- two parts. One is there -- how much product do you actually make here in the States that actually is exported that could come at risk if there were retaliatory tariffs? And then going back into kind of the Mexico and the products that you make there, how hard would it be for you to shift production and bring some of that stuff into the U.S.? Is it something that you would think would be worthwhile to do? Or is it the kind of thing where you just have to deal with the tariffs and that's it? That would be my -- basically my question for you. Thanks.

Okay. Sure. First of all, on the first part, it would really be the ratio that we're looking at is 80% of our sales either in the U.S. and the vast majority of our products are produced in the U.S., so it would be the net difference that we sell, the 20% that we sell internationally could be subject to whatever retaliatory measures might be there. With regard to the residential products, we do have flexibility to move that product around. Some of it's easier to move than others. But it's really primarily focused on the kind of the cost competitive type of product. So it's an orphan of our residential business, not 100% of our residential business that's in Mexico.

Okay. And then actually, can I ask just quickly like what would have been like -- how much was Pope in the last quarter? Just to kind of get a sense in terms of the dynamic with its impact on kind of the year-over-year for you. Then I'm done. Thanks.

Yes. The Pope piece for Q1 was probably about $7.5 million. Last year, yes. Yeah, last year.

Okay, thanks very much.

Thanks Ted.

And I'm not showing any further questions at this time. This concludes the question-and-answer session. Ms. Kerekes, please proceed with closing remarks.

Thank you, Kevin, and thank you, everyone, for your questions and interest in The Toro Company. We look forward to talking with you again in June to discuss our fiscal 2025 second quarter results.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.