Toro Posts 5.7% Growth in Fiscal Q3

Key Points

• Professional segment net sales grew 5.7%, powering adjusted EPS above expectations, despite an overall revenue decline.

• Residential segment sales dropped 27.9%, amplifying margin pressures and triggering a major one-time impairment.

• Full-year fiscal 2025 adjusted guidance was maintained at the lower end, with adjusted diluted EPS projected at about $4.15, on muted residential demand.

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Toro (NYSE:TTC), a global leader in turf, landscape, and irrigation equipment, reported its fiscal 2025 third-quarter earnings on Sept. 4, 2025. The results highlighted a notable divide: the Professional segment posted robust growth and margin expansion, while the Residential unit experienced significant declines. Adjusted diluted earnings per share (EPS) reached $1.24, exceeding the analyst estimate of $1.22 (non-GAAP), and improving from $1.18 last year (adjusted, third quarter fiscal 2024). However, net sales were $1.13 billion, down 2% from $1.16 billion in the prior year, and slightly below previous guidance. An $81 million non-cash impairment tied to slower recovery in the Spartan business held reported diluted EPS to $0.54.

Management commented: "Our Professional segment continues to perform well, our innovation pipeline remains robust, and our strong cash generation supports our investments in continued growth as well as returning capital to shareholders. We are navigating today's environment from a position of strength, supported by our market leadership, operational excellence, and the financial flexibility to create long-term value. This disciplined approach to managing through cycles while investing in our future is how we build enduring value for all stakeholders."

Results broadly matched the lower end of revised expectations.

Business Overview and Strategic Focus

Toro is best known for its power equipment and irrigation solutions targeting professionals and homeowners. Its product lineup spans mowers, irrigation systems, snow blowers, and construction tools, sold under brands tailored for golf courses, landscapers, sports fields, and everyday consumers.

Recent years have seen Toro prioritize its innovation pipeline, cost efficiency programs, and targeted acquisitions. The company's growth relies heavily on bringing new products to market, advancing sustainability goals, and expanding its global dealer-distributor network. Success depends on staying ahead in product development, integrating acquisitions like Spartan, and navigating fluctuations in consumer and professional market demand.

Quarter in Detail: Segment Performance and Key Developments

The Professional segment, which includes equipment for golf courses, sports fields, underground construction, and commercial contractors, anchored the quarter’s results. Segment net sales increased 5.7%, while operating margin jumped 2.5 percentage points to 21.3%. This rise was due to higher shipments of underground construction equipment and golf/grounds products, along with gains from Toro’s ongoing AMP (Amplifying Maximum Productivity) cost savings initiative and reduced marketing costs. Management reported that productivity and net price gains in the Professional group offset some of the impact from prior-year asset sales.

Professional segment earnings were $198.5 million, up from $165.7 million in the same period last year. The segment’s growth is important because it accounted for 77.6% of company-wide revenue for fiscal 2024. It now accounts for roughly 82% of company-wide revenue, contributing to overall profitability even as other areas lagged. Demand remained steady for core Professional products, especially those related to infrastructure and turf care.

The Residential segment, focused on products for homeowners like mowers and snow throwers, continues to struggle. Residential segment net sales were $192.8 million, down 27.9% from $267.5 million in the same period last year, and operating margin shrank to just 1.9%. Management cited weak homeowner demand and a slow recovery for channel partners and dealers. Higher input costs, promotions, inventory adjustments, and disappointing battery-powered product adoption rates all contributed to the segment’s margin compression. This softness triggered an $81 million non-cash impairment charge tied to the Spartan trade name, acquired as part of Toro’s purchase of the Intimidator brand lineup.

The company’s gross margin slipped by 1.1 percentage points due to these pressures, but adjusted operating margin held steady at about 13.6%. Free cash flow improved year to date for the first nine months of fiscal 2025, helped by better working capital management. No major acquisitions were made during the period. In line with its shareholder return strategy, Toro paid $113.8 million in dividends in the first nine months of fiscal 2025 and repurchased $290 million in stock in the same period.

Product, Innovation, and Market Trends

Toro continued to focus on product development and innovation across its core segments. Product and process innovation, especially connected and autonomous solutions, remained a strategic theme.

In Residential, the company’s push toward battery-powered lawn mowers and snow throwers saw limited traction, reaching only about 7% penetration versus a 20% internal target. This lag in battery adoption led to excess inventory and pricing pressure, impacting both margins and inventory valuation. The decrease in residential segment earnings was partly due to higher sales promotions and incentives, reflecting tougher channel conditions and efforts to reduce inventory of both gasoline and battery-powered equipment.

Total international net sales fell 8.7% year over year, suggesting that global demand trends were mixed. About half of the company-wide revenue decline is traced to non-core divestitures completed last year, an expected impact as the company backs away from low-priority product lines. Management acknowledged that alternative power products and sustainability priorities remain part of its long-term strategy, yet these did not materially influence current quarter results.

AMP productivity gains are on track, delivering $75 million in annualized cost savings, with a goal of at least $100 million in run rate savings by 2027. Key risks noted by Toro include the uncertain pace of recovery in U.S. residential demand, ongoing input cost inflation, and the need for continued improvements in channel inventory.

Outlook and Investor Watchpoints

Looking forward, Toro maintained its full-year fiscal 2025 outlook at the lower end of previous ranges. Management continues to expect flat to down 3% in net sales for fiscal 2025 compared to fiscal 2024, and adjusted diluted EPS of around $4.15. These forecasts account for continued softness in Residential demand, along with projected cost savings and expected Professional market resilience. Guidance also reflects anticipated tariff headwinds and persistent cost pressures for materials and logistics.

Toro gave no new specifics on revenue growth timing for Residential or on potential recovery in consumer spending. The company’s priorities remain on executing the AMP cost reduction program, monitoring battery-powered product adoption, and improving inventory efficiency. Investors should keep an eye on trends in Professional segment demand and any shifts in the channel as indicators of future performance. The company continued its dividend payments during the period.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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Motley Fool Markets Team is a Foolish AI, based on a variety of Large Language Models (LLMs) and proprietary Motley Fool systems. The Motley Fool takes ultimate responsibility for the content of these articles. Motley Fool Markets Team cannot own stocks and so it has no positions in any stocks mentioned. The Motley Fool recommends Toro. The Motley Fool has a disclosure policy.