Toro (TTC) Q2 2026 Earnings Transcript

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DATE

Thursday, June 4, 2026 at 11 a.m. ET

CALL PARTICIPANTS

• Chairman and Chief Executive Officer — Richard Olson
• President and Chief Operating Officer — Edric C. Funk
• Vice President and Chief Financial Officer — Angela C. Drake
• Vice President of Corporate Affairs and Investor Relations — Heather Lilly

TAKEAWAYS

• Revenue -- $1.42 billion, up 8.1%, with 5.7% organic growth.
• Adjusted EPS -- Increased 13% to $1.60, attributed to segment volume and profitability.
• Adjusted Operating Margin -- 14.4%, up 70 basis points, marking a 12‑quarter high.
• Professional Segment Net Sales -- $1.1 billion, up 9.1% (6% organic), with a margin of 20.3% (up 40 basis points).
• Residential Segment Net Sales -- $310 million, up 4.1% organically, with margins improving to 9.8% (up 34 basis points).
• AMP Program Savings -- Targeted to deliver $125 million in run rate savings by year-end, already exceeding internal expectations.
• Free Cash Flow -- $266 million, up $181 million due to lower inventories and working capital improvements; 125% free cash flow conversion.
• Shareholder Returns -- $361 million returned via share repurchases and dividends in the first half.
• Full-Year Guidance -- Raised to 4%–6.5% sales growth and $4.50–$4.62 adjusted EPS (prior: 3%–6.5% sales growth, $4.40–$4.60 EPS).
• Professional Segment Full-Year Sales Outlook -- Increased to 5%–7% growth, supported by continued demand and operational execution.
• Residential Segment Full-Year Sales -- Now expected to be about flat, improved from earlier guidance, with margin sustainability emphasized.
• Tariff Impact -- $120 million in gross tariffs expected for the year, with a $20 million offset from anticipated refunds; net effect described as “relatively unchanged.”
• Adjusted Tax Rate -- 21.7%, 300 basis points higher, driven by geographic mix of earnings.
• Underground and Specialty Construction Growth -- Achieved low double digit organic sales, attributed to robust demand for horizontal directional drills and technology adoption.
• Channel Inventory -- Professional segment inventory remains healthy and normalized; landscape contractor and residential inventories are below target due to elevated demand for zero turn mowers.

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RISKS

• Inflationary and tariff pressures are expected to be “more acute in Q3,” with mitigation actions not fully effective until Q4.
• Tax rate is trending higher for the year, with an approximate $0.04 per share negative EPS impact.
• Management noted, “consumer confidence and inflation continue to be challenging,” particularly for the residential segment.
• Potential drought conditions in key markets could drag on sales in certain categories, though management does not consider this an immediate concern.

SUMMARY

The Toro Company (NYSE:TTC) reported broad-based revenue growth, robust cash generation, and sequential operating margin improvement, while also raising both its top-line and earnings guidance for the full year. Management attributed professional segment strength to innovation in underground construction and specialty equipment, citing the successful integration of Tornado and strong product demand as key drivers. Adjusted EPS guidance moved higher due to operational outperformance, although headwinds from input cost inflation, higher taxes, and tariff regime evolution were outlined as material considerations.

• Tornado’s contribution added more than 2 percentage points to overall sales, with demand described as “at or ahead of our plan.”
• AMP program execution included strategic facility closures, salaried workforce reductions, and divestitures, directly bolstering margin expansion.
• Share repurchases totaled $190 million alongside $38 million in dividends, driving aggregate shareholder return in the quarter.
• International performance reflected notable Canadian strength from Tornado, partially offset by ongoing softness in European residential markets.
• Field and channel inventories were discussed as normalized for professional, with targeted rebuilds needed in residential categories to meet demand pockets.
• Autonomous and smart connected product lines gained exposure across golf and professional solutions, though management signaled a measured near‑term growth outlook for these emerging segments.

INDUSTRY GLOSSARY

• AMP program: Toro’s enterprise-wide productivity initiative focused on lean operations, portfolio management, and cost structure simplification to drive sustainable margin expansion and cash flow.
• JT21 / JT120: Toro’s compact and large horizontal directional drilling equipment brands, cited as leading drivers of underground segment growth.
• Orange Intel: Proprietary fleet management and job site intelligence system for Ditch Witch customers, enabling productivity and maintenance oversight.
• Tornado: Acquired business specializing in soft excavation solutions, especially serving underground utility infrastructure projects.

Full Conference Call Transcript

Branden Happel: Good morning, everyone, and thank you for joining us for The Toro Company Second Quarter 2026 Earnings Conference Call. I am Heather Lilly, Vice President of Corporate Affairs and Investor Relations. On the line with me today are Rick Olson, Chairman and Chief Executive Officer; Edric C. Funk, President and chief operating officer, and Angie Drake, vice president and chief financial officer. Rick, Edric and Angie will provide an overview of our second quarter results which were released earlier this morning and discuss our priorities and outlook for the remainder of fiscal 2026. Following their remarks, we will open the phone lines for a question and answer session.

Before we begin, please note that any forward looking statements made today are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks are detailed in our earnings release investor presentation and our most recent filings with the SEC. During our remarks, we will also reference certain non GAAP financial measures. We believe these metrics provide useful insight into the company's performance. Reconciliations to the most directly comparable GAAP measures can be found in this morning's press release. Both the release and our second quarter supplemental presentation are available in the Investor Information of our corporate website. With that, I will now turn the call over to Rick.

Richard Olson: Thank you, Heather, and good morning, everyone. The Toro Company continued its strong start to the year, exceeding expectations with second quarter top line growth of 8% and adjusted EPS of $1.60. This is the second consecutive quarter of double digit earnings growth driven by strong demand and improving margins. We remain focused on our key strategic priorities. Accelerating profitable growth, driving productivity and operational excellence, and empowering people. This disciplined approach is delivering results. Demand was broad based across our portfolio. Residential net sales grew 4% and professional net sales grew by 9%.

Within professional, we drove mid single digit sales growth in golf and grounds, high single digit sales growth in landscape contractor, and we are particularly excited to have achieved low double digit organic sales growth in underground and specialty construction. A key highlight in underground construction continues to be the JT 21 horizontal directional drill. Designed for maximum uptime, it features advanced capabilities that enhances operator efficiency and job site safety. It is built to handle long bores and difficult terrain with ease. And customer response has been strong. With a robust and growing order pipeline. At CONEXPO in March, we highlighted another example of customer driven innovation. Orange Intel is a customizable fleet management and job site intelligence system.

It provides Ditch Witch customers with the ability to optimize productivity, manage maintenance and uptime, enhance security, and integrate all this information across the full job life cycle. We are helping our customers leverage job site data as a critical enabler to improve their productivity, and profitability. Our integration of Tornado is progressing well. Growth is slightly better than anticipated, contributing over 2 percentage points to top line sales. We see a long runway of growth for this business as the need for soft excavation is significant and growing. The increasing number of states and countries that have requirements around safely uncovering underground utilities.

We expect this trend to continue as the ability to mitigate infrastructure damage during excavation gains awareness. Moving on to landscape contractor after a more normal snow season, they entered Q2 in a healthy position. This helps drive strength across our Toro, Exmark, and Ventrac brands. Spring conditions were more typical this year, which provided a favorable year over year comparison to the late spring last year. Where some second quarter sales fell into the third quarter due to the delayed timing of spring. In golf, strength continues to come from our core products. Greens mowers, fairway mowers and contour rotary mowers.

While we are still in the early stages of growth with our autonomous portfolio, customers continue to recognize how our suite of solutions complements their existing fleets, increases productivity, and unlocks new efficiencies in their labor force. Looking at the results across our portfolio, it was particularly impressive that the team achieved our second quarter performance despite macroeconomic and geopolitical headwinds and increased inflationary pressures. In this dynamic environment, we continue to strengthen our capabilities with a specific focus on productivity and operational excellence. As a result, in Q2, residential margins significantly improved to nearly 10%, and pro margins improved to over 20%.

At the center of this improvement is our AMP program, Launched in the beginning of fiscal 2024, AMP continues to exceed expectations. Reinforcing a productivity mindset across the company. We accomplished all of this while reducing our field inventory, which remains healthy in the professional segment with underground and golf largely normalized. Inventory levels for landscape contractor and residential are somewhat below our desired levels, as we work to meet pockets of elevated demand particularly for zero turn mowers. Taking everything into account, healthy demand, improved lead times, normalized field inventories, and expanding margins, we are raising our full year guidance.

We now expect full year sales growth in the range of 4% to 6.5% and adjusted EPS in the range of $4.50 to $4.62. Our performance in the first half of 2026 increases our confidence in our ability to deliver strong results for the full year even in a dynamic external environment. With that, I will turn the call over to Angie for more details on the quarter and our outlook.

Angela C. Drake: Thank you, Rick. The team's strong execution in the second quarter drove better than expected results. Top line sales were 1.42 billion up 8.1%, or 5.7% organically. This growth combined with our focus on productivity and operational excellence, drove adjusted operating margins of 14.4%, up 70 basis points. This represents our highest operating margin in the past 12 quarters and reflects the impact of our AMP productivity program. Our strategic facility closures, reductions in salaried workforce, and divestitures of non core businesses and product lines have contributed to this strong margin improvement. As we reduce costs and improve efficiencies through AMP, we are also investing in the business. 1 example is our new paint system at the Perry, Oklahoma facility.

Which will increase efficiency and capacity to support the strong demand in the underground construction market. Working capital improvements drove free cash flow of $266 million an increase of $181 million year over year. Primarily due to lower inventory levels. Free cash flow conversion was 125%. This continues our strong track record of cash generation and enabled us to return $361 million to shareholders through share repurchases and dividends in the first half of the year. And finally, our second quarter adjusted tax rate was 21.7%, 300 basis points higher than last year. Driven by the geographic mix of earnings. As a net result, for the second quarter, we increased adjusted EPS 13% to $1.60.

This strong result was better than expected and driven by professional segment volume and profitability. Now let me dive deeper into each segment. Professional segment net sales in the second quarter were 1.1 billion up 9.1% or 6% organically. Professional segment earnings were $224 million at a margin of 20.3%, up 40 basis points. This was driven by volume, productivity and net price realization partially offset by material costs. Residential segment net sales in the second quarter was $310 million, up 4.1% organically. Residential segment earnings were $30 million, and margins were up 34 basis points to 9.8%.

This was driven by net price realization, productivity and volume partially offset by material, manufacturing and freight costs In addition to strong operational execution across both segments, our financial management of the balance sheet continues to provide us with optionality. As demonstrated by our leverage ratio of 1.4x. Looking forward, we will continue to focus on driving top line growth and productivity as we navigate the uncertain macroeconomic and geopolitical environment. Our strong performance in the second quarter gives us the confidence to raise our guidance We now expect top line growth of 4% to 6.5% versus our prior guidance of 3% to 6.5%.

This reflects strength in our professional segment which we now expect to grow in the range of 5% to 7% for the year. After a strong second quarter, the outlook for full year residential sales growth has improved and we expect it to be about flat. Even as consumer confidence and inflation continue to be challenging. We are raising full year adjusted earnings per share to be in the range of $4.50 to $4.62, up from the prior range of $4.40 to $4.60 This tighter range and higher midpoint reflect our outperformance in the first half of the year and reduced downside risk. Let me take a moment to share the drivers of this increase.

By walking from our previous guidance midpoint of $4.50 to our new guidance midpoint of $4.56 We are flowing through our second quarter beat of $0.10 per share and factoring in new headwinds from material and fuel inflation. We estimate the impact from inflation will be approximately $0.16 per share. This is offset by planned productivity and pricing actions driving approximately $0.16 of favorability. In addition, tax is trending higher for the year due to our geographic mix of earnings, for an approximate $0.04 impact to EPS. All of these factors result in the $0.06 increase to our midpoint.

We have also evaluated the impact of the April 6 changes for Section 32 tariffs and the benefit of anticipated tariff refunds. Since the vast majority of our manufacturing occurs within The United States, the net impact of these 2 items would be negligible to our full year guidance. We continue to evaluate the most recent changes to the tariff landscape. Including the news from earlier this week. For the third quarter, we expect total company sales to be up mid single digits We expect professional to be up mid single digits and residential to be up low single digits.

Keep in mind that year over year comparisons are impacted by a late spring last year that shifted sales from Q2 into Q3. Also, Q2 is typically our peak margin quarter. As it has the highest volume, best factory utilization and a favorable sales mix. We anticipate normal seasonality this year with Q3 total company margins lower than Q2. Pressures from inflation and tariffs will be more acute in Q3 as the mitigation actions we are taking will not be fully in place until Q4. And we are monitoring weather conditions across the country. Where a strong start to spring has given way to potential drought conditions in some key markets.

As a result of these factors, we expect third quarter total company adjusted EPS up mid single digits. The main driver for this adjusted EPS growth rate is a higher year over year tax rate. And the comparison versus a strong Q3 last year. The team is executing well, We are driving productivity through our AMP initiative and taking advantage of strong demand across the portfolio. For the full year, we now expect high single digit adjusted EPS growth and free cash flow conversion of at least 120%. Now, I will turn the call over to Edric to highlight the progress we are making on operational excellence.

Edric C. Funk: Thank you, Angie. As you heard, we delivered our highest level of operating margin in 3 years. Through a relentless focus on productivity and operational excellence. We will continue to drive meaningful gains through our AMP program, by leveraging lean principles, Kaizen events, and continuous improvement projects. Our AMP program remains on track to deliver $125 million in run rate savings by the end of this fiscal year. But AMP is about even more than cost savings. Another critical element is the manner in which our teams are leveraging technology to enhance capabilities and drive innovation. Last month, we held our annual technology forum.

A dynamic platform to accelerate product innovation and technical excellence by connecting subject matter experts and thought leaders across the company. This event featured the next generation of technological advancements in electrification, smart connected products, autonomous solutions, AI, and manufacturing efficiency. Examples range from leveraging industrial collaborative robots to using AI enabled vision systems and machine learning tools to verify component accuracy. Further upstream, we are using augmented reality to quickly verify well specifications and completeness. All of this ensures consistency, reduces the risk of delays, and continues to enhance overall product quality. there is more we can and will do to continue driving efficiency and innovation.

Delivering consistent results in this environment requires us to constantly ask ourselves, how can we do this better? it is a question we never stop asking.

Richard Olson: Now back to Rick for some closing comments. The rate of change at The Toro Company cannot be overstated Our technological advances are building off a foundation more than 10 years in the making. We continue to make incredible progress in shaping our future and advancing our core products through innovations in electric, smart connected and autonomous solutions. We see the use of AI accelerating our capabilities across all our platforms. From enhancing autonomous vehicle navigation systems to more sophisticated R and D prototyping and simulation, as well as back office process efficiencies and procurement legal, and finance. We are empowering our team to think differently about how we work and how we help our customers succeed in their work.

I want to thank the team and our channel partners for their customer focus and our strong operational execution in the first half. This performance and our ability to capitalize on our opportunities give me confidence that we will deliver on our second half expectations. With that, we will take your questions.

Operator: Thank you. To withdraw your question, please press 1-1 again. Our first question comes from David MacGregor with Longbow Research.

David MacGregor: Yes. Good morning, and congratulations on a really strong performance. Well, thank you. I had-- yeah. My first question is just on kind of the seasonal sell-in, and you into 2026 with leaner channel inventories than was the case in recent years. As a result, if a dealer was buying in to reach their typical seasonal stocking targets, would have needed to buy in more units than we have seen over the past few years. So how did that dynamic contribute to Q2 unit growth? And how much of an offset were maybe extended lead times on Mexican manufacturing products or any other drivers or factors that would be included there.

Richard Olson: I would say the best way to describe it, David, is that we were back to a more normal, situation. So as you recall, the commentary from the last couple of years, we had a higher field inventory that we are working through. We had maybe just a little tail of that left as we entered the spring season, but we were in good shape to supply the demand. Demand was even beyond what we expected. But we had good flow coming out of all of our facilities. Any kind of change in flow from Mexico or anywhere else was normal distribution flow within our system.

So think the best way to describe it is a pretty normal quarter from a residential standpoint, particularly.

David MacGregor: Okay. Let me just follow-up with a question on Ditch Witch, if I could.

Richard Olson: And I know there is been a lot of work done there recently around productivity. But can you just talk about shipment growth at Ditch Witch? And how does that compare to sort of growth in orders, of the book to bill, I guess, if you will? And also just on Ditch Witch, shipments pick up and begin to normalize or as they begin to normalize, I guess, what are your expectations for growth in the parts and service business? And you grow your parts and service penetration in a way that moves the needle on total Ditch Witch margin contribution to the pro segment?

And do you feel you have the dealer support, the channel inventory, and pro appropriately staged to grow your parts and service market share?

Edric C. Funk: Thanks. As we talked about, the Ditch Witch business and the underground business in general was a very strong contributor to the quarter. Double digits, low double digit growth contribution from a top line standpoint. That really was a combination of 2 things. First of all, incredible sustained demand, which we see well out into the future. And then secondly, the group that deserves a lot of credit is our operations team and the plants that have determined how to, in some cases, double our production to be able to meet the demand And we see strength across the entire line, but the 2 products that we have talked about recently continue to be extremely popular in the marketplace.

The JT21 is the more recent 1. that is actually a small compact horizontal directional drill that you might see in your neighborhood installing fiber to the home. And obviously, with all the work that is taking place there, extreme demand, actually a little bit cautionary project because we are replacing the de facto standard in the marketplace already, but we have made it better. it is got smart features on it that are great with new operators and so forth. It is connected through Orange Intel that is really a great example of all the technology areas that we have been working on. it is been extremely well received.

The JT 120 is really the largest drill in its category. 120 thousand pullback pound-force, excuse me, that is used on broader projects cross country power utility broadband, fiber optic projects going under rivers, etcetera. So demand very strong and we continue to see that. Data centers as much as the work on the data center, it is all the work to get power to the data center, to get all the fiber, incredible amount of fiber to the data center from the trunk and also water would be the third. So it is kind of everything. To feed the data center.

So very strong demand, strong contributor to the quarter great products, payoff for the innovation investments and very strong runway into the future.

David MacGregor: Right. And can you just talk about the parts and service business and the opportunity to grow Parts and service goes with it.

Edric C. Funk: And 1 of the things that Edric and team has been focused on is really making sure that we get all of our parts as a percentage of total sales. So we see even more opportunity to accelerate that. We get a good share today, but we see even more opportunity to grow in that area. And obviously, it is important contributor to our profitability and helps us invest in future innovations. Well,

David MacGregor: Great. Last question for me is just on the prosumer and the landscape contract equipment. What are you seeing in the way of demand change from that aspirational consumer reaching up into the pro segment?

Richard Olson: Yeah. We actually had a discussion about that yesterday. There is an element with a true homeowner, more of a traditional residential customer, that they are probably buying down. They are probably hitting the lower end of our range a little bit more. When you get into homeowners that are buying professional landscape contractor grade products. The real kind of higher end of that probably is not affected as much. They are still gonna go out and buy the product that they want. Maybe at sort of the lower end where people are sort of reaching into that range that they still are a little bit more cautious at this point.

The good news with the landscape contractor and again, contributed high single digits to our growth in the quarter. Is that the landscape contractor the true contractors, have been healthy throughout the entire cycle of pandemic and post pandemic and they continue to be very strong today. They came into the season off of a strong snow season, so they came in a healthy position. Many of the contractors do both. And we see that playing out in the demand. And great response to investments in technology and new products that they are really hitting those hard.

David MacGregor: Great. Thanks very much. Congratulations.

Richard Olson: Thank you.

Operator: Our next question comes from Bobby Shultz with Baird. You may proceed.

Bobby Shultz: Just curious on the updated tariff assumptions. Is there any way to frame the annualized impact from tariffs just given the 120 million gross assumption is just for 2026? Yeah.

Edric C. Funk: it is a great question, Bobby. Let's there is the opportunity to make this really complicated. I am going to do my best to keep it relatively simple, and then Angie can chime in with what it ultimately means flowing through to our guidance.

Richard Olson: The while the environment remains dynamic, the punch line's going to be when it is all said and done, there is minimal impact to our current fiscal year. And if we rewind to when we talked a quarter ago, we were only a couple of weeks removed from the Supreme Court decision that ultimately led to the termination of the IEPA tariffs. At that time, we did not have visibility to the refund process, and so we were not counting on any refunds within the fiscal year. We also made the assumption at that time that the use of section 122 and other trade laws would largely offset whatever went away.

And so when it was all said and done, our gross tariff estimate at that time remained at 100 million. And we did not make any other adjustments from a net perspective. So since then, some of what you are alluding to, of course, the section 32 tariffs were restructured on April 6. That had a modest unfavorable impact, but not a really significant number. The combination of that plus some additional indirect impact for related to some of the products for which we are not the importer of record.

If you apply all of that to an also increase in our sales, remember, the net result ended up adding up to about 20 million. that is why you are now seeing gross estimate of 120 But we also received more clarity on the refund process. I will emphasize more clarity, not complete clarity. Remember that for us being largely U. S. Based in our manufacturing, the IEVA tariffs were not as big of an impact to us. But all in, do anticipate about a $20 million refund now during the course of this fiscal year.

Edric C. Funk: And then maybe just briefly, did a couple of new announcements this week. As it relates to the agricultural and industrial equipment tariff reduction. That does not have any direct impact on us at least as currently drafted. The HTS codes that apply to our products are not on that list. So that is generally neutral. And then the most recent changes related to section 3 zero 1 would potentially have some very small unfavorable impact. But as you heard Angie say in the prepared remarks, the impact on our full year all in is really negligible The 20 million increase is offset by the $20 million refund. So grand total, relatively unchanged.

Angela C. Drake: And, Angie, you wanna speak to the treatment on the tariffs? Sure. I would also just add that $20 million in additional tariffs is expected to carry through in our run rate. You think about how that would affect us going forward, we would expect that to be as we look forward, about $120 million in total tariff expenses as we go forward. When we think about the refund, our expectation is to accrue about $8 million of that anticipated refund in our Q3 and the remainder would come in Q4.

Bobby Shultz: Awesome. Appreciate the detail there. And then if we could talk about the sell through, what you are seeing there on the landscape contractor business and resi business? Did you guys see any impact from weather? We have heard that it is just been a pretty dry spring in the Southeast. I am just curious if you saw any impact from that.

Richard Olson: With regard to the sell-through, we saw very strong sell through actually. So we are as a result, field inventories are in great shape at this point. We are actually a little bit lower than we would like to be in some of the categories Residential Zs, I think, are a little bit off our target a little bit. We are still working on that. And, Eric, I know that you have worked at some of looked at some of the weather here just recently. Do you want to comment on that?

Edric C. Funk: Yeah. In fact, certainly, we are paying attention to those areas of drought that you are referencing. Ironically, you know, when you look at our complete portfolio, even if that has the potential to drag on some of the resi and contractor stuff that you are referencing, that same lack of rain means better weather, so rounds played if you have been tracking that. Are actually tracking 5% above last year which, as you will recall, was another all time record.

So while there is potential for a drag in 1 area, it is probably driving additional opportunity for customers in another area to invest, less disruption to job you know, as we look at some of the specialty construction area, So all in, we are not seeing anything that has us overly concerned, but we are absolutely paying attention to that.

Bobby Shultz: Got it. I will leave it there. Thanks for the color.

Richard Olson: Thank you.

Operator: Thank you. Our next question comes from Samuel Darkatsh with RJF. You may proceed.

Samuel Darkatsh: Good morning, Rick, Angie, Edric. How are you all? Good. How are you?

Richard Olson: I am well. Thank you. Just a couple of clarification questions, Edric, on the tariff commentary that you provided.

Samuel Darkatsh: Just in the prior questioner. First, can I recognize that you have got $120 million in total gross tariffs in fiscal 2026? Can you give us a sense based on your current thinking what that might be for fiscal 27.

Edric C. Funk: Would that step up because of the of the $20 million that is hitting you in the back half this year? Yeah. I mean, I still gotta reinforce it, as Angie said, you kind of look at that as the status quo run rate And maybe the only additional qualifier to put onto that is that assumes generally steady state in terms of the tariff regulations. And steady state in terms of our actions. And as we look at that tariff environment, we are constantly assessing what we might do differently, whether that is related to sourcing or manufacturing or anything else. So right now, we would expect the run rate is higher than we did 90 days ago.

But that does not mean we will we will allow that to sit still without us doing some work to make sure we can offset it.

Samuel Darkatsh: Gotcha. And then related to that, apologies for the granular question here, but the $20 million in refunds it sounds like that is gonna be included within the adjusted EPS. And if so, does that get accounted for within the individual segment's P&L? Or is that going to be in corporate? Or how does that actually translate when you ultimately report it?

Angela C. Drake: Great question, Samuel. And, yes, so that $20 million refund will be included in the, EPS and the guidance that we have provided today. And will be impacted into the P&L individually. So we expect our the pro segment to take about 70-ish percent of that tariff refund based on their volumes and the tariffs paid and the rest of that would go to residential.

Samuel Darkatsh: Got it. And then international, was a particular bright spot in the quarter, a especially compared to last quarter where it was down fairly sharply?

Richard Olson: Now I know you had a little bit of an easier sequential comparison But can you point to something that really switched to the positive in the fiscal second quarter internationally. Yes. Certainly can do that. The factor that was on the positive side is the impact of tornado. Which has been at or ahead of our plan for the year. So Canadian as part of the international calculation, or Canada, I should say, was greater than we would have expected, obviously, without tornado. Still see softness particularly in Europe and particularly on the residential side. That was actually a reducing factor in our residential results, specifically European residential.

So the biggest positive in international and the difference maker really was tornado, which we continue to see very strong demand for. And that business is about splits about 50% Canada, 50% United States.

Samuel Darkatsh: Got it. My last question, the third quarter residential margin expectation are we looking at double digit margins, resi, realistically in the third quarter?

Angela C. Drake: Well, I believe what we guided to there is that we would see that being higher than last year, of course. But we are continuing to see improved margins both on sales, but it is a combo. it is a price realization productivity gains, and volume recovery that are helping us there. Q2 is typically our larger quarter, so that will it will just be slightly higher than last year, not as high as what you are seeing in Samuel, for residential margin. But what we are seeing is that our sustainability of improving those margins is going to continue to be based on ongoing productivity, and really pricing in this competitive market.

Samuel Darkatsh: So a similar bump year-on-year as what you saw in the second quarter, just adjusting for the lower margin last year? Yes. that is correct. Okay. Thank you very much, y'all. Appreciate it.

Richard Olson: Thank you.

Operator: Thank you. Our next question comes from Mike Shlisky with D. A. D.A. Davidson & Co.

Mike Shlisky: Good morning, and thanks for taking my questions. We got the new flat Good morning. Just looking at the new outlook for resi for relatively flat for the full year, flat, fairer than it was before,, but it is still only flat. Looking at 2027, some of those pandemic sales for back in 2020 will, at that point, be 7 years old. I am curious if whether you think after this year and, you know, a good part of last year, if there is some pent up demand that just needs some minor macro to kind of create some tailwinds for resi in 2027.

Richard Olson: I think some of that has yet to play out specifically, but you are right. Those products that were purchased back in 2020 are reaching for some of our customers the age of replacement. So that should start to at least not be a headwind. And I think based on the analysis that we have talked about if you take that whole cycle into account, we are sort of back to the normal longer term growth rate for residential. So we are kind of back on the rails of that growth rate. So more normalized. And then seeing opportunities also for growth as the market kind of shakes out as well.

Potentially some opportunities But we see, first of all, the profitability getting back to a level that we feel much better about and being able to sustain that. And then opportunities to get back to kind of a normal growth rate, if not a little bit better than that.

Mike Shlisky: Great. Thanks for that, Rick. Then I wanted to turn to some of your comments on autonomous products in your golf business. Yeah. It does sound very promising. We I have been hearing about some folks out there, you know, other smaller start ups trying to introduce their autonomous products on golf courses, kind of going around demoing things. Imagine Toros and your dealerships are demoing things as well.

Just kind of curious whether you think I guess, when all is said and done and autonomous makes to a bigger splash as a chunk of sales, whether you think you have got a good chance to maintain or increase your market share compared to the ICE mowers you already got out there.

Edric C. Funk: that is a great question, Mike. The we talked over the last couple of quarters about some of the new product introductions. And we are definitely seeing more and more both demos and now starting to see some of the retail flow through. We have tried to temper expectations in immediate revenue there just as people try and figure out how they are going to incorporate autonomous solutions into their overall operations. I would say anecdotally or qualitatively, we are continuing to see maybe even more enthusiasm there.

So I would say we are optimistic, but just taking care that we are not putting too much weight on that in the immediate near term future while we see how adoption plays out.

Mike Shlisky: Great. I appreciate the discussion.

Richard Olson: Thank you.

Operator: Thank you. Our next question comes from Ted Jackson with Northland. You may proceed.

Ted Jackson: Thanks very much and echo the congrats on the quarter. Thanks, Ted. So I also want to say it is nice to hear someone talk about their inventories being below where they would like them to be. You do not hear that very much. So it is nice to hear.

Richard Olson: I came into the call with yeah, with a long list of questions, and they just got kicked off 1 by 1.

Ted Jackson: But I have a couple left. And just a little 1 is, you know, with, the, more normalized winter and the drawdown and the inventory, the excess inventory of snow, do you view the channel inventory in Snow as now at a normalized level? Is there any more work that needs to be done when we get to the next season?

Richard Olson: We do, Ted, view the field inventory for snow to be at a normal level. In fact, we are coming off a good season last year. And as we talked about the professional stocking takes place typically in our third quarter and a portion of the presidential stocking takes place in the fourth quarter, typically timing can be back and forth a little bit But we do expect at least a normal kind of stock in the latter half of the year. that is built into our guidance at this point.

Ted Jackson: Okay. Thanks. And then another 1 is, you it is not like you guys go out just willy nilly buy stuff, but, you are a regular acquirer of businesses. The tornado business is just looks like a fabulous acquisition. When you look at the opportunity funnel, the things that you want to do, is there any particular can you maybe give us some color around what you are most excited about, where you want to grow your business the most? Is it more on some of the, you know, kind of the construction side of the house, you know, given the tornado acquisition and your exposure with Ditch Witch? Or is it more on the turf and the golf stuff?

Maybe a little color around how you think about it strategically if you had your druthers where you would like to grow your business in? Yeah.

Richard Olson: There are a handful of priorities for us. I mean, first of all, most importantly is our disciplined approach to the acquisition process. So we always have opportunities. We have many opportunities. But they have to be the right fit for us. And they obviously have to be at the right price. Some strategy and economic viability are the big ones. So for us, that means something in the vicinity of areas where we already play and win. So tornado, as you said, is perfect example. it is Those are products that are on our job sites for horizontal directional drills. And we know them well.

We have done a joint venture with them or partnership with them to supply products to us. It was a logical extension. We had high confidence that we would win there. And it just opens up, in this case, a lot of new business of new business opportunities as those products are used in other areas as well. So a good example of where we focus. We focus on areas that we know and that have opportunities to expand markets and businesses that we believe have a strong runway and profit picture into the future. So that would be priority 1.

We have other priorities, but 1 of the areas I would just mention again across the board, we are in technology because that is part of our strategy is to leverage our technology across sometimes even disparate markets, but be able to take advantage of that technology. We did that with our robotics acquisitions a few years ago. And we see opportunities to do that. And then we leave it mostly to our corporate business development team, but we are open to legs that we may not have as part of our strategy today. But we try to keep our core teams focused on where we can win and where we have a right to win.

So I hope that gives you some sense.

Ted Jackson: it is fine. Thanks, Rick. This is Ted, 1 of-- just 1 addition to that.

Richard Olson: They are going to be more on the professional side. As we have talked about that in the past. Neglected to mention that. Okay. Thank you.

Operator: Our next question comes from Eric Bosshard with Cleveland Research Company. You may proceed.

Eric Bosshard: Hi. Thanks. On the golf business, any sense that you can give us on backlog and order trends, what you are seeing from dealers and customers in that business?

Edric C. Funk: Yes. I would share that, just as we said a quarter ago, we have probably been a little bit pleasantly surprised at the strength of the demand and the orders coming in. And it is not that we, at all were not thinking golf was strong, but we all together talked about what demand profile might look like. Could there be an air gap after so much growth? And we really have not seen that. Demand is hung in really nice on the equipment side. So a bit above our expectations there.

And on the irrigation side of the business, we have talked now for multiple quarters about the long pipeline of projects that are still ahead of us, and that continues to be true. So really happy actually with the demand within golf specifically, and then more broadly, we have talked about how some of those same product lines extend into nongolf but other high-end grounds applications. We are seeing some good demand as well.

Eric Bosshard: And then secondly, you talked about record levels of profitability for the business. And considering $120 million of tariffs, I am sure you have looked through, like, the offsets to the tariffs, and obviously, you have AMP. But like, how? Have you offset all the tariffs and sustained this level of profitability or generate this level of profitability?

Richard Olson: it is really been the things that we have talked about And to give Angie credit, we started our AMP project back at a time where we did not know we were going to have tariffs or some of these other inflationary factors. We were kind of working to get back some of the inflation that happened during COVID. But the timing of AMP could not have been better It has just been an incredible benefit to us. To have the productivity machine already in motion by the time when these costs and additional tariffs came along. So we have been able to offset tariffs in most cases, and we have been able to improve productivity more broadly.

And as a result, we are seeing the impact of the work that we have done over the last few years whether it is AMP specifically, and part of AMP being reducing our footprint the restructuring that we have done, the pairing of our portfolio, the pruning of our portfolio. All those things. it is been hard work for the team, especially during a time when 1 of our markets was down cycling. We are seeing the payoff now in improved margins. And we believe that is going to extend in the future. You can see it showing up in our cash flow, 125% free cash flow conversion in the quarter.

And the ability to return cash to shareholders with $190 million of share repurchases, dividends of $38 million And it just gives us confidence in the future. So the fact that we had the productivity machine going when some of these hit us has just been incredibly and it really helps us into the future.

Eric Bosshard: Thank you.

Operator: Thank you. This concludes the question and answer session. Ms. Lilly, please proceed to closing remarks.

Branden Happel: Thank you, everyone, for your questions and interest in The Toro Company. We look forward to talking with you again in September to discuss our third quarter 26 results.

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

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