The Toro Company (TTC -6.40%) reported its results for its fiscal 2025 second quarter on June 5, posting adjusted EPS of $1.42, up $0.02 year over year and above guidance, but revenue declined by 2.3% to $1.32 billion. Management updated its full-year guidance to reflect persistent weakness in the residential market. It’s now forecasting that revenues will be flat to down 3%, and that adjusted diluted EPS will be in the $4.15 to $4.30 range, primarily due to ongoing consumer caution and the impacts of a late spring in many parts of the U.S. this year.
AMP Cost Savings Counteract Tariff Pressures and Enable Margin Enhancement
The company’s Accelerated Margin Productivity (AMP) program, launched in fiscal 2024, has generated $70 million in cumulative run-rate savings through the reported quarter, with a $100 million target by 2027. This initiative directly addresses increased material and manufacturing costs. It also serves to mitigate the headwinds from U.S. tariffs, which management estimates will represent approximately 3% of cost of goods sold this fiscal year.
“We continue to see positive results from our AMP program, which now has generated $70 million of run-rate savings and remains on track to deliver $100 million by 2027.”
— Rick Olson, Chairman and CEO
AMP’s scale and runway provide Toro with a structural hedge against inflationary, trade, and supply chain disruptions, safeguarding profitability even as revenue growth stalls.
Professional Segment Demonstrates Resilient Profit Growth and Competitive Positioning
The company’s professional segment achieved $1.0 billion in net sales (1% year-over-year growth), $202 million in earnings (6% year-over-year growth), and its margin improved by 90 basis points to 19.9%, benefiting from robust demand in golf, grounds, and infrastructure projects. Additionally, sourcing and manufacturing strategies have bolstered the segment’s operating leverage and reduced exposure to international trade risks. In particular, the company predominantly relies on U.S.-based production, and nearly all of its imported products from Mexico are currently exempt from new Mexico-specific tariffs under the USMCA.
“Professional segment earnings for the second quarter were $202 million, up 6% year over year. Professional segment earnings margin was 19.9%, up from 19%.”
— Angie Drake, Vice President and Chief Financial Officer
The professional segment’s margin expansion reinforces its status as the company’s core growth and cash flow engine, as evidenced by the segment earnings margin of 19.9% in fiscal Q2, up from 19% in the prior-year period.
Residential Segment Faces Persistent Demand and Margin Headwinds Amid Inventory Write-Downs
The residential segment’s net sales dropped 11% year over year to $297 million, as earnings were halved to $16 million and margins fell to 5.4% from 10.8%. Battery-powered products fell short of targets, with adoption around 7% versus a 20% long-term goal, necessitating excess inventory reserves and placing further earnings drag on this segment.
“Residential segment earnings for the quarter were $16 million compared to $36 million last year. Residential segment earnings margin was 5.4% compared to 10.8%. The decrease was largely due to higher material, manufacturing, and freight costs, lower net sales volume, and inventory valuation adjustments.”
— Angie Drake, Vice President and Chief Financial Officer
Sustained margin compression underscores the structural vulnerability in the residential segment, which is pressuring consolidated results and will delay the company’s recovery until macro and category-specific dynamics improve.
Looking Ahead
Management expects total net sales in fiscal Q3 to be flat to slightly up year-over-year, with professional segment sales up by a mid-single-digit percentage and residential sales down by a high-teens percentage. Full-year guidance is for revenue to be in the range of flat to down 3%, with professional segment sales up slightly, and residential sales down by a mid-teens percentage. Adjusted diluted EPS guidance was lowered to a range of $4.15 to $4.30, as margin expansion in professional is expected to be partially offset by further contractions in residential. All guidance reflects currently anticipated macro conditions, assumes normal weather patterns, and incorporates the full impact of tariffs at higher levels for the remainder of the year.
This article was created using Large Language Models (LLMs) based on The Motley Fool’s insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. The Motley Fool recommends Toro. The Motley Fool has a disclosure policy.
