The Toro Company

06/04/2026 | Press release | Distributed by Public on 06/04/2026 10:19

Quarterly Report for Quarter Ending May 1, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide a reader of our Condensed Consolidated Financial Statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Unless the context indicates otherwise, the terms "company," "TTC," "we," "our," or "us" refer to The Toro Company and its consolidated subsidiaries. This MD&A should be read in conjunction with the MD&A included in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended October 31, 2025. Unless expressly stated otherwise, the comparisons presented in this MD&A refer to the same period in the prior fiscal year. Our MD&A is presented as follows:
•Company Overview
•Results of Operations
•Business Segments
•Financial Position
•Non-GAAP Financial Measures
•Critical Accounting Policies and Estimates
This discussion contains various "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and we refer readers to the section titled "Cautionary Note Regarding Forward-Looking Statements" located at the beginning of this Quarterly Report on Form 10-Q for more information.
Non-GAAP Financial Measures
Throughout this MD&A, we have provided financial and liquidity measures that are not calculated or presented in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP") ("non-GAAP financial measures," "adjusted" before specified financial measures, and "non-GAAP liquidity measures"), as information supplemental and in addition to the most directly comparable financial measures presented in this Quarterly Report on Form 10-Q that are calculated and presented in accordance with U.S. GAAP. We believe that these non-GAAP financial measures, when considered in conjunction with our Condensed Consolidated Financial Statements prepared in accordance with U.S. GAAP, provide investors with useful supplemental financial information to better understand our core operational performance and cash flows. These non-GAAP financial measures, however, should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the most directly comparable U.S. GAAP financial measures. Reconciliations of non-GAAP financial measures to the most directly comparable reported U.S. GAAP financial measures are included in the section titled "Non-GAAP Financial Measures" within this MD&A.
COMPANY OVERVIEW
The Toro Company is in the business of designing, manufacturing, marketing, and selling professional turf maintenance equipment and services; turf irrigation systems; landscaping equipment and lighting products; snow and ice management products; agricultural irrigation systems; rental, specialty, and underground construction equipment; and residential yard and snow thrower products. Our purpose is to help our customers enrich the beauty, productivity, and sustainability of the land. Sustainability is integrated into our enterprise strategic priorities of accelerating profitable growth, driving productivity and operational excellence, and empowering our people. Our focus on alternative power, smart connected, and autonomous solutions, as well as our continued efforts to address sustainability-focused matters, are disclosed in our most recent Sustainability Report, which is not incorporated by reference into and does not form any part of this report.
We sell our products worldwide through a network of distributors, dealers, mass retailers, hardware retailers, equipment rental centers, and home centers, as well as online and direct to end-users. We strive to provide innovative, well-built, and dependable products supported by an extensive service network. A significant portion of our net sales has historically been, and we expect will continue to be, attributable to new and enhanced products. We define new products as those introduced in the current and previous two fiscal years. We classify our operations into two reportable business segments: Professional and Residential. Our remaining activities are presented as "Other" due to their insignificance, as described in greater detail within the section titled "Business Segments" in this MD&A.
Business Combinations
Acquisition of Tornado Infrastructure Equipment Ltd. ("Tornado Infrastructure Equipment")
On December 8, 2025, we completed the acquisition of Tornado Infrastructure Equipment, a publicly held Canadian company and a manufacturer in the hydrovac excavation solutions industry. Tornado Infrastructure Equipment manufactures hydrovac excavation solutions and industrial equipment solutions for the underground construction, power transmission and energy markets and provides innovative product offerings that broaden and strengthen our Professional segment and expands its dealer network.
The cash consideration, net of cash acquired, was $210.3 million ("purchase price"). The purchase price was funded with borrowings under its existing revolving credit facility. We believe that the information available as of the closing date provides a reasonable basis for estimating fair values of the assets acquired and liabilities assumed; however, we are continuing to finalize these amounts. Thus, the preliminary measurements of the fair values of the assets acquired and liabilities assumed are subject to change as additional information becomes available and as additional analysis is performed. We expect to finalize the preliminary measurements of fair values as soon as practicable, but no later than one year from the closing date of the acquisition, as required. For additional information regarding the Tornado Infrastructure Equipment acquisition, refer to Note 2, Acquisitions and Divestitures in the Notes to Condensed Consolidated Financial Statements included in Part I. Item 1 of this Quarterly Report on Form 10-Q.
Tariffs
The tariff environment is complex and evolving. Our business has incurred, and expects to continue to incur, additional costs related to tariffs. We have taken and will continue to take actions to mitigate inflationary pressures caused by tariffs through a combination of targeted price increases, strategic sourcing adjustments, manufacturing and product portfolio optimization, as well as our ongoing efforts to drive sustainable efficiency gains in our operations and administrative structures.
On February 20, 2026, the United States Supreme Court issued a decision invalidating certain tariffs imposed under the International Emergency Economic Powers Act ("IEEPA"). This ruling did not address the availability, timing, or mechanics of any potential refunds of tariffs previously collected.
The U.S. Court of International Trade ("CIT") has issued orders directing the U.S. Customs and Border Protection ("CBP") to refund previously collected IEEPA tariffs. CBP has since launched the Consolidated Administration and Processing of Entries ("CAPE") system which is being deployed in phases to facilitate the submission, validation, and payment of IEEPA tariff refund claims.
There can be no guarantee that any refund, if received, will equal the full amount of IEEPA tariffs paid, and any refund may be subject to further legal, regulatory, or administrative developments. Given these uncertainties, the Company has not recognized any benefit or asset related to potential IEEPA tariff refunds as of May 1, 2026. Based on currently available information, the Company estimates it may be eligible to recover approximately $20 million of IEEPA tariffs paid.
Anticipated IEEPA refunds are expected to substantially offset incremental tariff headwinds associated with changes to tariff regulations enacted in the second quarter of fiscal 2026.
AMP Initiative
In the first quarter of fiscal 2024, we launched a significant productivity initiative named AMP, which is a multi-year initiative now on track to achieve at least $125 million of run-rate savings by fiscal 2027, up from the initial program estimate of at least $100 million. The program is driven by sustainable supply-base, design-to-value, route-to-market, and operational efficiency transformation. We expect to reinvest a portion of the savings from this initiative to drive further innovation and growth. As of the second quarter of fiscal 2026, the AMP initiative has delivered cumulative cost savings of $106.8 million and anticipated annualized cost savings of $105.4 million. Refer to the section titled "Non-GAAP Financial Measures" for information about the productivity initiative charges incurred to generate these savings.
Tax
On July 4, 2025, U.S tax legislation known as the "One Big Beautiful Bill Act" ("OBBB") was signed into law which made permanent many of the tax provisions enacted in 2017 as part of the Tax Cuts and Jobs Act that were set to expire at the end of 2025 and other changes to certain U.S. corporate tax provisions, with staggered effective dates beginning this year. While we continue to evaluate the impact of the legislation on our financial position, we do not expect it to have a material impact on our results of operations.
RESULTS OF OPERATIONS
Overview
Consolidated net sales for the second quarter of fiscal 2026 were $1,424.7 million, up 8.1 percent compared to $1,317.9 million in the second quarter of fiscal 2025. For the first six months of fiscal 2026, consolidated net sales were $2,461.0 million, up 6.4 percent compared to $2,312.9 million in the second quarter of fiscal 2025.
Professional segment net sales for the second quarter of fiscal 2026 were $1,106.6 million, up 9.1 percent compared to $1,014.1 million in the second quarter of fiscal 2025. For the first six months of fiscal 2026, Professional net sales were $1,930.6 million, an increase of 8.3 percent compared to $1,782.9 million in the second quarter of the prior fiscal year.
Residential segment net sales for the second quarter of fiscal 2026 were $310.4 million, up 4.4 percent compared to $297.4 million in the second quarter of fiscal 2025. For the first six months of fiscal 2026, Residential net sales were $516.4 million, a decrease of 0.4 percent compared to $518.4 million in the second quarter of the prior fiscal year.
Net earnings for the second quarter of fiscal 2026 were $145.4 million, or $1.50 per diluted share, compared to $136.8 million, or $1.37 per diluted share, for the second quarter of fiscal 2025. Net earnings for the first six months of fiscal 2026 were $213.3 million, or $2.18 per diluted share, compared to $189.6 million, or $1.88 per diluted share, in the comparable fiscal 2025 period.
Adjusted net earnings for the second quarter of fiscal 2026 were $155.4 million, or $1.60 per diluted share, compared to $141.8 million, or $1.42 per diluted share, for the second quarter of fiscal 2025. Adjusted net earnings for the first six months of fiscal 2026 were $228.0 million, or $2.33 per diluted share, compared to $207.7 million, or $2.06 per diluted share, in the comparable fiscal 2025 period.
We maintained our tradition of paying quarterly cash dividends and increased our cash dividend for the second quarter of fiscal 2026 by 2.6 percent to $0.39 per share compared to $0.38 per share paid in the second quarter of fiscal 2025. We also repurchased shares of our common stock under our Board authorized stock repurchase program ("stock repurchase program"), thereby reducing our total shares of common stock outstanding. As a result of the combination of quarterly cash dividends and common stock repurchases, we returned $360.9 million of cash to our stockholders during the first six months of fiscal 2026.
Field inventory levels were lower as of the end of the second quarter of fiscal 2026 compared to the end of the second quarter of fiscal 2025 as balances approximate appropriate levels across all product categories.
Our order backlog represents unfulfilled customer orders at a point in time. Our order backlog as of the end of the second quarter of fiscal 2026 was similar to the end of the fourth quarter of fiscal 2025 as backlog has largely normalized.
Net Sales
Consolidated net sales for the second quarter of fiscal 2026 were $1,424.7 million, up 8.1 percent compared to $1,317.9 million in the second quarter of fiscal 2025. The increase was primary driven by net price realization, the Tornado acquisition, and higher shipments of both Professional and Residential segment products. For the year-to-date period of 2026, consolidated net sales were $2,461.0 million, up 6.4 percent compared to $2,312.9 million in the second quarter of fiscal 2025. The increase was primarily driven by net price realization, higher shipments of Professional segment products, and the Tornado acquisition, partially offset by lower shipments of Residential segment products.
Net sales in international markets increased by $23.2 million and decreased by $0.7 million for the second quarter and year-to-date periods of fiscal 2026, respectively. The increase for the second quarter comparison was primarily due to higher shipments of Residential and Professional segment products. For the year-to-date period of 2026, net sales outside the US were flat as lower volumes were largely offset by net price realization.
Changes in foreign currency exchange rates resulted in an increase in our net sales of approximately $8.0 million and $12.0 million for the second quarter and year-to-date periods of fiscal 2026, respectively.
The following table summarizes our results of operations as a percentage of consolidated net sales:
Three Months Ended Six Months Ended
May 1, 2026 May 2, 2025 May 1, 2026 May 2, 2025
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales (66.1) (66.9) (66.7) (66.6)
Gross profit 33.9 33.1 33.3 33.4
Selling, general and administrative expense (20.2) (19.8) (21.8) (22.5)
Operating earnings 13.7 13.3 11.5 10.9
Interest expense (1.0) (1.2) (1.2) (1.3)
Other income, net 0.2 0.7 0.7 0.6
Earnings before income taxes 12.9 12.8 11.0 10.2
Income tax provision (2.7) (2.4) (2.3) (2.0)
Net earnings 10.2 % 10.4 % 8.7 % 8.2 %
Gross Profit and Gross Margin
Gross profit for the second quarter of fiscal 2026 was $482.7 million, up 10.5 percent compared to $436.7 million for the second quarter of fiscal 2025. Gross margin was 33.9 percent for the second quarter of fiscal 2026 compared to 33.1 percent for the second quarter of fiscal 2025, an increase of 80 basis points. The increase in gross margin for the second quarter comparison was primarily due to net price realization and productivity improvements, partially offset by higher material, manufacturing, and freight costs, as well as product mix. Gross profit for the year-to-date period of fiscal 2026 was $819.2 million, up 6.1 percent compared to $772.3 million for the same period of fiscal 2025. Gross margin was 33.3 percent for the year-to-date period of fiscal 2026 compared to 33.4 percent for the prior year comparable period, a decrease of (10) basis points. The decrease in gross margin for the year-to-date comparison was primarily due to higher material, manufacturing, and freight costs and product mix, mostly offset by net price realization and productivity improvements.
Selling, General, and Administrative ("SG&A") Expense
SG&A expense increased $25.8 million, or 9.9 percent, for the second quarter of fiscal 2026 and increased $17.4 million, or 3.3 percent, for the year-to-date period of fiscal 2026 compared to the same respective periods of fiscal 2025. As a percentage of net sales, SG&A expense increased 40 basis points for the second quarter of fiscal 2026 and decreased 70 basis points for the year-to-date period of fiscal 2026 compared to the same respective periods of fiscal 2025. The increase in SG&A expense as a percentage of net sales for the second quarter was primarily due to higher warranty and incentive expenses, partially offset by net sales leverage and lower warehousing costs. The decrease in the year-to-date comparison was primarily due to net sales leverage, lower warehousing costs, and cost savings measures, partially offset by higher warranty and incentive expenses.
Interest Expense
Interest expense decreased $1.0 million and $1.8 million for the second quarter and year-to-date periods of fiscal 2026, respectively, compared to the same respective periods of fiscal 2025. The decreases in interest expense for the second quarter and year-to-date comparisons were primarily due to lower average interest rates and lower average outstanding borrowings.
Other Income, Net
Other income, net decreased $6.5 million and increased $4.2 million for the second quarter and year-to-date periods of fiscal 2026, respectively, compared to the same respective periods of fiscal 2025. The decrease in other income, net for the second quarter comparison was primarily due to facility exit charges, a less favorable net impact from foreign currency and derivative instruments, and lower income from our Red Iron joint venture. The increase in other income, net for the year-to-date comparison was primarily due to net gains on facility exits, partially offset by lower income from our Red Iron joint venture.
Income Tax Provision
The effective tax rate for the second quarter and year-to date periods of fiscal 2026 was 20.7 percent and 21.1 percent, respectively, compared to 18.9 percent and 19.3 percent, respectively, in the second quarter of fiscal 2025, primarily due to a less favorable geographic mix of earnings. The adjusted effective tax rate for the second quarter and year to date periods of fiscal 2026 was 21.7 percent and 21.6 percent, respectively, compared to an adjusted effective tax rate of 18.7 percent and 19.2 percent, respectively, in the second quarter of fiscal 2025, primarily driven by a less favorable geographic mix of earnings.
Net Earnings
Net earnings for the second quarter of fiscal 2026 were $145.4 million, or $1.50 per diluted share, compared to $136.8 million, or $1.37 per diluted share, for the second quarter of fiscal 2025. Adjusted net earnings for the second quarter of fiscal 2026 were $155.4 million, or $1.60 per diluted share, compared to $141.8 million, or $1.42 per diluted share, for the second quarter of fiscal 2025, an increase of 12.7 percent per diluted share. The increase in net earnings per diluted share for the second quarter comparison was primarily due to higher Professional and Residential segment earnings, partially offset by higher corporate expenses and higher productivity initiative charges. Net earnings for the first six months of fiscal 2026 were $213.3 million, or $2.18 per diluted share, compared to $189.6 million, or $1.88 per diluted share, for the same period of fiscal 2025. Adjusted net earnings for the first six months of fiscal 2026 were $228.0 million, or $2.33 per diluted share, compared to $207.7 million, or $2.06 per diluted share, for the same year-to-date period of fiscal 2025, an increase of 13.1% per diluted share. The increase in net earnings per diluted share for the second quarter comparison was primarily due to higher Professional and Residential segment earnings.
BUSINESS SEGMENTS
As more fully described in Note 3, Segment Data, of the Notes to the Condensed Consolidated Financial Statements, we operate in two reportable business segments: Professional and Residential. Segment earnings (loss) before interest and taxes ("EBIT") for our Professional and Residential reportable segments are defined as earnings from operations plus other income, net. Our remaining activities consisting of a wholly-owned domestic distribution company, Red Iron joint venture, certain corporate activities, impairment charges, and the elimination of intersegment revenues and expenses, are presented as "Other" due to their insignificance. Corporate activities include general corporate expenditures, such as finance, human resources, legal, information technology, public relations, business development, and similar activities, productivity initiative charges, and other unallocated corporate assets and liabilities, such as corporate facilities and deferred tax assets and liabilities. The following tables summarize net sales for our reportable business segments and Other activities:
Three Months Ended
(Dollars in millions) May 1, 2026 May 2, 2025 Dollar Value Change Percentage Change
Professional $ 1,106.6 $ 1,014.1 $ 92.5 9.1 %
Residential 310.4 297.4 $ 13.0 4.4
Other 7.7 6.4 1.3 20.3
Total net sales* $ 1,424.7 $ 1,317.9 $ 106.8 8.1 %
*Includes international net sales of: $ 278.8 $ 255.6 $ 23.2 9.1 %
Six Months Ended
(Dollars in millions) May 1, 2026 May 2, 2025 Dollar Value Change Percentage Change
Professional $ 1,930.6 $ 1,782.9 $ 147.7 8.3 %
Residential 516.4 518.4 (2.0) (0.4)
Other 14.0 11.6 2.4 20.7
Total net sales* $ 2,461.0 $ 2,312.9 $ 148.1 6.4 %
*Includes international net sales of: $ 466.3 $ 467.0 $ (0.7) (0.1) %
The following tables summarize EBIT (Loss) for our reportable business segments and Other activities:
Three Months Ended
(Dollars in millions) May 1, 2026 May 2, 2025 Dollar Value Change Percentage Change
Professional $ 224.4 $ 202.1 $ 22.3 11.0 %
Residential 30.3 16.1 $ 14.2 88.2
Other (56.5) (33.7) (22.8) (67.7)
Total segment EBIT1
$ 198.2 $ 184.5 $ 13.7 7.4 %
Six Months Ended
(Dollars in millions) May 1, 2026 May 2, 2025 Dollar Value Change Percentage Change
Professional $ 362.0 $ 329.3 $ 32.7 9.9 %
Residential 43.5 33.3 10.2 30.6
Other (106.2) (97.0) (9.2) (9.5)
Total segment EBIT1
$ 299.3 $ 265.6 $ 33.7 12.7 %
1 Presentation of EBIT (Loss) for the second quarter of fiscal 2025 has been conformed to the current year presentation.
Professional Segment
Segment Net Sales
Worldwide net sales for our Professional segment for the second quarter of fiscal 2026 increased 9.1 percent compared to the second quarter of fiscal 2025. This increase was driven primarily by net price realization, the Tornado acquisition, and higher shipments of underground construction equipment and zero-turn mowers. Worldwide net sales for our Professional segment for the year-to-date period of fiscal 2026 increased 8.3 percent compared to the same period of fiscal 2025. This increase was driven primarily by net price realization, the Tornado acquisition and higher shipments of underground construction equipment, zero-turn mowers, and snow and ice management products.
Segment EBIT
Professional segment EBIT for the second quarter of fiscal 2026 increased 11.0 percent compared to the second quarter of fiscal 2025, and Professional segment earnings margin increased to 20.3 percent from 19.9 percent in the second quarter of fiscal 2025. The increase in Professional segment earnings margin was primarily due to net price realization, productivity improvements, and net sales leverage, partially offset by product mix and higher material, manufacturing, and freight costs. Professional segment EBIT for the year-to-date period of fiscal 2026 increased 9.9 percent compared to the same period of fiscal 2025, and Professional segment margin increased to 18.8 percent from 18.5 percent for the year-to-date period of fiscal 2025. The increase in Professional segment earnings margin was primarily due to net price realization, productivity improvements, and net sales leverage, partially offset by product mix and higher material, manufacturing, and freight costs.
Residential Segment
Segment Net Sales
Worldwide net sales for our Residential segment for the second quarter of fiscal 2026 increased 4.4 percent compared to the second quarter of fiscal 2025. The increase in Residential segment net sales was primarily driven by net price realization and higher shipments of zero-turn mowers, partially offset by lower shipments of snow products. Worldwide net sales for our Residential segment for the year-to-date period of fiscal 2026 decreased (0.4) percent compared to the same period of fiscal 2025. The decrease in Residential segment net sales was primarily driven by lower shipments of turf products, partially offset by higher shipments of snow products and net price realization.
Segment EBIT
Residential segment EBIT for the second quarter of fiscal 2026 increased 88.2 percent compared to the second quarter of fiscal 2025, and Residential segment earnings margin increased to 9.8 percent from 5.4 percent in the second quarter of fiscal 2025. The increase in Residential segment earnings margin for the second quarter of fiscal 2026 was largely driven by net price realization, productivity improvements, prior year inventory valuation adjustments that did not recur, cost savings measures, and net sales leverage, partially offset by higher material, manufacturing, and freight costs. Residential segment EBIT for the year-to-date period of fiscal 2026 increased 30.6 percent compared to the same period of fiscal 2025, and Residential segment earnings margin increased to 8.4 percent from 6.4 percent in the year-to-date period of fiscal 2025. The increase in Residential segment earnings margin for the year-to-date period of fiscal 2026 was largely driven by net price realization, productivity improvements, cost savings measures, and product mix, partially offset by higher material, manufacturing, and freight costs.
Other Activities
Other Net Sales
Net sales for our Other activities includes sales from our wholly-owned domestic distribution company net of intersegment sales from the Professional and Residential segments to the distribution company. Net sales for our Other activities in the second quarter of fiscal 2026 increased by $1.3 million compared to the second quarter of fiscal 2025. Net sales for our Other activities in the year-to-date period of fiscal 2026 increased by $2.4 million compared to the same period in fiscal 2025.
Other EBIT (loss)
The operating loss for our Other activities for the second quarter of fiscal 2026 increased $22.8 million compared to the second quarter of fiscal 2025, primarily due to higher corporate expenses, higher productivity initiative charges, and lower other income, partially offset by lower interest expense. The operating loss of our Other Activities for the year-to-date period of fiscal 2026 increased $9.2 million compared to same period in fiscal 2025, primarily due to higher corporate expenses and lower other income, partially offset by lower interest expense and lower productivity initiative charges.
FINANCIAL POSITION
Working Capital
Our ongoing goal is to maintain requisite inventory levels to meet our anticipated production requirements, avoid manufacturing delays, and meet the demand for our products, as well as working to ensure service parts availability for our customers. Accounts receivable as of the end of the second quarter of fiscal 2026 decreased $27.4 million, or 4.5 percent, compared to the end of the second quarter of fiscal 2025, primarily driven by timing of shipments. Inventory levels were down $196.4 million, or 17.5 percent, as of the second quarter of fiscal 2026 compared to the second quarter of fiscal 2025, primarily driven by lower finished goods balances, primarily related to strong early spring season demand for landscape equipment by both homeowners and contractors. Accounts payable increased $35.8 million, or 6.9 percent, as of the end of the second quarter of fiscal 2026 compared to the end of the second quarter of fiscal 2025, primarily due to higher purchases.
Cash Flows
Cash Flows from Operating Activities
Net cash provided by operating activities for the first six months of fiscal 2026 was $293.5 million compared to $123.1 million for the first six months of fiscal 2025. This change was primarily due to net favorable fluctuations in working capital and higher net earnings.
Cash Flows from Investing Activities
Net cash used in investing activities for the first six months of fiscal 2026 was $226.7 million compared to $42.4 million for the first six months of fiscal 2025. This change was primarily due to the Tornado Infrastructure Equipment acquisition in the current year period.
Cash Flows from Financing Activities
Net cash used in financing activities for the first six months of fiscal 2026 was $232.4 million compared to $104.9 million for the first six months of fiscal 2025, primarily due to higher common stock repurchases and net lower debt borrowings, partially offset by higher proceeds from the exercise of stock options.
Liquidity and Capital Resources
As of May 1, 2026, we had available liquidity of $983.3 million, consisting of cash and cash equivalents of $180.4 million, of which $144.7 million was held by our foreign subsidiaries, and availability under our revolving credit facility of $802.9 million. We believe our current liquidity position, including the funds available through existing, and potential future, financing arrangements and forecasted cash flows from operations will be sufficient to provide the necessary capital resources for our anticipated working capital needs, payroll, and other administrative costs, capital expenditures, lease payments, purchase commitments, contractual obligations, acquisitions, investments, establishment of new facilities, expansion and renovation of existing facilities, financing receivables from customers that are not financed with Red Iron or other third-party financial institutions, contingent consideration payments, debt repayments, interest payments, quarterly cash dividend payments, and common stock repurchases, all as applicable, for at least the next twelve months.
Indebtedness
Our debt arrangements are described in further detail in our Annual Report on Form 10-K for the fiscal year ended October 31, 2025. The following is a summary of our indebtedness:
(Dollars in millions) May 1, 2026 May 2, 2025 October 31, 2025
Revolving credit facility, due October 2029 $ 95.0 $ 175.0 $ -
Term loan, due October 2029 200.0 200.0 200.0
Term loan, due April 2027 - 200.0 -
3.81% series A senior notes, due June 2029 100.0 100.0 100.0
3.91% series B senior notes, due June 2031 100.0 100.0 100.0
3.97% senior notes, due June 2032 100.0 100.0 100.0
5.27% senior notes, due September 2032 200.0 - 200.0
7.8% debentures, due June 2027 100.0 100.0 100.0
6.625% senior notes, due May 2037 124.3 124.3 124.3
Less: unamortized debt issuance costs 2.5 2.2 2.8
Total debt 1,016.8 1,097.1 921.5
Less: current maturities and short-term borrowings - 20.0 -
Long-term debt, less current portion $ 1,016.8 $ 1,077.1 $ 921.5
From time to time, we may seek to refinance existing debt and incur additional indebtedness depending on our capital requirements and the availability and cost of financing.
As of May 1, 2026, we had $95.0 million outstanding borrowings under our revolving credit facility and $2.1 million outstanding under the sublimit for standby letters of credit, which resulted in $802.9 million of unutilized availability under our revolving credit facility's $900 million borrowing capacity.
We are in compliance with our debt covenants and other requirements of our revolving credit facility and term loan credit agreements, indentures, and private placement note purchase agreements.
Cash Dividends
Our Board of Directors approved a cash dividend of $0.39 per share for the second quarter of fiscal 2026 that was paid on April 13, 2026. This was an increase of 2.6 percent over our cash dividend of $0.38 per share for the second quarter of fiscal 2025. We expect to continue paying our quarterly cash dividend to stockholders for the remainder of fiscal 2026.
Common Stock Repurchases
During the first six months of fiscal 2026, we repurchased 3,125,254 shares of our common stock under our stock repurchase program, thereby reducing our total shares of common stock outstanding. As of May 1, 2026, 7,266,536 shares of common stock remained available for repurchase under our stock repurchase program. We expect to continue to repurchase shares of our common stock throughout the remainder of fiscal 2026, depending on our cash balance, debt repayments, market conditions, our anticipated working capital needs, the price of our common stock, investment priorities, and/or other factors.
Customer Financing Arrangements
Our customer financing arrangements are described in further detail in our Annual Report on Form 10-K for the fiscal year ended October 31, 2025. There have been no material changes to our customer financing arrangements during the first six months of fiscal 2026.
Inventory Financing
We are party to inventory financing arrangements with Red Iron, HCFC, and other third-party financial institutions which provide inventory financing to certain dealers and distributors of certain of our products in the U.S. and internationally.
The net amount of receivables financed for dealers and distributors under the arrangement with Red Iron for the six month periods ended May 1, 2026 and May 2, 2025 were $1,387.7 million and $1,346.5 million, respectively. The total amount of net receivables outstanding under the arrangement with Red Iron as of May 1, 2026, May 2, 2025 and October 31, 2025 were $902.5 million, $1,021.2 million and $807.6 million, respectively. The total amount of receivables due from Red Iron to us as of May 1, 2026, May 2, 2025 and October 31, 2025 were $32.3 million, $19.3 million and $21.6 million, respectively.
The net amount of receivables financed for dealers and distributors under the arrangements with HCFC and the other third-party financial institutions for the six month periods ended May 1, 2026 and May 2, 2025 were $348.3 million and $319.2 million, respectively. The total amount of net receivables outstanding under the arrangements with HCFC and the other third-party financial institutions as of May 1, 2026, May 2, 2025, and October 31, 2025 were $292.1 million, $253.5 million, and $308.3 million, respectively.
Inventory Repurchase Agreements
We have entered into a limited inventory repurchase agreement with Red Iron and HCFC under which we have agreed to repurchase certain repossessed products, up to a maximum aggregate amount of $7.5 million in a calendar year.
Additionally, as a result of our financing agreements with the other third-party financial institutions, we have also entered into inventory repurchase agreements with the other third-party financial institutions. Under such inventory repurchase agreements, we have agreed to repurchase products repossessed by the other third-party financial institutions. As of May 1, 2026, May 2, 2025, and October 31, 2025, we were contingently liable to repurchase up to a maximum amount of $29.8 million, $28.9 million, and $29.0 million, respectively, of inventory related to receivables under these inventory repurchase agreements.
Our financial exposure under these inventory repurchase agreements is limited to the difference between the amount paid to Red Iron, HCFC or other third-party financing institutions for repurchases of inventory and the amount received upon subsequent resale of the repossessed product. We have repurchased immaterial amounts of inventory pursuant to such arrangements for the six months ended May 1, 2026 and May 2, 2025. However, a decline in retail sales or financial difficulties of our distributors or dealers could cause this situation to change and thereby require us to repurchase financed product, which could have an adverse effect on our results of operations, financial position, or cash flows.
NON-GAAP FINANCIAL MEASURES
We have provided in this Quarterly Report on Form 10-Q certain non-GAAP financial measures, which are not calculated or presented in accordance with U.S. GAAP, as information supplemental and in addition to the most directly comparable financial measures that are calculated and presented in accordance with U.S. GAAP. We use these non-GAAP financial measures in making operating decisions and assessing liquidity because we believe they provide meaningful supplemental information regarding our core operational performance and cash flows, as a measure of our liquidity, and provide us with a better understanding of how to allocate resources to both ongoing and prospective business initiatives. Additionally, these non-GAAP financial measures facilitate our internal comparisons to both our historical operating results and to our competitors' operating results by factoring out potential differences caused by charges and benefits not related to our regular, ongoing business, including, without limitation, certain non-cash, large, and/or unpredictable charges and benefits; acquisitions and dispositions; legal judgments, settlements, or other matters; and tax positions. We believe that these non-GAAP financial measures, when considered in conjunction with our Condensed Consolidated Financial Statements prepared in accordance with U.S. GAAP, provide investors with useful supplemental financial information to better understand our core operational performance and cash flows. These non-GAAP financial measures should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the most directly comparable U.S. GAAP financial measures. The non-GAAP financial measures may differ from similar measures used by other companies.
Reconciliation of Non-GAAP Financial Measures
The following table provides a reconciliation of the non-GAAP financial performance measures used in this report to the most directly comparable measures calculated and reported in accordance with U.S. GAAP for the three and six month periods ended May 1, 2026 and May 2, 2025:
Three Months Ended Six Months Ended
(Dollars in millions, except per share data) May 1, 2026 May 2, 2025 May 1, 2026 May 2, 2025
Gross profit $ 482.7 $ 436.7 $ 819.2 $ 772.3
Acquisition-related costs1
2.4 - 4.1 -
Productivity initiative2
7.0 3.7 15.4 7.5
Adjusted gross profit $ 492.1 $ 440.4 $ 838.7 $ 779.8
Gross margin 33.9 % 33.1 % 33.3 % 33.4 %
Acquisition-related costs1
0.1 % - % 0.2 % - %
Productivity initiative2
0.5 % 0.3 % 0.6 % 0.3 %
Adjusted gross margin 34.5 % 33.4 % 34.1 % 33.7 %
Operating earnings $ 195.0 $ 174.8 $ 282.1 $ 252.6
Acquisition-related costs1
3.5 - 5.7 -
Productivity initiative2
7.3 5.6 19.7 21.8
Adjusted operating earnings $ 205.8 $ 180.4 $ 307.5 $ 274.4
Operating earnings margin 13.7 % 13.3 % 11.5 % 10.9 %
Acquisition-related costs1
0.2 % - % 0.2 % - %
Productivity initiative2
0.5 % 0.4 % 0.8 % 1.0 %
Adjusted operating earnings margin 14.4 % 13.7 % 12.5 % 11.9 %
Earnings before income taxes $ 183.4 $ 168.7 $ 270.3 $ 234.8
Acquisition-related costs1
3.5 - 5.7 -
Productivity initiative2
11.5 5.7 14.9 22.2
Adjusted earnings before income taxes $ 198.4 $ 174.4 $ 290.9 $ 257.0
Income tax provision $ 38.0 $ 31.9 $ 57.0 $ 45.2
Acquisition-related costs1
0.7 - 1.2 -
Productivity initiative2
2.5 0.9 3.2 4.2
Tax impact of share-based compensation3
1.8 (0.2) 1.5 (0.1)
Adjusted income tax provision $ 43.0 $ 32.6 $ 62.9 $ 49.3
Net earnings $ 145.4 $ 136.8 $ 213.3 $ 189.6
Acquisition-related costs, net of tax1
2.8 - 4.5 -
Productivity initiative, net of tax2
9.0 4.8 11.7 18.0
Tax impact of stock-based compensation3
(1.8) 0.2 (1.5) 0.1
Adjusted net earnings $ 155.4 $ 141.8 $ 228.0 $ 207.7
Net earnings per diluted share $ 1.50 $ 1.37 $ 2.18 $ 1.88
Acquisition-related costs, net of tax1
0.03 - 0.05 -
Productivity initiative, net of tax2
0.09 0.05 0.12 0.18
Tax impact of stock-based compensation3
(0.02) - (0.02) -
Adjusted net earnings per diluted share $ 1.60 $ 1.42 $ 2.33 $ 2.06
Effective tax rate 20.7 % 18.9 % 21.1 % 19.3 %
Productivity initiative1
- % (0.1) % - % - %
Tax impact of stock-based compensation3
1.0 % (0.1) % 0.5 % (0.1) %
Adjusted effective tax rate 21.7 % 18.7 % 21.6 % 19.2 %
1 On December 8, 2025, we completed the acquisition of Tornado Infrastructure Equipment. For additional information regarding this acquisition, refer to Note 2, Acquisitions and Divestitures, within the Notes to Condensed Consolidated Financial Statements included within Part I, Item 1, "Financial Statements" of this Quarterly Report on Form 10-Q. Acquisition-related costs for the three and six month periods ended May 1, 2026 represent integration costs and amortization of the backlog intangible asset resulting from purchase accounting adjustments.
2 In the first quarter of fiscal 2024, we launched a significant productivity initiative named AMP, as discussed in more detail under the heading "Company Overview-AMP Initiative" in this section. We considered the nature, frequency, and scale of this initiative compared to our prior productivity initiatives when determining that the expenses associated with AMP, unlike our prior productivity initiatives, are not common, normal, recurring operating expenses and are not representative of our ongoing business operations. Productivity initiative charges for the three and six month periods ended May 1, 2026 and May 2, 2025 primarily represent facility exit-related costs and gains, severance and termination benefits, compensation for fully-dedicated AMP personnel, third-party consulting costs, and product-line exit costs.
3 The accounting standards codification guidance governing employee stock-based compensation requires that any excess or deficient tax deduction for stock-based compensation be immediately recorded within income tax expense. Employee stock-based compensation activity, including the exercise of stock options, can be unpredictable and can significantly impact our net earnings, net earnings per diluted share, and effective tax rate. These amounts represent the discrete tax benefits recorded as excess tax deductions for stock-based compensation during the three and six month periods ended May 1, 2026 and May 2, 2025.
Reconciliation of Non-GAAP Liquidity Measures
We define free cash flow as net cash provided by operating activities less purchases of property, plant, and equipment. Free cash flow conversion percentage represents free cash flow as a percentage of net earnings. We consider free cash flow and free cash flow conversion percentage to be non-GAAP liquidity measures that provide useful information to management and investors about our ability to convert net earnings into cash resources that can be used to pursue opportunities to enhance stockholder value, fund ongoing and prospective business initiatives, and strengthen our Condensed Consolidated Balance Sheets, after reinvesting in necessary capital expenditures required to maintain and grow our business. The following table provides a reconciliation of non-GAAP free cash flow and free cash flow conversion percentage to net cash provided by operating activities, which is the most directly comparable financial measure calculated and reported in accordance with U.S. GAAP, for the six month periods ended May 1, 2026 and May 2, 2025:
Six Months Ended
(Dollars in millions) May 1, 2026 May 2, 2025
Net cash provided by operating activities $ 293.5 $ 123.1
Less: Purchases of property, plant, and equipment 28.0 38.4
Free cash flow 265.5 84.7
Net earnings $ 213.3 $ 189.6
Free cash flow conversion percentage 124.5 % 44.7 %
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no material changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the fiscal year ended October 31, 2025. Refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", and Part II, Item 8, Note 1, Summary of Significant Accounting Policies and Related Data, within our Annual Report on Form 10-K for the fiscal year ended October 31, 2025 for a discussion of our critical accounting policies and estimates.
The Toro Company published this content on June 04, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on June 04, 2026 at 16:20 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]