The Toro Company
09/03/2026 | Press release | Distributed by Public on 09/03/2026 11:10
Quarterly Report for Quarter Ending July 31, 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 "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 our existing revolving credit facility. As of July 31, 2026, we have substantially completed our process for measuring the fair values of the assets acquired and liabilities assumed based on information available as of the Tornado Infrastructure Equipment closing date, with the exception of our valuation of income taxes as we require additional information to finalize our valuation of income taxes. Thus, the preliminary measurements of fair value reflected for income taxes are subject to change as additional information becomes available and as additional analysis is performed. We expect to finalize our preliminary valuation of income taxes and complete the allocation of the preliminary Tornado Infrastructure Equipment purchase price 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, Acquisition 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. As of July 31, 2026, we have recorded approximately $8 million as a reduction to cost of goods sold. Based on currently available information, we estimate we may be eligible to recover a total of approximately $20 million of IEEPA tariffs paid.
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 third quarter of fiscal 2026, the AMP initiative has delivered cumulative cost savings of $123.4 million and anticipated annualized cost savings of $124.9 million. Refer to the section titled "Non-GAAP Financial Measures" for information about the productivity initiative charges incurred to generate these savings.
Manufacturing Facility and Product Line Exits
During the preparation of the financial statements for the third quarter of fiscal 2026, we recorded non-cash impairment charges of $43.1 million in Other activities related to the planned closure of our Monterrey manufacturing facility and the write-down of assets associated with a residential mower platform. These impairment charges are included in the Non-cash impairment charge caption on the Condensed Consolidated Statements of Earnings (Loss), and resulted in a $1.4 million deferred tax asset associated with the remaining tax deductible basis of the manufacturing facility and product line. For additional information regarding these impairment charges, refer to Note 18, Management Actions in our Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
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.
Impairment of Spartan Trade Name
During the third quarter of fiscal 2025, we recorded an impairment charge of $81.1 million related to the indefinite-lived Spartan trade name intangible asset reported under the Professional segment. Subsequent to this impairment charge, the indefinite-lived Spartan trade name intangible asset is fully impaired, resulting in a carrying value of zero. This impairment charge is included in the Non-cash impairment charge caption on the Condensed Consolidated Statements of Earnings (Loss). The impairment charge resulted in a $19.7 million income tax benefit (deferred tax asset) associated with the remaining tax deductible basis of the intangible asset. For additional information regarding the impairment charge, refer to Note 5, Goodwill and Other Intangible Assets, Net in our Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
RESULTS OF OPERATIONS
Overview
Consolidated net sales for the third quarter of fiscal 2026 were $1,225.8 million, up 8.4 percent compared to $1,131.3 million in the third quarter of fiscal 2025. For the first nine months of fiscal 2026, consolidated net sales were $3,686.8 million, up 7.0 percent compared to $3,444.2 million from the same period in the prior fiscal year.
Professional segment net sales for the third quarter of fiscal 2026 were $1,012.6 million, up 8.8 percent compared to $930.8 million in the third quarter of fiscal 2025. For the first nine months of fiscal 2026, Professional net sales were $2,943.2 million, an increase of 8.5 percent compared to $2,713.7 million from the same period in the prior fiscal year.
Residential segment net sales for the third quarter of fiscal 2026 were $209.3 million, up 8.6 percent compared to $192.8 million in the third quarter of fiscal 2025. For the first nine months of fiscal 2026, Residential net sales were $725.7 million, an increase of 2.0 percent compared to $711.2 million from the same period in the prior fiscal year.
Net earnings for the third quarter of fiscal 2026 were $77.0 million, or $0.81 per diluted share, compared to $53.5 million, or $0.54 per diluted share, for the third quarter of fiscal 2025. Net earnings for the first nine months of fiscal 2026 were $290.3 million, or $2.99 per diluted share, compared to $243.1 million, or $2.42 per diluted share, from the same period in the prior fiscal year.
Adjusted net earnings for the third quarter of fiscal 2026 were $126.8 million, or $1.33 per diluted share, compared to $122.5 million, or $1.24 per diluted share, for the third quarter of fiscal 2025. Adjusted net earnings for the first nine months of fiscal 2026 were $354.8 million, or $3.66 per diluted share, compared to $330.2 million, or $3.29 per diluted share, from the same period in the prior fiscal year.
We maintained our tradition of paying quarterly cash dividends and increased our cash dividend for the third quarter of fiscal 2026 by 2.6 percent to $0.39 per share compared to $0.38 per share paid in the third 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 $470.9 million of cash to our stockholders during the first nine months of fiscal 2026.
Field inventory was higher as of the end of the third quarter of fiscal 2026 compared to the end of the third quarter of fiscal 2025 primarily due to replenished balances of underground construction products that have reached healthy levels.
Our order backlog represents unfulfilled customer orders at a point in time. Our order backlog as of the end of the third quarter of fiscal 2026 was similar to the end of the third quarter of fiscal 2025 as backlog has largely normalized.
Net Sales
Consolidated net sales for the third quarter of fiscal 2026 were $1,225.8 million, up 8.4 percent compared to $1,131.3 million in the third quarter of fiscal 2025. The increase was primary driven by higher Professional and Residential segment volume, net price realization, and the Tornado acquisition. For the year-to-date period of 2026, consolidated net sales were $3,686.8 million, up 7.0 percent compared to $3,444.2 million from the same period in the prior fiscal year. The increase was primarily driven by net price realization, the Tornado acquisition, and higher Professional segment volume.
| Three Months Ended | ||||||||||||||||||||
| (Dollars in millions) | July 31, 2026 | Fiscal 2026 vs. 2025 Percentage Change | August 1, 2025 | |||||||||||||||||
| Net sales (in millions) | $ | 1,225.8 | 8 | % | $ | 1,131.3 | ||||||||||||||
| Contributions from volume growth | 3 | % | ||||||||||||||||||
| Net price realization and mix | 3 | % | ||||||||||||||||||
| Foreign currency exchange | - | % | ||||||||||||||||||
| Acquisitions/ Divestitures | 2 | % | ||||||||||||||||||
| Nine Months Ended | ||||||||||||||||||||
| (Dollars in millions) | July 31, 2026 | Fiscal 2026 vs. 2025 Percentage Change | August 1, 2025 | |||||||||||||||||
| Net sales (in millions) | $ | 3,686.8 | 7 | % | $ | 3,444.2 | ||||||||||||||
| Contributions from volume growth | 2 | % | ||||||||||||||||||
| Net price realization and mix | 3 | % | ||||||||||||||||||
| Foreign currency exchange | - | % | ||||||||||||||||||
| Acquisitions/ Divestitures | 2 | % | ||||||||||||||||||
Net sales in international markets increased by $32.7 million and $32.0 million for the third quarter and year-to-date periods of fiscal 2026, respectively. The increase for the third quarter comparison was primarily due to higher Professional segment volume and the Tornado acquisition.
Changes in foreign currency exchange rates resulted in an increase in our net sales of approximately $1.0 million and $13.0 million for the third 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 | Nine Months Ended | |||||||||||||||||||||||||
| July 31, 2026 | August 1, 2025 | July 31, 2026 | August 1, 2025 | |||||||||||||||||||||||
| Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||||||||
| Cost of sales | (65.9) | (66.3) | (66.4) | (66.5) | ||||||||||||||||||||||
| Gross profit | 34.1 | 33.7 | 33.6 | 33.5 | ||||||||||||||||||||||
| Selling, general and administrative expense | (21.2) | (20.8) | (21.6) | (21.9) | ||||||||||||||||||||||
| Non-cash impairment charges | (3.5) | (7.2) | (1.2) | (2.4) | ||||||||||||||||||||||
| Operating earnings | 9.4 | 5.7 | 10.8 | 9.2 | ||||||||||||||||||||||
| Interest expense | (1.1) | (1.3) | (1.2) | (1.3) | ||||||||||||||||||||||
| Other income, net | 0.4 | 0.7 | 0.6 | 0.6 | ||||||||||||||||||||||
| Earnings before income taxes | 8.7 | 5.1 | 10.2 | 8.5 | ||||||||||||||||||||||
| Income tax provision | (2.4) | (0.4) | (2.3) | (1.4) | ||||||||||||||||||||||
| Net earnings | 6.3 | % | 4.7 | % | 7.9 | % | 7.1 | % | ||||||||||||||||||
Gross Profit and Gross Margin
Gross profit for the third quarter of fiscal 2026 was $418.1 million, up 9.5 percent compared to $381.8 million for the third quarter of fiscal 2025. Gross margin was 34.1 percent for the third quarter of fiscal 2026 compared to 33.7 percent for the third quarter of fiscal 2025, an increase of 40 basis points. The increase in gross margin for the third quarter comparison was primarily due to net price realization, productivity improvements, and net sales leverage, partially offset by higher material and manufacturing costs. Gross profit for the year-to-date period of fiscal 2026 was $1,237.3 million, up 7.2 percent compared to $1,154.1 million for the same period of fiscal 2025. Gross margin was 33.6 percent for the year-to-date period of fiscal 2026 compared to 33.5 percent from the same period in the prior fiscal year, an increase of 10 basis points. The increase in gross margin for the year-to-date comparison was primarily due to net price realization and productivity initiatives, partially offset by higher material and manufacturing costs and product mix.
Selling, General, and Administrative ("SG&A") Expense
SG&A expense increased $23.9 million, or 10.1 percent, for the third quarter of fiscal 2026 and increased $41.3 million, or 5.5 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 third quarter of fiscal 2026 and decreased 30 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 third quarter was primarily due to higher incentive expenses. The decrease in the year-to-date comparison was primarily due to net sales leverage, partially offset by higher incentive expenses.
Non-Cash Impairment Charges
We recorded non-cash impairment charges of $43.1 million within our Other activities related to the planned closure of our Monterrey manufacturing facility and the write-down of assets associated with the exit of a residential mower platform product line in the third quarter and year-to-date period of fiscal 2026. In the third quarter and year-to-date period of fiscal 2025, we recorded a non-cash impairment charge of $81.1 million within our Other activities related to the Spartan trade name.
Interest Expense
Interest expense decreased $1.3 million and $3.1 million for the third 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 third 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 $2.6 million and increased $1.6 million for the third 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 third quarter comparison was primarily due to lower income from our Red Iron joint venture, a less favorable net impact from foreign currency, and derivative instruments. The increase in the year-to-date comparison was primarily due to net gains on sale of assets, partially offset by lower income from our Red Iron joint venture.
Income Tax Provision
The effective tax rate for the third quarter and year-to date periods of fiscal 2026 was 28.0 percent and 23.0 percent, respectively, compared to 7.4 percent and 16.9 percent, respectively, in the third quarter of fiscal 2025, primarily due to the impact of non-recurring adjustments and a less favorable geographic mix of earnings. The adjusted effective tax rate for the third quarter and year to date periods of fiscal 2026 was 22.4 percent and 21.9 percent, respectively, compared to an adjusted effective tax rate of 17.3 percent and 18.5 percent, respectively, in the third quarter of fiscal 2025, primarily driven by a less favorable geographic mix of earnings.
Net Earnings
Net earnings for the third quarter of fiscal 2026 were $77.0 million, or $0.81 per diluted share, compared to $53.5 million, or $0.54 per diluted share, for the third quarter of fiscal 2025. Adjusted net earnings for the third quarter of fiscal 2026 were $126.8 million, or $1.33 per diluted share, compared to $122.5 million, or $1.24 per diluted share, for the third quarter of fiscal 2025, an increase of 7.3 percent per diluted share. The increase in net earnings per diluted share for the third quarter comparison was primarily due to the non-cash impairment charge in the prior year and higher Professional and Residential segment profit in the current year, partially offset by higher productivity initiative charges and higher tax expenses in the current quarter.
Net earnings for the first nine months of fiscal 2026 were $290.3 million, or $2.99 per diluted share, compared to $243.1 million, or $2.42 per diluted share, for the same period of fiscal 2025. Adjusted net earnings for the first nine months of fiscal 2026 were $354.8 million, or $3.66 per diluted share, compared to $330.2 million, or $3.29 per diluted share, for the same year-to-date period of fiscal 2025, an increase of 11.2 percent per diluted share. The increase in net earnings per diluted share for the year-to-date comparison was primarily due to the prior year non-cash impairment charge, and higher Professional and Residential segment profit, partially offset by higher productivity initiative charges and higher tax expense.
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 profit/(loss) for our Professional and Residential reportable segments is defined as adjusted earnings before interest and taxes "segment profit/(loss)". 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) | July 31, 2026 | August 1, 2025 | Dollar Value Change | Percentage Change | ||||||||||||||||||||||
| Professional | $ | 1,012.6 | $ | 930.8 | $ | 81.8 | 8.8 | % | ||||||||||||||||||
| Residential | 209.3 | 192.8 | $ | 16.5 | 8.6 | |||||||||||||||||||||
| Other | 3.9 | 7.7 | (3.8) | (49.4) | ||||||||||||||||||||||
| Total net sales* | $ | 1,225.8 | $ | 1,131.3 | $ | 94.5 | 8.4 | % | ||||||||||||||||||
| *Includes international net sales of: | $ | 231.9 | $ | 199.2 | $ | 32.7 | 16.4 | % | ||||||||||||||||||
| Nine Months Ended | ||||||||||||||||||||||||||
| (Dollars in millions) | July 31, 2026 | August 1, 2025 | Dollar Value Change | Percentage Change | ||||||||||||||||||||||
| Professional | $ | 2,943.2 | $ | 2,713.7 | $ | 229.5 | 8.5 | % | ||||||||||||||||||
| Residential | 725.7 | 711.2 | 14.5 | 2.0 | ||||||||||||||||||||||
| Other | 17.9 | 19.3 | (1.4) | (7.3) | ||||||||||||||||||||||
| Total net sales* | $ | 3,686.8 | $ | 3,444.2 | $ | 242.6 | 7.0 | % | ||||||||||||||||||
| *Includes international net sales of: | $ | 698.2 | $ | 666.2 | $ | 32.0 | 4.8 | % | ||||||||||||||||||
The following tables summarize segment profit/(loss) for our reportable business segments and Other activities:
| Three Months Ended | ||||||||||||||||||||||||||
| (Dollars in millions) | July 31, 2026 | August 1, 2025 | Dollar Value Change | Percentage Change | ||||||||||||||||||||||
| Professional | $ | 211.8 | $ | 198.5 | $ | 13.3 | 6.7 | % | ||||||||||||||||||
| Residential | 12.4 | 3.7 | 8.7 | 235.1 | ||||||||||||||||||||||
| Other | (103.5) | (129.3) | 25.8 | 20.0 | ||||||||||||||||||||||
|
Total segment profit/(loss)1
|
$ | 120.7 | $ | 72.9 | $ | 47.8 | 65.6 | % | ||||||||||||||||||
| Nine Months Ended | ||||||||||||||||||||||||||
| (Dollars in millions) | July 31, 2026 | August 1, 2025 | Dollar Value Change | Percentage Change | ||||||||||||||||||||||
| Professional | $ | 573.8 | $ | 527.8 | $ | 46.0 | 8.7 | % | ||||||||||||||||||
| Residential | 55.9 | 37.0 | 18.9 | 51.1 | ||||||||||||||||||||||
| Other | (209.7) | (226.3) | 16.6 | 7.3 | ||||||||||||||||||||||
|
Total segment profit/(loss)1
|
$ | 420.0 | $ | 338.5 | $ | 81.5 | 24.1 | % | ||||||||||||||||||
1 Presentation of segment profit/(loss) for the third 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 third quarter of fiscal 2026 increased 8.8 percent compared to the third quarter of fiscal 2025. This increase was driven primarily by higher volume, net price realization, and the Tornado acquisition. Worldwide net sales for our Professional segment for the year-to-date period of fiscal 2026 increased 8.5 percent compared to the same period of fiscal 2025. This increase was driven primarily by net price realization, the Tornado acquisition and higher volume of underground construction equipment, snow and ice management products, and stand-on mowers.
| Three Months Ended | ||||||||||||||||||||
| (Dollars in millions) | July 31, 2026 | Fiscal 2026 vs. 2025 Percentage Change | August 1, 2025 | |||||||||||||||||
| Net sales (in millions) | $ | 1,012.6 | 9 | % | $ | 930.8 | ||||||||||||||
| Contributions from volume growth | 3 | % | ||||||||||||||||||
| Net price realization and mix | 3 | % | ||||||||||||||||||
| Foreign currency exchange | - | % | ||||||||||||||||||
| Acquisitions/ Divestitures | 3 | % | ||||||||||||||||||
| Nine Months Ended | ||||||||||||||||||||
| (Dollars in millions) | July 31, 2026 | Fiscal 2026 vs. 2025 Percentage Change | August 1, 2025 | |||||||||||||||||
| Net sales (in millions) | $ | 2,943.2 | 8 | % | $ | 2,713.7 | ||||||||||||||
| Contributions from volume growth | 2 | % | ||||||||||||||||||
| Net price realization and mix | 3 | % | ||||||||||||||||||
| Foreign currency exchange | - | % | ||||||||||||||||||
| Acquisitions/ Divestitures | 2 | % | ||||||||||||||||||
Segment Profit/(Loss)
Professional segment profit for the third quarter of fiscal 2026 increased 6.7 percent compared to the third quarter of fiscal 2025, and Professional segment profit margin decreased to 20.9 percent from 21.3 percent in the third quarter of fiscal 2025. The decrease in Professional segment profit margin was primarily due to higher material and manufacturing costs and product mix, partially offset by net price realization, productivity improvements, and net sales leverage. Professional segment profit for the year-to-date period of fiscal 2026 increased 8.7 percent compared to the same period of fiscal 2025, and Professional segment margin increased to 19.5 percent from 19.4 percent for the year-to-date period of fiscal 2025. The increase in Professional segment profit margin was primarily due to net price realization, productivity improvements, and net sales leverage, partially offset by higher material and manufacturing costs and product mix.
Residential Segment
Segment Net Sales
Worldwide net sales for our Residential segment for the third quarter of fiscal 2026 increased 8.6 percent compared to the third quarter of fiscal 2025. The increase in Residential segment net sales was primarily driven by higher volume of walk power mowers and net price realization. Worldwide net sales for our Residential segment for the year-to-date period of fiscal 2026 increased 2.0 percent compared to the same period of fiscal 2025. The increase in Residential segment net sales was primarily driven by net price realization and higher snow product volume, partially offset by lower lawn-care product volume.
| Three Months Ended | ||||||||||||||||||||
| (Dollars in millions) | July 31, 2026 | Fiscal 2026 vs. 2025 Percentage Change | August 1, 2025 | |||||||||||||||||
| Net sales (in millions) | $ | 209.3 | 9 | % | $ | 192.8 | ||||||||||||||
| Contributions from volume growth | 7 | % | ||||||||||||||||||
| Net price realization and mix | 2 | % | ||||||||||||||||||
| Foreign currency exchange | - | % | ||||||||||||||||||
| Acquisitions/ Divestitures | - | % | ||||||||||||||||||
| Nine Months Ended | ||||||||||||||||||||
| (Dollars in millions) | July 31, 2026 | Fiscal 2026 vs. 2025 Percentage Change | August 1, 2025 | |||||||||||||||||
| Net sales (in millions) | $725.7 | 2 | % | $711.2 | ||||||||||||||||
| Contributions from volume growth | (1) | % | ||||||||||||||||||
| Net price realization and mix | 3 | % | ||||||||||||||||||
| Foreign currency exchange | - | % | ||||||||||||||||||
| Acquisitions/ Divestitures | - | % | ||||||||||||||||||
Segment Profit/(Loss)
Residential segment profit for the third quarter of fiscal 2026 increased 235.1 percent compared to the third quarter of fiscal 2025, and Residential segment profit margin increased to 5.9 percent from 1.9 percent in the third quarter of fiscal 2025. The increase in Residential segment profit margin for the third quarter of fiscal 2026 was largely driven by productivity improvements, net price realization, net sales leverage, and prior year inventory valuation adjustments that did not recur, partially offset by higher material and manufacturing costs. Residential segment profit for the year-to-date period of fiscal 2026 increased 51.1 percent compared to the same period of fiscal 2025, and Residential segment profit margin increased to 7.7 percent from 5.2 percent in the year-to-date period of fiscal 2025. The increase in Residential segment profit 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 and manufacturing 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 third quarter of fiscal 2026 decreased by $3.8 million compared to the third quarter of fiscal 2025. Net sales for our Other activities in the year-to-date period of fiscal 2026 decreased by $1.4 million compared to the same period in fiscal 2025.
Other Profit (Loss)
The operating loss for our Other activities for the third quarter of fiscal 2026 decreased $25.8 million compared to the third quarter of fiscal 2025, primarily due to the prior year non-cash impairment charge, partially offset by higher productivity initiative charges and higher corporate expenses in the current year. The operating loss of our Other Activities for the year-to-date period of fiscal 2026 decreased $16.6 million compared to same period in fiscal 2025, primarily due to the non-cash impairment charge in the prior year, partially offset by higher productivity initiative charges and higher corporate and incentive expenses.
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 third quarter of fiscal 2026 increased $23.4 million, or 5.0 percent, compared to the end of the third quarter of fiscal 2025, primarily driven by the Tornado acquisition. Inventory levels were down $153.5 million, or 14.8 percent, as of the third quarter of fiscal 2026 compared to the third quarter of fiscal 2025, primarily driven by lower finished goods balances, primarily related to strong mowing season demand by both homeowners and contractors. Accounts payable increased $78.6 million, or 20.4 percent, as of the end of the third quarter of fiscal 2026 compared to the end of the third 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 nine months of fiscal 2026 was $476.2 million compared to $348.9 million for the first nine months of fiscal 2025. This change was primarily due to net favorable fluctuations in working capital.
Cash Flows from Investing Activities
Net cash used in investing activities for the first nine months of fiscal 2026 was $248.2 million compared to $50.7 million for the first nine months of fiscal 2025. This change was primarily due to the Tornado acquisition in the current year period.
Cash Flows from Financing Activities
Net cash used in financing activities for the first nine months of fiscal 2026 was $396.5 million compared to $298.1 million for the first nine months of fiscal 2025, primarily due to net lower debt borrowings and higher common stock repurchases, partially offset by higher proceeds from the exercise of stock options.
Liquidity and Capital Resources
As of July 31, 2026, we had available liquidity of $1,033.2 million, consisting of cash and cash equivalents of $175.3 million, of which $141.3 million was held by our foreign subsidiaries, and availability under our revolving credit facility of $857.9 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) | July 31, 2026 | August 1, 2025 | October 31, 2025 | |||||||||||||||||
| Revolving credit facility, due October 2029 | $ | 40.0 | $ | 115.0 | $ | - | ||||||||||||||
| Term loan, due October 2029 | 200.0 | 200.0 | 200.0 | |||||||||||||||||
| Term loan, due April 2027 | - | 195.0 | - | |||||||||||||||||
| 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 | 2.3 | 2.1 | 2.8 | |||||||||||||||||
| Total debt | 962.0 | 1,032.2 | 921.5 | |||||||||||||||||
| Less: current maturities and short-term borrowings | - | 20.0 | - | |||||||||||||||||
| Long-term debt, less current portion | $ | 962.0 | $ | 1,012.2 | $ | 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 July 31, 2026, we had $40.0 million outstanding borrowings under our revolving credit facility and $2.1 million outstanding under the sublimit for standby letters of credit, which resulted in $857.9 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 third quarter of fiscal 2026 that was paid on July 10, 2026. This was an increase of 2.6 percent over our cash dividend of $0.38 per share for the third 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 nine months of fiscal 2026, we repurchased 3,915,301 shares of our common stock under our stock repurchase program, thereby reducing our total shares of common stock outstanding. As of July 31, 2026, 6,476,489 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 nine 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 nine month periods ended July 31, 2026 and August 1, 2025 were $2,107.6 million and $2,019.9 million, respectively. The total amount of net receivables outstanding under the arrangement with Red Iron as of July 31, 2026, August 1, 2025 and October 31, 2025 were $790.0 million, $821.1 million and $807.6 million, respectively. The total amount of receivables due from Red Iron to us as of July 31, 2026, August 1, 2025 and October 31, 2025 were $20.5 million, $33.5 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 nine month periods ended July 31, 2026 and August 1, 2025 were $535.2 million and $505.7 million, respectively. The total amount of net receivables outstanding under the arrangements with HCFC and the other third-party financial institutions as of July 31, 2026, August 1, 2025, and October 31, 2025 were $296.0 million, $272.1 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 July 31, 2026, August 1, 2025, and October 31, 2025, we were contingently liable to repurchase up to a maximum amount of $31.9 million, $30.7 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 nine months ended July 31, 2026 and August 1, 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 nine month periods ended July 31, 2026 and August 1, 2025:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| (Dollars in millions, except per share data) | July 31, 2026 | August 1, 2025 | July 31, 2026 | August 1, 2025 | ||||||||||||||||||||||
| Gross profit | $ | 418.1 | $ | 381.8 | $ | 1,237.3 | $ | 1,154.1 | ||||||||||||||||||
|
Acquisition-related costs1
|
(1.0) | - | 3.1 | - | ||||||||||||||||||||||
|
Productivity initiative2
|
12.5 | 7.2 | 27.9 | 14.7 | ||||||||||||||||||||||
| Adjusted gross profit | $ | 429.6 | $ | 389.0 | $ | 1,268.3 | $ | 1,168.8 | ||||||||||||||||||
| Gross margin | 34.1 | % | 33.7 | % | 33.6 | % | 33.5 | % | ||||||||||||||||||
|
Acquisition-related costs1
|
(0.2) | % | - | % | 0.1 | % | - | % | ||||||||||||||||||
|
Productivity initiative2
|
1.1 | % | 0.7 | % | 0.8 | % | 0.4 | % | ||||||||||||||||||
| Adjusted gross margin | 35.0 | % | 34.4 | % | 34.4 | % | 33.9 | % | ||||||||||||||||||
| Operating earnings | $ | 115.2 | $ | 64.8 | $ | 397.3 | $ | 317.4 | ||||||||||||||||||
|
Acquisition-related costs1
|
(0.7) | - | 5.0 | - | ||||||||||||||||||||||
|
Productivity initiative2
|
56.2 | 8.1 | 75.9 | 29.9 | ||||||||||||||||||||||
|
Non-cash impairment charge3
|
- | 81.1 | - | 81.1 | ||||||||||||||||||||||
| Adjusted operating earnings | $ | 170.7 | $ | 154.0 | $ | 478.2 | $ | 428.4 | ||||||||||||||||||
| Operating earnings margin | 9.4 | % | 5.7 | % | 10.8 | % | 9.2 | % | ||||||||||||||||||
|
Acquisition-related costs1
|
(0.1) | % | - | % | 0.1 | % | - | % | ||||||||||||||||||
|
Productivity initiative2
|
4.6 | % | 0.7 | % | 2.1 | % | 0.9 | % | ||||||||||||||||||
|
Non-cash impairment charge3
|
- | % | 7.2 | % | - | % | 2.3 | % | ||||||||||||||||||
| Adjusted operating earnings margin | 13.9 | % | 13.6 | % | 13.0 | % | 12.4 | % | ||||||||||||||||||
| Earnings before income taxes | $ | 106.9 | $ | 57.8 | $ | 377.2 | $ | 292.6 | ||||||||||||||||||
|
Acquisition-related costs1
|
(0.7) | - | 5.0 | - | ||||||||||||||||||||||
|
Productivity initiative2
|
57.1 | 9.2 | 72.0 | 31.4 | ||||||||||||||||||||||
|
Non-cash impairment charge3
|
- | 81.1 | - | 81.1 | ||||||||||||||||||||||
| Adjusted earnings before income taxes | $ | 163.3 | $ | 148.1 | $ | 454.2 | $ | 405.1 | ||||||||||||||||||
| Income tax provision | $ | 29.9 | $ | 4.3 | $ | 86.9 | $ | 49.5 | ||||||||||||||||||
|
Acquisition-related costs1
|
- | - | 1.2 | - | ||||||||||||||||||||||
|
Productivity initiative2
|
6.6 | 1.5 | 9.8 | 5.7 | ||||||||||||||||||||||
|
Non-cash impairment charge3
|
- | 19.7 | - | 19.7 | ||||||||||||||||||||||
|
Tax impact of stock-based compensation4
|
- | 0.1 | 1.5 | - | ||||||||||||||||||||||
| Adjusted income tax provision | $ | 36.5 | $ | 25.6 | $ | 99.4 | $ | 74.9 | ||||||||||||||||||
| Net earnings | $ | 77.0 | $ | 53.5 | $ | 290.3 | $ | 243.1 | ||||||||||||||||||
|
Acquisition-related costs, net of tax1
|
(0.7) | - | 3.8 | - | ||||||||||||||||||||||
|
Productivity initiative, net of tax2
|
50.5 | 7.7 | 62.2 | 25.7 | ||||||||||||||||||||||
|
Non-cash impairment charge, net of tax3
|
- | 61.4 | - | 61.4 | ||||||||||||||||||||||
|
Tax impact of stock-based compensation4
|
- | (0.1) | (1.5) | - | ||||||||||||||||||||||
| Adjusted net earnings | $ | 126.8 | $ | 122.5 | $ | 354.8 | $ | 330.2 | ||||||||||||||||||
| Net earnings per diluted share | $ | 0.81 | $ | 0.54 | $ | 2.99 | $ | 2.42 | ||||||||||||||||||
|
Acquisition-related costs, net of tax1
|
(0.01) | - | 0.04 | - | ||||||||||||||||||||||
|
Productivity initiative, net of tax2
|
0.53 | 0.08 | 0.65 | 0.26 | ||||||||||||||||||||||
|
Non-cash impairment charge, net of tax3
|
- | 0.62 | - | 0.61 | ||||||||||||||||||||||
|
Tax impact of stock-based compensation4
|
- | - | (0.02) | - | ||||||||||||||||||||||
| Adjusted net earnings per diluted share | $ | 1.33 | $ | 1.24 | $ | 3.66 | $ | 3.29 | ||||||||||||||||||
| Effective tax rate | 28.0 | % | 7.4 | % | 23.0 | % | 16.9 | % | ||||||||||||||||||
|
Productivity initiative2
|
(5.7) | % | - | % | (1.5) | % | - | % | ||||||||||||||||||
|
Non-cash impairment charge3
|
- | % | 9.7 | % | - | % | 1.6 | % | ||||||||||||||||||
|
Tax impact of stock-based compensation4
|
0.1 | % | 0.2 | % | 0.4 | % | - | % | ||||||||||||||||||
| Adjusted effective tax rate | 22.4 | % | 17.3 | % | 21.9 | % | 18.5 | % | ||||||||||||||||||
1 On December 8, 2025, we completed the acquisition of Tornado Infrastructure Equipment. For additional information regarding this acquisition, refer to Note 2, Acquisition, 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 nine month periods ended July 31, 2026 represent integration costs and amortization of the backlog intangible asset and inventory step-up 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 nine month periods ended July 31, 2026 and August 1, 2025 primarily represent facility exit-related costs and gains, product-line exit costs, severance and termination benefits, compensation for fully-dedicated AMP personnel, and third-party consulting costs.
3 At the end of the third quarter of fiscal 2026, we recorded non-cash impairment charges within Other activities related to manufacturing facility and product line exits as discussed in more detail under the heading "Company Overview-Manufacturing Facility and Product Line Exits" in this section. At the end of the third quarter of fiscal 2025, we recorded a non-cash impairment charge within Other activities related to the Spartan trade name.
4 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 nine month periods ended July 31, 2026 and August 1, 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 nine month periods ended July 31, 2026 and August 1, 2025:
| Nine Months Ended | ||||||||||||||
| (Dollars in millions) | July 31, 2026 | August 1, 2025 | ||||||||||||
| Net cash provided by operating activities | $ | 476.2 | $ | 348.9 | ||||||||||
| Less: Purchases of property, plant, and equipment | 51.1 | 57.0 | ||||||||||||
| Free cash flow | 425.1 | 291.9 | ||||||||||||
|
Net earnings, excluding the non-cash impairment charges of $43.1 million and $81.1 million, respectively
|
$ | 333.4 | $ | 324.2 | ||||||||||
| Free cash flow conversion percentage | 127.5 | % | 90.0 | % | ||||||||||
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 September 03, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on September 03, 2026 at 17:10 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]