Next summer, if you find yourself running with the bulls in Pamplona, hopefully the animals chasing you will be as physically beaten down as Toro (NYSE: TTC) has been this year. Although the company's stock price is up significantly from the lows it saw in early March, the maker of outdoor maintenance equipment and landscape beautification products has seen its sales growth get trampled in the recession's stampede.
Toro reported results for its fiscal third quarter yesterday that were ahead of analysts' estimates but still a far cry from last year's figures. Sales compared to the same quarter a year ago deteriorated in almost every segment. Consolidated revenues fell 20%, landing near $395 million. Net income fell by nearly half and sent diluted earnings down to $0.54 per share. Margins all fell substantially.
Greener pastures
However, the news wasn't entirely bad. Toro's residential sales -- nearly a third of total revenue -- increased by a percentage point this quarter. Its home and garden products, which are sold to consumers through home-improvement stores like Home Depot (NYSE: HD) and Lowe's (NYSE: LOW), helped dull the pain of double-digit top-line erosion in its other business segments, so the results could have been worse.
And eventually, Toro will return to greener pastures. Commercial spending on its professional equipment is down now, but it will likely pick up once the economy starts to recover. Meanwhile, management is reining in costs. Cash flow from operations has been solid, and with the help of Wells Fargo (NYSE: WFC), the company will help streamline accounts payable while offering improved financing to suppliers, which will strengthen working capital.
Strong like bull
When spending resumes, all of the cost-cutting and working capital improvements will amount to a stronger Toro. Management is aiming to keep costs down as its top-line growth gains momentum. And while professional spending is stagnant now, the company believes that some of its largest customers -- golf courses and country clubs -- will go forward with their planned capital expenditures once a recovery begins.
Moreover, it isn't as if Toro is alone in its suffering. Competitor Deere (NYSE: DE) has also seen substantial drops in revenues and profits.
When all is said and done, shares in Toro are worth holding on to if management can successfully realize its vision. Even if you missed out on the buying opportunity presented by its second-quarter dip, Toro presents a good prospect for long-term investment.
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