Shares of lawn-equipment company Toro (NYSE:TTC) rose nearly 8% yesterday as investors digested the news release that bumped up fiscal first-quarter guidance. Upon further review, however, management's original numbers seem strangely downbeat.
Toro said before yesterday's open that it expects to earn between $0.34 and $0.36 per share, up from previous guidance of between $0.15 and $0.20 -- and significantly higher than last year's $0.27 (which included an $0.08 per share one-time gain from a legal settlement). It's good news, particularly on the back of last year's numbers: Check out Rick Aristotle Munarriz's December take, which discusses the company's performance relative to competitors Deere (NYSE:DE) and Caterpillar (NYSE:CAT), for more.
Given Toro's 2003, however, I found myself wondering whether management lowballed first-quarter guidance when it reported last year's results. How can a company that performed as well as it did in fiscal 2003 suggest down-to-flat earnings on flat revenues -- even if the fiscal first quarter is traditionally its slowest for the year? It's possible that it feared a difficult comparison with last year's first quarter, which was a strong one, but questions still remain.
I appreciate conservative forecasting, but on its face this seems exceedingly cautious. Even if revenues did come in around 2003 levels again, the efforts to improve margins would almost certainly point to a better profit result. (Last year's first-quarter revenues were up significantly from 2002, which came in just below 2001 sales for the quarter.) The market for Toro's products, meanwhile, continues to be strong -- as evidenced by the shares' run over the last 12 months.
We'll presumably have to wait until Feb. 24, when the company plans to report first-quarter results, for more information. For now, it says business was better than expected during the quarter. Operational performance continues to be strong. It also appears that "the beneficial impact of one-time items and timing of certain planned expenses" will help results.
In other words, while we don't yet know the degree to which operating and non-operating factors will impact profits -- or to what degree they might have differed from the company's initial expectations. It should be an interesting report.
Motley Fool contributor Dave Marino-Nachison doesn't own any of the companies in this story. He can be reached via email.
