You might use one of Toro's (NYSE:TTC) lawnmowers or snowblowers to help you maintain the homefront, but would you use the stock to achieve your long-term goals? Let's see whether Toro cuts it as an investment.
For the first quarter, the company saw its top-line revenue base increase by 6.6% to $369.6 million. Operating earnings underwent a nice double-digit increase of 27%, equaling $24.7 million. Net income grew 27.8% to $14.3 million, or $0.32 per diluted share.
Gross margins for the quarter increased slightly, rising to 35.7% from 35.1%, helped along by a rest in the growth of commodity costs and careful management. Expenses related to selling, general, and administrative concerns declined by 50 basis points to 29% of sales. The company seemed happy with its acquisition of Hayter and its role of helping revenues along in the international segment.
Free cash flow was nowhere to be found; in fact, Toro used up more than $53 million in its operating activities last quarter, a little less than what was used up in the comparable period a year ago. What gives? Well, don't panic in this case. This is seasonal for the company; if you check the latest annual earnings report, you'll see that the company reported net operating cash of approximately $174 million for all of fiscal 2005, versus approximately $175 million for all of fiscal 2004. Capital expenditures declined year over year, coming in at $37.4 million for 2005 versus $40.8 million for 2004. So Toro does indeed produce free cash.
Toro isn't an investment idea I've thought of too often, but judging from this release, I'd say it's a well-run company. In addition, I certainly know the brand and believe that the products are solid. But would I buy the stock?
Let's have a look at the guidance. The company expects to grow its bottom line in a range between 12% and 15%, assuming that the economy remains OK; that's respectable. Do you get paid to hold the stock? Well, Toro currently sports a yield of 0.7%. The company did raise its dividend by 50%, going from $0.06 to $0.09 per share. Nevertheless, the yield is simply too low, and I'm not a fan of the dividend history -- i.e., I don't see a lot of increases.
In my opinion, there are better investment ideas out there. Toro has a great name for itself and is a good company, but there's nothing that makes me want to buy it. If you want to think seriously about Toro as an investment, it would behoove you to wait for a better yield scenario.
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Fool contributor Steven Mallas owns none of the companies mentioned. The Motley Fool has a disclosure policy.
