The Toro Company (TTC) makes lawn mowers, irrigation systems, snow blowers and other equipment aimed at both professional landscapers (67% of 2006 revenues) and residential homeowners (31%). Toro distributes its products through retailers such as Wal-Mart Stores (WMT) and Home Depot (HD) , independent hardware stores as well as direct sales through e-commerce. [1]
Demand for Toro's landscaping and irrigation equipment is directly related to the development of new commercial and residential real estate. A prolonged slump due to subprime lending would likely decrease demand for Toro products, which can be expensive (many finance their purchases).
Toro realized strong growth in 2006 for its golf products (such as lawn mowers), especially in Asia and Europe, where golf course development has been strong. In that year, the company generated 29% of all sales from these products.
[edit] Business Overview
Toro sells lawn mowers, irrigation systems, snow blowers and other landscaping equipment to residential households as well as commercial landscapers. The company distributes its produces through retail stores such as
Wal-Mart Stores (WMT) and
Home Depot (HD), as well as other hardware stores and directly to consumers via an
e-commerce channel.
[edit] Business Financials
From 2006 to 2007, Toro grew revenue and expanded its market share despite weak demand for lawn care products overall. Toro realized a 7.6% increase in sales up from an average of 2-3% several years earlier. According to Toro, this was largely a result of growth in international demand for its golf course equipment, a series of new products introduced over the past two years, and a weaker U.S. Dollar (international sales grew at a much faster rate than domestic). However, slower domestic golf course development reduced demand for Toro irrigation systems in America.
Despite flat sales for 2007, Toro's Residential Division's earnings increased 22.7%, largely through lower warranty and advertising costs.
Toro intends to continue improving profitability and market share through its Grow Lean Initiative, which seeks to reduce inventories, devise more innovative products, and manage resources more efficiently. This strong brand name is advertised through agreements Toro has with several professional sports organizations to maintain their fields.
[2] [3] [4]
[edit] New Product Highlights (2006)
The following are new product highlights mentioned in Toro's 2006 annual report. These products represent innovations in lawn care equipment that Toro believes will make its products more attractive than those of its competitors. [5]
- The Reelmaster 5010 is a golf course fairway mower with an all wheel drive system that improves traction and climbing ability.
- Development of WeatherTRAK technology considers "evapo-transpiration information" to direct irrigation systems and considerably reduce water consumption.
- The "Exmark Phazer" is a zero radius commercial lawn mower that has a smaller width so it can be used in more restricted areas while allowing the speed necessary for commercial lawn mowing.
[edit] Trends and Forces
[6] [7]
- U.S. Housing and Commercial Construction: The demand for Toro's landscaping and irrigation equipment is directly related to the development of new commercial and residential real estate. A prolonged slump due to subprime lending would likely decrease demand for Toro products, which can be expensive. Many Toro customers make purchases through third-party financing.
- Declining U.S. Dollar Stirs Demand from Emerging Markets: Toro generates about 29% of revenue outside the United States. Its 2007 international revenues increased by double digits percentage points over 2006. A less valuable U.S. dollar makes Toro's American produced products more attractive on the world market, foreign currency fluctuations make sales revenues difficult to predict.
- Golf Course Development: Toro generated 29% of sales in 2006 from its golf course maintenance products (e.g., lawn mowers). While the rate of U.S. golf course development decreased in 2006, development has increased throughout Asia and Europe. [8] Development of golf courses creates demand for both Toro's landscaping equipment and its high margin irrigation systems. At the same time, golf course development has raised many environmental concerns.
- Temperature and Precipitation Fluctuations: Worldwide weather patterns affect demand for Toro products. Evidence of this is weak snow blower sales during the mild winter of 2006-2007. Conversely, worldwide water shortages are increasing demand for Toro's efficient irrigation systems (see also China's Water Scarcity). During 2007, Toro acquired several companies in the irrigation industry: Turf Guard, a company which produces underground wireless turf monitoring systems that allow for more efficient ground management; and Rainmaster Systems, which produces commercial irrigation systems.
[edit] Competition
Toro faces competition from companies including Deere & Company (DE), Black & Decker (BDK), and Honda Motor Company (HMC). In order to remain competitive, Toro must continue to devise and produce innovative high quality products that exceed consumer demands. Toro devoted 3.2% of sales in 2007 to Research and Development. If Toro fails to successfully innovate, these large competitors will undoubtedly use their superior resources to create products that attract new consumers and reduce Toro's market share. On the other hand, many of these large competitors are highly diversified companies that cannot bring the same focus to lawn care products as Toro.
- MTD Products produces a wide range of lawn care product lines such as Cub Cadet and Troy-Bilt. MTD is a privately held company.
- Black & Decker (BDK) produces a variety of lawn and garden equipment, including trimmers, lawn mowers, edgers, and pruners.
- Makita (MKTAY) has a full line of professional power equipment, including a variety of lawn care products.
[edit] Competitor Metrics (2006)
| Company
| Revenue (mm)
| Quarterly Revenue Growth (yoy)
| Gross profit(mm)
| Quarterly Earnings Growth (yoy)
| Lawn care sales as a percentage of total
| Main Industries/Markets
| Operating Margin
|
| Deere & Company (DE)
| $24,080
| 20%
| $6,660
| 52.2%
| 16%
| Agricultural, Forestry, Commercial & Consumer lawn care equipment
| 11.11%
|
| Black & Decker (BDK)
| $6,520
| 1.5%
| $2,240
| -16.4%
| 7%
| power tools, accessories, hardware, home improvement products, fastening systems, and lawn care
| 10.34%
|
| Makita (MKTAY)
| $2,890
| 27.1%
| $983
| 63.2%
| 10%
| power tools, small construction equipment, and lawn care
| 19.44%
|
| Honda Motor Company (HMC)
| $107,000
| 12.9%
| $27,390
| 63%
| less than 4%
| Automobiles, engines, motorcycles, boats, lawn and garden, pumps, and generators
| 8.19%
|
| Briggs & Stratton (BGG)
| $2,190
| 8.4%
| $287
| N/A
| 44%
| small engines and lawn care equipment
| 3.08%
|
| Toro Company (TTC)
| $1,870
| .2%
| $643
| 5.4%
| 98%
| Commercial and Residential lawn care, irrigation systems
| 11.96%
|
[9] [10] [11]
[edit] Additional Resources
Toro Company Website
Golf Course Superintendents Association of America. GSCAA informs its members on issues germane to golf course management, one of Toro's major revenue sources.
Lawn Domain review of Toro lawn mowers. Lawn Domain reviews and rates a large variety of lawn care equipment and products.
"Survey defines lawn mower purchasing habits"
European golfer statistics
[edit] References
- ↑ The Toro Company 2006 Annual Report
- ↑ The Toro Company, Investor Information
- ↑ The Toro Company, Form 10-K for the year ending October 31, 2006
- ↑ The Toro Company, Form 10-Q for the Period Ending August 3, 2007
- ↑ The Toro Company 2006 Annual Report
- ↑ The Toro Company, Form 10-Q for the Period Ending August 3, 2007
- ↑ The Toro Company, Investor Information
- ↑ http://www.american.edu/TED/japgolf.htm
- ↑ http://www.makita.co.jp/global/ir/documents/annual/2007/05.pdf
- ↑ http://www.finance.yahoo.com
- ↑ The Toro Company, Form 10-K for the year ending October 31, 2006
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