The Toro Company's Strategic Turnaround and Path to Sustained Earnings Growth in 2026

The Toro Company (TTC) has emerged as a compelling case study in strategic operational reinvention, leveraging disciplined cost management, targeted acquisitions, and margin-focused initiatives to position itself for robust earnings growth in 2026. With a 2025 full-year earnings margin of 19.4% in its Professional segment-up from 18.0% in 2024-the company has demonstrated its ability to translate operational efficiency into financial performance. This margin expansion, coupled with record free cash flow and the integration of strategic acquisitions like Tornado Infrastructure Equipment, underscores TTC's disciplined approach to value creation.

Operational Efficiency and the AMP Program: A Catalyst for Margin Expansion

At the heart of TTC's turnaround is its Accelerated Margin Program (AMP), a multiyear initiative aimed at driving structural cost savings. In 2025, the company raised its AMP run-rate savings target to $125 million by 2027, up from an initial goal of $100 million. This increase reflects the program's success in identifying scalable efficiencies, particularly in manufacturing and procurement. For instance, the Professional segment's margin improvement was fueled by sustained demand in underground construction and snow/ice management, where operational leverage amplified revenue gains.

The AMP's focus on working capital optimization also played a critical role in boosting free cash flow. In fiscal 2025, TTC generated a record $578 million in free cash flow, primarily driven by working capital improvements. This liquidity enabled the company to return $441 million to shareholders through dividends and share repurchases, reinforcing its commitment to balancing reinvestment with shareholder value.

Strategic Acquisitions: Enhancing Capabilities and Margins

TTC's acquisition of Tornado Infrastructure Equipment in December 2025 exemplifies its strategy of using targeted M&A to expand market share while enhancing operational efficiency. The $279 million (CAD) purchase added approximately 2% to total company net sales and is expected to be marginally accretive to adjusted diluted earnings per share in the first year post-closing. Beyond revenue synergies, the acquisition is projected to deliver $3 million (USD) in annual run-rate cost savings over three years through purchasing and manufacturing efficiencies.

The integration of Tornado's vacuum excavation technology into TTC's underground construction portfolio has already begun to strengthen the company's competitive positioning. By leveraging Tornado's manufacturing capabilities alongside its existing infrastructure, TTC aims to reduce per-unit costs and accelerate innovation in high-growth segments. Management has emphasized that these synergies will contribute to incremental margin expansion in 2026, particularly as the acquisition's full financial impact becomes evident.

A Foundation for Sustained Earnings Growth

Looking ahead, TTC's strategic priorities remain aligned with its 2025 momentum. The company has raised its adjusted diluted earnings per share guidance for 2026 to a range of $4.35–$4.50, reflecting confidence in the AMP program's trajectory and the Tornado acquisition's integration progress. With operational efficiency initiatives already delivering $125 million in annualized savings by 2027 and free cash flow poised to remain strong, TTC is well-positioned to sustain its earnings growth while maintaining a disciplined capital allocation framework.

For investors, the combination of margin expansion, strategic M&A, and robust cash flow generation presents a compelling near-term opportunity. TTC's ability to execute on its operational and financial goals-while navigating macroeconomic headwinds-highlights its resilience and management's strategic acumen. As the company enters 2026, its focus on structural improvements and market expansion suggests that the best may still be ahead.