Is TTC a Buy Despite Near-Term Headwinds? Assessing Strategic Resilience in a Divided Market

The Toro Company (TTC) has long been a cornerstone of the outdoor power equipment industry, but its recent performance has split the market. While the Residential segment grapples with weak demand and margin pressures, the Professional division surges ahead, driven by robust demand for golf/grounds equipment and underground irrigation systems [1]. For contrarian value investors, this divergence presents a compelling case: Is TTC a buy despite near-term headwinds, or is the stock overexposed to cyclical risks?

Professional Segment: A Pillar of Resilience

TTC’s Professional segment has emerged as a strategic linchpin, posting 6% year-over-year growth in Q2 2025 with net sales of $931 million [2]. This outperformance stems from two key drivers: demand for high-margin products and operational agility. Management highlighted elevated order backlogs for underground construction equipment and greens maintenance tools, underscoring the segment’s role in professional turf management [1].

The segment’s strength is further amplified by innovation. As stated by CFO David Ross in the Q2 2025 earnings call, “Our investment in alternative power and smart connected products is paying off, with 20% of Professional segment revenue now tied to technology-driven solutions” [3]. This positions TTC to capitalize on long-term trends like sustainability and automation in commercial landscaping.

AMP Program: Unlocking Margins Amid Inflation

TTC’s Accelerating Margin Performance (AMP) initiative has delivered $70 million in annualized cost savings by Q2 2025, with $100 million targeted by 2027 [5]. These gains are critical in offsetting inflationary pressures, particularly in the Residential segment. For example, material and freight costs eroded margins in Q2, but AMP-driven efficiencies helped stabilize gross profit at 32.1% [4].

The program’s focus on lean manufacturing and supply chain optimization has also reduced exposure to volatile input costs. By consolidating suppliers and automating production lines, TTC has cut lead times by 15% and inventory carrying costs by 8% [5]. These operational improvements are not just short-term fixes—they represent a structural shift toward higher profitability.

Tariff Mitigation: A Proactive Edge

Global trade tensions have long plagued manufacturers, but TTC’s proactive tariff mitigation strategies give it a competitive edge. The company has shifted production from Mexico to U.S. facilities for certain products and secured USMCA (United States-Mexico-Canada Agreement) compliance for Mexican-made goods [5]. This dual approach has reduced import duties by an estimated 4-6% on key products, preserving margins in a high-cost environment.

Residential Weakness: A Cyclical Headwind, Not a Death Knell

The Residential segment’s 11.4% sales decline in Q2 2025 to $297.4 million reflects broader macroeconomic challenges, including high interest rates and delayed spring demand [4]. However, this weakness is cyclical, not structural. Historical data shows that Residential sales typically rebound during housing booms and DIY trends—factors that could reemerge as rates stabilize.

Moreover, TTC is recalibrating its Residential strategy. The divestiture of Pope Products, while painful in the short term, has streamlined the product portfolio and reduced underperforming SKUs [4]. Management expects this to improve long-term profitability by focusing on core zero-turn mowers and smart irrigation systems.

Valuation: A Contrarian’s Sweet Spot

TTC’s valuation metrics suggest undervaluation relative to its long-term potential. At a forward P/E of 17.71 and a 1.89% dividend yield, the stock trades at a discount to its 10-year average P/E of 22.3 [2]. Analysts, including a “Buy” consensus from StockAnalysis, project a 7% upside to $86.25 [2]. For value investors, this gap between fundamentals and market price is a signal to act.

Conclusion: A Buy for the Long-Term

While near-term residential weakness clouds TTC’s outlook, the Professional segment’s strength, AMP program’s margin expansion, and tariff mitigation efforts create a durable foundation. For investors with a 3-5 year horizon, TTC offers a rare combination of defensive resilience and growth potential. As the market corrects its short-term pessimism, shares could appreciate significantly—provided management continues to execute its strategic priorities.

Source:
[1] The Toro Company (TTC) Stock Price, News, Quote & History [https://finance.yahoo.com/quote/TTC/]
[2] The Toro Company (TTC) Valuation & Financial Statistics [https://stockanalysis.com/stocks/ttc/statistics/]
[3] TORO CO Earnings Call Transcript FY25 Q2 [https://www.stockinsights.ai/us/TTC/earnings-transcript/fy25-q2-a110]
[4] The Toro Company Reports Results for the Second Quarter [https://www.stocktitan.net/news/TTC/the-toro-company-reports-results-for-the-second-quarter-of-fiscal-joqner8fw9q4.html]
[5] Toro (TTC) Q4 2024 Earnings Call Transcript [https://www.fool.com/earnings/call-transcripts/2024/12/18/toro-ttc-q4-2024-earnings-call-transcript/]