The Toro Company's Q4 2025 Earnings Call: Contradictions Emerge on Residential Recovery, Tariff Mitigation, and Backlog Trends

Business Commentary:

• Sales and Financial Performance:
• Toro Company reported consolidated net sales of $1.07 billion for the fourth quarter, exceeding expectations.
• For the full year, the company achieved total consolidated net sales of $4.5 billion, slightly down year-over-year.

• The financial results were attributed to sustained momentum in segments like underground construction and snow and ice management, despite strategic divestitures.

• Productivity and Cost Management:

• The Amplifying Maximum Productivity (AMP) program delivered annualized run rate cost savings of $86 million.
• The company increased the AMP target to $125 million in savings by the end of 2026.

• These improvements were driven by strategic facility closures, a reduction in salaried workforce, and divestitures of noncore businesses.

• Acquisition and Market Expansion:

• The acquisition of Tornado Infrastructure Equipment for $200 million is expected to expand Toro's presence in vacuum excavation and industrial equipment.

• This acquisition aligns with the company's growth trajectory in markets with strong multiyear growth potential, such as underground construction and power transmission.

• Investment in Technology and Innovation:

• The company launched products like the Autonomous GeoLink Fairway Mower and other tech-driven solutions to enhance customer productivity and address labor shortages.
• Investments in technology and innovation are aimed at differentiating Toro's offerings and driving significant customer value.
  

Contradiction Point 1

Residential Market Recovery Expectations

It involves differing expectations regarding the recovery of the residential market, which impacts revenue projections and customer confidence.

How do you expect residential sales to improve in the second half of the year? - David S. MacGregor (Longbow Research LLC)

2025Q4: We expect some continued homeowner caution, but productivity and cost savings will help our margin. Snow demand could be favorable, with some encouraging signs already observed. - Angela Drake(CFO)

How much are residential margins expected to decline this year? - Sam Darkatsh (Raymond James & Associates, Inc.)

2025Q3: We expect to improve our margin performance in our residential business next year with more favorable mixes and continued benefits from our efficiency and productivity initiatives. - Angela Drake(CFO)

Contradiction Point 2

Tariff Mitigation Strategies

It concerns the company's strategies to mitigate tariff impacts, which directly affect cost management and financial projections.

What are the key tariff impacts and mitigation strategies? - David S. MacGregor (Longbow Research LLC)

2025Q4: Total tariffs in 2026 are expected at $100 million, primarily 232 tariffs. We actively mitigate tariffs through optimization and price adjustments. Our guidance reflects potential tariff variability. - Richard Olson(CEO)

Have tariff mitigation efforts offset costs so far? - David S. MacGregor (Longbow Research LLC)

2025Q3: We expect to offset the dollar for dollar tariffs by year-end, maintaining margins through productivity improvements and pricing measures. - Richard Olson(CEO)

Contradiction Point 3

Residential Segment Recovery and Demand Outlook

It involves differing perspectives on the recovery and demand outlook for the residential segment, which is crucial for understanding the company's growth trajectory and revenue expectations.

How do you expect residential sales to improve in the second half of the year? - David S. MacGregor (Longbow Research LLC)

2025Q4: We expect some continued homeowner caution, but productivity and cost savings will help our margin. Snow demand could be favorable, with some encouraging signs already observed. - Angela Drake(CFO)

What's different in the second-half revenue guidance? - Eric Bosshard (Cleveland Research Company LLC)

2025Q2: Despite this, growth is anticipated in golf, grounds, and contractor businesses. - Richard M. Olson(CEO)

Contradiction Point 4

Backlog Improvement and Order Trends

It concerns the trend and expectations for order backlogs, which can significantly impact Toro's production planning and financial forecasts.

Can you quantify the backlog improvement? - Joshua Wilson (Raymond James & Associates, Inc., Research Division)

2025Q4: Backlog improved by $400 million year-over-year to $1.2 billion. Demand in golf, grounds, underground construction, and other businesses remains strong. - Angela Drake(CFO)

Can you provide details on the order backlog and trends in orders and cancellations? - David S. MacGregor (Longbow Research)

2023Q4: The backlog was down about $300 million year-over-year but slightly down from Q3. There's been significant progress in reducing the backlog, with minimal order cancellations, and order flow remains strong. - Richard Olson(CEO)

Contradiction Point 5

Tariff Mitigation and Impact

It involves differing statements on the company's ability to mitigate tariffs and the impact of tariffs on operations and competitive positioning.

What factors are driving the 2026 Professional segment margin guidance? - Joshua Wilson (Raymond James & Associates, Inc., Research Division)

2025Q4: Total tariffs in 2026 are expected at $100 million, primarily 232 tariffs. We actively mitigate tariffs through optimization and price adjustments. Our guidance reflects potential tariff variability. - Richard Olson(CEO)

Can you provide specific details on the tariff disclosures, including affected countries and products? - Samuel John Darkatsh (Raymond James & Associates, Inc., Research Division)

2025Q2: Our professional products are primarily manufactured in the U.S., with USMCA qualified products. Tariffs are centered around China, steel and aluminum, and reciprocal tariffs across other countries. We plan to mitigate all tariffs through focused actions. - Richard M. Olson(CEO)