Toro joins a groaning industrial chorus

  • Article by: DEE DEPASS , Star Tribune
  • Updated: May 2, 2008 - 8:08 PM

Slow consumer spending will clip Toro's second-quarter and full-year earnings, company says.

Citing a weak economy, a late spring and lackluster orders, Toro Co. slashed expectations for its second quarter Friday in a move that mimicks scores of other manufacturers who also are suffering as consumers put off purchases.

Toro, which makes lawnmowers, irrigation systems and golf-course maintenance equipment, now expects earnings of $1.55 to $1.60 per share, down significantly from the earlier guidance of $1.87 to $1.93 per share. The new forecast also falls short of the $1.77 the company earned in the second quarter a year ago. Investors sheared $2.49, or 5.75 percent, off Toro shares, which closed Friday at $40.81. The company reports second-quarter earnings May 22nd.

For the fiscal year ending in October, Toro said revenue will be flat, while earnings are expected to fall 5 percent below the $3.40 per share for the prior year.

"We are disappointed in having to reduce our earnings outlook, but we believe these market conditions will persist for the remainder of the year," CEO and Chairman Michael Hoffman said. "We continue to take prudent actions to manage through these challenging times by addressing spending, production adjustments and working capital management."

Toro is just the latest firm to report difficulties with a gloomy economy hammered by the mortgage crisis, housing slump, job losses and skyrocketing fuel and food prices.

Home Depot announced this week that it is closing 15 stores and canceling plans to build 50 others. And all-terrain-vehicle maker Arctic Cat, Ford Motor Co., 3M Company's consumer division, check printer Deluxe Corp. and recording media maker Imation Corp. all recently reported weaker sales or lowered expectations, as consumers tightened purse strings.

"In my universe of consumer product companies, about 55 to 60 percent have missed earnings expectations this quarter. And we are reducing our sales and earnings outlook," said Piper Jaffray analyst Tony Gikas. "In mattresses and Harley Davidson motorcycles and other larger-ticket items, we see consumers are not trading down. Instead, they are just delaying purchases, or not showing up at all."

Daniel Meckstroth, chief economist for the Manufacturers Alliance/MAPI noted that manufacturers across the country are suffering from sales "declines in all household items, construction equipment and materials, and motor vehicles industries." The reason? "Escalating prices for oil, food and metal commodities," Meckstroth said.

The economy grew just 0.6 percent in the first quarter, the Commerce Department reported this week -- about the same as fourth-quarter 2007.

"Because of six months of nearly absent growth, we know that there's much more job loss and unemployment in the pipeline, with falling incomes and consumption ahead of us," said Heidi Shierholz, an economist with the Economic Policy Institute (EPI), a nonprofit think tank.

EPI President Lawrence Mishel noted that April's payroll decline of 20,000 jobs marked the fifth month in a row of private-sector job losses.

"This is what a recession looks like to a working family -- jobs being lost, having part-time rather than full-time work, weekly hours down and hourly wages growing more slowly and far less than the prices of things you buy," Mishel said.

It's not a surprise then that consumers delay buying new lawn mowers, ATVs and even traditional maintenance items, analysts said. The question they said, is how long will this last?

The federal stimulus package that's delivering rebate checks to taxpayers will help.

"They will provide a near-term lift," Gikas said. "I think it contributes very little to the back half of the year. It's really more of a Band-Aid than anything. It's a short term fix."

Dee DePass • 612-673-7725

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