Last season's snow-laden winter continues to be the gift that keeps on giving for Toro Co.
The Bloomington company said Thursday that strong preseason sales of snowblowers to dealers restocking depleted inventories offset weaker sales of mowers. The result was a 9 percent increase in sales for the third quarter, to $501 million.
Toro's earnings rose 5 percent, to $35.1 million, in the quarter ended July 29. Professional segment earnings increased slightly due to healthy sales of irrigation products and golf course maintenance equipment.
Residential segment profits fell 57 percent. Most of the decline resulted from costs associated with correcting a transmission problem in some power mowers.
The defect wasn't discovered until the products had been shipped to retailers, so they had to be returned, fixed and reshipped. Most of the affected lawn mowers didn't get beyond dealerships, but some made their way to consumers, the company said.
Toro said the "rework issue" shaved 9 cents off earnings per share, which came in at $1.11 vs. $1.01 a year earlier. Analysts had forecast $1.13.
In a conference call, CEO Michael Hoffman said poor weather conditions and shaky consumer confidence also dampened residential segment results. Consumers' spending decisions tend to be made in "real time," he said, unlike professionals who buy products based on long-term budget plans.
"The weather and softening economy created challenges," Hoffman said, preventing the company from working through as much inventory as expected.
Toro maintained its previous guidance for the year of 10 to 12 percent revenue growth and earnings per share of $3.60 vs. $2.79 last year. The company said it expects gross margins to be relatively flat this year as it deals with higher raw material and freight costs.
In a research note, Michael Wherley of Janney Capital Markets said that margins were lower than expected but that Toro's sales nearly met expectations.
"This bodes well for the company entering fiscal 2012, even if the macro worries of the larger global economy are taking all stocks for a ride these days," Wherley said.
Toro's stock fell $2.36, or 4.8 percent, to $47.22 Thursday amid the broad market decline.
Shares of other Minnesota manufacturers of big-ticket consumer items also took a hit. Shares of recreational vehicle makers Polaris Industries and Arctic Cat fell 6.9 percent and 9.4 percent, respectively. Mattress manufacturer Select Comfort saw its stock drop 8.7 percent.
Staff writer Mike Hughlett contributed to this report. Susan Feyder • 612-673-1723