Toro quarter boosted by residential sales as more Americans stay close at home

Many Americans are staying at home more because of the coronavirus pandemic — which helped boost residential product sales and profits at Toro Co.

Its Bloomington neighbor, Donaldson Co., also managed to eke out a profit increase. Sales decreased 15% in its most recent quarter because of the wide global slowdown caused by the coronavirus pandemic, the company said on Tuesday.

Tod Carpenter, CEO of Donaldson, a filtration company, said the coronavirus will continue to make markets volatile.

"Market conditions will likely remain uneven as the pandemic's duration and its ultimate impact on the economy is still unclear," he said. "Despite the uncertainty, we believe we can continue gaining share in new and emerging markets while experiencing relative stability from our strong base of replacement parts."

Toro saw its third-quarter earnings rise 47% to $89 million. Adjusted net income was down 1.2% to $88.7, or 82 cents a share, for the maker of lawn care products for residential and professional markets, as well as underground construction equipment.

Overall sales for the quarter were $841 million, up 0.3%.

"We reported top-line growth in a challenging environment, primarily due to the continued strength of our residential segment as favorable weather, our new product lineup and stay-at-home trends drove robust demand in the mass and dealer channels," said Toro Chairman and Chief Executive Richard Olson in a news release.

Sales in the company's larger professional segment were $623.6 million, down 8% from the same period last year, as that segment was more adversely affected by COVID-19.

While golf rounds played have been up, because it is was a comparatively safe recreation option, golf clubs were largely missing revenue from events and restaurant and bar operations. As a result, clubs deferred some equipment purchases.

The professional segment also saw fewer sales to rental markets and of underground construction equipment. The company's acquisition of Venture Products earlier this year is showing benefits, and incremental sales of those products helped offset sales declines in the rest of the professional segment.

Toro withdrew financial guidance earlier this year, and hasn't reinstated guidance for its fourth quarter and fiscal year, which ends Oct. 31.

However, it did offer assumptions that residential product sales would continue to grow — but at a lower rate — and that the professional segment would continue to progress toward more normal rates if customer confidence continues to improve.

Fourth-quarter and full-year adjusted EPS were down 18.2% and 9.5%, respectively.

"When the pandemic required us to pivot, our teams acted quickly and decisively as we prioritized the health and safety of our employees, fulfilling our customer commitments and doing our part to lessen the spread of COVID-19," said Donaldson's Carpenter in a news release.

On top of the pandemic, there is a cyclical slowdown in the manufacturing of heavy-duty trucks and trailers which limited Donaldson's share of truck parts, but its replacement-parts strategy filled in.

Donaldson's replacement parts business is core to its business model and it now represents 64% of total revenue.

Donaldson said its "disciplined" approach during the quarter allowed gross margin for the quarter to increase to 33.7%, from the 33.5% in their fourth quarter last year. The company credited "a favorable mix of sales, lower raw-materials costs and benefits from the company's optimization initiatives."

"Market conditions will likely remain uneven as the pandemic's duration and its ultimate impact on the economy is still unclear," Carpenter said.

Also on Thursday, Mendota Heights-based Patterson Cos. reported first-quarter results.

The distributor of products to dental and animal health markets earned $24.4 million, or 25 cents per share, down from $30 million, or 32 cents per share, in their first quarter last year.

Cost controls during the quarter drove a 22% increase in adjusted earnings per share, which were 33 cents compared with 27 cents in the same period last year.

The company was encouraged by increasing sales trends in both its dental and animal health segments as sales improved each month during the quarter. Overall sales for the quarter ended July 25 were $1.2 billion, down 6%.

"The aggressive cost-savings measures we took at the onset of the pandemic, combined with improving sales trends and focused execution, drove our strong first quarter performance.

While many of our cost-saving measures remain in place, certain temporary actions such as furloughs and salary reductions have ended," said Patterson's President and Chief Executive Mark Walchirk in a news release.

Shares of Toro closed at $76.58 per share, down 2%, while Donaldson shares closed at $47.33, off 8%.

Year-to-date Toro shares are down about 4% while Donaldson shares are off 18%.