10-K: Toro Reports Mixed Fiscal 2025 Results Amid Strategic Shifts

The Toro Company reported a 1.6% decrease in consolidated net sales for fiscal 2025 to $4.51 billion, driven by residential segment declines, despite growth in its professional segment and strategic acquisitions.

Summary

• Consolidated net sales for fiscal 2025 were $4,510.4 million, a decrease of 1.6% compared to fiscal 2024.
• Professional segment net sales increased by 1.9% to $3,624.0 million, while Residential segment net sales decreased by 14.0% to $858.4 million.
• Gross margin was 33.4%, a decrease of 40 basis points from 33.8% in fiscal 2024, primarily due to lower net sales volume, higher material and manufacturing costs, and inventory valuation adjustments.
• Net earnings for fiscal 2025 were $316.1 million, or $3.17 per diluted share, a decrease of 24.5% and 20.9% respectively, compared to fiscal 2024.
• Adjusted net earnings were $419.6 million, or $4.20 per diluted share, compared to $435.2 million, or $4.17 per diluted share, in fiscal 2024.
• A non-cash impairment charge of $81.1 million was recorded related to the indefinite-lived Spartan trade name intangible asset.
• Order backlog decreased by $0.4 billion to $0.8 billion as of October 31, 2025, from $1.2 billion as of October 31, 2024.
• The company returned $441.1 million of cash to shareholders through quarterly cash dividends and common stock repurchases.
• Available liquidity as of October 31, 2025, was $1,238.9 million, consisting of $341.0 million in cash and cash equivalents and $897.9 million in revolving credit facility availability.
• The company acquired Tornado Infrastructure Equipment Ltd. on December 8, 2025, for CAD $279.3 million, expanding its Professional segment.

Sentiment

Score: 4

Explanation: The company's fiscal 2025 results are mixed, with strong performance in the Professional segment and positive adjusted EPS growth, but significant declines in overall net sales and GAAP net earnings due to Residential segment weakness and a substantial impairment charge. Strategic acquisitions and productivity initiatives are positive, yet macroeconomic headwinds and reduced backlog present ongoing challenges.

Positives

• Professional segment net sales increased by 1.9% to $3,624.0 million, driven by higher shipments of golf, grounds, and underground construction products, and net price realization.
• Professional segment EBIT margin increased to 19.4% from 18.0%, primarily due to net price realization, productivity improvements, and cost savings measures.
• Adjusted gross margin increased by 20 basis points to 34.1% in fiscal 2025.
• Adjusted diluted net earnings per share increased to $4.20 from $4.17 in fiscal 2024.
• Cash provided by operating activities increased by $92.1 million to $662.0 million in fiscal 2025.
• Free cash flow increased to $578.3 million from $470.7 million, with a conversion percentage of 145.6%.
• The AMP initiative delivered cumulative cost savings of $78.5 million and anticipated annualized cost savings of $86.2 million, on track to achieve at least $125 million by fiscal 2027.
• The company increased its fiscal 2025 quarterly cash dividend by 5.6% to $0.38 per share and further increased it to $0.39 per share for Q1 fiscal 2026.
• Repurchased 3,780,167 shares of common stock for $290.0 million in fiscal 2025.
• The acquisition of Tornado Infrastructure Equipment Ltd. is expected to broaden and strengthen the Professional segment and expand its dealer network.

Negatives

• Consolidated net sales decreased by 1.6% to $4,510.4 million, primarily due to lower Residential segment shipments and prior year divestitures.
• Residential segment net sales decreased by 14.0% to $858.4 million, driven by lower shipments broadly across the segment and the prior year Pope divestiture.
• Residential segment EBIT decreased by 54.3% to $35.8 million, and EBIT margin decreased to 4.2% from 7.9%.
• Gross margin decreased by 40 basis points to 33.4%, impacted by lower net sales volume, higher material and manufacturing costs, and inventory valuation adjustments.
• Net earnings decreased by 24.5% to $316.1 million, and diluted net earnings per share decreased by 20.9% to $3.17.
• A non-cash impairment charge of $81.1 million was recorded related to the indefinite-lived Spartan trade name intangible asset.
• Order backlog decreased by $0.4 billion to $0.8 billion, indicating reduced future revenue visibility.
• SG&A expense as a percentage of net sales increased by 30 basis points to 22.5%, primarily due to lower net sales volume and higher incentive expenses.
• International net sales decreased by 4.8% to $878.3 million, driven by lower shipments of both Residential and Professional segment products.
• The company's common stock underperformed both the S&P 500 Index and the S&P 500 Industrial Machinery Index over the five-year period ended October 31, 2025.

Risks

• Net sales and earnings could be adversely affected by adverse economic conditions and outlook, including recessionary conditions, slow growth, reduced spending, and negative consumer confidence.
• Inability to enhance existing products and develop new, innovative products, especially electric and alternative fuel products, could decrease demand.
• Disruption and/or shortages in the availability of commodities, components, parts, or accessories, including from single suppliers, could adversely affect business and operating results.
• Weather conditions, including those exacerbated by global climate change, present chronic and acute physical risks and may impact demand for products and/or disrupt operations.
• Professional segment net sales are dependent on factors such as interest in golf, investment in golf course renovations, infrastructure spending, and demand for ag-irrigation solutions.
• Residential segment net sales depend on product placement, consumer confidence and spending levels, changing buying patterns, and the impact of significant sales or promotional events.
• Changes in product mix, particularly lower sales of higher-margin Professional segment products, could adversely impact profit margins and net earnings.
• Intense competition from U.S. and non-U.S. companies, some with larger resources, could harm business and operating results.
• Increases in the cost of commodities, components, parts, and accessories, or other business costs, could adversely affect profit margins.
• Dependence on the efficient operation of company facilities and those of suppliers, channel customers, mass retailers, and home centers.
• Dependence on a strong, effective labor force, with risks related to hiring, training, and retaining qualified employees.
• Underestimating or overestimating demand for products or not maintaining appropriate inventory levels could negatively impact net sales and/or working capital.
• Changes in the composition, financial viability, or relationships with channel customers could negatively impact business and operating results.
• Dependence on the availability and terms of credit offered to customers, with potential adverse effects from changes in financing arrangements.
• Dependence on the effective operation of information systems, software, or information security practices, with risks from cyber attacks, data breaches, and AI integration.
• International operations expose the company to currency, regulatory, and political risks, including weakened economic conditions, trade restrictions, and geopolitical tensions.
• Disruptions to operations could occur in connection with renovating and expanding office, manufacturing, and other facilities.
• Tariffs and other trade restrictions could materially and adversely affect business, financial condition, and results of operations.
• Acquisitions and alliances, such as the Tornado Infrastructure Equipment acquisition, involve risks related to integration, realization of benefits, and diversion of management attention.
• Increased scrutiny regarding sustainability practices, ability to meet sustainability goals, and public perceptions could impact the company's reputation.
• Stock price volatility, including in response to risks or external factors, could adversely affect the company.
• Failure to achieve financial projections or business initiatives, including the Amplifying Maximum Productivity (AMP) initiative, could adversely affect business and financial condition.
• The company may be required to incur impairment and other charges resulting from the impairment of goodwill or tangible or intangible assets.
• Fluctuations in foreign currency exchange rates have adversely affected and could continue to adversely affect operating results.
• Dependence on the availability and cost of credit arrangements, and any downgrade in credit ratings could adversely affect access to and increase the cost of funding.
• Changes in accounting or tax standards and policies and/or assumptions underlying estimates could harm results of operations.
• Patents, trademarks, and contractual provisions may be insufficient to protect proprietary rights, or the company may infringe the proprietary rights of others.
• Extensive laws, rules, policies, and regulations, including environmental, health and safety, and climate change legislation, with which compliance is costly and not guaranteed.
• Product quality issues, product liability claims, and other litigation could adversely affect business, reputation, operating results, or financial condition.
• Violations of the U.S. Foreign Corrupt Practices Act (FCPA) and similar worldwide anti-corruption laws could harm reputation and result in fines.
• Inability to attract and retain key executive and other talent or successfully implement key employee transitions could prevent meeting strategic objectives.

Future Outlook

The company expects international net sales to comprise a larger percentage of total consolidated net sales over time and anticipates order backlog to normalize by mid-fiscal 2026 due to improved manufacturing output and lower lead times. The Amplifying Maximum Productivity (AMP) initiative is on track to achieve at least $125 million of run-rate savings by fiscal 2027, with a portion of savings expected to be reinvested for innovation and growth. The company plans to continue stock repurchases in fiscal 2026 and believes its current liquidity and projected cash flows will be sufficient for anticipated capital needs for at least the next twelve months. The new U.S. tax legislation (OBBB) is not expected to materially impact fiscal 2025 results, with other provisions phasing in between fiscal years 2026 and 2027. Regulatory developments, such as CARB's final regulations under SB 253 and SB 261, are expected in Q1 2026, and the EU's Omnibus simplification package is anticipated in late 2025 or early 2026, potentially exempting the company from certain EU sustainability reporting requirements. The company is monitoring the development of implementing regulations for the EU Carbon Border Adjustment Mechanism (CBAM).

Management Comments

• Our purpose is to help our customers enrich the beauty, productivity, and sustainability of the land.
• We strive to provide innovative, well-built, and dependable products supported by an extensive service network.
• We commit to funding research, development, and engineering activities in order to improve and enhance existing products and develop new products.
• We plan to continue to leverage a strategic and disciplined approach to pursue targeted acquisitions that add value to TTC by complementing our existing brands, enhancing our product portfolio, and/or improving our technologies.
• We also plan to continue our commitment to disciplined portfolio management and prudent capital allocation strategies, resulting in our disposition from time to time of non-core product lines.
• Sustainability is integrated into our enterprise strategic priorities of accelerating profitable growth, driving productivity and operational excellence, and empowering our people.
• We believe that our longstanding commitment to innovation and quality in our products has been a key driver of our market success.
• We believe our success is deeply rooted in caring relationships built on trust and integrity.
• We consider our employee relations to be good and currently do not expect any significant difficulties in renewing these agreements (collective bargaining agreements).
• The safety of our employees is paramount to us.
• At the heart of TTC is our commitment to people, and we believe that a satisfying life comes from contributing to, and engaging with, the communities where we live and work.
• We are committed to upholding human rights in all respects of our global operations under The Toro Company Human Rights Policy.
• We believe our current liquidity position, including the funds available through existing, and potential future, financing arrangements and projected cash flows from operations will be sufficient to provide the necessary capital resources for our anticipated working capital needs, payroll, and other administrative costs, capital expenditures, lease payments, purchase commitments, contractual obligations, acquisitions, investments, establishment of new facilities, expansion and renovation of existing facilities, financing receivables from customers that are not financed with Red Iron or other third-party financial institutions, contingent consideration payments, debt repayments, interest payments, quarterly cash dividend payments, and common stock repurchases, all as applicable, for at least the next twelve months.
• We currently expect to continue stock repurchases in fiscal 2026, depending on our cash balance, debt repayments, common stock price and other market conditions, our anticipated working capital needs, and/or other factors.

Industry Context

The Toro Company operates in highly competitive global markets for turf maintenance, irrigation, landscaping, snow management, agricultural, and construction equipment. The company is a market leader in golf equipment and irrigation. The Residential segment faces higher competition, particularly in international markets like Europe, due to lower barriers to entry. The industry is experiencing shifts towards alternative power, smart-connected, and autonomous solutions, which the company is actively pursuing. Regulatory changes related to climate change, emissions (e.g., California's AB 1346), and sustainability reporting (e.g., Australian, SEC, California, EU regulations) are creating new compliance requirements and influencing product development. Global supply chain disruptions, inflation, and tariffs remain significant challenges impacting costs and operational efficiency across the industry.

Comparison to Industry Standards

• The company believes it is a principal competitor in most of its industries and markets, highlighting its broad product lines, commitment to innovation, customer service, and strong distribution channels as competitive advantages.
• The company is the only one to offer both equipment and irrigation products for the golf market and is a market leader in both, indicating a strong competitive position in this niche.
• The Residential segment faces a higher volume of competition compared to the Professional segment, especially internationally, due to lower barriers to entry and numerous foreign competitors.
• The company's focus on alternative power, smart-connected, and autonomous solutions aligns with broader industry trends towards sustainability and advanced technology, as evidenced by EPA WaterSense awards for Toro and Irritrol brands.
• The company's stock performance, with a $100 investment returning $97.99 over five years, significantly underperformed the S&P 500 Industrial Machinery Index ($174.04) and the broader S&P 500 ($225.31) for the period ended October 31, 2025.

Management Changes

Corporate Governance

Legal Proceedings

• The company is a party to litigation in the ordinary course of business, including claims for punitive and compensatory damages arising out of the use of its products.
• Litigation and administrative and judicial proceedings involve claims related to asbestos and the discharge of hazardous substances into the environment.
• The company is occasionally involved in commercial disputes, employment disputes, and patent litigation cases, asserting or defending against patent infringement claims.
• Management believes that the amount of liability, if any, with respect to these matters, individually or in the aggregate, will not materially affect the company's consolidated results of operations, financial position, or cash flows.

Related Party Transactions

• The company is a party to a joint venture, Red Iron Acceptance, LLC, with Huntington Distribution Finance, Inc. (HDF), where the company owns 45% for providing inventory financing to certain distributors and dealers in the U.S.
• The company has inventory financing arrangements with Red Iron, Huntington Commercial Finance Canada, Inc. (HCFC), and other third-party financial institutions.
• A limited inventory repurchase agreement exists with Red Iron and HCFC, under which the company agrees to repurchase certain repossessed products up to a maximum aggregate amount of $7.5 million in a calendar year.
• The company provides recourse to third-party finance companies for end-user financing, with a maximum exposure for credit collection of $4.1 million as of October 31, 2025.
• The company has a supply chain finance service agreement with a third-party financial institution, facilitating financing of payment obligations from the company by participating suppliers. As of October 31, 2025, $68.8 million of outstanding payment obligations were financed through this platform.

Stakeholder Impact

• Shareholders: Experienced a decrease in GAAP net earnings and diluted EPS, but benefited from increased dividends and ongoing share repurchase programs. The impairment charge reduced equity, and stock performance lagged broader market and industry indices.
• Employees: Subject to management changes, ongoing talent development, health and wellness programs, and compensation/benefits. Collective bargaining agreements are up for renegotiation, with management expecting no significant difficulties. The Clawback Policy applies to executive officers and other covered employees.
• Customers: Benefit from product innovation, an extensive service network, and alternative financing options. Demand for products is influenced by economic conditions, weather patterns, and evolving buying behaviors.
• Suppliers: Affected by supply chain dynamics, commodity cost fluctuations, and participation in the company's supply chain finance program.
• Creditors: The company's indebtedness levels and compliance with financial covenants are relevant. Credit ratings of BBB and Baa1 (stable outlook) influence funding costs and access to capital.

Next Steps

• Continue to evaluate the impact of the new U.S. tax legislation (OBBB) for fiscal years 2026 and 2027.
• Monitor the development of implementing regulations for the EU Carbon Border Adjustment Mechanism (CBAM).
• CARB staff to adopt final regulations under California's SB 253 and SB 261 in Q1 2026.
• EU Council and Parliament expected to formally approve and publish the Omnibus simplification package in late 2025 or early 2026.
• Renegotiate four collective bargaining agreements expiring in March 2026, May 2026, and October 2026.
• Continue stock repurchases in fiscal 2026, depending on cash balance, debt repayments, and market conditions.
• Anticipate order backlog to normalize by mid-fiscal 2026 due to improved manufacturing output and lower lead times.
• Execute the AMP initiative to achieve at least $125 million of run-rate savings by fiscal 2027.
• Hold the 2026 Annual Meeting of Shareholders on March 17, 2026.

Key Dates

Recommendation

The Toro Company's fiscal 2025 results present a mixed outlook. While the Professional segment demonstrated solid growth and improved EBIT margin, the significant decline in the Residential segment and a substantial non-cash impairment charge led to a notable decrease in overall GAAP net earnings and diluted EPS. The company maintains a strong liquidity position, actively returns capital to shareholders through dividends and buybacks, and is pursuing strategic acquisitions and productivity initiatives like AMP. However, the underperformance relative to industry benchmarks, persistent macroeconomic headwinds, and a reduction in order backlog suggest ongoing challenges. A 'Hold' recommendation is appropriate, advising investors to maintain their current position while closely monitoring the execution of strategic initiatives, the recovery of the Residential segment, and the impact of external economic and regulatory factors.

Keywords

Toro Company, TTC, Annual Report, 10-K, Financial Results, Professional Segment, Residential Segment, Net Sales, Net Earnings, Gross Margin, Adjusted Earnings, Share Repurchase, Dividends, Acquisition, Tornado Infrastructure Equipment, Hydrovac Excavation, AMP Initiative, Cost Savings, Inventory, Backlog, Cybersecurity, Risk Factors, Corporate Governance, SEC Filing, Turf Maintenance, Irrigation, Landscaping Equipment, Snow Management, Agricultural Irrigation, Construction Equipment