The Toro Company (TTC)

Outdoor equipment company Toro (NYSE:TTC) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 2.3% year on year to $1.32 billion. Its non-GAAP profit of $1.42 per share was 1.8% above analysts’ consensus estimates.

Company Overview

Ceasing all production to support the war effort during World War II, Toro (NYSE:TTC) offers outdoor equipment for residential, commercial, and agricultural use.

Agricultural machinery companies are investing to develop and produce more precise machinery, automated systems, and connected equipment that collects analyzable data to help farmers and other customers improve yields and increase efficiency. On the other hand, agriculture is seasonal and natural disasters or bad weather can impact the entire industry. Additionally, macroeconomic factors such as commodity prices or changes in interest rates–which dictate the willingness of these companies or their customers to invest–can impact demand for agricultural machinery.

Competitors offering similar products include Deere (NYSE:DE), Alamo (NYSE:ALG), and Lindsay (NYS:LNN).

A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, The Toro Company grew its sales at a mediocre 6.8% compounded annual growth rate. This fell short of our benchmark for the industrials sector and is a tough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. The Toro Company’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2.9% annually.

We can better understand the company’s revenue dynamics by analyzing its most important segments, Professional and Residential , which are 76.9% and 22.6% of revenue. Over the last two years, The Toro Company’s Professional revenue (sales to contractors) averaged 2.5% year-on-year declines while its Residential revenue (sales to homeowners) averaged 1.7% declines.

This quarter, The Toro Company missed Wall Street’s estimates and reported a rather uninspiring 2.3% year-on-year revenue decline, generating $1.32 billion of revenue.

Looking ahead, sell-side analysts expect revenue to grow 3.4% over the next 12 months. Although this projection implies its newer products and services will catalyze better top-line performance, it is still below the sector average.

At StockStory, we prefer high gross margin businesses because they indicate the company has pricing power or differentiated products, giving it a chance to generate higher operating profits.

The Toro Company’s gross margin is good compared to other industrials businesses and signals it sells differentiated products, not commodities. As you can see below, it averaged an impressive 34% gross margin over the last five years. Said differently, The Toro Company paid its suppliers $66.01 for every $100 in revenue.

The Toro Company’s gross profit margin came in at 33.1% this quarter, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

The Toro Company has managed its cost base well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 11.7%. This result isn’t too surprising as its gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, The Toro Company’s operating margin decreased by 3.1 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, The Toro Company generated an operating margin profit margin of 13.3%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

The Toro Company’s EPS grew at an unimpressive 7.9% compounded annual growth rate over the last five years. This performance was better than its flat revenue but doesn’t tell us much about its business quality because its operating margin didn’t expand.

We can take a deeper look into The Toro Company’s earnings to better understand the drivers of its performance. A five-year view shows that The Toro Company has repurchased its stock, shrinking its share count by 7.7%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For The Toro Company, its two-year annual EPS declines of 7.1% show it’s continued to underperform. These results were bad no matter how you slice the data.

In Q1, The Toro Company reported EPS at $1.42, up from $1.40 in the same quarter last year. This print beat analysts’ estimates by 1.8%. Over the next 12 months, Wall Street expects The Toro Company’s full-year EPS of $4.20 to grow 9.3%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

The Toro Company has shown impressive cash profitability, enabling it to ride out cyclical downturns more easily while maintaining its investments in new and existing offerings. The company’s free cash flow margin averaged 8% over the last five years, better than the broader industrials sector.

Taking a step back, we can see that The Toro Company’s margin dropped by 9.1 percentage points during that time. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal increasing investment needs and capital intensity.

The Toro Company’s free cash flow clocked in at $152.4 million in Q1, equivalent to a 11.6% margin. The company’s cash profitability regressed as it was 3.8 percentage points lower than in the same quarter last year, but it’s still above its five-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, leading to short-term swings. Long-term trends trump temporary fluctuations.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although The Toro Company hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 20.7%, splendid for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, The Toro Company’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

The Toro Company reported $176.5 million of cash and $1.21 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $665.8 million of EBITDA over the last 12 months, we view The Toro Company’s 1.6× net-debt-to-EBITDA ratio as safe. We also see its $28.2 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We struggled to find many positives in these results as its revenue and EBITDA missed. It also lowered its full-year EPS guidance. Overall, this was a softer quarter. The stock traded down 2.7% to $73.51 immediately following the results.

Updated: June 20, 2025 at 11:50 PM EDT

When considering an investment in The Toro Company, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

The Toro Company doesn’t pass our quality test. To kick things off, its revenue growth was mediocre over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its stellar ROIC suggests it has been a well-run company historically, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its cash profitability fell over the last five years.

The Toro Company’s P/E ratio based on the next 12 months is 15.1x. While this valuation is fair, the upside isn’t great compared to the potential downside. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $82 on the company (compared to the current share price of $69.47).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.