Toro 2007 Annual Report Download - page 36

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Summary of Fiscal 2007 Results
Fiscal 2007 was another good year with record net sales and
double digit diluted net earnings per share growth. Our fiscal 2007
results included the following items of significance:
• Our after-tax return on sales for fiscal 2007 rose to 7.6 percent
compared to 7.0 percent in fiscal 2006.
• Net sales growth for fiscal 2007 was 2.2 percent over fiscal
2006, despite difficult economic and weather conditions.
• International net sales continued to grow faster than our total
consolidated net sales with an increase of 9.6 percent com-
pared to fiscal 2006. Almost half of this increase was the result
of the weaker U.S. dollar compared to other currencies in which
we transact business. This increase was also attributable to our
continued investments in new products, including products de-
signed specifically for international markets and customers, and
investments in infrastructure around the world that connects us
closer to international customers and increases our global pres-
ence. International net sales comprised 29.0 percent of our total
consolidated net sales in fiscal 2007 compared to 27.0 percent
in fiscal 2006 and 24.8 percent in fiscal 2005.
• Professional segment net sales, which represents over two-
thirds of our total consolidated net sales, increased 3.7 percent
in fiscal 2007 compared to fiscal 2006 due primarily to the suc-
cessful introduction of new products, continued strong growth in
the international golf market, and increased worldwide demand
and growth in the sports fields and grounds market.
• Our residential segment net sales were slightly down by 0.6
percent in fiscal 2007 compared to fiscal 2006. Sales of our re-
cently introduced redesigned innovative TimeCutter Z
Series zero-turning radius riding mowers and enhanced walk
power mower products were not enough to offset the decline in
snow thrower sales as a result of the lack of snow fall in key
markets during the 2006-2007 winter season.
• Fiscal 2007 net earnings increased 10.3 percent compared to
fiscal 2006, and diluted net earnings per share increased 16.8
percent over fiscal 2006. This was our 9th consecutive fiscal
year of double digit diluted net earnings per share growth before
accounting changes.
• Despite continued commodity cost increases, fiscal 2007 gross
margin rose to 36.1 percent compared to 35.0 percent in fiscal
2006 due in part to improved margins on new products, moder-
ate price increases introduced on some products, continued use
of Lean methods to reduce costs, and a weaker U.S. dollar
compared to other currencies in which we transact business.
• Selling, general, and administrative expense as a percentage of
net sales slightly increased to 24.2 percent in fiscal 2007 com-
pared to 24.0 percent in fiscal 2006.
• We continued to generate strong cash flows from operations.
Net cash provided by operating activities was $183.6 million in
fiscal 2007 compared to $190.3 million in fiscal 2006, a de-
crease of 3.5 percent.
• We increased our fiscal 2007 quarterly cash dividend for the
third consecutive year.
• We continued with our stock repurchase program in fiscal 2007,
which reduced our number of shares outstanding. This reduc-
tion resulted in an increase in diluted net earnings per share of
approximately $0.19 in fiscal 2007 compared to fiscal 2006.
• We completed the acquisition of Rain Master Irrigation Sys-
tems, Inc. (Rain Master), which broadened our product offering
for our Irritrol brand of irrigation products.
• We issued $125.0 million 30-year senior notes, which were
used to pay off higher interest rate debt and for general corpo-
rate purposes.
• Our financial condition remained strong in fiscal 2007 with
continued emphasis on asset management. Average inventory
levels and average receivable balances increased by 4.3 per-
cent and 0.3 percent, respectively, compared to fiscal 2006.
This allowed us to continue to reinvest in product development,
brand building, and new technologies; repurchase shares of our
stock; fund acquisitions; and increase our cash dividend in fiscal
2007.
GrowLean Initiative
In fiscal 2007, we launched our next-generation “GrowLean”
initiative for fiscal years 2007 through 2009. This initiative focuses
our efforts more intensely on revenue growth and asset manage-
ment while maximizing our use of Lean methods to reduce costs
and improve quality and efficiency in our manufacturing facilities
and corporate offices. We believe we have opportunities to create
a leaner, cohesive enterprise that has the potential to deliver
sustainable financial performance.
Building a Growth Enterprise. We have identified several
strategic focus areas to drive revenue growth in our businesses
and accelerate opportunities to expand our global presence
through stronger customer relations, acquisitions, alliances, and
new partnerships. In order to meet our “GrowLean” initiative goal
to grow net sales at an average annual rate of 8 percent or more
over the three-year period ending October 31, 2009, we plan to
invest in new product development, marketing, distribution, and
other strategies to help build market share and strengthen our
brands worldwide. At the same time, we plan to pursue targeted
acquisitions using a disciplined approach that will add value to our
existing brands and product portfolio. We also expect to increase
our investment in developing innovative, customer-valued products
to generate revenue growth. In the first year of our “GrowLean”
initiative, our net sales growth rate was 2.2 percent .
Building a Lean Enterprise. Our continuous improvement
journey, which was part of our two previous three-year initiatives,
created awareness on our part of the root causes of waste and