Toro 2007 Annual Report Download - page 41

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expense rate somewhat hampered the increase in operating
earnings due to higher warranty expense and increased invest-
ments for marketing, engineering, and service.
Looking ahead, professional segment operating earnings are
anticipated to improve in fiscal 2008 compared to fiscal 2007 due
to expected sales growth, expected improvement in gross margins,
and leveraging fixed SG&A expense over anticipated higher sales
volumes.
Residential
Residential segment net sales represented 30 percent, 31 percent,
and 33 percent of consolidated net sales for fiscal 2007, 2006, and
2005, respectively. The following table shows the residential
segment net sales, operating earnings, and operating earnings as
a percent of net sales.
(Dollars in millions)
Fiscal years ended October 31 2007 2006 2005
Net sales $ 563.5 $ 566.6 $ 583.3
% change from prior year (0.6 )% (2.9)% 5.2%
Operating earnings $ 41.8 $ 34.1 $ 50.2
As a percent of net sales 7.4 % 6.0% 8.6%
Net Sales. Worldwide net sales for the residential segment in
fiscal 2007 were slightly down by 0.6 percent compared to fiscal
2006 primarily as a result of the following factors:
• A reduction in shipments of snow thrower products as a result of
the lower levels of snow fall during the 2006-2007 winter season
in key markets.
• Lower electric trimmer product shipments due to lost placement
at a key retailer.
Somewhat offsetting those negative factors were:
• Strong worldwide demand of riding products as we introduced
our new generation zero-turning radius riding mowers.
• Higher shipments of walk power mowers due to the successful
introduction of new and enhanced models.
Worldwide net sales for the residential segment in fiscal 2006
were down 2.9 percent compared to fiscal 2005. This decline was
due primarily to lower sales of walk power mowers and electric
trimmers as a result of weakened domestic economic conditions
and lower consumer spending for outdoor power equipment during
the spring/summer season in 2006. Snow thrower product sales in
the domestic market also decreased as a result of lower levels of
snow fall in the U.S. during the 2005-2006 winter season. In
addition, retail irrigation product sales sold through the home
center distribution channel were down due to unfavorable weather
conditions in key domestic markets and lost placement of certain
models at a key retailer. However, shipments of riding products
increased as we introduced new models and expanded product
placement at a key retailer. International residential segment sales
also increased due to new product introductions, higher snow
thrower product shipments due to heavy snow falls in Europe
during the 2005-2006 winter season, and strong sales of Pope
products in Australia.
Looking ahead, residential segment net sales are expected to
increase in fiscal 2008 compared to fiscal 2007 primarily as a
result of anticipated continued growth in the zero-turning radius
riding mower market.
Operating Earnings. Operating earnings for the residential
segment in fiscal 2007 increased 22.7 percent compared to fiscal
2006. Expressed as a percentage of net sales, residential segment
operating margins rose to 7.4 percent compared to 6.0 percent in
fiscal 2006. The following factors impacted residential segment
operating earnings:
• Higher gross margins as a result of improved margins on new
products and a weaker U.S. dollar compared to most other
worldwide currencies in which we transact business. In addition,
last year gross margins were hampered by a charge for cus-
toms duties.
• Lower SG&A expense rate due primarily to a decline in warranty
expense and lower spending for marketing.
Operating earnings for the residential segment in fiscal 2006
decreased 32.0 percent compared to fiscal 2005. Expressed as a
percentage of net sales, residential segment operating margins
declined to 6.0 percent compared to 8.6 percent in fiscal 2005
mainly as a result of lower gross margins due to higher costs for
commodities combined with minimal price increases due to com-
petitive conditions, lower margins for riding products introduced in
fiscal 2006, higher freight expense, and a charge for customs
duties. SG&A expense rate increased as a result of lower sales
volumes and an increase in warranty expense for a product recall.
Looking ahead, residential segment operating earnings in fiscal
2008 are expected to improve compared to fiscal 2007 due to
anticipated increased sales volumes and an anticipated improve-
ment in gross margins.
Other
(Dollars in millions)
Fiscal years ended October 31 2007 2006 2005
Net sales $ 42.9 $ 44.6 $ 50.7
% change from prior year (3.9 )% (12.1)% (26.7)%
Operating loss $ (82.8 ) $ (69.0) $ (87.3)
Net Sales. Net sales for the other segment includes sales from
our wholly owned domestic distribution companies less sales from
the professional and residential segments to those distribution
companies. In addition, elimination of the professional and residen-
tial segments’ floor plan interest costs from the Toro Credit
Company are also included in this segment. The other segment
net sales in fiscal 2007 decreased 3.9 percent compared to fiscal
2006 due mainly to lower sales at a company-owned distributor.