Toro 2007 Annual Report Download - page 5

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3
Dear shareholders, customers,
employees, and suppliers:
Decades ago Winston Churchill said, “There is nothing
wrong with change, if it is in the right direction.” At The
Toro Company, we embraced this philosophy again in fiscal
2007 to drive change in the right direction – like growing
the international revenue part of our portfolio, strengthen-
ing our position with zero-turn radius mowing products,
acquiring an irrigation technology company, and increasing
consumer market share with dealers and a leading home
center retailer.
With our new working capital initiative just getting started,
we piloted our first end-to-end “pull” system to reduce
inventory and produce what the market needs. At the
same time, we explored opportunities to align more closely
with our customers so we can respond even better in the
years ahead.
Toro is an organization grounded in a rich history of innova-
tion and strong customer relationships. (In fact, the stories
accompanying this letter tell it best from the customer’s
perspective.) We value our past, and we’re laying the
groundwork to become an even more vital and competitive
company as we journey toward our 100th anniversary in
2014. That way, we can continue to deliver value to our
shareholders long into the future.
Fiscal 2007 Highlights
• Net earnings rose 10.3 percent to a record $142.4 million.
• Earnings per diluted share were $3.40, up 16.8 percent
from $2.91 in fiscal 2006.
• Return on average stockholders’ equity far exceeded
the S&P 500 Index for the seventh consecutive year (see
chart on page 8).
• Net sales growth of 2.2 percent was dampened by a
challenging environment. On the other hand, robust
new product introductions drove share gains in nearly
all of our markets.
• International contributed 29 percent against our target
of 30 percent or more of total company sales.
• Cash flow from operating activities was $184 million.
• Shareholders gained value from higher cash dividends
and the repurchase of nearly 3.3 million shares of
common stock.
GrowLean: Year 1
After a difficult year in 1998, Toro embarked on a series
of initiatives to improve financial performance. Our first,
called “5 by Five,” produced significant cost reductions.
The second, “6 + 8,” improved both our top and bottom
lines with added emphasis on revenue growth.
Our current initiative, “GrowLean,” was launched in fiscal
2007 and focused our efforts around three goals:
1) Achieving compounded revenue growth of 8 percent
or more by expanding our core businesses, listening more
intently to our customers, and focusing on acquisitions;
2) Delivering a consistent 7 percent or more after-tax
return on sales by employing Lean methods in our plants
and offices; and 3) Reducing average working capital to
“the teens”– or less than 20 percent of sales. This is a
highly transformational and important initiative that we
expect will start slowly and gain momentum over the
next few years.
Michael J. Hoffman
Chairman and CEO