Toro 2008 Annual Report Download - page 34

net sales and gross margins to decline in fiscal 2009 compared Fiscal 2008 Compared With Fiscal 2007
to fiscal 2008. In addition, we expect our net sales and earnings Net Sales. Worldwide net sales in fiscal 2008 were $1,878.2 mil-
will be hampered from foreign currency exchange rate translation lion compared to $1,876.9 million in fiscal 2007, a slight increase
as the U.S. dollar has significantly strengthened compared to of 0.1 percent. This net sales increase was primarily driven by:
other currencies in which we transact business.
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Strong international net sales that increased 11.9 percent as a
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In fiscal 2009, we plan to continue our focus on improving asset result of continued growth and demand for our products in inter-
utilization as part of our GrowLean initiative. We anticipate national markets, particularly in the golf market, and the suc-
reducing our net working capital as a percentage of net sales in cessful introduction of new products.
fiscal 2009 compared to fiscal 2008 through prudent inventory
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A weaker U.S. dollar during most of fiscal 2008 compared to
management. Consistent with our focus on asset management, other currencies in which we transact business accounted for
our current overall domestic field inventory levels are within our approximately $28 million of our sales growth.
expectations. Partially offsetting those positive factors were:
We will continue to keep a cautionary eye on domestic and inter-
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Lower domestic shipments as a result of the continued weaken-
national economies, commodity prices, weather conditions, field ing of the domestic economy and customers’ reluctance to place
inventory levels, retail demand, competitive actions, and other fac- orders due to the uncertain economic environment, which has
tors identified in Part I, Item 1A, ‘‘Risk Factors’’ of this report, resulted in lower field inventory levels for our domestic
which could cause our actual results to differ from our anticipated businesses.
outlook. Looking ahead, we expect our net sales to decrease in fiscal
2009 compared to fiscal 2008 as we are uncertain how deep or
RESULTS OF OPERATIONS long this current recession will be. We also anticipate international
Fiscal 2008 net earnings were $119.7 million compared to economic growth to slow down in fiscal 2009, and we expect a
$142.4 million in fiscal 2007, a decrease of 16.0 percent. Fiscal negative impact on net sales in fiscal 2009 compared to fiscal
2008 diluted net earnings per share were $3.10, a decrease of 2008 as a result of the recent strengthening of the U.S. dollar
8.8 percent from $3.40 per share in fiscal 2007. The primary fac- compared to other currencies in which we transact business.
tors contributing to the net earnings decline were lower gross mar-
gins, a higher effective tax rate, and a decline in other income. Gross Margin. Gross margin represents gross profit (net sales
However, our net earnings per diluted share were benefited by less cost of sales) as a percentage of net sales. See Note 1 of the
approximately $0.24 per share in fiscal 2008 compared to fiscal notes to our consolidated financial statements, in the section enti-
2007 as a result of reduced shares outstanding from repurchases tled ‘‘Cost of Sales,’’ for a description of expenses included in cost
of our common stock. of sales. Gross margin decreased by 1.3 percentage points to
Fiscal 2007 net earnings were $142.4 million compared to 34.8 percent in fiscal 2008 from 36.1 percent in fiscal 2007. This
$129.1 million in fiscal 2006, an increase of 10.3 percent. Fiscal decline was mainly the result of the following factors:
2007 diluted net earnings per share were $3.40, an increase of
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Increased commodity and fuel costs.
16.8 percent over $2.91 per share in fiscal 2006. The primary fac-
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Higher manufacturing costs from lower plant utilization as we cut
tors contributing to the net earnings increase were higher net sales production in an effort to lower inventory levels.
and an increase in gross margins, somewhat offset by higher sell-
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Increased tooling costs from accelerated depreciation of tooling
ing, general, and administrative expenses and an increase in our no longer used and investments in tooling for new products.
effective tax rate. In addition, our share repurchase program Somewhat offsetting those negative factors were:
resulted in an increase in diluted net earnings per share of approx-
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Price increases introduced on most products.
imately $0.19 per share in fiscal 2007 compared to fiscal 2006.
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A weaker average U.S. dollar compared to most other curren-
The following table summarizes our results of operations as a cies in which we transact business.
percentage of our consolidated net sales.
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Continued focus on cost reduction efforts and productivity
improvements as part of our GrowLean initiative.
Fiscal years ended October 31 2008 2007 2006 Looking ahead, we expect gross margin for fiscal 2009 com-
pared to fiscal 2008 to decline due to anticipated higher average
Net sales 100.0% 100.0% 100.0%
Cost of sales (65.2) (63.9) (65.0) costs for commodities, higher manufacturing costs from lower plant
Gross margin 34.8 36.1 35.0 utilization, and an unfavorable impact from the strengthening of the
Selling, general, and administrative expense (24.2) (24.2) (24.0) U.S. dollar compared to other currencies in which we transact bus-
Interest expense (1.0) (1.0) (1.0) iness. However, price increases and benefits from our ongoing
Other income, net 0.1 0.5 0.5
Provision for income taxes (3.3) (3.8) (3.5) profit improvement initiatives, driven by our emphasis on Lean
manufacturing, should in part offset these anticipated higher costs.
Net earnings 6.4% 7.6% 7.0%
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