Toro 2014 Annual Report Download - page 39

Somewhat offsetting those sales increases were: Provision for Income Taxes. The effective tax rate for fiscal
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A decline in overall residential segment net sales primarily from 2013 was 31.7 percent compared to 34.0 percent in fiscal 2012.
lower shipments of snow thrower products due to the lack of snow- The reduction in the effective tax rate was primarily the result of
fall during the 2013-2012 and 2012-2011 winter seasons in certain the benefit in fiscal 2013 from the retroactive reenactment of the
key markets. In addition, shipments of walk power mowers were domestic research tax credit.
down due to adverse spring weather conditions that negatively PERFORMANCE BY BUSINESS SEGMENT
impacted demand and our sales during the key selling period. As more fully described in Note 12 of the Notes to Consolidated
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Lower sales of our retail irrigation products as a result of Financial Statements, we operate in three reportable business seg-
reduced product placement at a key customer. ments: Professional, Residential, and Distribution. Our Distribution
Gross Margin. Gross margin increased by 110 basis points to segment, which consists of our company-owned domestic distribu-
35.5 percent in fiscal 2013 from 34.4 percent in fiscal 2012. This torships, has been combined with our corporate activities and is
improvement was mainly the result of the following factors: shown as ‘‘Other.’’ Operating earnings for our Professional and
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Price increases on some of our professional segment products. Residential segments are defined as earnings from operations plus
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Cost reduction efforts from productivity and process improve- other income, net. Operating loss for the Other segment includes
ment initiatives. earnings (loss) from our wholly owned domestic distribution com-
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Favorable product mix from increased sales of products that panies, corporate activities, other income, and interest expense.
carry higher average gross margins. The following information provides perspective on our business
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Lower average prices paid for commodities in fiscal 2013 com- segments’ net sales and operating results.
pared to fiscal 2012. Professional
Somewhat offsetting those positive factors were: Professional segment net sales represented 68 percent of consoli-
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Unfavorable foreign currency exchange rate movements. dated net sales for fiscal 2014, 70 percent for fiscal 2013, and
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Unabsorbed manufacturing costs, mainly from lower plant utiliza- 68 percent for fiscal 2012. The following table shows the profes-
tion and plant realignment. sional segment net sales, operating earnings, and operating earn-
ings as a percent of net sales.
Selling, General, and Administrative Expense. SG&A expense
rate in fiscal 2013 increased by 30 basis points to 24.2 percent (Dollars in millions)
Fiscal years ended October 31 2014 2013 2012
compared to 23.9 percent in fiscal 2012. The increase in SG&A
Net sales $1,477.6 $1,425.3 $1,329.5
expense was driven by:
% change from prior year 3.7% 7.2% 7.3%
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Higher sales and marketing expense of $9 million. Operating earnings $ 276.3 $ 254.4 $ 232.1
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An increase in warehousing costs of $6 million, mainly related to As a percent of net sales 18.7% 17.9% 17.5%
our distribution facility in Ankeny, Iowa that opened in early fiscal
2013, plus higher inventory levels. Net Sales. Worldwide net sales for the professional segment in
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Higher incentive compensation expense of $6 million as a result fiscal 2014 were up by 3.7 percent compared to fiscal 2013 prima-
of improved financial performance. rily as a result of the following factors:
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Investments in new product development that resulted in higher
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Strong sales and demand for landscape contractor equipment,
engineering expense of $4 million. including new and enhanced products, as contractors continued
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Incremental costs from acquisitions of approximately $4 million. to invest in turf maintenance equipment.
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Higher global sales of our micro-irrigation products from contin-
Somewhat offsetting those increases in SG&A expense was a
ued market growth and demand for more efficient watering solu-
decline in warranty expense of $4.5 million.
tions for agriculture.
Interest Expense. Interest expense for fiscal 2013 decreased by
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Increased golf product sales mainly due to the successful intro-
4.1 percent compared to fiscal 2012 as a result of higher capital- duction of new and enhanced products, such as our new
ized interest from capital projects and lower average debt levels. INFINITY sprinklers, that were well received by customers, as
well as new international golf course projects.
Other Income, Net. Other income for fiscal 2013 was $12.3 mil-
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Increased sales and demand for rental and specialty construc-
lion compared to $7.6 million in fiscal 2012, an increase of
tion equipment, including products that we introduced under the
$4.7 million. This increase in other income, net was mainly due to
Toro brand.
a recovery for a litigation settlement of $3 million, an increase in
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Improved price realization and incremental sales of $2.8 million
income from our equity investment in Red Iron of $1 million, and
from acquisitions.
lower foreign currency exchange rate losses of $1 million in fiscal
2013 compared to fiscal 2012.
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