Would you believe me if I told you that mowers were not only good for mowing lawns and having fun while doing so but are a multibillion-dollar growth business?
Toro Co. (NYSE:TTC) is that multibillion dollar company — and it’s growing at a 15% clip. How can that be? Well, it isn’t just mowers that are driving this business.
The 100-year old company also sells compact utility loaders, walk-behind trenchers, and stump grinders for the landscape-contractor market. Besides mowers, it makes tools such as aerators, debris vacuums, blowers, sweepers, utility vehicles and bunker-maintenance equipment for the sports-field and golf-course markets.
Toro also manufactures all things involving lawn maintenance, such as sprinkler bodies, valves, sub-surface irrigation, electric and hydraulic control devices and climate sensors for the residential- and commercial-irrigation markets. Oh, and it also makes snow throwers! Party down!
The company reported a good quarter, with sales up 9.5% and earnings per share up 20%.
Golf is important to Toro, so investors should continue to watch the movement of discretionary expenditures in the leisure segment. Golf growth is up 20% this year, which pushes golf courses to invest in new grounds-keeping equipment.
That translated into 9% sales growth and 15% earnings growth for Toro’s Professional segment. The residential side turned in a 7.5% increase in earnings on a 10.6% increase in sales.
Toro’s financials are solid, with $72 million in cash and only $224 million in debt. Earnings have been on a tear: Its $62 million FY09 profit is set to hit $130 million this year. How many other companies have doubled net income in three years?
Cash flow has always been positive, but it has declined over the past few years, apparently due to an increase in account payables and a struggle with inventory issues. The company has instituted a series of corporate initiatives to focus the enterprise on driving growth and efficiencies, so these problems may well get sorted out over the next two years. Free cash flow is pegged at $125 million for the year, and the company has raised guidance.
With its 1.2% yield, 16% to 17% earnings growth going forward, a solid brand name and shares that are trading at 17x earnings, Toro is one of the few growth stocks I’ve found recently that you can buy for a reasonable price. It’s worthy of your consideration.
If you’d like a more diversified play, have a look at Deere & Co. (NYSE:DE), which also trades at a reasonable multiple, is on solid ground and is making good earnings strides.
Lawrence Meyers does not own Toro or Deere stock…or the equipment they make.
