AGM 2019

Mar 19, 2019

Good afternoon, and welcome to Toro's 2019 Annual Meeting of Shareholders. My name is Rick Olson, and I'm the Chairman and CEO. Special thank you to our shareholders who are attending the meeting today, both with us in person at our Bloomington, Minnesota corporate offices and listening to our webcast. Following introductions, we will conduct the formal portion of our annual meeting followed by a brief update on our businesses and recent financial results. Also discuss our recently announced acquisition of Charles Machine Works. We'll be happy to take any questions at the end of the meeting. Please hold your questions until that time. After the conclusion of the annual meeting, we invite you to enjoy refreshments and check out our product displays. I'd like to begin by recognizing 2 directors who are retiring from our Board today, Bob Burmaster and Chris Toomey. Bob has served as a Director for 23 years and Chris has served as a Director for 21 years. In addition, Bob has served as our Lead Director for the past 12 years and as Chair of the Nominating and Governance Committee 8 years. Chris has served as Chair of the Compensation and Human Resources Committee for the last 12 years. Bob and Chris each have contributed invaluable wisdom and insight as directors. They have helped guide Toro as we have grown from a 1.1 $1,000,000,000 company in 1998 to the $2,600,000,000 company that we are today. Please join me in acknowledging and thanking Bob Burmaster and Chris Toomey for their many years of dedication and thoughtful and excellent service to the Toro Company. If you'd stand, I'd appreciate it. I'd now like to introduce the current independent members of our Board of Directors. Please hold your applause until all of our directors have been introduced. Janet Cooper, Retired Senior Vice President and Treasurer of Quest Communications International Gary Ellis, Retired Executive Vice President of Medtronic, effective following the meeting, Gary will serve as our Lead Director. Jeff Ettinger, retired Chairman and Chief Executive Officer of Hormel Foods Corporation and effective following the meeting, Jeff will serve as the Chair of our Nominating and Governance Committee. Kathy Harless is not able to be here today, but she is the Retired President and Chief Executive Officer of IDARC Chris Koch, President and Chief Executive Officer of Carlyle Companies Incorporated Jacques O'Rourke, President and Chief Executive Officer of The Mosaic Company. Effective following the meeting today, Jacques will serve as the Chair of our Compensation and Human Resources Committee. Greg Steinhafel, former Chairman and Chief Executive Officer of Target Corporation, and Greg is not able to be with us this afternoon. And lastly, Mike Vail, Executive Vice President of 3 ms Company, and he is also unavailable this afternoon. Please join me in thanking all of our directors for their contributions to the Toro Company and welcoming Gary, Jeff and Joc to their new leadership positions on our board. I'm also pleased to welcome our newest board members elected by shareholders today. Jeff Harmony, Chairman and Chief Executive Officer of General Mills and Joyce Mullen, President, Global Channel OEM IoT of Dell Computers Dell Technologies. Jeff and Joyce, welcome to the Board. We are excited about the experience and the expertise that you will bring to Toro and we look forward to working with you. Next, I would like to introduce the representatives from KPMG, our independent registered public accounting firm, who are here today. They are Chris Omdahl and Andy Henderson. Chris and Andy will be available at the end of the meeting to answer any questions you may have of them. Please help me welcome Chris and Andy. With that, we now call the 2019 Annual Shareholders Meeting to order. I would like to introduce Angie Snavely, our Director of Corporate Counsel, who will conduct the formal portion of our meeting. Thank you, Rick. Before beginning our formal business, I would like to introduce our Inspector of Our first order of business is to establish proof of notice of this meeting. I confirm that we have received an affidavit of mailing establishing that notice of this meeting was duly given to shareholders entitled to vote on a record date of January 22, 2019. Our next order of business is to confirm that a sufficient number of shares of our common stock are represented here today to constitute a quorum for purposes of transacting business at this meeting. Immediately prior to the meeting, we were informed by our Inspector of Election that approximately 97,500,000 shares or 91.8 percent of our common stock is represented today in person or by proxy and therefore we have a quorum. Because notice of this meeting was duly given and a quorum is present, this meeting is convened for purposes of transacting any business that may properly come before it. The polls are now open and will remain open as I present the matters to be voted on at today's annual meeting. If you are a registered shareholder and would like a ballot, you can obtain 1 from the Inspector of Election. If you previously voted by proxy, you do not need to vote by ballot today unless you wish to change your vote. The first proposal before our shareholders is the election of 4 directors, each to serve for a term of 3 years ending at our 2022 Annual Meeting. The nominees for election are Jeff Harmony, Joyce Mullen, Rick Olson and Jack O'Rourke. The second proposal is a ratification of KPMG as our independent registered public accounting firm for our fiscal year ending on October 31, 2019. The 3rd and final proposal is approval of our advisory say on pay vote. Please return any outstanding ballot to the Inspector of Election. I declare the polls for this meeting are now closed. I'm pleased to announce that prior to the meeting, the Inspector of Election informed us that pending the final tabulation of votes, all of our director nominees have been elected and all proposals have been approved. Specifically, each director nominee received more than 98% of the votes cast. The selection of KPMG as our fiscal 2019 independent public accounting firm received affirmative vote of more than 98% of our shares of common stock represented here today in person or by proxy. And our advisory say on pay vote received affirmative vote of more than 95% of our shares of common stock represented here today in person or by proxy. Final tabulations of the votes will appear in our required Form 8 ks that will be filed with the Securities and Exchange Commission. This concludes the formal portion of our 2019 Annual Shareholders meeting and I declare the meeting officially adjourned. Rick Olson will now spend a few minutes talking to you about our business and recent results. Following Rick's remarks, we will take your questions. Before I turn the meeting over to Rick, I would like to remind you of our forward looking statement policy. During this meeting, we will make forward looking statements regarding our pending acquisition of the Charles Machine Works and our business and future operating and financial results. These forward looking statements are based on management's current assumptions and expectations of future events and actual events and results may differ from those predicted. Our most recent annual report on Form 10 ks and subsequent call reports on Form 10 Q detail some of the important risk factors that may cause our actual results to differ from our predictions. Please note that we do not have a duty to update our forward looking statements. In addition, we will also reference certain non GAAP financial measures. More information about our use of non GAAP financial measures as well as a reconciliation of our most directly comparable GAAP financial measure to the non GAAP financial measure can be found in our Form 10 Q filed with our Q1 of fiscal 2019 in the section titled Non GAAP Financial Measures. The Form 10 Q can be found on our website. With that, I'll turn the meeting over to Rick. Thank you, Angie. We were pleased to deliver another good year for the Toro Company with record sales and earnings results driven by the success of new and innovative product offerings across our businesses. We achieved net sales of $2,600,000,000 operating earnings of $373,000,000 net earnings of $271,900,000 and earnings per share of $2.50 Our Professional segment led the way with notable performances by our landscape contractor, golf, grounds, rental and specialty construction and snow and ice management businesses. Our residential business rebounded nicely in the second half of twenty eighteen to finish strong despite weather related challenges at the start of the fiscal year. And international sales also grew due to the strength of our professional business. A number of new product introductions, fleet replacements and new projects also helped fuel the growth. We were pleased to fulfill our continued commitment to returning shareholder value. In fiscal 2018, the company paid $85,000,000 in dividends. When added to the repurchased common stock, we returned $245,000,000 to our shareholders. Also on 2018, we kicked off year 1 of our Vision 2020 employee initiative. As we have discussed previously, we will once again focus on driving profitable growth with an emphasis on innovation and serving our customers. Vision 2020 specific targets are achieving 5% or more organic growth each year and operating earnings of 15.5% or more by the end of fiscal 2020. With the inflation and tariff related pressures experienced in 2018, most notably for steel, aluminum and freight costs, these stretch goals have become more challenging. That said, we remain committed to delivering steady progress each year of the initiative. We believe our Vision 2020 goal supports our key corporate priorities of accelerating profitable growth, driving productivity and operational excellence and empowering our greatest assets, our people. This is all done in the context of helping our customers to be successful through long lasting relationships where we continually strive to be the most trusted partner by providing innovative solutions and delivering superior customer care every day, everywhere. Looking ahead to 2019, we were pleased to recently announce our agreement to acquire Charles Machine Works portfolio of businesses, including Ditch Witch and other leading brands in the underground construction market. Charles Machine Works is known as the underground authority for their deep understanding of the structures and systems in the market and the needs of underground construction professionals. They're an industry leader with a range of innovative products and customer driven solutions that cover the full lifecycle of underground pipe and cable from installation and inspection to repair and replacement. The robust portfolio includes horizontal directional drills, walk and ride trenchers, utility loaders, vacuum excavators, asset locators, pipe rehabilitation solutions and aftermarket tools. For calendar year 2018, revenues were about $725,000,000 The transaction is consistent with our capital deployment strategy of investing in value added acquisitions with a specific focus on growing our professional segment, global expansion, water and technology related applications. The addition of Charles Machine Works will further strengthen our portfolio of market leading brands supported by talented employees, investments in innovation, best in class dealer networks, longstanding customer relationships and commitment to community. As an organization, Charles Machine Works aligns well with and we expect it will continue to it will contribute to our own strategic priorities of profitable growth, operational excellence and empowering people. We are very optimistic about the momentum our combined strengths, talents and resources will generate in the future as we drive profitable growth and long term value creation for our shareholders. Based on our recent receipts of regulatory approvals, but subject to other closing conditions, we are optimistic that the acquisition will close during the Q2 of fiscal 2019. Now turning to our quarter Q1 results. We were pleased to deliver record net sales of $603,000,000 an increase of 10% and net earnings of $59,500,000 or $0.55 per share. Adjusted net earnings for the quarter were $55,200,000 or $0.51 per share compared to adjusted net earnings of $52,100,000 or $0.48 per share in the comparable period 2018 period, an increase of 6.3%. Our professional sales grew 12.7% due to strong demand for our landscape contractor, golf, sports fields and grounds and BOSS snow and ice management products. Residential sales were up 1.9% for the quarter due to strong retail demand for snow throwers and increased walk power mower sales. Sales increases in both segments also benefited from pricing actions that partially offset inflationary pressures. Innovation and investments in growth continue to fuel our success. We have consistently increased our investments in engineering and research, which continues to be a key to growth and success as reflected in our vitality index. Our company goal is that new products represent at least 35% of sales for all of our businesses. As you can see, we continue to exceed this important target with innovative new product offerings across our professional and residential businesses, including the e TriFlex all electric greens mowers, the new TXL 2000 compact utility loader and the prototype of our E Dingo electric compact utility loader that is currently under development. The new Lynx 7.0 central control system that provides significant advancements in precision, speed and dependability. The Proline H800 direct collect mower. The new Toro Outcross, which continues to gain favorable acceptance by customers. The Outcross is a versatile turf friendly tractor with smart programmable features that makes it intuitive and easy to use. Our innovative zero turn riding mowers that help landscape contractors improve productivity and reduce fuel costs and the new Power Reverse with SmartStow walk power mower, which provides reverse assist for easy maneuvering and can be stored compactly in the homeowner's garage. Finally, as announced prior to this meeting, the Board declared a quarterly dividend of 0 point is payable on April 12, 2019 to shareholders of record as of April 1, 2019. The dividend is consistent with our stated guideline to return 30% to 40% of our 3 year average reported earnings per share and is evidence of our continued commitment to do what we say we will do. In summary, we remain focused on innovation, enhanced productivity efforts and driving profitable growth. With fiscal 2019 already underway, we are excited about the acquisition of Charles Machine Works and we are encouraged by our strong first quarter results. We're cautiously optimistic about the outlook for the balance of fiscal 2019 and we feel we are poised to deliver another successful year for all stakeholders. This concludes our formal remarks and we will take questions at this time. Yes. The question was related to minority investment that we made in greensight, which was mentioned in the annual report. So greensight is a startup company that is focused on the analysis of turf grass specifically in this case using a drone technology. So this is a minor investment on our parts. We have a small percentage of ownership in the company. For us, where this fits in is it's really central to our technology strategies of providing integrated solutions for our customers. So for a golf course, this is another opportunity to provide data to them to help them manage their golf course. So essentially scanning the golf course with a drone and then integrating that information into our mapping systems as part of the central control system. In fact, the Lynx 7.0 system that I mentioned earlier. So it's a minor investment from a company perspective, but important potentially part of our technology package for our customers. Thank you. Any other questions? Okay. Thank you for joining us today and for your continued confidence and trust in our people and our company. Now please enjoy the refreshments and the product displays. Thank you for coming. Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.