AGM 2018

Mar 20, 2018

Good afternoon. Good afternoon and welcome to Toro's 2018 Annual Meeting of Shareholders. My name is Rick Olson and I am the Chairman and CEO. A 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 business and recent financial results. We will be happy to take 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 to have a chance to check out our product displays out in the hallway. I would now like to introduce the independent members of our Board of Directors. Please hold your applause until all the directors have been introduced. Bob Burmaster, Retired Chairman and Chief Executive Officer of Jostens and our presiding Non Management Director Janet Cooper, Retired Senior Vice President and Treasurer of Quest Communications International Gary Ellis, Retired Executive Vice President of Medtronic Jeff Ettinger, Retired Chairman and Chief Executive Officer of Hormel Foods Corporation Kathy Harless, 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 Greg Steinhafel, former Chairman and Chief Executive Officer of Target Corporation Chris Toomey, Retired Chairman and Chief Executive Officer of AutoCAD and our newest Board member, Mike Vail, Executive Vice President of 3 ms Company. Please join me in thanking all of our directors for their contributions to the Coral Company. 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 that you might have. Please help me welcome Chris and Andy. With that, I now call our 2018 shareholders meeting to order. I would like to introduce Angie Snavely, our Director of Corporate Counsel, who will conduct formal portion of the meeting. Thank you, Rick. Before beginning our formal business, I would like to introduce the Inspector of Election appointed by Toro for the meeting and who is here with us today, Mr. Anthony Caridio, an agent of Broadridge Financial Solutions. Please join me in welcoming Tony. 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. Specifically, notice was first mailed on February 16, 2018 to each shareholder entitled to vote on the record date of January 22, 2018. Our next order of business is to confirm that a sufficient number of shares of our common stock is represented today in constant quorum for purpose of transacting business at this meeting. Immediately prior to this meeting, of Elections informed us that approximately $97,000,000 or 90% of our common stock is here 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 one 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 for our shareholders is the election of 4 directors, each to serve a term of 3 years ending at our 2021 Annual Meeting. The nominees for election are Janet Cooper, Gary Ellis, Greg Steinhafel and Mike Vail. The second proposal is the ratification of KPMG as our independent registered public accounting firm for our fiscal year ending on October 31, 2018. The 3rd and final proposal is the approval of on an advisory basis our executive compensation for our say on pay vote. With that, please return any outstanding ballot to Inspector of Election at which point the poll shall be closed. Prior to the meeting, the Inspector of Election informed us that pending the final tabulation of votes, each of our director nominees received the affirmative vote of more than 96 percent of the votes cast and there have been reelected. The selection of KPMG as our fiscal 2018 independent metropolitan accounting firm received the affirmative vote of more than 98% of the shares of our common stock represented here today in person or by proxy and the selection has been ratified. And our advisory say on pay vote received the affirmative vote of more than 95% of the shares of our common stock represented here today in person or by proxy and has been approved. Final tabulations of each of these votes will appear on our Form 8 ks that we filed with the Securities and Exchange Commission. This concludes the formal portion of our 2018 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 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 quarterly reports on Form 10 Q detail some of the important risk factors that may cause our actual results to differ from those in our predictions. Please note that we do not have a duty to update our forward looking statements. In addition, we will reference certain non GAAP financial measures. More information on our use of non GAAP financial measures, including a reconciliation to the most directly comparable GAAP financial measure can be found in our Form 10 Q that was filed for our Q1 of 20 18 in the section titled Non GAAP Financial Measures. The Form 10 Q can be found on our website. With that, I'll now turn the meeting over to Rick. Thank you, Angie. Fiscal 2017 was another good year for the Toro Company as we delivered record sales and earnings results driven by the success of new and innovative product offerings across our businesses. We achieved net sales of $2,500,000,000 and net earnings of $68,000,000 or $2.41 per share. Our professional segment led the way with notable performances by our golf, landscape contractor, rental and specialty construction businesses. Our international business also contributed nicely for the year with sales growth of 5.6%, primarily driven by our newly acquired Parrot Professional Irrigation offerings and solid performances by our golf, sports fields and grounds product lines. We were also pleased to fulfill our commitment to returning shareholder value by repurchasing approximately 2,700,000 shares of common stock and paying $76,000,000 in dividends. All in, we returned over $236,000,000 to shareholders for the year. Also in 2017, we successfully concluded our 3 year employee initiative engagement initiative, Destination Prime. During that timeframe, we achieved our operating earnings goals and made progress on improving revenues and reducing working capital. Having completed Destination Prime, we were excited about the launch of our new 3 year employee initiative Vision 2020 in December. In this new initiative, we will once again focus on driving profitable growth with an emphasis on innovation and serving our customers. Vision 2020's 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. While there is not a specific target for working capital, it is our intention to maintain the momentum we have gained to date and to not lose sight of this important metric. We believe our Vision 2020 goals support our key corporate priorities of accelerating profitable growth, driving productivity and operational excellence and empowering our greatest asset, our people. The tagline for Vision 2020 reads, customer needs, my commitments, we is personally responsible for serving our customers and that when we do that well, we secure and strengthen our company's future and advance the interest of all of our stakeholders. As we look at 2018, we believe we are positioned well to continue this positive momentum. Strong demand in our professional businesses drove 1st quarter sales of $548,200,000 an increase of 6.3% compared to the prior year. Largely the result of adverse impact of one time charges related to tax reform, we also achieved reported diluted net earnings of $0.21 per share. Removing such tax reform impacts, we achieved record adjusted first quarter diluted net earnings of $0.48 per share, 29.7% increase year over year. As we head into the key selling season ahead, we are well positioned with innovative and new product offerings across our businesses. As we have said many times, innovation is the lifeblood of our company. We are dedicated to investing in engineering and research as keys to our continued growth. In fiscal 2017, we invested over $80,000,000 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 goal with innovative new product offerings across our professional and residential businesses, including the new Toro Outcross, which has been described by one customer as a new super machine. The Outcross is a versatile turf friendly tractor with smart programmable features making it intuitive and easy to use. Our innovative zero turn riding mowers that help landscape contractors improve productivity and reduce fuel costs. The new tracked mud buggy and our recently unveiled Dingo TXL 2000, the first compact utility loader of its kind with higher lift capacity and better operating visibility. The impressive HTX V plow from our BOSS Professional Snow and Ice Management business. 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. And a number of highly efficient water conserving technologies across our irrigation portfolio, just to name a few. Across our businesses, Toro leads the way with superior innovation backed by the superior customer care our team and channel partners provide. We also continue to seek growth through select acquisitions and strategic relationships. Yesterday, we were pleased to announce the acquisition of LT Rich Products, a manufacturer of commercial stand on spreader sprayers, stand on aerators and stand on snow and ice management equipment. These products are used primarily to care for residential and commercial properties, colleges, universities as well as municipalities. They are known for their productivity, precise and efficient application and maneuverability with zero turn capability. This acquisition positions us to build upon many of our core strengths, which are valued by professional contractors as we enable them to drive greater productivity, profitability and efficiency in their businesses. We also recently announced our minority ownership interest in GreenSight Agronomics, a leading provider of drone services for golf courses and agricultural growers. We believe this relationship is a good fit as we see potential to align greensight's drone sensing technologies with our internal water management and turf expertise to further provide our customers with superior solutions. More broadly, we are encouraged by the health of our acquisition pipeline as we continue to explore strategic opportunities that will create profitable growth and true value for our stakeholders. Finally, we continue to return shareholder value through consistent dividends. As announced prior to this meeting, the Board declared a quarterly dividend of $0.20 which is payable on April 18, 2018. In addition, we have driven consistent share repurchases, returning value to shareholders beyond dividends. All of this is evidence of our continued commitment to do what we say we will do as an enterprise. This concludes a brief review of fiscal 2017 and highlights of the year ahead. We will now take any questions. It's a great question. Should we do them 1 at a time? Okay. So the question was the work that Toro might be doing with smart products and what the future opportunities might be there, including autonomous products that you are referring to. And the answer is that the Toro company and we are very much aware of those opportunities and one of the products that I talked about, the Outcross is one of the great examples of a smart product and the great value of that product is that it takes some of the most complex tasks at a golf course, for example, aerating with the agricultural tractor, which the operator has to have a lot of skill and do a lot of things right for that to work well and build that into the program capability of the tractor itself. So we say if you can operate an automatic car, you can operate and do one of the most difficult tasks because the product is smart and it's doing a lot of that work for you. So that's just one example. We've got many others today and we've got many others that we see opportunities for. Those are the kinds of things that we are looking at or that we're emphasizing. With regard to a robot or autonomous products, that's certainly something those products have been available in Europe for some time. You see offerings now in the United States, that's something that we're very much aware of and we have efforts as a company in that area that I can't comment on specifically, but rest assured that's the area that we're very much interested in and see opportunities for Toro. And another question before So if we get specific, I may turn to our CFO. The question was the effect on the tax reform on Toro specifically. And I will talk just in generalities. So over time, it will definitely be a benefit to Toro and we will see a reduced tax rate. Most of that benefit will kick in next year. This year, there's an offsetting set of adjustments that we will need to make in our taxes that will offset the benefit of the lower tax rate. So Renee, anything that you would add? And then a third question? We have if you look at the investor deck, the question is what is the plan for repurchase of shares this year. We will continue to repurchase shares. We have continued to do so in the Q1 and it is our intention to continue to the amount that we state in our investor deck is roughly, Renee. Okay. So we guide to similar to last year. We do think that that provides as a way of returning the profit to the shareholders in an efficient way and it has long term effect of reducing obviously the shares outstanding, but it's good for shareholders over time. Great. Any other questions? Okay. Well, thank you for joining us today and for your continued confidence in the people and our company in general. And please join us outside for refreshments and a chance to look at the product that's on display. Thank you.