Good day, ladies and gentlemen, and welcome to The Toro Company's third quarter earnings conference call. My name is Marvin, and I will be your coordinator for today. At this time, all participants are listen only mode. We will be facilitating a question and answer session towards the end of today's conference. As a reminder, this conference is being recorded for replay purposes. I will now turn the presentation over to your host for today's conference, Heather Hille, Vice President, Corporate Affairs and Investor Relations. Please proceed, Ms. Hille.
Morning, everyone, and thank you for joining us for The Toro Company's third quarter 2026 earnings conference call. I am Heather Hille, Vice President of Corporate Affairs and Investor Relations. On the line with me today are Rick Olson, Chairman and Chief Executive Officer, Edric Funk, President and Chief Operating Officer, and Angie Drake, Vice President and Chief Financial Officer. Rick, Edric, and Angie will provide an overview of our third quarter results, which were released earlier this morning, and discuss our priorities and outlook for the remainder of fiscal 2026.
Following their remarks, we will open the phone lines for a question and answer session. Before we begin, please note that any forward-looking statements made today are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks are detailed in our earnings release, investor presentation, and our most recent filings with the SEC.
During our remarks, we will also reference certain non-GAAP financial measures. We believe these metrics provide useful insight into the company's performance. Reconciliations to the most directly comparable GAAP measures can be found in this morning's press release. Both the release and our third quarter supplemental presentation are available in the investor information section of our corporate website. With that, I will now turn the call over to Rick.
Thank you, Heather, and good morning, everyone. We delivered a strong third quarter, growing net sales 8% and generating adjusted earnings per share of $1.33. The sales momentum from the first half continued into Q3, with both our professional and residential segments growing net sales over 8%. Within the professional segment, landscape contractor sales increased double digits, with underground and specialty construction growing mid-single digits. As expected, golf shipments were down modestly year-over-year against a strong prior year comparison. The strength in professional contractor was driven in part by the redesigned Exmark Radius zero-turn mower launched earlier this year. Another key contributor was the GrandStand MULTI FORCE product line, now equipped with a new, more powerful and fuel-efficient engine. This versatile stand-out machine has numerous attachments, enabling customers to expand services, increase profitability, and remain productive in every season.
Our Ventrac business continues to grow with professional landscape contractors and homeowners with acreage. This season, we added to the more than 30 pro-grade attachments with the newly introduced Fence Post Mower. It virtually eliminates one of the most labor-intensive trimming processes, and it's a great example of our innovation process. Identifying a customer pain point and developing an effective solution. Customer response has exceeded expectations, with demand already surpassing our initial production run. Rounding out a strong season for professional contractors was a successful Q3 load-in for BOSS snow and ice management products. Liquid de-icing technologies and the Snowrator delivered the strongest year-over-year growth rates within the portfolio. Underground construction continues its strong performance, growing mid-single digits in the third quarter. We've seen increased market adoption for our industrial and utility pipe relining solutions by HammerHead Bluelight, which has grown over 30% year to date.
This is an advanced cured-in-place pipe rehabilitation system that avoids the disruption of digging a large trench for a full pipe replacement. Our patented Bluelight LED curing technology cures up to five times faster than traditional steam, hot water, or ambient air methods. Moving on to the residential segment. We grew net sales by over 8%, supported by the continued success of our partnership with Lowe's. Importantly, this growth was accompanied by a margin improvement of 400 basis points year-over-year. We remain on track to achieve our goal of sustainable double-digit operating margins in residential. In a moment, Angie will highlight the progress of our AMP program and the resulting margin expansion for the company. In addition to AMP, we are driving working capital improvements. Year to date, these improvements have contributed to our $425 million in free cash flow at a conversion rate of 128%.
As a result of our strong cash flow, we executed $358 million of share repurchases. We are entering the fourth quarter with strong momentum and high expectations. Healthy end markets, disciplined execution, and ongoing productivity initiatives are driving margin expansion and robust free cash flow. Our strong year-to-date performance gives us the confidence to raise our adjusted EPS guidance to a range of $4.60-$4.65, up from our prior range of $4.50-$4.62, bringing the midpoint up over $0.07 to $4.63. Now, I'll turn the call over to Angie for the details on the quarter.
Thank you, Rick, and good morning, everyone. Our third quarter results were driven by strong customer demand and disciplined execution. Net sales increased 8.4% to $1.23 billion, or 6.2% organically. Adjusted operating margin was 13.9%, up 30 basis points from the prior year. This improvement was driven primarily by the benefits of our AMP initiative, which will exceed our target of $125 million in run rate savings by year-end. We launched AMP in 2024 to focus on four key areas: supply-based transformation, design to value engineering, route to market optimization, and operational efficiency. The program has delivered meaningful benefits across each of these areas and has also been instrumental in helping mitigate tariff-related impacts. While AMP will conclude in fiscal 2026, our commitment to continuous improvement will not.
Across our supply chain and functional organizations, we will continue to use the muscle gained by the AMP initiative to improve efficiency, reduce complexity, and enhance profitability. Productivity is a critical part of The Toro Company's DNA. The net result for Q3 was an adjusted EPS of $1.33. The year-over-year increase was driven by $0.12 from operational performance, $0.05 from share repurchases, and $0.06 from tariff refunds. Partially offsetting these benefits was an $0.08 impact from a higher adjusted tax rate and $0.06 of other corporate items, mainly a higher incentive accrual due to year-to-date performance and less Red Iron income due to lower field inventories. The adjusted tax rate in the third quarter was 22.4%, higher versus our expectations due to the geographic mix of earnings.
Our adjusted earnings excludes a non-cash impairment charge of $43 million as part of our AMP-related network optimization and product portfolio rationalization. Moving on to our segment detail. Within professional, net sales increased 8.8%, with 6.1% coming from organic growth. Adjusted operating margin was 20.9%, down 40 basis points year-over-year. This was primarily due to product mix and higher manufacturing costs, partially offset by pricing, productivity improvements, and volume leverage. Within residential, net sales increased 8.6%. Adjusted operating margin improved to 5.9%, up 400 basis points year-over-year. The increase was driven by productivity improvements, pricing, volume leverage, and a favorable comparison to a prior year inventory valuation adjustment. These benefits were partially offset by higher material and manufacturing costs. Turning to balance sheet highlights. We improved inventory by $153 million year-over-year due to lower finished goods balances.
Accounts receivable were up slightly as a result of the Tornado acquisition, with accounts payable also up slightly due to higher purchases with a greater level of sales. As a result, working capital improved $217 million year-over-year, contributing to the strong free cash flow conversion that Rick mentioned. Turning to our outlook. We are raising our full year guidance based on our sustained broad-based customer demand and the results of our productivity initiatives. We now expect our full year net sales to be in the range of 6.3%-6.6%, up from the prior range of 4%-6.5%. At the segment level, we anticipate professional net sales to be up mid single- digits, continuing the momentum of recent quarters. Residential net sales will be approximately flat as we lap last year's strong snow-related demand.
We are closely monitoring winter weather patterns and will react quickly as the season develops. Moving to profitability. The adjusted EPS range is expected to be between $4.60-$4.65, up from our prior range of $4.50-$4.62. The midpoint of our guidance increases from $4.56 to $4.63, reflecting our third quarter outperformance and a better outlook for the fourth quarter. The implied fourth quarter guidance puts net sales between 3.9% and 5.1% and adjusted EPS between $0.93 and $0.98. This guidance includes $7 million of anticipated IEEPA refunds. That is less than the previously expected $12 million as $5 million has been classified as outside of phase two. The refund timing of this portion of IEEPA refunds is uncertain given the current process. If they are available in the future, we will include them in our guidance at that time.
We continue to build our business for long-term profitable growth. This includes prioritizing innovation investments that we believe will deliver outstanding returns, driving sustainable margin expansion with disciplined execution, including our productivity initiatives, and leveraging the talents of our team and the power of our best-in-class distribution networks. We are confident in our ability to drive significant benefits and opportunities for all of our stakeholders. With that, I will turn the call over to Edric.
Thank you, Angie. I'd like to start today by recognizing and thanking Rick for his leadership, partnership, and unwavering commitment to The Toro Company and its people. Rick has led the organization through a remarkable period of transformation and growth. His vision has strengthened the portfolio, and under his guidance, the company has successfully navigated the many macro and geopolitical challenges of the past 10 years. Today, the company is in a position of strength and poised to capture the opportunities ahead. The team did just that in the third quarter, as evidenced by our adjusted operating earnings growth of 11%. This was underpinned by our constant focus on operational excellence. One example was our recent supplier summit, which brought together more than 180 organizations. The event reinforced our dedication to building strong supplier partnerships that support supply continuity, innovation, and productivity.
Direct engagement between leaders of The Toro Company and our supplier partners creates opportunity to identify and accelerate continuous improvement initiatives and to strengthen long-term partnerships that create value for both Toro and our customers. Relationships have always been a strength of The Toro Company, and our golf business is one great example. In early August, we welcomed 36 golf course leaders to our headquarters, representing top courses from across North America. Participants raved about our engineering and manufacturing operations and were highly enthusiastic about our emerging technology demonstrations in the areas of automation, artificial intelligence, electrification, and connected solutions. The investment we make in people and relationships continues to pay dividends. After two years of exceptional double-digit growth, golf continues to perform in line with our expectations this year. More importantly, the industry's underlying drivers remain strong.
We've now placed hundreds of autonomous products across golf facilities worldwide, including the Turf Pro, Range Pro, and GeoLink autonomous fairway mower. Toro's autonomous solutions demonstrated their capabilities on one of golf's biggest stages when Shinnecock Hills hosted the 126th U.S. Open. During tournament week, the Turf Pro 500 and Range Pro 100 operated together in the practice area, with the Range Pro autonomously collecting golf balls while the Turf Pro simultaneously maintained the turf.
This showcased how automation can help customers optimize labor resources, even under the most demanding conditions. I'm very proud of our team for the successful launch of our GeoLink autonomous fairway mower. This product combines the trusted excellence of our renowned quality of cut with advanced autonomous technology to help golf courses maintain superior playing surfaces, all from a smartphone app, and allowing the grounds crew to track one or more units as they perform other work on the course.
While we have already made considerable progress with this technology, I am even more excited about what is to come. Next spring, we will add another model, the larger Reelmaster 5010-H, as we accelerate the commercialization of our autonomous platform launches. We are also seeing excellent adoption of other new product introductions within golf. The new electric greens roller is already sold out for 2026. This reflects customer appreciation for both its intuitive controls and the built-in pass alignment feature that helps the crew achieve uniform and repeatable results. In addition, the fact that it is all electric eliminates the risk of oil leaks on sensitive putting surfaces.
Demand across our businesses continues to be broad-based. Strong adoption of new products, continued healthy conditions in golf, and sustained strength in underground and specialty construction position us well to deliver on our updated full-year guidance. Looking forward, our team remains highly focused on key strategic initiatives that will deliver long-term sustainable value for customers and shareholders alike. Now, I will turn the call back over to Rick for some closing remarks.
Thank you, Edric. During the past decade, I have had the privilege of leading The Toro Company and working alongside an extraordinary team of dedicated and talented employees. Together, we have accelerated growth, doubling revenues and expanding into new markets. We completed 10 strategic acquisitions, including our largest ever in Charles Machine Works. These investments strengthened and diversified our portfolio, making us more resilient and reducing our reliance on weather patterns and consumer purchase cycles. The strong performance by Ditch Witch, Ventrac, and Tornado this quarter reflects the positive impact of this strategy and the value it creates for all stakeholders. We also significantly advanced our technology capabilities. Whether helping customers reduce downtime through fleet management solutions, addressing labor challenges with autonomous technologies, or offering high-performance gas and electric product options, we continue to innovate.
Today, we are expanding these capabilities with AI-enabled business processes and product innovations, such as our Spatial Adjust precision irrigation technology. Our team remains focused on execution and delivering value for customers. Our end markets are healthy, inventory levels are well-positioned, and we continue to see encouraging demand trends across the business. I would like to thank our employees, channel partners, and shareholders for their continued partnership, dedication, and trust. I am confident in our ability to deliver on our updated full-year guidance and to finish the year strong. I am also confident in The Toro Company's future with Edric at the helm. He is an exceptional leader who understands our business, customers, and people. I know that he and the team will continue to build on our momentum, leading the company into its next chapter of growth and success. Now, we will open up the line for questions.
Ladies and gentlemen, if you wish to ask a question, please press star followed by one one on your touch-tone phone. If your question has been answered or you wish to withdraw your question, please press star followed by one one again. Please stand by for your first question. Your first question comes from the line of David MacGregor of Longbow Research. Your line is now open.
Yes, good morning, everyone. Thanks for taking my questions.
Morning, David.
Yes. Hi, Rick. And Rick, thanks for all the help over the last how many years it has been now, but really been a pleasure working with you, and I wish you well with whatever comes next.
Thank you.
I wanted to. Thanks. I guess I wanted to explore the Ditch Witch business, the underground construction business. It seems as though there's been more of a normalization perhaps now, as well as some of the benefits from the AMP productivity program. I wonder if you could just talk about where we are right now in terms of margin contribution there and the extent to which maybe there's further upside yet to be achieved.
Yeah, thanks for asking about the underground business. We are extraordinarily excited about the underground business and particularly the future runway for opportunity there, both for growth, which is driven by the market demand across, we talk about data centers, but also utility work, broadband, et cetera. But the opportunities to continue to grow in profitability internally with the work that we've done, the trajectory from the acquisition to now is pretty remarkable from a profitability standpoint, and we see more opportunity there. If you look specifically, data centers, for example, as an example, we were just looking at a case study. It's not so much the work that's done on the site, it's the work that's done to get the data, the power, and the utilities to the site.
Just an example, in Frederick, Maryland, 14 mi, 25 drills, 160 people that it took to get the data only to that. That was a 10-month project. So data centers are ideal for us, but it's just one slice of the demand that we see in that area. So that would be more of a drill and a trencher type of opportunity. I think you just heard us feature the relining capabilities with our patented Bluelight LED system that's multiple times faster than other methods for rehabilitating. Lastly, just the impact of Tornado. As we've talked about previously, those are key tools on a drill site or underground sites that's adjacent to our products, but they also open up nodes to new opportunities of growth, just for soft excavation in general, as that becomes more important and required in many areas.
Right. Just to build on that, I guess, you've done the Tornado acquisition here. Can you just talk about the extent to which maybe underground is growing as a priority within your capital allocation process and the extent to which we might expect an organic growth to continue there?
It is a high priority for us, and it cuts across different investment categories. The largest investment currently in our plants is taking place to unleash a lot more capacity within our facilities for the Ditch Witch business. It is a high priority from a non-organic perspective as well. We think there are continuing to be opportunities for small, medium, and large opportunities within that category as we go forward. You're exactly right. It does go to the top of our list in several of those categories, just based on the opportunity and the runway for continued growth.
Right. My second question, I wanted to just explore the AMP program here because you've reached $125 million in terms of program to date. I'm not sure what you've got planned, whether there's a formal AMP 2.0 program or whether this is just something you're going to continue to leverage off of going forward.
If you think about the I realize it's a little early to be talking about 2027, but just from a construct standpoint, you've talked about 8% sort of EPS, 8%-10% EPS growth as part of your algorithm. But it seems like there's some unrealized drop to the earnings line from the AMP program as well. I guess I'm thinking about 2027 earnings, and I'm just thinking whether there's a carryover benefit from AMP that should be supplemental to that 8%-10% sort of algorithmic growth next year and we see maybe an above or average level of bottom-line growth.
Thanks for the question, David. I'm really pleased with how the AMP initiative has worked for us and created really durable earnings and margin improvements throughout our business. We also have said, I think many times, that the timing could not have been better, as it helped us offset some of the tariff-related impacts and inflationary impacts that we've seen over the past few years. We did mention in our prepared remarks that we expect to achieve our $125 million run rate savings by year-end. We've actually made it there and still have a productivity pipeline in place and expect that to continue in the future. I think as we look forward, what we would say, we're not ready to guide yet for F 2027, but we would certainly say that this has created a durable earnings margin potential for us.
What you're referring to is our 8%-10% kind of near term growth expectations for EPS. The fact that we had to use some of those savings to offset tariffs and commodity inflation, we're not realizing all of that in this year, in F 2026, but as we move forward and realize those run rate savings as we move into F 2027, we should be able to see continued margin expansion to your point.
Right. Got it. That sounds great. Thanks very much.
Thank you.
Thank you. One moment for our next question. Our next question comes from the line of Mike Shlisky of D.A. Davidson & Co, your line is now open.
Yes. Hi, good morning.
Good morning.
Rick, I want to echo thank you for all the information over the last decade or so. It has just been great working with you and talking with you. Your analysis has been tremendous, and your imparting to all of us has been great, so I really appreciate it. On to my questions. Yes. On my question, I want to follow up on David's question about the AMP program. Sounds like you have gotten to where you wanted it to be, maybe even better.
You have always had a named strategic initiative that the team works on internally. It is not guidance, there has always been some target a couple of years away. You have actually pretty much reached the stated AMP goals. Is there a new named program in the works? Could it actually be a sales related growth program rather than a margin related one this coming time around?
Hey, Mike, it's Edric here, and thanks for the question. We've actually been giving that a lot of consideration and are working on the what's next. As Angie alluded to, all the way back when we kicked off the AMP program, our intention and our hope was that the initiative would ultimately become just more ingrained in the culture and something that we'd operationalize over time. We don't expect to deviate or lose ground on that, but we are, in fact, looking at what might be next. Not ready to announce anything specific today, but we do anticipate having another initiative and likely will have some element of growth that's a part of that.
Great. Thanks for that. I also wanted to ask about some more details on the golf business. I guess you had a lot of details to say about autonomous growth and just broadly, golf being a strong business. You didn't mention much about irrigation, and I've been hearing a lot about both taking on some pretty big projects at some courses around the U.S. Can you comment on how that's been going order-wise, installation-wise, and also, globally? How's irrigation performed for The Toro Company this year?
Yeah, thanks for asking. Irrigation has remained strong for us. We've been mentioning in several of the previous calls just about the significant pipeline of projects, and demand remains really, really strong there. That's fueled by things we've talked about before. A number of courses that have reached really the end of their useful life for their irrigation system, and so they're looking at doing upgrades and replacements and tapping into some of the new technology that we've developed. The demand remains really strong and, the installation rate has been somewhat gated, as we've talked about, by availability of crews to do the work, and that continues to be the case. But we're seeing projects on the books and bids taking place as far out as 2029. So it's been a good year this year, and we expect that demand and momentum to continue.
All right, super. I appreciate the help. I'll pass you along.
Thank you.
Thank you. One moment for next question. Our next question comes from the line of Tim Wojs of Baird. Your line is now open.
Hey, everybody. Good morning. Rick, it's been great working with you, and Edric, congrats on being on the hot seat going forward. Maybe just first question from me. It sounds like the lawn and garden or the professional contractor business had some pretty good volume growth this quarter. How much of that was snow? How much of that was product specific to Toro? I guess as you're exiting the season in the contractor side, how would you assess field inventories at this point, just given we've seen some areas of drought here over the past few months?
Sure. If you just look at landscape contractor in general, really broad-based demand across really the categories that you mentioned. We saw very strong demand for our mowing products throughout the summer. Contractors came into the prime mowing season this year feeling healthy from a healthy snow season the prior year. So they came in in good condition. We were in a good position from a field inventory standpoint, and really, landscape contractor was a key driver for the quarter. The BOSS shipments that go along to those same contractors, many of them are the same, were very strong, and it was great to see some of the categories beyond plows. The liquid de-icing and the Snowrator products really were strong contributors to that as well. So I think that gets to the last part of the question.
It is the innovation and the new products that caused the over-performance, probably relative to the market there. The excitement about the refreshment of the Exmark products like the Radius zero-turn mower. An area that we talked about that is a contractor tool that we haven't talked about a lot about in the last couple of years is Ventrac. Ventrac acquisition from 2020, one of the strongest contributors in terms of percentage growth in the quarter. I mentioned in the prepared remarks the importance of attachments, and it's a super versatile machine. The latest, it sounds like a small deal, but fence post trimming, if you can do that autonomously or automatically, that's a huge productivity pickup for a contractor and even someone that has acreage or something like that. What it does is it drives tractor sales.
It's innovation tied to a healthy market, tied to the strength of our portfolio that drives that for us. The homeowners, I will say homeowners with acreage that are a part of that, they had a decent year. They're a little bit more responsive if you get into drier conditions during the latter part of the season. So a little bit slower there.
Okay. You feel like the field is okay exiting kind of a season or how would you describe that?
We entered in good condition. We are leaving in great condition, so it sets us up for direct impact of demand as that starts in the spring.
Okay. I know it's not a huge part of your business, but as investors are kind of thinking about more headlines around Super El Niño, how are you guys planning that internally, and how does your customer base think about planning for potentially warmer kind of northern temperatures in the winter?
Tim, we're trying to prepare for any potential outcomes. If you've studied the history as we have around what happens when there is an El Niño, in particular the strong El Niño. Certainly, there are areas that get less snowfall. Other areas receive more than normal. As the atmosphere continues to warm, we know that it holds more moisture, and so it sets up the possibility for more extreme snow events. So I'd say as we go into the season, we're prepared for the season.
We're not going to overextend ourselves. But we're not going to overreact in either direction. You may remember last year, we set ourselves up when we had a better snow season than perhaps expected, that we were able to react quickly and add some product that ultimately flowed through to retail. We're making sure that we've set ourselves up with the same ability to respond if conditions warrant it. But also, on the other side, balancing against not wanting to get back into where field inventory becomes a problem if the weather pattern plays out in a way that we don't have strong snowfall.
Okay. Understood. Just two questions on margins. First on the pro margin. I know down year-over-year. If you would take out Tornado, how did the pro margins perform on a year-over-year basis? Second, the $5 million less of tariffs that's in guidance, which quarter did that kind of get taken out of? Was it Q3 or Q4 or both?
Yeah. Hi, Tim, this is Angie. Tornado does have an impact. As we had mentioned at acquisition time, we would see sales growth coming from that, the inorganic sales growth, but that it wouldn't have a strong impact on margin in year one. There is a little bit of a negative impact to our overall operating margin from the Tornado acquisition. The IEEPA refund, the $5 million is coming out of Q4. As we think about our guidance and implied guidance for Q4, that really comes out of the residential operating margin for the most part.
Okay. Sounds good. Thanks for the time, guys. Appreciate it.
Thank you.
Thank you.
Thank you. One moment for our next question. Our next question comes from the line of Sam Darkatsh of Raymond James. Your line is now open.
Yeah. Hey, good morning, Rick, Edric, Angie. How are you?
Morning, Sam.
Morning.
Morning. Doing well.
Edric, again, congratulations on the new post. Rick, I am going to obviously echo what everybody else has said. It has been an absolute pleasure working with you over the years. It has been a heck of a ride, too, and I am very hopeful that our paths cross again very, very soon.
Thank you.
A few questions here. First off, as it relates to the Canadian retaliatory tariffs, have you been able to ballpark or ring-fence what the general impact might look like at this point? I know it probably affects Tornado at a minimum, and whether that is included within your fourth quarter guidance.
Sam, I can speak to that a bit. The tariff situation is an ever-unfolding, ever-dynamic situation. Based on what has already taken place and what is going into effect here in the near term, really minimal impact to our business. That just has to do with which tariffs apply to our product lines that we import. There are some yet to unfold discussions, Rick, that has taken place that could change things for next year. We will monitor that closely. We have factored everything into our Q4 guidance, and the impact is relatively minimal.
On the export side, as it relates to the retaliatory side of things, it has, in some cases, caused our channel partners to ask about making adjustments to the flow of product as they prepare for their upcoming seasons. We are working closely with them to manage that flow of products as well. I would say the summary comment is everything is contemplated in the updated guidance and relatively minimal impact here in the near term.
Got it. Thank you for that answer. The second question, Angie, if you could help a little bit with a bridge. I know it is early and way too early for fiscal 2027 guidance per se, but just some line items or factors that are a bit exogenous as it relates to gross tariffs year-on-year, refunds year-on-year. I am coming up with somewhere around a refund headwind, somewhere around $10 million-$15 million, and a gross tariff headwind of somewhere around $20 million-$40 million year-on-year. Is that math generally accurate? I know you are going to be offsetting it with AMP, you will offset it with pricing. I am just trying to get a sense of the gross cost headwinds next year.
Yeah, I can speak to that one as well, Sam. I am trying to see where you may have come up with those numbers. I can probably follow what you might be assuming there. I would suggest maybe if we take a step back, we are reaching a point where I think it is not particularly useful to look at the tariff number as a standalone number anymore. I say that because, as you alluded to, there are productivity things that we have put in place. We have made some strategic sourcing decisions. We have continued to make adjustments to our manufacturing network. When you net all of those things out, even with a slight adjustment in the timing of refunds, as we look forward, we do not expect next year for tariffs to have a meaningful impact really in one way or the other.
Rather, it just becomes part of the overall inflationary message. As you alluded to, we will not do formal guidance until next quarter, but I would be happy to share how we are thinking about next year, which is we expect to carry in really strong momentum as we start F 2027. We expect our markets to remain strong and continued demand from across the entire portfolio. We talked a bit about AMP, Angie reinforced there, as we move some of this year's run rate savings into next year's in-year savings. That will help to be a part of offsetting headwinds, whether they are tariff-related or otherwise. We are expecting our residential business to return to double-digit profitability, as we have been signaling for a while. We are on track to do that. At the end of the day, expecting it will continue to expand margins overall.
We will do all of that while continuing to add growth to the company. That is growth fueled not only by the market strength that I described, but also by new product introductions. We are just really excited about next year, to be perfectly honest. The tariff piece is something we have got a team that is paying attention to, but that is not presenting any kind of outsized influence on our thinking.
That is really helpful. Thank you, Edric. Again, best wishes, Rick, on your next chapter.
Thank you.
Thank you. This concludes the question and answer session. Ms. Hille, please proceed to closing remarks.
Thank you everyone for your questions and interest in The Toro Company. We look forward to talking with you again in December to discuss our fiscal 2026 fourth quarter and full year results.
Thank you for your participation in today's conference. This concludes the program. You may now disconnect.