I was shocked to discover this mowing company is growing faster than my grass.
Lawn mowers are a multibillion dollar business. And with 15% annual earnings per share growth, Toro (NYSE: TTC) is the fastest growing company in the industry.
Agricultural and lawn equipment doesn’t strike me as the kind of business that seems like it should be growing so fast. It just seems too … boring. And that’s probably why it’s a good investment. As renowned investor Peter Lynch always says, “Buy boring businesses.”
But Toro, it turns out, doesn’t simply make those lawn mowers that Dad made you push around every Sunday morning.
It designs, manufactures, and markets professional turf maintenance equipment and services for both residential and businesses. It’s the the business side in particular that blindsided me.
Toro makes turf and landscape used for things like actual full sports fields, and the equipment to maintain them. It has golf course mowing and maintenance equipment, landscape contractor, creation, and renovation equipment, and irrigation and lighting products. This includes things like sprinkler heads, valves, controllers, computer central control systems, hose products, even installed lighting products.
Who buys Toro’s products? Landscapers, sports companies, golf courses, construction firms, retailers, and even the government.
The residential side has both hand and motorized mowers, and all kinds of trimmers and blowers and snow throwers.
And business is booming. Earnings came out last week and they broke records.
EPS exploded 138% to $0.19 in Q4 over last year’s $0.08, beating estimates by three cents. It came on a sales improvement of 8% year-over-year to $414 million. Gross profits increased 11% YOY to $143 million. Gross margin rose 90 basis points to 34.5.
Operating profit grew 134% year-over-year to $19.6 million, and even operating margins expanded, by 250 basis points year-over-year to 4.7%.
The professional segment was actually the weaker of the two segments, though nothing to sneeze at with revenues up 5% YOY. Actual earnings for this segment were $31.6 million, up 45%…if you can call that “weak”.
Toro’s earnings hit a record of $3.02 per share for FY14, up 15% from the previous year and ahead of management’s own estimate of $2.95.
Things are just rosy on the balance sheet. Toro has $315 million of cash and operational cash flow of $182.4 million. The company has a very reasonable debt load of only $347 million. Things are so good that the company boosted its dividend from 20 cents to 25 cents per share, and is guiding for FY15 EPS of $3.30–$3.40.
The stock trades at $63, or 19 times FY15 estimates. Long-term growth is pegged at 15%, putting Toro at a PEG ratio of 1.28. That’s not unreasonable for a growth stock and, in this market, is downright reasonable.
Toro is growing is growing faster than the grass its products mow. I think it’s a buy.
For 41 years the U.S. Government held this from the world…
But with global demand heating up so much it finally relented — giving one American company permission to dominate this surging market. One analytics firm calls it “an opportunity that’s only just beginning to be recognized.” You’ll call it a no-brainer.