Toro at 25th Annual Diversified Industrials & Services Conference: growth reset

Toro, the diversified industrials and services company, showcased its revamped business strategy at the 25th Annual Diversified Industrials & Services Conference. CEO Edric Funk emphasized the company's focus on its core strengths while expanding into autonomy, connected products, and infrastructure markets. Toro's business extends beyond residential lawn equipment, with professional and specialty markets driving strategic growth.

The company reported a return to double-digit earnings growth after several years of flat performance, driven by supply chain disruptions and unusual demand patterns. Free cash flow conversion has surpassed 120% over the past 18 months, with leverage remaining low at 1.3 times. Toro's AMP program has achieved its $125 million annual run-rate savings goal, with benefits expected to continue.

Management sees long-term growth in golf, underground infrastructure, snow removal, and autonomous equipment. Residential equipment accounts for about 10% of EBITDA, while professional markets like golf course maintenance, underground infrastructure, snow removal, and landscape management constitute more than 25% of revenue. Toro is the only supplier offering both golf maintenance equipment and irrigation systems to golf course operators.

Funk clarified that Toro is often misconstrued as a residential mower company, but its real center of gravity lies in professional and specialty markets. The company's mission is to enhance the beauty, productivity, and sustainability of the land through its products, which support the delivery of electricity, water, data, and communications.

The last three to four years have been marked by unusually weak earnings growth due to post-pandemic supply chain issues, abnormal demand swings, and hyperinflation. However, Toro has now returned to its previous double-digit earnings growth guidance. The company's free cash flow conversion has exceeded 120% over the last 18 months, and inventory levels have significantly improved.

Residential segment margins have returned to double-digit levels, and overall margins have expanded across the company. Toro's AMP initiative, initially targeting $100 million in annual run-rate savings, has been revised to $125 million, and the company has already achieved this level of savings. The savings are now expected to endure, resulting in gross profit margins of 33.5% and a return on equity of 26% as of Q3 2026.

Golf remains a crucial business for Toro, with healthy demand, full private club memberships, and waiting lists for tee times. Golf course owners continue to invest in maintenance and upgrades, and the market has normalized after the "Tiger boom" era of overbuilding. Toro's technology adoption in golf, such as electrified greens mowers and spatial adjustment tools, is accelerating and improving labor efficiency and course performance.

Underground infrastructure represents one of Toro's most significant growth opportunities, tied to aging U.S. infrastructure, data center growth, fiber installation, power delivery, and water system repair. Toro is well-positioned in this market, with a strong balance sheet providing flexibility for future investments and acquisitions.