Toro Q3 FY2026 Earnings: Sales Rise as Residential Margin Expands

The Toro Company (NYSE: TTC) reported fiscal Q3 2026 net sales of $1.23 billion, up 8.4% year over year, while GAAP diluted EPS increased 50.0% to $0.81 from $0.54. Adjusted EPS rose a more moderate 7.3% to $1.33, with higher volume, pricing and productivity gains partly offset by material, manufacturing and incentive costs.

Core Earnings Results

For the quarter ended July 31, 2026, sales increased in both major segments. Reported profitability rose much faster than adjusted profitability, partly because the prior-year quarter included a larger non-cash impairment charge.

Gross margin expanded as pricing, productivity improvements and sales leverage outweighed higher material and manufacturing costs. However, SG&A expense increased to 21.2% of sales from 20.8% because of higher incentive expenses.

Adjusted operating earnings increased approximately 10.8% to $170.7 million, while adjusted operating margin rose 30 basis points to 13.9%. Adjusted net earnings increased 3.5% to $126.8 million. The lower diluted share count—95.6 million compared with 99.0 million—helped adjusted EPS grow faster than adjusted net earnings.

Business and Segment Performance

The Professional segment remained Toro’s primary growth driver, supported by higher volume, net price realization and the Tornado acquisition. Its earnings growth trailed sales growth, however, as material and manufacturing costs and product mix pressured the segment margin.

Residential delivered the larger profitability improvement. Higher walk-power mower volume and pricing lifted sales, while productivity, sales leverage and the absence of prior-year inventory valuation adjustments contributed to a 400-basis-point margin expansion.

International sales were $231.9 million, up approximately 16.4% from $199.2 million. That increase was faster than total company sales growth during the quarter.

Reported Profit Growth Outpaced the Underlying Margin Improvement

Toro’s 50.0% increase in GAAP EPS was substantially larger than its 7.3% adjusted EPS growth. One major reason was the different mix of excluded costs between the two periods: the income statement included a $43.1 million non-cash impairment charge this quarter, compared with $81.1 million a year earlier.

The company’s reconciliation also showed $56.2 million of fiscal Q3 2026 productivity initiative adjustments, compared with $8.1 million in the prior-year quarter. As a result, adjusted operating margin improved only 30 basis points even though reported operating margin increased 370 basis points. The adjusted figures therefore indicate positive but more measured improvement in underlying profitability.

Taxes also limited the flow-through from operating earnings to net income. The reported effective tax rate increased to 28.0% from 7.4%, reflecting non-recurring adjustments and a less favorable geographic earnings mix. The adjusted tax rate rose to 22.4% from 17.3%, mainly because of the geographic mix.

Cash Flow and Balance Sheet

Toro reported cash flow only on a nine-month basis. Operating cash flow for the first nine months of fiscal 2026 increased to $476.2 million from $348.9 million. After $51.1 million of capital spending, calculated free cash flow was approximately $425.1 million, versus approximately $291.9 million in the prior-year period.

Working-capital management contributed to the improvement. Inventory fell to $882.7 million from $1.04 billion a year earlier, while the nine-month cash flow statement showed a $77.2 million inventory release and a $78.9 million contribution from higher accounts payable. These benefits were partly offset by a $111.4 million use of cash from receivables.

The company returned $110 million to shareholders during the quarter. For the first nine months, repurchases totaled $358.1 million and dividends totaled $112.8 million, or approximately $470.9 million combined. Cash and equivalents ended the quarter at $175.3 million, compared with $341.0 million at the beginning of the fiscal year, after shareholder returns and $210.3 million of acquisition spending. Long-term debt was $962.0 million, up from $921.5 million at the end of fiscal 2025 but below $1.01 billion a year earlier.

Fiscal 2026 Guidance

Toro raised and narrowed its full-year sales-growth range while also increasing both ends of its adjusted EPS outlook. Management attributed the revision to healthy end markets, favorable customer response to new products, productivity initiatives and continued inventory management.

The sales outlook’s lower bound increased by 230 basis points, while its upper bound increased by 10 basis points. Toro did not provide a quantitative reconciliation between adjusted EPS guidance and projected GAAP EPS because the timing and amount of excluded items remain uncertain.

Management’s View

Chairman and CEO Richard M. Olson said Professional demand drove the overall quarter, while Residential improved on both sales and profitability. Management also emphasized inventory reduction, working-capital improvement and productivity initiatives as contributors to cash generation and margin expansion.

For the full year, management’s confidence rests on continued demand across its end markets, new-product acceptance and disciplined execution. Those assumptions are reflected in the higher and narrower guidance ranges.

Recent Insider Transactions

The supplied insider data showed a mix of derivative-security exercises and sales. These transactions are reported objectively and do not, by themselves, establish insiders’ views about Toro’s outlook.

The broader six-month summary indicated 148,627 shares acquired across 11 transactions and 136,185 shares sold across six transactions, resulting in a net increase of 12,442 shares. Exercises and other equity-related activity should not be treated as equivalent to open-market purchases.

Risks Investors Should Watch

• Professional margin pressure: Professional sales rose 8.8%, but its margin declined 40 basis points as material and manufacturing costs and product mix outweighed some of the benefits from pricing, productivity and operating leverage.
• Cost inflation: Higher material and manufacturing expenses affected both major segments. Continued cost pressure could limit further gross-margin expansion if pricing and productivity do not compensate.
• Higher tax burden: The adjusted effective tax rate increased to 22.4% because of a less favorable geographic earnings mix, reducing the amount of operating improvement reaching adjusted net income.
• Working-capital balance: Inventory declined materially, but receivables used $111.4 million of cash during the first nine months. Sustaining cash-flow improvement will depend on continued discipline across inventory, collections and payables.
• Guidance execution: The narrowed 6.3% to 6.6% sales-growth range leaves less room for demand, cost or operational variability during the remainder of fiscal 2026.

Summary

Toro’s fiscal Q3 2026 combined 8.4% sales growth with improvement in both reported and adjusted margins. Professional demand drove most of the revenue, while Residential produced the clearest margin recovery. The large increase in GAAP EPS was amplified by year-over-year differences in impairment and productivity-related items, making the smaller adjusted earnings increase a more measured view of operating progress. Inventory reduction and stronger nine-month cash flow provided additional support, while Professional margins, manufacturing costs, taxes and execution against the raised guidance remain the main areas to monitor.