TORO CO (TTC)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide a reader of our Condensed Consolidated Financial Statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Unless the context indicates otherwise, the terms "company," "TTC," "we," "our," or "us" refer to The Toro Company and its consolidated subsidiaries. This MD&A should be read in conjunction with the MD&A included in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended October 31, 2025. Unless expressly stated otherwise, the comparisons presented in this MD&A refer to the same period in the prior fiscal year. Our MD&A is presented as follows:

•Company Overview

•Results of Operations

•Business Segments

•Financial Position

•Non-GAAP Financial Measures

•Critical Accounting Policies and Estimates

This discussion contains various "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and we refer readers to the section titled "Cautionary Note Regarding Forward-Looking Statements" located at the beginning of this Quarterly Report on Form 10-Q for more information.

Non-GAAP Financial Measures

Throughout this MD&A, we have provided financial and liquidity measures that are not calculated or presented in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP") ("non-GAAP financial measures," "adjusted" before specified financial measures, and "non-GAAP liquidity measures"), as information supplemental and in addition to the most directly comparable financial measures presented in this Quarterly Report on Form 10-Q that are calculated and presented in accordance with U.S. GAAP. We believe that these non-GAAP financial measures, when considered in conjunction with our Condensed Consolidated Financial Statements prepared in accordance with U.S. GAAP, provide investors with useful supplemental financial information to better understand our core operational performance and cash flows. These non-GAAP financial measures, however, should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the most directly comparable U.S. GAAP financial measures. Reconciliations of non-GAAP financial measures to the most directly comparable reported U.S. GAAP financial measures are included in the section titled "Non-GAAP Financial Measures" within this MD&A.

COMPANY OVERVIEW

The Toro Company is in the business of designing, manufacturing, marketing, and selling professional turf maintenance equipment and services; turf irrigation systems; landscaping equipment and lighting products; snow and ice management products; agricultural irrigation systems; rental, specialty, and underground construction equipment; and residential yard and snow thrower products. Our purpose is to help our customers enrich the beauty, productivity, and sustainability of the land. Sustainability is integrated into our enterprise strategic priorities of accelerating profitable growth, driving productivity and operational excellence, and empowering our people. Our focus on alternative power, smart connected, and autonomous solutions, as well as our continued efforts to address sustainability-focused matters, are disclosed in our most recent Sustainability Report, which is not incorporated by reference into and does not form any part of this report.

We sell our products worldwide through a network of distributors, dealers, mass retailers, hardware retailers, equipment rental centers, and home centers, as well as online and direct to end-users. We strive to provide innovative, well-built, and dependable products supported by an extensive service network. A significant portion of our net sales has historically been, and we expect will continue to be, attributable to new and enhanced products. We define new products as those introduced in the current and previous two fiscal years. We classify our operations into two reportable business segments: Professional and Residential. Our remaining activities are presented as "Other" due to their insignificance, as described in greater detail within the section titled "Business Segments" in this MD&A.

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Business Combinations

Acquisition of Tornado Infrastructure Equipment Ltd. ("Tornado Infrastructure Equipment")

On December 8, 2025, we completed the acquisition of Tornado Infrastructure Equipment, a publicly held Canadian company and a manufacturer in the hydrovac excavation solutions industry. Tornado Infrastructure Equipment manufactures hydrovac excavation solutions and industrial equipment solutions for the underground construction, power transmission and energy markets and provides innovative product offerings that broaden and strengthen our Professional segment and expands its dealer network.

The cash consideration, net of cash acquired, was $210.3 million ("purchase price"). The purchase price was funded with borrowings under its existing revolving credit facility. We believe that the information available as of the closing date provides a reasonable basis for estimating fair values of the assets acquired and liabilities assumed; however, we are continuing to finalize these amounts. Thus, the preliminary measurements of the fair values of the assets acquired and liabilities assumed are subject to change as additional information becomes available and as additional analysis is performed. We expect to finalize the preliminary measurements of fair values as soon as practicable, but no later than one year from the closing date of the acquisition, as required. For additional information regarding the Tornado Infrastructure Equipment acquisition, refer to Note 2, Acquisitions and Divestitures in the Notes to Condensed Consolidated Financial Statements included in Part I. Item 1 of this Quarterly Report on Form 10-Q.

Tariffs

The tariff environment is complex and evolving. Our business has incurred, and expects to continue to incur, additional costs related to tariffs. We have taken and will continue to take actions to mitigate inflationary pressures caused by tariffs through a combination of targeted price increases, strategic sourcing adjustments, manufacturing and product portfolio optimization, as well as our ongoing efforts to drive sustainable efficiency gains in our operations and administrative structures.

On February 20, 2026, the United States Supreme Court issued a decision invalidating certain tariffs imposed under the International Emergency Economic Powers Act ("IEEPA"). This ruling did not address the availability, timing, or mechanics of any potential refunds of tariffs previously collected.

The U.S. Court of International Trade ("CIT") has issued orders directing the U.S. Customs and Border Protection ("CBP") to refund previously collected IEEPA tariffs. CBP has since launched the Consolidated Administration and Processing of Entries ("CAPE") system which is being deployed in phases to facilitate the submission, validation, and payment of IEEPA tariff refund claims.

There can be no guarantee that any refund, if received, will equal the full amount of IEEPA tariffs paid, and any refund may be subject to further legal, regulatory, or administrative developments. Given these uncertainties, the Company has not recognized any benefit or asset related to potential IEEPA tariff refunds as of May 1, 2026. Based on currently available information, the Company estimates it may be eligible to recover approximately $20 million of IEEPA tariffs paid.

Anticipated IEEPA refunds are expected to substantially offset incremental tariff headwinds associated with changes to tariff regulations enacted in the second quarter of fiscal 2026.

AMP Initiative

In the first quarter of fiscal 2024, we launched a significant productivity initiative named AMP, which is a multi-year initiative now on track to achieve at least $125 million of run-rate savings by fiscal 2027, up from the initial program estimate of at least $100 million. The program is driven by sustainable supply-base, design-to-value, route-to-market, and operational efficiency transformation. We expect to reinvest a portion of the savings from this initiative to drive further innovation and growth. As of the second quarter of fiscal 2026, the AMP initiative has delivered cumulative cost savings of $106.8 million and anticipated annualized cost savings of $105.4 million. Refer to the section titled "Non-GAAP Financial Measures" for information about the productivity initiative charges incurred to generate these savings.

Tax

On July 4, 2025, U.S tax legislation known as the "One Big Beautiful Bill Act" ("OBBB") was signed into law which made permanent many of the tax provisions enacted in 2017 as part of the Tax Cuts and Jobs Act that were set to expire at the end of 2025 and other changes to certain U.S. corporate tax provisions, with staggered effective dates beginning this year. While we continue to evaluate the impact of the legislation on our financial position, we do not expect it to have a material impact on our results of operations.

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RESULTS OF OPERATIONS

Overview

Consolidated net sales for the second quarter of fiscal 2026 were $1,424.7 million, up 8.1 percent compared to $1,317.9 million in the second quarter of fiscal 2025. For the first six months of fiscal 2026, consolidated net sales were $2,461.0 million, up 6.4 percent compared to $2,312.9 million in the second quarter of fiscal 2025.

Professional segment net sales for the second quarter of fiscal 2026 were $1,106.6 million, up 9.1 percent compared to $1,014.1 million in the second quarter of fiscal 2025. For the first six months of fiscal 2026, Professional net sales were $1,930.6 million, an increase of 8.3 percent compared to $1,782.9 million in the second quarter of the prior fiscal year.

Residential segment net sales for the second quarter of fiscal 2026 were $310.4 million, up 4.4 percent compared to $297.4 million in the second quarter of fiscal 2025. For the first six months of fiscal 2026, Residential net sales were $516.4 million, a decrease of 0.4 percent compared to $518.4 million in the second quarter of the prior fiscal year.

Net earnings for the second quarter of fiscal 2026 were $145.4 million, or $1.50 per diluted share, compared to $136.8 million, or $1.37 per diluted share, for the second quarter of fiscal 2025. Net earnings for the first six months of fiscal 2026 were $213.3 million, or $2.18 per diluted share, compared to $189.6 million, or $1.88 per diluted share, in the comparable fiscal 2025 period.

Adjusted net earnings for the second quarter of fiscal 2026 were $155.4 million, or $1.60 per diluted share, compared to $141.8 million, or $1.42 per diluted share, for the second quarter of fiscal 2025. Adjusted net earnings for the first six months of fiscal 2026 were $228.0 million, or $2.33 per diluted share, compared to $207.7 million, or $2.06 per diluted share, in the comparable fiscal 2025 period.

We maintained our tradition of paying quarterly cash dividends and increased our cash dividend for the second quarter of fiscal 2026 by 2.6 percent to $0.39 per share compared to $0.38 per share paid in the second quarter of fiscal 2025. We also repurchased shares of our common stock under our Board authorized stock repurchase program ("stock repurchase program"), thereby reducing our total shares of common stock outstanding. As a result of the combination of quarterly cash dividends and common stock repurchases, we returned $360.9 million of cash to our stockholders during the first six months of fiscal 2026.

Field inventory levels were lower as of the end of the se

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide a reader of our Consolidated Financial Statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Our Consolidated Financial Statements and Notes to Consolidated Financial Statements are included in Part II, Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K and all references in this MD&A to the Notes to Consolidated Financial Statements can be found in Part II, Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K.

Unless expressly stated otherwise, the comparisons presented in this MD&A refer to the year-over-year comparison of changes in our financial condition and results of operations as of and for the fiscal years ended October 31, 2025 and 2024. Discussion of fiscal 2023 items and the year-over-year comparison of changes in our financial condition and results of operations as of and for the fiscal years ended October 31, 2024 and 2023 can be found in Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," of our Annual Report on Form 10-K for the fiscal year ended October 31, 2024. Statements that are not historical are forward-looking and involve risks and uncertainties, including those discussed in Part I, Item 1A, "Risk Factors," and elsewhere in this Annual Report on Form 10-K. These risks and uncertainties could cause our actual results to differ materially from any future performance suggested throughout this MD&A.

Our MD&A is presented as follows:

•Company Overview

•Results of Operations

•Business Segments

•Financial Position

•Non-GAAP Financial Measures

•Critical Accounting Policies and Estimates

Throughout this MD&A, we have provided financial and liquidity measures that are not calculated or presented in accordance with U.S. GAAP ("non-GAAP financial measures," "adjusted" before specified financial measures, and "non-GAAP liquidity measures"), as information supplemental and in addition to the most directly comparable financial measures presented in this Annual Report on Form 10-K that are calculated and presented in accordance with U.S. GAAP. We believe that these non-GAAP financial measures, when considered in conjunction with our Consolidated Financial Statements prepared in accordance with U.S. GAAP, provide investors with useful supplemental financial information to better understand our core operational performance and cash flows. These non-GAAP financial measures, however, should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the most directly comparable U.S. GAAP financial measures. Reconciliations of non-GAAP financial measures to the most directly comparable reported U.S. GAAP financial measures are included in the section titled "Non-GAAP Financial Measures."

COMPANY OVERVIEW

Executive Summary

Our fiscal 2025 results included the following items of significance that are provided in summary format here and described in greater detail throughout the "Results of Operations," "Business Segments," and "Financial Position" sections:

•Consolidated net sales for fiscal 2025 were $4,510.4 million, a decrease of 1.6 percent compared to $4,583.8 million in fiscal 2024.

•Professional segment net sales for fiscal 2025 were $3,624.0 million, an increase of 1.9 percent compared to $3,556.9 million in fiscal 2024.

•Residential segment net sales for fiscal 2025 were $858.4 million, a decrease of 14.0 percent compared to $998.3 million in fiscal 2024.

•Gross margin was 33.4 percent in fiscal 2025, a decrease of 40 basis points compared to 33.8 percent in fiscal 2024.

•Adjusted gross margin was 34.1 percent in fiscal 2025, an increase of 20 basis points compared to 33.9 percent in fiscal 2024.

•SG&A expense as a percentage of net sales in fiscal 2025 was 22.5 percent, an increase of 30 basis points compared to 22.2 percent in fiscal 2024.

•Net earnings for fiscal 2025 were $316.1 million, or $3.17 per diluted share, compared to $418.9 million, or $4.01 per diluted share, in fiscal 2024.

•Adjusted net earnings for fiscal 2025 were $419.6 million, or $4.20 per diluted share, compared to $435.2 million, or $4.17 per diluted share, in fiscal 2024.

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•Field inventory was lower as of the end of fiscal 2025 compared to the end of fiscal 2024, primarily due to decreased balances of golf and grounds and turf products, partially offset by higher balances of underground construction products.

•Our order backlog represents unfulfilled customer orders at a point in time. Our order backlog (including shipments beyond 12 months) decreased $0.4 billion to $0.8 billion as of October 31, 2025 from $1.2 billion as of October 31, 2024, primarily driven by improved manufacturing output and more normalized order patterns. Although we continue to see sustained demand for underground construction and golf and grounds products, we expect backlog to normalize by mid-fiscal 2026 given our improved manufacturing output and lower lead times.

We continued our history of paying quarterly cash dividends throughout fiscal 2025 and increased our fiscal 2025 quarterly cash dividend by 5.6 percent to $0.38 per share compared to $0.36 per share paid in fiscal 2024. We also repurchased shares of our common stock under our Board authorized stock repurchase program ("stock repurchase program"), thereby reducing our total shares of common stock outstanding. As a result of the combination of quarterly cash dividends and common stock repurchases, we returned $441.1 million of cash to our shareholders during fiscal 2025. As of October 31, 2025, we had a strong liquidity profile with available liquidity of $1,238.9 million, consisting of cash and cash equivalents of $341.0 million and availability under our revolving credit facility of $897.9 million.

Tariffs

The tariff environment is complex and evolving. Our business has incurred, and expects to continue to incur, additional costs as it relates to tariffs. We have taken and will continue to take action to mitigate inflationary pressures caused by tariffs through a combination of targeted price increases, strategic sourcing adjustments, manufacturing and product portfolio optimization, as well as our ongoing efforts to drive sustainable efficiency gains in our operations and administrative structures.

AMP Initiative

In the first quarter of fiscal 2024, we launched a significant productivity initiative named AMP, which is a multi-year initiative now on track to achieve at least $125 million of run-rate savings by fiscal 2027, up from the initial program estimate of at least $100 million. The program is driven by sustainable supply-base, design-to-value, route-to-market, and operational efficiency transformation. We expect to reinvest a portion of the savings from this initiative to drive further innovation and growth. As of the fourth quarter of fiscal 2025, the AMP initiative has delivered cumulative cost savings of $78.5 million and anticipated annualized cost savings of $86.2 million. Refer to the section titled "Non-GAAP Financial Measures" for information about the productivity initiative charges incurred to generate these savings.

Impairment of Spartan Trade Name

During the third quarter of fiscal 2025, we recorded an impairment charge of $81.1 million related to the indefinite-lived Spartan trade name intangible asset reported under the Professional segment. Subsequent to this impairment charge, the indefinite-lived Spartan trade name intangible asset is fully impaired, resulting in a carrying value of zero. This impairment charge is included in the Non-cash impairment charge caption on the Consolidated Statements of Earnings. The impairment charge resulted in a $19.7 million income tax benefit (deferred tax asset) associated with the remaining tax deductible basis of the intangible asset. For additional information regarding the impairment charge, refer to Note 5, Goodwill and Other Intangible Assets, in our Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Tax

On July 4, 2025, new U.S tax legislation was signed into law (known as the "One Big Beautiful Bill Act" or "OBBB") which makes permanent many of the tax provisions enacted in 2017 as part of the Tax Cuts and Jobs Act that were set to expire at the end of 2025. In addition, the OBBB makes changes to certain U.S. corporate tax provisions, but many are generally not effective until 2026 or later. The Company is currently evaluating the impact of the new legislation but does not expect it to have a material impact on the results of operations.

RESULTS OF OPERATIONS

Net Sales

Consolidated net sales in fiscal 2025 were $4,510.4 million compared to $4,583.8 million in fiscal 2024, a decrease of 1.6 percent. This net sales decrease was primarily driven by lower Residential segment shipments and prior year divestitures, partially offset by net price realization and higher Professional segment shipments.

Net sales in international markets were $878.3 million for fiscal 2025 compared to $923.0 million in fiscal 2024, a decrease of 4.8 percent. The international net sales decrease was primarily driven by lower shipments of both Residential and Professional segment products. Changes in foreign currency exchange rates resulted in a decrease in our net sales of $4.2 million in fiscal 2025.

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The following table summarizes our results of operations as a percentage of our consolidated net sales:

Gross Profit and Gross Margin

Gross profit represents net sales less cost of sales and gross margin represents gross profit as a percentage of net sales. Refer to Note 1, Summary of Significant Accounting Policies and Related Data, of the Notes to Consolidated Financial Statements within the section entitled "Cost of Sales," for a description of expenses included in cost of sales. Gross profit for fiscal 2025 was $1,504.8 million, down 2.9 percent compared to gross profit of $1,549.3 million in fiscal 2024. Gross margin was 33.4 percent in fiscal 2025 compared to 33.8 percent in fiscal 2024, a decrease of 40 basis points. This gross margin decrease was primarily due to lower net sales volume, higher material and manufacturing costs, inventory valuation adjustments, and higher productivity initiative charges, partially offset by productivity improvements, net price realization, and product mix.

Selling, General and Administrative ("SG&A") Expense

SG&A expense decreased $2.2 million, or 0.2 percent, in fiscal 2025 compared to fiscal 2024. Refer to Note 1, Summary of Significant Accounting Policies and Related Data, of the Notes to Consolidated Financial Statements within the section entitled "Selling, General and Administrative Expense" for a description of expenses included in SG&A expense. As a percentage of net sales, SG&A expense was 22.5 percent in fiscal 2025 compared to 22.2 percent in fiscal 2024, an increase of 30 basis points. The i

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