Amy Dahl Michael J. Hoffman - Chairman, Chief Executive Officer and President Renee J. Peterson - Chief Financial Officer, Vice President and Treasurer Thomas J. Larson - Principal Accounting Officer, Vice President and Corporate Controller

James Barrett - CL King & Associates, Inc., Research Division Joshua Borstein - Longbow Research LLC Sam Darkatsh - Raymond James & Associates, Inc., Research Division Robert A. Kosowsky - Sidoti & Company, LLC

Good day, ladies and gentlemen, and welcome to The Toro Company First Quarter Earnings Conference Call. My name is Sue, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference, Amy Dahl, Managing Director of Corporate Communications and Investor Relations for The Toro Company. Please proceed, Ms. Dahl.

Thank you, Sue, and good morning. Our earnings release was issued this morning by Business Wire, and a copy can be found in the Investor Information section of our corporate website, thetorocompany.com. Joining me for this call are Mike Hoffman, our Chairman and Chief Executive Officer; Renee Peterson, our Vice President Treasurer and Chief Financial Officer; and Tom Larson, Vice President and Corporate Controller. We begin with our customary forward-looking statement policy. During this call, we will make forward-looking statements regarding our business and future financial and operating results. You're all aware of the inherent difficulties, risks and uncertainties in making predictive statements. Our earnings release, as well as our SEC filings, detail some of the important risk factors that may cause our actual results to differ from those in our predictions. Please note that we do not have a duty to update our forward-looking statements. And with that, I will now turn the call over to Mike. Michael J. Hoffman: Thank you, Amy, and good morning to all our listeners. We're pleased to report on the beginning of a very special year at Toro. This year, we celebrate an important milestone, our 100th birthday on July 10, 2014, and it is also the final year in our Destination 2014 journey. We look forward to sharing our ongoing accomplishments with you throughout the year as we drive into our second century. This winter's headline-making snowfalls in North America fueled retail demand for snow throwers, helping drive first quarter sales and deliver a good start to fiscal 2014. As we indicated throughout fiscal 2013, accelerated first quarter channel demand for large pre-Tier 4 turf equipment that we experienced a year ago posed challenging year-over-year comparisons, even though most of the first quarter large turf equipment shipments went into field inventory at the time. Fortunately, our robust snow results this quarter, as well as increased international demand for our products help offset the anticipated reduced shipments of the commercial equipment and position us well for the prime selling season ahead. As we reported this morning, our net sales registered a slight increase for the quarter to $446 million, and delivered net earnings of $25.9 million or $0.44 per share. Renee will discuss our financial and operating results in more detail later in the call. Turning to our businesses. This time of year, we are in the midst of annual trade show season, featuring all of the leading industry shows, including the recent Golf Show. Some of you who were not snowbound in the Northeast joined us for this important event in Orlando. The show organizers indicated that attendance was up compared to 2013, a good sign for the golf industry. We were pleased by the energy in our booth and enthusiasm expressed for our latest products by both existing and prospective customers, as well as by their outlook for the year ahead. Both our end user customers and channel partners expressed a quiet confidence about the upcoming golf season, although much will depend on weather, which was a headwind in 2013. The wintery mix that helped boost snow thrower sales for the quarter also creates opportunities for upcoming spring sales in our landscape contractor business. Many contractors have generated increased cash flow from their busy snowplowing operations. These additional funds can be allocated towards bigger budgets for needed additions and updates of their equipment fleets. As you recall, 2013 was a very good landscape contractor year, and dealers have begun replenishing their stock for the spring rush. Their optimism is reflected in our solid first quarter sales that were driven by channel enthusiasm for both our Toro and Exmark product lines, the 2 leading brands in the landscape contractor industry. Our residential and commercial irrigation business is also off to a promising start and our DIY segment performed particularly well during the quarter due to expanded placement and steady retail of Toro SKUs, especially on the West, where the weather has been hot and dry. Next, our rental and construction portfolio turned in another good quarter. Shipments to our rental, underground and construction dealer networks were all positive. Construction activities spurred retail of our new products from the Stone acquisition. Many contractors consider rental a good alternative to capital investment, and the DIY rental segment is benefiting from homeowners investing in their properties. We just returned from a successful rental industry show last week where enthusiasm ran high for the upcoming season. As I mentioned in the opening, our residential business benefited from plentiful snowfall in the Midwest and the Northeast. Our brisk pre-season retail activity gained greater momentum as winter arrived powered by the seemingly nonstop series of storms. In fact, it looks like we're going to get another 6 to 12 inches here in Minnesota today. We responded to the North American market with timely shipments of additional snow throwers to capitalize on the robust retail demand. Our residential first quarter results were further bolstered by successful pre-season booking efforts on products being launched in the spring. Dealers are clearly responding to the innovative design and improved value of our latest offerings. Turning to the international front. We had a strong sales quarter despite unfavorable currency trends related primarily to the Australian dollar. Commercial golf and equipment sales led the way, along with strong residential sales of snow products in Canada. We enjoyed several productive appearances at leading international trade shows, including the British Golf Greenkeepers Exhibition and the Korea Golf Industry Show that were both in January. We're also pleased by the turnout of international customers at The Golf Industry Show in Orlando. Finally, the micro-irrigation business posted sales gains for the quarter based on increased global demand for precision irrigation products. I'll now turn the call over to Renee for a more detailed discussion of our financial results. Renee J. Peterson: Thank you, Mike, and good morning, everyone. As we reported earlier this morning, net sales for the quarter were $446 million compared to $444.7 million for the same period a year ago. We delivered net earnings of $25.9 million, or $0.44 per share compared to $0.53 in the first quarter of fiscal 2013. Professional segment sales were down 10.2% for the quarter to $295.5 million due to last year's strong first quarter channel demand for large turf equipment related to the Tier 4 diesel engine emission standards. As we said throughout 2013, the elevated level of demand experienced in the first quarter of last year was a onetime occurrence that would not repeat in the first quarter of 2014. Professional net earnings for the quarter totaled $47.5 million compared to $60.7 million a year ago. Our residential segment sales for the quarter were up 22% to $147.6 million due to increased shipments of snow throwers to meet retail demand generated by significant snowfall across key markets in North America. Net earnings in the residential segment for the quarter totaled $18.1 million, up 49.2% from last year. Now to our key operating results. First quarter gross margin decreased 60 basis points to 36.7%, the decrease is primarily due to segment mix, but was also affected by unfavorable currency exchange rates and slightly higher commodity costs that was somewhat offset by realized pricing and our cost reduction efforts. For the full year, we continue to expect margins compared to last year to be higher by about 50 basis points. Market prices of select commodities increased during the first quarter, driven by the uptick in manufacturing, construction and overall economic activities in the second half of 2013. Our cost-reduction projects are on track and continue to help mitigate the situation. SG&A expense as a percent of sales increased by 70 basis points for the quarter. This increase reflects higher administrative expense, including healthcare costs, warranty expense and incremental expense from our recent micro-irrigation acquisition in China, somewhat offset by lower warehousing cost. For the full year, we continue to expect SG&A to be slightly better as a percent of sales compared to last year. Interest expense for the quarter was $3.8 million, down 11.7%. Our effective tax rate for the quarter was 33.2% compared to 27.7% last year, which represents a per share impact of $0.04 for the quarter. This increase primarily reflects the fact that last year's first quarter was benefited by the retroactive reinstatement of a Federal Research and Engineering tax credit, and this benefit did not repeat last year -- or this year, rather, the tax credit expired on December 31, 2013. We do not factor into our guidance the potential reenactment of the tax credit during fiscal year and continue to expect our tax rate for fiscal 2014 to be about 33%. This represents a per share impact of approximately $0.08 for fiscal 2014. Turning to the balance sheet, accounts receivable for the quarter totaled $199.8 million, up 10.8% compared to the first quarter of fiscal 2013. This was due mainly to higher international and home center snow throwers sales that are not financed through our joint venture, Red Iron Acceptance. First quarter trade payables increased 14.5% to $192.7 million, mainly due to increased purchases. Our continued focus on inventory, accounts receivable and trade payables management to reduce our working capital made progress in the quarter. Net inventories for the quarter were down $30.8 million or 9.2% to $304.9 million. This reduction is due to increased retail demand for snow products this year, as well as the planned decrease in inventory for products impacted by Tier 4 emission requirements. As you know, last year, we built inventory to respond to higher demand that was not replicated this quarter. Consequently, our net working capital improved by $36 million for the quarter. While we are pleased with this improvement, we remain firmly committed to achieving further reductions. The company now expects our capital expenditures to be about $70 million on additional investments in product research and development capabilities and capacity. Free cash flow for the year is still expected to be about $150 million. We repurchased 683,000 shares of common stock during the quarter, and have approximately 3.7 million shares remaining in our repurchase authorization as of quarter end. I'll now turn the call back to Mike for his concluding comments. Michael J. Hoffman: Thank you, Renee. We're pleased by the start of the year and encouraged by the prospects for growth for the remainder of fiscal 2014. During the golf show, we featured a number of other new exciting products along our lower Tier 4 final offerings. For example, we unveiled a new 100-inch cutting deck for the Groundsmaster 360, a new heavy-duty workman vehicle with a patented automatic transmission, a new bunker rake featuring a zero-turn platform, as well as a new sprayer with multiple upgrades. We believe these new products will help distinguish us from the competition and increase sales. There are many positive indicators of the health of the golf industry. Multiple course management companies have reported that they expect to increase the number of courses they own or manage in 2014. The likelihood that 2014 will bring more playable weather conditions than last year could lead to more rounds being played and increased demand for additions, replacements and upgrades to courses' equipment fleets and irrigation systems. And our golf irrigation solutions are well-positioned to win. Our exciting INFINITY product takes the industry's best sprinkler, the 800 series, to a higher level with a new feature that we call SMART ACCESS. It eliminates costly time-consuming digging to access key components by providing direct access to them from the top. Furthermore, such adjustments can be done at each individual sprinkler without shutting off the mainline, which represents another tremendous time savings. The INFINITY was the talk of both shows when it was officially launched in the U.K. in January at the BTME, and in the U.S. at the Golf Industry Show in Orlando this month. Our landscape contractor business is similarly well-positioned, with appealing new products that include zero-turn riding mowers equipped with fuel-saving solutions such as electronic fuel injection, as well as alternative fuel sources. We are also offering new intelligence platforms that enable operators to monitor and maximize overall product performance to match conditions. Rounding out the landscape contractor lineup for 2014 is an all-new line of heavy-duty walk power mowers. The landscape contractor channel is optimistic about the coming season. Our new products and contractors' cash flow position built from increased snow removal work suggest opportunity. Our dealers and contractor customers are well-prepared to capitalize on increased interest from businesses and homeowners in the products and services they provide. Our residential and commercial irrigation portfolio also features some new -- some exciting new additions. The Toro T5 RapidSet rotor has been well-received by residential and commercial contractors. RapidSet has established a new standard for no tools required ease of adjustments, saving contractors and homeowners time and effort. Prebooks and program response for the 2014 season are solid. There's also good news in the professional sports fields and ground arena. Our newly signed state and local contracts should generate new business for us in 2014. Several favorable trends present themselves in the professional rental and construction businesses. The rental market is projected to sustain this growth path and utilization rates for rental companies should remain strong. The underground market continues to perform well with utility spending leading the way, and we are enthusiastically preparing for our first appearance at the largest construction show in the world next month, the Construction Expo Show, or CONEXPO, in Las Vegas. We are also excited about our prospects for our residential business this spring. Our Lawn-Boy walk power mower line has been redesigned to provide best-in-class performance with features typically not found on a value price line. The new Lawn-Boys have premium quality engines, along with a unique deck design for excellent bagging, mulching and overall cutting performance. Our 2014 Toro walk power mower line offers a new exclusive feature called SmartStow. SmartStow helps homeowners reclaim their dry space by enabling their Toro mower to be stored in a vertical position, which takes up to 70% less space. We're also offering a refreshed line of Toro Titan zero-turn mowers designed for large acreage owners. Looking overseas, Europe remains warm and wet, which did not bode well for the snow season, but could lead to an early spring. Reports from key markets indicate optimism for the year. In certain markets, they are also encouraging levels of golf deals in the pipeline. Even some depressed markets are seeing signs of positive revenue growth in golf at the course level. As the heavy planting season in the northern hemisphere approaches, we anticipate the micro-irrigation business will accelerate in the second quarter. The micro-irrigation field is seeing aggressive competition and a number of other challenges, including weather. However, the worldwide permanent crop market continues its steady growth. We are better positioned to capitalize on this trend due to investments and improvements in our drip line platform. Demand for subsurface drip irrigation product is also growing at a good rate. We have the right products to serve this market with either Aqua-Traxx tape or our new Thinwall dripline product offering. Overall, the stage is set for another successful year. We recognize that unfavorable shifts in the economy or weather could pose challenges to our plants. As always, we are prepared to respond to changing conditions. The company now expects revenue growth of about 5% to 6% for fiscal 2014, with net earnings of about $2.90 to $2.95 per share. For the second quarter, the company expects to report net earnings per share of about $1.45 to $1.50. As mentioned earlier, this is a very special year for Toro. Our company reaches the 100-year mark on July 10, 2014. Sadly, in the last 5 months, we have lost 2 Toro and industry giants who clearly left their mark on this great enterprise and played pivotal roles in helping us achieve our centennial milestone, David Lilly and Dr.James Watson. David was a 96, and Jim, 92. David Lilly, our fourth President, who passed just last week ushered Toro into the post-World War II modern age and an era of unprecedented growth, eventually retiring in 1987. David hired Dr. Watson back in 1952. Dr. Watson became a world-renowned agronomist who served Toro for over 40 years before entering semi-retirement in 1993. Together, these 2 iconic leaders elevated Toro and helped build the industries we serve. I mentioned David Lilly and Dr. Watson today because I like to end our quarter review by recognizing the good work of our people, both past and present. The values that David and Dr. Jim lived by are alive and well in the company today. Our employees' hard work, passion for caring for our customers and commitment to delivering the highest quality, most innovative products and solutions are responsible for the success we enjoy. And so, in the spirit of David and Dr. Jim, I thank all the Toro people for their continued good work. This concludes our formal remarks, so we'll take your questions at this time. Sue, back to you.

[Operator Instructions] First question comes from Jim Barrett, CL King & Associates. James Barrett - CL King & Associates, Inc., Research Division: Renee, this may be a question for you. The increase in sales guidance, does that wholly reflect the increase in snowblower sales or are you more optimistic about your other product lines as well? Renee J. Peterson: It really reflects the strength that we've seen from a snow standpoint, both within this quarter and then subsequent in Q4 for a stronger pre-season as well. James Barrett - CL King & Associates, Inc., Research Division: And Mike, considering the number of new products and line extensions being introduced into the marketplace, is '14 likely to be a year where you would expect market share progress? Or do you see the competitive offerings resulting in some level of parity? Michael J. Hoffman: Yes, you almost have to take that business-by-business. Well, the fact is, we are always striving for market share improvement. And so, for example, at the recent golf show down in Orlando, we introduced the new INFINITY golf sprinkler head. Now we have very strong share position in that business, but I think this will strengthen it. We introduced a number of other equipment, new products there as well. And I kind of went through that, all those new products just a minute or 2 ago. And so I think we're well-positioned to hold or grow share kind of across that portfolio. That's always our goal, and that's right at the core value driving innovation. James Barrett - CL King & Associates, Inc., Research Division: Right. True. And then, my final question. In focusing on your goal of 12% operating margins for '14, is the improvement relative to last year, will that be broad-based? Or do you see greater opportunities in one segment as opposed to the other? Michael J. Hoffman: Yes, I would say it is broad-based, I mean, it's across the portfolio, both in the performance in the market with the new products that we've talked about, but it's also a lot of the work that's broad-based back here on both the professional and residential businesses in driving productivity and Renee is really leading that and with a strong focus on making our resources go farther. And we are making good progress on that. And you'll see some of that borne out in our gross margin improvement that we've made and will continue to make and the expectation of continued SG&A leverage. That's a journey, we're making good progress.

And your next question is from Josh Borstein, Longbow Research. Joshua Borstein - Longbow Research LLC: This is Josh Borstein in for David MacGregor. Just looking ahead to spring, does the unusually harsh winter that we've had so far, both in terms of snowfall and the extreme temperatures, does it bode either positively or negatively for the second and third quarters? Michael J. Hoffman: Yes, I guess, the second quarter is right in front of us, it's a large quarter for us, as is the third. I'd answer it this way that -- I guess, I'd say no, it doesn't have that much impact. In that last year, we had a moderate winter, not as moderate as in '12 but it was still moderate. And then, we had a spring that extended well into April, and it was still snowing here in Minnesota in May. And so the weather can turn quite quickly, and we would model and we would think this -- the probability of a much improved spring period, which is our most critical time, is much higher than lower, it's well over weighted to the good. Joshua Borstein - Longbow Research LLC: Just sticking on snow for a minute. You mentioned snow products moving all the way through to the end user this winter. I guess, my question is how typical is that and does that mean you're still sending inventory into the channel whereas maybe this time of the year, you would have already stopped? Michael J. Hoffman: Well, we will strive to meet ongoing demand, from the end user demand through the channel demand back to here, to the degree it's available. Most of the snow inventory, I think, across the industry has moved through from manufacturer to channel to retail. There always will be some pockets, but given the kind of winter we've had, it's created an opportunity to pretty much clean out the channel and clean out manufacturers. And so we're in a good position there and that replenishment will really commence next fall. Joshua Borstein - Longbow Research LLC: And then, just a final one for me. You had mentioned stronger international demand than you had originally anticipated. Where were you seeing the strengths and where, perhaps, are you still seeing some international weakness? Michael J. Hoffman: Certainly, the #1 strength is right across the border here, selling snow products into Canada, but we've also seen some strong commercial and irrigation business around the golf arena in some of our markets. I think, the ongoing concern, as was true last year, remain -- is somewhat more in Europe. We're keeping our eye on Europe. They had -- the residential side in Europe had a more mild winter, they didn't benefit from the snow sales like we did here in North America. But hopefully, that will have a good spring there in Western Europe, but larger part of the business there is still commercial, and so we watch the European economies, there are a number of kind of different ones and hope that will continue a slow but a steady improvement.

And your next question is from Sam Darkatsh, Raymond James. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: A couple of questions. I don't want to be too much of a stickler on this because I know that this is -- we're still out of season, but you beat your quarter guidance for the first quarter by $0.09, but you only raised the year by $0.05 suggesting that the back half of the year, you might even have a little bit more of a mildly sober outlook than before. I'm curious as to why that might be based on what you're seeing? Michael J. Hoffman: Yes, I think that there still is -- our 2 large quarters are in front of us and so we didn't pull it all in. Snow was certainly the bulk of that, and we did put this additional snow revenue in there and that certainly have been the part of the raising earnings guidance for the year. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: Okay. The second question I would have, I think, you were suggesting to us in prior calls that you were looking for about 1% in price this year, in realized price this year. What did you get in the first quarter? It looked like gross margins were considerably better than expected and that was from realized price with some offsets. So did you get better than the 1% in the first quarter, and then, you're maybe expecting that to bleed off a little bit, or how should we look at realized price in this quarter versus for the year? Michael J. Hoffman: Yes, well, I guess, I'd say that, we think, for the year, we're going to get about 1%. So much of what took place in the first quarter was mix, and so I don't -- Thomas J. Larson: Really not different than what we expected in the first quarter and obviously we give specific guidance on that. Michael J. Hoffman: But again, I think, when you look at what we have talked about gross margins improving for the year by 50 basis points and some of that is priced but some of that is going to be all the focus on productivity, some of that is mix. So I don't think it's different than we would've talked about last quarter. We just simply got the benefit of snow. Renee J. Peterson: I would agree. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: And third question, and this is probably too fine a point either, but the payables being up, Renee, and the inventories being down. The payables being up, you suggested because of increased purchases, yet inventories down, you were working your inventory through. So how do those 2 reconcile with each other? Is it a switch between work-in-process and finished goods, or how should we look at that? Renee J. Peterson: Sam, it's primarily a timing difference from that standpoint. We continue to focus on accounts payable from a term standpoint, but no significant change there. And we always focus on our inventory, and we had a strong end to the quarter. So it's more than anything timing. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: Got you. If I could sneak one more in real quick. It looks like you spent about $42 million in share repurchases, which is, I guess, about normal and healthy for you folks. Average price about $61.50. Stock's up a little bit more than that. Any reason to think why that pace wouldn't continue near term. Thomas J. Larson: Sam, this is Tom. Really, our approach on this hasn't changed and we would -- our idea for the year is that we would spend roughly similar to what we've spent in prior years. Now that would be less shares if the price continues the way it is, but no real change of direction there.

And your next question is from Robert Kosowsky, Sidoti. Robert A. Kosowsky - Sidoti & Company, LLC: Sounds like you see golf CapEx increasing. Would that be at a higher rate or lower rate than the growth you see in the landscaping and in the grounds side of the business? Michael J. Hoffman: Golf CapEx increasing, well, I think, golf courses are -- I don't think that is a material change. I don't think it is changing that much. I'm not sure where you're drawing that. I mean, they continue to look at their plates and ways to drive more productivity and be more efficient. And that certainly is -- when we can bring new products to help them do that, that can be an accelerator. But year-over-year, I don't think we're expecting significant change in golf purchases. Robert A. Kosowsky - Sidoti & Company, LLC: Okay. So you'd expect that growth in like the landscaping in the grounds channel to be in excess of what golf would be this year? Michael J. Hoffman: It would, yes. Robert A. Kosowsky - Sidoti & Company, LLC: Okay. And then, also, can you talk about what you're seeing on the mass retail mower side, how is the sell-in looking so far. Are they taking any more inventory? Any kind of thoughts that you have on, given we had such a brisk snowblower season and also what kind of growth do you see for this category over the season? Michael J. Hoffman: Right. So last year's, if you use lawn, particularly, we use walk power mowers as a bellwether there, if you will, that was down and that was very much related to the late spring conditions and the impact of that. So speaking specifically for Toro, I mean, we're at a good shape. We have -- they have been focused on snow because we've had relatively more snow than last year, but they transition pretty quickly to spring, it doesn't take very long to transition a department, the large retailer or a dealer to spring products. We do expect spring to come earlier this year than it did last. And so right now, we've got, as I mentioned in the text, I mentioned earlier that shipments are being going in now for Lawn-Boy and for some of the new Toro walk power mowers and Z mowers. Our lineup is as strong as it's ever been from a SKU standpoint, in a home center with people and a solid position with dealers. So we're very encouraged by the residential lineup placement and some of the innovation that's on the new products. Robert A. Kosowsky - Sidoti & Company, LLC: That's helpful. And then, finally, do you have any thoughts on -- and this question might go nowhere, do you have any thoughts on the John Deere water assets. It looks like they're likely going to be sold? I mean, is there any kind of comment you can make on that or you just say no comment? Michael J. Hoffman: Yes, I'll just say no comment. We'll continue to watch that unfold.

This concludes the question-and-answer session. Mr. Hoffman, please proceed to closing remarks. Michael J. Hoffman: Thank you, Sue, and thanks, to all our listeners for your questions and interest in Toro. I look forward to sharing our second quarter results in May, when we hopefully will be enjoying an early and warm spring. So thank you, and have a good day.

Thank you. Ladies and gentlemen, this concludes your conference call for today. Thank you for your participation. You may now disconnect. Good day.