At any given time, there are actually very few really good businesses to own. Money doesn’t grow on trees, but solid wealth creation is available from companies that make good products that the marketplace requires.
One such company is The Toro Company (TTC).
Based in Bloomington, Minnesota, this company manufacturers professional turf equipment for golf courses. Toro also makes sprinkler heads and all kinds of irrigation products for sports fields, golf courses, and home systems. The company also owns the “Lawn Boy” brand. According to its track record, both operationally and on the stock market, Toro is a great business.
This company typically reports its earnings later than most. In its 2013 fiscal third quarter (ended August 2, 2013), revenues grew 1.2% to $510 million; earnings were $40.1 million, or $0.68 per share, compared to $40.5 million, or $0.67 per share, last year.
Now these numbers might not seem to be that impressive, but this is a mature business. What’s important with a company like this is its consistency. Management cited improving business conditions, especially among residential landscape contractors. The company beat the Street handedly with its recent numbers and upped its full-year guidance.
Management now expects revenue growth for fiscal 2013 to be approximately four percent and earnings to be $2.55 per share, representing a solid gain of approximately 19% over fiscal 2012.
On the stock market, Toro has been a powerhouse wealth creator. Like every other equity security, it’s had its ups and downs, but generally, the company has proven to be profitable for shareholders. The company’s long-term stock chart is featured below:
Chart courtesy of www.StockCharts.com
I like businesses like Toro—companies that have proven track records in terms of financial growth, stock market wealth creation, and product innovation. The business of maintaining and irrigating golf courses is a good one; so is residential irrigation and snow removal.
If you read Toro’s financial documents, you will find an easy-to-understand business that just happens to pay a dividend. You will also see consistency in operations and financial growth, which is a tough thing to come by these days. For long-term investors, consistency is very meaningful.
Toro has competition, but not in the same way as Deere & Company (DE) or Honda Motor Co., Ltd. (HMC). Because of its golf course–specific turf maintenance equipment and the company’s focus on irrigation products, Toro is very much a niche business. Over the years, the company has branded itself to the golf sector, which is a lucrative target market.
Toro’s earnings and revenue growth are not the most robust because of the maturity of this business. But the stock is still worth buying on dips, because turf maintenance and irrigation have proven market demand. Calling Toro recession-proof would be a stretch, but I think recession-resistant would definitely apply. (See “The Only Way to Beat Rising Gasoline Prices.”)
A lot of money goes into designing and building a golf course. Annual maintenance costs are pretty much fixed and are a known expectation.
For long-term investors looking for an attractive niche business that offers consistent growth, a company like Toro fits the bill. The company’s expectations for the rest of its fiscal year are solid.