The Toro Company

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The Toro Company

8111 Lyndale Avenue South
Bloomington, Minnesota 55420-1196
U.S.A.
(612) 888-8801
Fax: (612) 887-8258

Public Company
Incorporated: 1914 as the Toro Motor Company
Employees: 3,084
Sales: $635.2 million
Stock Exchanges: New York
SICs: 3524 Lawn & Garden Equipment; 3494 Valves & Pipe Fittings Nee; 3052 Rubber & Plastics Hose & Belting

Long respected as a manufacturer of premium-priced lawn mowers, snow blowers, and irrigation systems, The Toro Company touts itself as “a global leader in lawn and turf care products.” Toro is currently an industry leader in both turf maintenance and underground irrigation capacities for golf course establishments, and holds a strong position in the homeowner and consumer markets with such brand name lines as Toro, Lawn Boy, and Toro Wheel Horse. The company’s strategies for future profitability and growth are unclear, however, after weathering a difficult downswing in fiscal 1992. Sales in the consumer products division (which accounted for roughly 55 percent of total revenue) fell nearly 19 percent, directly contributing to a $23.7 million loss in net earnings. Concurrent layoffs, plant closings, and scaled-back production have recalled Toro’s battle to remain afloat during a similarly troublesome time in the early 1980s.

Under CEO Kendrick B. Melrose and President David H. Morris, the company hopes to stage a comeback akin to the one accomplished when Melrose, as newly elected president, redirected the company a decade ago. The new redirection will emphasize greater mass-merchandising efforts and lower-priced product lines.

Founded in Minneapolis in 1914, the Toro Motor Company was established by executives of the Bull Tractor Company—among them J. S. Clapper, Toro’s first president—primarily to manufacture engines and other machined parts for use in the parent company’s line of Bull tractors. When Bull Tractor folded in 1918—approximately the same time that Deere & Company and other competitors were fortifying their positions in the agricultural market—Toro was forced to fend for itself. The United States’s entry into World War I in 1917, however, created a demand for steam engines for merchant supply ships, a need that Toro helped to fill through the conclusion of the war. In 1920 Toro Motor became Toro Manufacturing Company. The first product to carry the company’s name was the Toro (two-row) cultivator that converted to a tractor. However, a widespread economic depression among American farmers during the early 1920s left the company overstocked and in need of new products to sell. In 1921 the opportunity came for Toro to reinvent itself and become profitable for the long term. The greens committee chairman for an exclusive Minneapolis country club had approached the company with an unusual request: could a specialized tractor replace the horse-powered system then used for cutting the greens and fairways? The solution was a tractor equipped with five 30-inch lawn mowers, which enabled the groundskeeper to cut a 12-foot wide swath in a third of the time required by the earlier method. This relatively simple invention led directly to the machine-driven, gang-reel mower, the forefather of the modern power mower industry.

By 1925 the Toro name had become synonymous with turf maintenance among nearly all the major golf courses in the nation. Business was booming. The rapid growth of the company was due in large part to the establishment of a distributorship system in which regional business owners/sales representatives promoted quality Toro products while offering knowledgeable advice and service. In 1929, 13 distributorships were in place and Toro decided to go public, realizing that its research and development edge had to be maintained to thwart rising competition. The October 1929 stock market crash impeded the company’s progress, but only temporarily.

In 1935 the company became Toro Manufacturing Corporation of Minnesota; two years later its engineers unveiled its most important product to date, the 76-inch Professional, an ingenious compromise between the maneuverability of walk-behind mowers and the speed and capacity of the large gang-reel units. The popular product was ultimately replaced by the Super-Pro and the 58-inch Pro.

In the years prior to World War II, the company succeeded in forming several overseas distributorships and in introducing its first power mower for the domestic consumer market. By 1942 sales had grown to $2 million and the company’s commercial line—its mainstay—now served not only golf courses, but parks, schools, cemeteries, and estates. Like most American manufacturers during that period, Toro concentrated its resources on the war effort, contributing parts for tanks and other machinery. When 1945 came, Toro retooled under new owners.

Robert Gibson, Whitney Miller, and David Lilly, all veterans and all friends since their days at Dartmouth College, purchased the company in 1945 and fueled it for the next several years with youthful ambition and systematic expansion. In order to maintain the loyalty of their workers, who then numbered around 50, they named long-time employee Kenneth Goit as president. Following much-needed plant reorganization and modernization, the three owners led the company aggressively into the homeowner mower business, which market studies had shown to be a particularly promising area. From 1946 to 1950 sales climbed from $1.4 million to $7 million. Several factors contributed to this remarkable increase. The solid expansion of Toro’s distribution network, which had grown to 88 members, who in turn sold to approximately 7,000 retailers, made the company a large-scale presence. In addition, the company developed and marketed Sportlawn, a popular walk-power reel mower. Finally, and most importantly, Toro acquired Milwaukee-based Whirlwind, Inc., in 1948. Whirlwind was a prominent manufacturer of a consumer rotary mower, a new design which Toro proceeded to enhance with safety features.

In 1950 Lilly succeeded Goit as president. A number of firsts highlighted the decade, including Toro’s pioneering lawn and garden television advertisements, the erection of a test facility in Bloomington, Minnesota, and the creation of the Wind Tunnel housing for its Whirlwind mower, which made rear-bagging feasible for the first time. Sales increases uniformly reached double-digit percentages, despite a lukewarm entry into snow-removal equipment and a poor performance by the Tomlee Tool Company, acquired in 1954.

Toro indisputably came of age in the 1960s, aided by the power of its ad campaigns and the strength of its research and development department. Its power mower line was widely regarded by the public as the standard in engineering excellence. After achieving this goal, the half-century-old company was ready for a new dynamism. The retirement of “Mr. Toro,” a charismatic salesman named “Scotty” McLaren, also augured a change in direction. The invention of the single-stage Snow Pup snow-thrower in 1962 signaled the company’s recommitment to establishing a winter product line, but the results were less than satisfactory (Toro would eventually succeed years later with the Snow Master). Further diversification within the golf market was another possibility. One campaign centered on the production of a deluxe golf car, the Golfmaster, that would utilize all of the company’s significant design expertise. As Trace James reports in Toro: A Diamond History, “Toro had purchased the materials and manufactured the parts to build 1,000 Golfmasters. However, by the time the first 250 of these beauties came off the assembly line, they were so loaded with features that golf courses couldn’t afford to buy them. Toro was left with work in progress for 750 cars.” Through persistent sales efforts, however, the company was able to rid itself of all but four cars and turn a profit.

Finally, in 1962, Toro purchased a company that would virtually ensure Toro’s lasting preeminence in the golf course industry. California-based Moist O’Matic, a manufacturer of irrigation products, brought sales above the $20 million mark that year and ultimately gave Toro the number one position in golf course irrigation equipment. This same year the company relocated to its present headquarters in Bloomington. By the end of the decade, with a greatly strengthened commercial division and the introduction of the electric start feature for its consumer mowers, Toro’s sales surpassed $50 million.

The 1970s began with David McLaughlin assuming the presidency from Lilly. Growth during the decade for The Toro Company (so named in 1971) was phenomenal. The consumer snow removal business, after persistent re-engineering and re-marketing, began to thrive. Commercial turf maintenance, with the introduction of the all-hydraulic Greensmaster and Groundsmaster, experienced a renaissance. As a flurry of new products went on line, the Toro work force swelled to well over 1,000 employees. Net earnings from 1977 to 1979 almost tripled and sales reached an all-time high of $357.8 million. McLaughlin forged ahead with greatly expanded production of snowblowers. Suitable weather in which buyers could utilize the new product line proved elusive, however. Snow was a relative scarcity during the winters of 1980 and 1981 and, consequently, so were snow blower sales. Because Toro had positioned a full 40 percent of its business in this market, it suffered devastating losses, a total of $21.8 million between fiscal 1981 and fiscal 1982. To make matters worse, McLaughlin had moved Toro into the mass merchandising arena and away from its reliance on the dealer network—where lower sales but greater profits were the norm.

Melrose replaced McLaughlin in 1981 and went to work quickly, cutting salaried staff by nearly half, closing plants, and instituting a “just-in-time” inventory system to prevent future overproduction. During the mid-1980s he systematically diversified, acquiring two lighting manufacturers and establishing an outdoor electrical appliance division. The 1986 purchase of Wheel Horse (a manufacturer of lawn tractors) and Toro’s entry into the lawn aeration business helped push sales above $500 million the following year. Rounding out the decade was the company’s 1989 purchase of one of its chief lawn mower competitors, Outboard Marine Corporation’s Lawn Boy, for $98.5 million. Melrose, along with recently elected president Morris, had succeeded in reducing the company’s dependency on snowthrower sales, which fell to just nine percent of revenues, while maintaining the Toro name as the industry market leader.

The investment community, however, remained largely oblivious to the dramatic turnaround, and this was reflected in Toro’s depressed stock price. Robert Magy, in his article “Toro’s Second Season,” recounted Melrose’s befuddlement at the sluggish reaction of the investment community to Toro’s recovery. This puzzlement led to the hiring in 1989 of a Chicago-based investor relations firm. “In October, the agency surveyed analysts and institutional investors in several major markets and discovered that few of them had any knowledge of Toro, and that among those who believed they did know something about the company, several thought it had collapsed early in the last decade.” Thus work of a different sort, higher-profile public and investor relations, awaited Melrose. Although he quickly proved to be an effective and energetic company spokesperson, Melrose did err with over-optimistic earnings predictions.

Toro’s 1990 introduction of the Toro Recycler (a high-performance mulching mower) and its high expectations for Lawn Boy as a lower-priced complement to the existing product line were among the many reasons why Melrose anticipated the company would achieve billion-dollar status by 1992. Instead, the company saw sales drop from $750 million in 1990 to $711 million in 1991 to $635 million in 1992. A series of profit projections, all of which had to be downwardly revised, seriously dampened the company’s credibility during the early part of this period. Particularly harsh criticism came from Star Tribune writer Tony Carideo. “With each piece of negative news, Toro has trotted out explanations: A bad economy. Not enough rain. Too much rain. Not enough snow. A really bad economy. Well, maybe. But how about this? Toro makes a product that costs too much because there’s a lot of R&D and advertising cost in it and because it’s sold through an antiquated distributor-dealer network that raises the price even higher.” Carideo’s article appeared January 28, 1992, just after Toro had announced a major consolidation and restructuring of its Lawn Boy and Toro businesses, including a plant closing and some 450 layoffs.

More than half a year later, the company still showed signs of struggling. For its first quarter of fiscal 1993, Toro reported a net loss of $4.1 million, compared with a net loss of $6.2 million for the first quarter of fiscal 1992.

The report stated that the decline “was expected as we consciously managed down consumer product field inventories in the quarter in preparation for several new Toro and Lawn-Boy product introductions this Spring.... [We] believe Toro will emerge from 1993 with our strong name intact, with increased market shares and with investments in new products that will ensure the future of our investment.” Strong second quarter earnings supported that contention, as Toro reported net earnings of $1.8 million for the quarter ending January 29, 1993, versus a net loss of $11.9 million in the same quarter a year before.

Among Toro’s major plans for 1993 were the introduction of the Toro Recycler II series and a wholesale assault on the mid-priced mower market through such mass merchandisers as Sears, Montgomery Ward, and Home Depot. After weathering a difficult recession, certainly a factor in Toro’s stagnant performance, the company seemed prepared for a strong rebound. Yet, several analysts—Carideo excepted—were skeptical of Toro’s new emphasis on mass merchandising. One likely reason was the stiff competition it would receive from Georgia-based Snapper Power Equipment Co., another high-quality manufacturer with similar plans. Whatever the outcome of its consumer line, it remained clear that Toro could ill afford to overlook possibilities for growth within its commercial line. As Dain Bosworth analyst Frank Rolfes pointed out, as many as 4,000 golf courses were to open across the United States during the 1990s (approximately four times as many as during the 1980s). Each of the courses represented potential sales of $700,000 in turf maintenance and irrigation equipment.