Bull (NYSE:TTC)
2023 Q2 Earnings Conference Call
June 8, 2023 11:00 AM ET
Content:
- information prepared
- Questions and answers
- call participants
Prepared notes:
operator
Good morning ladies and gentlemen, and welcome to Toro's second quarter results conference call. My name is Tanya and I will be your coordinator for the day. At this point, all participants are in listen-only mode. At the end of today's lecture, we will have a question and answer session.
As a reminder, this conference call is being recorded for playback purposes. I would now like to address today's conference call host Julie Kerekes, Treasurer and Senior Managing Director of Global Tax and Investor Relations. Go on, Miss Kerekes.
Julie Kerekes - Treasurer and Senior Managing Director for Global Taxation and Investor Relations
Thanks and hello everyone. Our earnings announcement was published this morning. A copy is available in the Investor Information section of our corporate website thetorocompany.com. We are also releasing a second quarter earnings presentation in addition to the earnings report and general investor presentation. Joining us today are Rick Olson, President and CEO; Angie Drake, Vice President and Chief Financial Officer; and Jeremy Steffan, director of investor relations.
We start with our usual policy of forward-looking statements. During this conference call, we will make forward-looking statements about our plans and projections for the future. This includes projections and assumptions about financial and operating results, economics, technology, weather, market acceptance, acquisition-related factors and others that could affect our business and those of our clients. Everyone is aware of the difficulties, risks and uncertainties involved in preparing forward-looking statements.
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This article is a conference call transcript for The Motley Fool. Although we try to do our best, there may be errors, omissions or inaccuracies in this transcript. As with all of our articles, The Motley Fool is not responsible for your use of this content, and we strongly encourage you to do your own research, including listening to your own statements and reading the company's SEC filings. Please see our Terms and Conditions for full details , including the mandatory disclaimer written in capital letters.
Motley Fool recommends Toro. Motley Fool has a disclosure policy.
Our earnings announcements and SEC reports identify several important risk factors that could cause our actual results to differ materially from our expectations. Please note that we are under no obligation to update our forward-looking statements. In addition, in this appendix, we will discuss some non-GAAP financial ratios. A reconciliation of historical non-GAAP financials to reported GAAP financials is available on our income statements and on our website, in our investor presentations, and in our SEC filings.
We believe that these steps can be useful in making meaningful comparisons between past and current operating results and cash flows in order to understand our current operating results and management's view of the Company. The non-GAAP financial ratios should not be considered superior to or superseding the GAAP financial ratios presented in our press release and this appendix. With that, I pass on the challenge to Rick.
Rick Olson - President and CEO
Thanks Julio and hello everyone. We achieved record results in terms of sales and net income in the second quarter. Net sales increased 7% year-over-year, while fully adjusted earnings per share increased 48% and 26%, respectively. Our revenue growth was driven by strong performance in the professional segment, especially in the key areas of construction, golf and farming, where we saw an increase in volumes due to increased production, but only because demand remained strong.
Our ability to increase production has been enhanced by disciplined operational execution and efficiency through continuous supply chain improvement. In our residential segment, sales were affected by adverse weather conditions and macroeconomic factors. Again, the steps we have taken to diversify our portfolio and increase scale have paid off and we reported an overall increase in net sales for the quarter. To our benefit, our team achieved a 250 basis point increase in adjusted operating income as a percentage of net sales compared to last year.
The positive results were driven by the realization of net prices, a profitable assortment and higher productivity. Although we remain in an inflationary environment, the overall pace continues to slow down and transportation costs rise significantly. We delivered strong results for the quarter, setting the company up for long-term profitable growth. A key part of our growth strategy is to prioritize investments in alternative, smart and autonomous energy solutions.
We continue to develop and implement products that leverage these investments to offer customers sustainable options and increased performance without sacrificing performance. We're delighted that two of our Flex-Force 60V products were recently named Best New Lawn Products of 2023 by Popular Mechanics magazine. Our market leadership is based on long-term customer relationships and delivering the best innovative products. This foundation is essential to achieving our goal of helping customers enrich the beauty, productivity and sustainability of this planet.
One example of this leadership is expanding our engagement with the Business Council of the National Parks and Recreation Association. This association researches, shares and implements solutions that benefit parks and recreation as well as the corporate sector, with the ultimate goal of building stronger communities. We look forward to continuing to work closely with the Council as we work together to address common challenges in a way that improves the quality of life for all. Another example is our recent selection as a turf partner for the Bay Hill Club & Lodge and Latrobe Country Club, two golf courses associated with the legendary Arnold Palmer.
We are honored to work with this legendary club as Mr Palmer continues to provide a first class experience for members, guests and golf professionals. We had a strong first half and we believe we are well positioned to build on that momentum in the second half. While the macroeconomic environment remains dynamic, we are accustomed to growing our business in all types of economic and weather cycles in order to succeed in the long term.
We intend to continue to act with discipline and flexibility in advancing our strategic priorities. With this orientation, we want to expand our market leadership in the short and long term. With that said, I have forwarded the call to Angie for a more detailed review of our second quarter financial results.
Angie Drake - VP of Finance
Thanks Rick and good morning everyone. As Rick said, we performed well in the second quarter, delivering record earnings and diluted earnings per share despite adverse weather conditions and a very dynamic operating environment. This achievement highlights the benefits of our attractive and broad portfolio, with the majority of our solutions targeted at the professional end market. We increased our total consolidated net revenue for the quarter to $1.34 billion, up 7.2% year-on-year.
Diluted earnings per share were $1.59 per share, up 28.2% from $1.24. Adjusted earnings per share diluted by $1.58, up 26.4% from $1.25. Net profit in the professional segment in the second quarter was $1.07 billion, up 15.4% year-on-year. This increase was mainly driven by increased product deliveries across all segments, with notable gains in golf, golf courses and construction products, and net selling.
Profit from the professional segment increased 37.6% to $227.5 million in the second quarter. As a percentage of net revenue, the segment's profit is 21.3% versus 17.9%. The year-over-year increase was mainly due to net prices, a favorable product mix, improved productivity and increased net sales. This was partly offset by increased material and manufacturing costs.
Net residential real estate sales in the second quarter were $265.8 million, down 16.8% from the previous year. This decrease was mainly due to lower shipments across all segments, which was partially offset by net realizable prices. Residential revenue for the quarter fell 38.7% to $22.7 million. Expressed as a percentage of segment net sales, it was 8.6% compared to 11.6%.
The year-over-year decline was mainly due to lower sales volume, higher marketing costs and higher production costs. This was partly offset by lower net realizable prices and transportation costs. In terms of our operating results, reported and adjusted gross margin for the quarter was 35.8% compared to 32.4% and 32.5%, respectively. The year-over-year increase was mainly due to net prices, a favorable product mix and improved productivity, partly offset by higher production and material costs.
Selling, general and administrative expenses as a percentage of net sales were 19.5% for the quarter compared to 18.8% for the same period last year. This increase was mainly due to higher selling costs, partly offset by the impact of net sales. Operating income as a percentage of net sales was 16.3% for the second quarter on a reported and adjusted basis. This compares with 13.7% and 13.8% for the same period last year.
Interest expense for the quarter was $14.7 million, up $6.7 million from the same period last year. This increase was mainly due to an increase in the average interest rate. Stated and adjusted effective tax rates for the second quarter were 20.6% and 21.1%, respectively, compared to 20.6% and 20.8%, respectively. According to our balance sheet, trade receivables stood at $462 million at the end of the second quarter, up 5% year-on-year, primarily due to higher net sales abroad, partially offset by lower net sales to households.
Inventories were $1.1 billion, up 26% from last year. This increase was mainly due to an increase in finished goods, work in progress and spare parts, which was largely due to inflation and component shortages. That being said, inventory has been relatively stable since the end of the first quarter of fiscal 2023, but our range is improving with a bit of work. Accounts payable amounted to $515 million, down 9% year-on-year, mainly due to destocking. Free cash flow to date is $1.3 million in cash burned.
This was primarily due to seasonal working capital needs, including increased inventory of work in progress and spare parts, as we continue to manage the current supply chain dynamics and serve our customers better. It also reflects the timing of capital expenditures: $63 million was spent year-on-year, compared to $36 million in the same period last year. We remain well below our leverage target of 1-2x gross debt to EBITDA and aim to maintain our investment grade credit rating. This supports our strong balance sheet, which in turn provides the financial flexibility needed to fund investments that drive long-term sustainable growth.
Our disciplined approach to capital allocation remains unchanged. Priorities include strategic investments in our business, both organic and through acquisitions; return cash to shareholders through dividends and share buybacks; and maintain our leverage target. This priority is underscored by our recent actions, including our plans to generate $150 million in capital expenditure this year to fund investment in new products, advanced manufacturing technologies and growth opportunities. Our dividend payout increased by 13% year-over-year and we returned almost $25 million to shareholders through share repurchases compared to last year. Looking into the second half of the financial year, we expect strong demand for our innovative products in key markets in the professional segment.
We are also encouraged by incremental improvements in the supply chain, which we believe will further increase our construction and golf course production. At the same time, we will continue to closely monitor macroeconomic developments and stand ready to remain flexible on the range of possible short-term outcomes. Against this backdrop and based on our current guidance, we are increasing our target range for net sales and adjusted earnings per share for fiscal year 2023. For fiscal year 2023, we now expect revenue growth, with a net loss of approximately 7% to 8%. %. . compared with the previous 7% to 10%.
This reflects expectations for further increases in construction, golf and soil production. This includes expected volume cuts for our residential segment as well as professional products sold to homeowners due to adverse weather and observed macroeconomic trends compared to last year. More normal weather conditions are also expected in the second half of the year. We continue to expect professional segment net sales to grow faster than the company average for the full year.
For the residential real estate segment, we now estimate that FY 2023 net sales will be down 10% from FY 2022. In terms of profitability, we continue to expect gross margin to improve in FY 2023 compared to FY 2022. Now, given our revised net sales forecasts, we expect our gross margin in the second half of this year to be lower than in the first. half of this year. Six months. Year.
This was primarily due to expected production inefficiencies as we adjusted production volumes in line with owner demand for products and worked to increase year-end inventory. We expect this production inefficiency to be partly offset by higher productivity and net realizable prices. In addition, for the full year, we continue to expect an increase in adjusted total operating income in the commercial and professional segments as a percentage of net sales compared to the previous year. At the end of the year, we expect lower profit margins in the residential segment compared to the previous year.
This reflects the expected decline in volume. For our other business categories, we expect the third and fourth quarters of FY2023 to be similar to the quarterly average of the first half. В соответствии с нашим пересмотренным прогнозом чистых продаж мы понизили прогноз по скорректированной годовой прибыли на акцию с $4,70 до $4,80 на разводненную акцию с $4,70 до $4,90. Эта оценка скорректированной разводненной прибыли на акцию не включает выгоду от избыточного налогового вычета для компенсации, основанной на акциях.
Кроме того, за весь год мы теперь оцениваем износ и амортизацию примерно в 125-130 миллионов долларов, процентные расходы примерно в 57 миллионов долларов и конверсию свободного денежного потока примерно в 90-100% от чистой прибыли. Мы по-прежнему исходим из того, что скорректированная эффективная налоговая ставка составляет около 21%. Заглядывая в третий квартал 2023 финансового года, мы ожидаем, что общий объем чистых продаж компании будет расти темпами немного ниже нашего годового прогноза. Для профессионального сегмента мы ожидаем темпы роста чистой прибыли, аналогичные темпам роста этого сегмента во втором квартале.
Для жилого сегмента, учитывая эту динамику, мы прогнозируем значительное снижение чистых продаж в третьем квартале по сравнению с предыдущим годом. С точки зрения прибыльности мы ожидаем, что валовая прибыль и скорректированная операционная прибыль в третьем квартале для всех компаний будут такими же, как и в предыдущем году. Для профессионального сегмента мы ожидаем, что маржа прибыли в третьем квартале будет такой же или немного выше, чем за тот же период прошлого года. Для жилого сегмента мы ожидаем, что маржа прибыли в третьем квартале будет ниже по сравнению с тем же периодом прошлого года из-за более низких ожиданий объема и связанной с этим неэффективности производства, чтобы привести производство в соответствие со спросом.
По нашим оценкам, разводненная скорректированная прибыль на акцию в третьем квартале будет немного выше, чем в предыдущем году. Мы верим, что продолжим пользоваться преимуществами привлекательного портфолио разнообразных продуктов для привлекательных конечных рынков, поддерживаемых нашей обширной сетью продаж и поддержки. Несмотря на текущую и ожидаемую будущую макроэкономическую и климатическую динамику, мы ожидаем, что наша скорректированная разводненная прибыль на акцию за весь год вырастет на 12-14% по сравнению с прошлым годом, подчеркивая эти преимущества и нашу преданную команду. Мы строим наш бизнес для долгосрочного прибыльного роста и уверены в своей способности создавать равную ценность для всех заинтересованных сторон.
После сказанного я снова позвоню Рику.
Рик Олсон - президент и генеральный директор
Спасибо, Анжела. Поскольку мы вступаем во вторую половину года, нас поддерживал высокий спрос, который, как ожидается, сохранится на рынке ключевого профессионального сегмента, улучшение условий цепочки поставок и приход более теплой погоды. Мы считаем, что занимаем хорошие позиции на каждом из захватывающих конечных рынков, которые мы обслуживаем, с нашими инновационными линейками продуктов, поддерживаемыми лучшей командой сотрудников и торговых партнеров. Я хотел бы поделиться еще несколькими цветами в книге заказов, потому что это интересная тема.
Традиционно невыполненные заказы не были значимым показателем нашего бизнеса из-за, как правило, более коротких сроков поставки нашей продукции. Как сообщалось ранее, наша задолженность на конец 2022 финансового года составила 2,3 миллиарда долларов. Исторически наш портфель заказов на конец 2020 финансового года составлял 370 миллионов долларов. Хотя часть увеличения была связана с ростом нашего бизнеса, а общая и сезонная инфляция также могут быть фактором, текущие балансы по-прежнему значительно выше того, что мы считаем нормальным.
Большую часть нашего портфолио по-прежнему составляют гольф и строительство полей для гольфа, а также продукты в нашем профессиональном сегменте. Это результат высокого спроса на эти продукты в сочетании с высоким уровнем сбоев в цепочке поставок, что способствует увеличению времени выполнения заказов и влияет на поведение клиентов при оформлении заказов. Важно отметить, что мы добились роста объемов в этой категории во втором квартале благодаря дисциплинированному исполнению, поддерживаемому улучшенной цепочкой поставок. В то же время мы по-прежнему наблюдаем высокий спрос на эту продукцию.
При таком уровне новых заказов наш портфель заказов на конец второго квартала немного увеличился по сравнению с концом первого квартала и остается выше баланса на конец 2022 финансового года. Учитывая этот импульс, мы ожидаем, что портфель заказов останется сильным. в течение финансового года и далее. Наша команда по-прежнему сосредоточена на оптимизации производства и сокращении времени выполнения заказа, чтобы помочь нашим клиентам и как можно быстрее довести задержки до нормального уровня. Глядя на экономику в целом, мы продолжаем следить за действиями денежно-кредитной политики, геополитической обстановкой и инфляцией.
Мы также отслеживаем общее деловое и потребительское доверие и покупательские привычки. Мы также следим за развитием событий в банковском секторе, включая ужесточение кредитных требований. В рамках нашей обычной деловой практики мы используем преимущества нашего размера и связей с банками, чтобы предоставить нашим дистрибьюторам и конечным клиентам доступ к привлекательным вариантам финансирования. Мы предполагаем, что это финансирование будет продолжаться гладко, и мы предполагаем, что кредитоспособность наших клиентов остается хорошей.
Мы остаемся в тесном контакте с нашими банковскими партнерами и постоянно следим за ситуацией. Теперь я расскажу о макроэкономических факторах, которые мы наблюдаем на наших конечных рынках и которые могут повлиять на будущие результаты, начиная с нашего профессионального сегмента. В гражданском и специализированном строительстве мы ожидаем растущий спрос, поддерживаемый несколькими годами инвестиций в государственную и частную инфраструктуру. Эти инвестиции включают расширение широкополосной связи и альтернативной энергетики, а также решения для работы с устаревающей инфраструктурой.
Мы считаем, что у нас есть все возможности, чтобы извлечь выгоду из этого спроса, предлагая самую полную линейку продуктов в отрасли. В гольфе мы ожидаем дальнейшего увеличения количества сыгранных раундов и общего интереса к игре, что поддержит разумный бюджет полей для гольфа и повысит спрос. Как единственная компания, которая предлагает ирригационное оборудование и решения, и как исторический лидер в обоих направлениях, мы сохраняем очень хорошие позиции на этом захватывающем рынке. Что касается сообществ и объектов недвижимости, мы планируем и впредь отдавать приоритет зеленым насаждениям и страсти к продуктам с нулевым уровнем выбросов, подкрепленным здоровым бюджетом.
Наши тесные отношения и растущий ассортимент бескомпромиссных устойчивых решений позволяют нам хорошо обслуживать этот рынок. Что касается управления снегом и льдом, мы ожидаем более скромных предсезонных продаж, поскольку отсутствие снегопадов в конце сезона означает, что запасы в каналах находятся на более высоком уровне по сравнению с прошлым годом. 'в прошлом году. Однако наше сильное присутствие на Среднем Западе, где снег идет лучше, должно компенсировать это. В Solutions for Landscaping Contractors мы ожидаем, что спрос со стороны профессионалов в области газонов будет по-прежнему высоким, и что текущая ситуация еще больше повлияет на спрос со стороны домовладельцев, которые предпочитают профессиональные продукты.
Благодаря нашей обширной сети и лидерству на рынке, в том числе нашим трем брендам Exmark, Toro и Spartan, мы сохраняем хорошие позиции для обслуживания этого рынка. Что касается нашего ирригационного бизнеса, мы ожидаем, что общий спрос на проект останется высоким, и мы внимательно следим за развитием экономических и климатических факторов на этом рынке. В жилом сегменте мы отслеживаем погодные условия, а также доверие потребителей и покупательские предпочтения. Мы также отслеживаем влияние текущей среды на уровни ресурсов канала.
По мере нормализации спроса, ускоренного пандемией, мы ожидаем, что этот сегмент будет продолжать получать выгоду от регулярных циклов замены, обусловленных недискреционным характером наших продуктов. Важно отметить, что мы также считаем, что преимущества нашей новой линейки продуктов, расширенных каналов сбыта и сильной торговой марки будут оставаться долгосрочным конкурентным преимуществом. Поскольку мы ожидаем и планируем ближайшие макроэкономические результаты, мы считаем, что наша организация имеет хорошие возможности для достижения положительных результатов в этих условиях. У нас большой опыт маневрирования в условиях экономических циклов и погодных условий, и мы рассчитываем, что и впредь будем извлекать выгоду из нашего растущего размера и широкого портфолио.
Наша сегодняшняя рекордная производительность демонстрирует это преимущество и нашу адаптивность. Мы предлагаем интегрированные решения, которые позволяют выполнять работу с регулярными циклами замены на привлекательных конечных рынках. Эти факты, если нет талантливых людей и людей, которые преуспевают в распределении и обслуживании, мы не в безопасности, и мы не можем улучшить долгосрочное лидерство. Мы думаем о том, что нам нужно, чтобы оставаться в состоянии приносить пользу всем сторонам, которые хотят играть на поле и в долгосрочной перспективе, руководствуясь нашими приоритетными стратегиями для ускорения прибыльного бизнеса, повышения производительности, а также операционного и личного мастерства. автономия.
Конечно, следует отметить, что это очень необычный ресурс, позволяющий сотрудникам и партнерам по сбыту каждый день находить клиентов и получать очень хорошие результаты. Vous êtes la clé du succès de The Toro Company. Я также должен выразить благодарность нашим клиентам и аналитикам за постоянное голосование. Конечно, мы все будем задавать вопросы.
Вопросы и ответы:
врач хирург
[Инструкции для оператора] Это наш первый вопрос от Сэма Даркатша от Рэймонда Джеймса. Votre ligne est ouverte.
Сэм Даркатш — Рэймонд Джеймс — аналитик
Доброе утро, Рик. Поздравляю Энджи. Комментарии Allez vous?
Рик Олсон - президент и главный исполнительный директор
Бонжур Сэм. Bon et bien. Комментарии Allez vous?
Сэм Даркатш — Рэймонд Джеймс — аналитик
Я понимаю. Милости требовать. Quelques, deux, три маленьких вопроса the je peux. Tout d'abord, комментарий последовательно sur l'arriere est évidemment tres incentivant.
Что вы думаете о том, что вы делаете прямо сейчас в отношении списания, везде в абсолютном выражении и на хороших условиях в течение первого квартала и в конце года, если вы можете это сделать, Рик?
Рик Олсон - президент и главный исполнительный директор
Да, хороший вопрос. В 24-часовой командировке я часто получаю наличные по прибытии и проверяю отмены. Мы устанавливаем базовый экстремальный уровень отмены. Cela n'a vraiment pas été un facteur, et vraiment, je veux dire, la bonne nouvelle est que nous asstatons une production supplémentaire de nos usines.
Et, peut-être, peut-être que la meilleure nouvelle est que la requiree est encore plus forte. Donc, dépassant, à some égards, notre production de nos usines, mais la demande, поступающие от профессиональных предприятий, du sous-sol, de la building specialisée, du golf et des terrains a étéExceptionnelle. Donc, c'est fait plus que prévu,
Сэм Даркатш — Рэймонд Джеймс — аналитик
Donc, même s'il s'agit d'un terme absolutextreme bas, les taux d'annulation ne sont-ils pas plus élevés последовательно par rapport au dernier триместр?
Рик Олсон - президент и главный исполнительный директор
Нет нет.
Сэм Даркатш — Рэймонд Джеймс — аналитик
Д'аккорд, отлично. И затем, мой другой вопрос относительно жилого сектора, я подумал, что если мои расчеты на данный момент, ваши советы предлагают содержание домашних животных, я не знаю, около 150 миллионов долларов при меньших продажах жилья, чем то, что предвидит vous aviez précédemment. Mais vos prévisions, du moins à mi-parcours, ne sont en baisse que d'environ un nickel, ce qui est bien inférieur à ce que la marge décroissante résidentielle normale pourrait suggérer. Además, la compensación está mejor que los volúmenes y los márgenes anteriores, o la compensación está la base o la base de las ventanas residentes que usted atiende se produce a través de los productos a medida oa la faible marge ?
Rick Olson - Presidente y jefe de dirección
La compensación es la fuerza de la empresa profesional con las marcas más élevées auxquelles vous faites référence et la capacité d'obtenir plus de produits fabriqués pour répondre à la demande. Donc, c'est vraiment - c'est vraiment la compensación des chiffres inférieurs que nous prévoyons pour le résidentiel.
Sam Darkatsh -- Raymond James -- Analista
Si je pouvais en glisser un de plus, je m'excuse, c'est rapide. Parlez de votre résidence, parlez de votre part de marché résidentiel, Rick. Je suis - évidement, pratiquement, tout le monde voit les mêmes type de tendances, mais les tendances de vente et les tendances deplacement de product au detail. Pouvez-vous parler de ce que, dans la mesure où, vous avez de la visibilité, de ce que vous voyez par rapport à vos pairs ?
Rick Olson - Presidente y jefe de dirección
Nous sommes positive tres quant à notre part de marché. Cela reflète vraiment le travail que nous avons fait au cours des dernières années pour avoir un portefeuille très solide et un portefeuille technologique très pertinente. Vous savez, nous avons vu la force de nos canaux, donc en plus des partenaires de masse qui sont très importants pour nous, nous avons également vu la force de notre réseau de concesionarios. De hecho, una fuerza excepcional en el primer trimestre - o excusas moi, en el último trimestre, en el primer semestre con nuestra actividad de concesionario.
C'est très bien fait.
Sam Darkatsh -- Raymond James -- Analista
Merci. Merci á vous deux.
Rick Olson - Presidente y jefe de dirección
Merci.
Operador
Et un instant pour notre prochaine question. Notre prochaine question viendra de Tim Wojs de Baird. Votre ligne est ouverte, Tim.
Tim Wojs -- Robert W. Baird and Company -- Analista
Hé, bonjour, tout le monde.
Rick Olson - Président et chef de la direction
Bonjour, Tim.
Angie Drake -- Vice-présidente, Finances
Bonjour.
Tim Wojs -- Robert W. Baird and Company -- Analyste
Peut-être juste pour commencer, vous savez, Rick, pourriez-vous peut-être nous donner un peu de couleur ou de contexte en termes de, vous savez, à quel point les taux de production se sont améliorés dans la construction et le type de golf et de terrains, et ce qui est vraiment conduire ça ? S'agit-il simplement d'un certain assouplissement de la chaîne d'approvisionnement dans certains des secteurs goulots d'étranglement? Est-ce simplement une meilleure productivité ? Je veux dire, pouvez-vous juste peut-être ajouter un peu de contexte sur la situation actuelle par rapport à ce qu'elle était il ya six mois et sur ce à quoi vous vous attendez pour la seconde moitié ?
Rick Olson - Président et chef de la direction
Je pense que c'est en fait l'une des grandes histoires pour nous au cours de ce trimestre, c'est le montant de la croissance qui provient du volume unitaire réel. Je sais qu'avec l'inflation et ainsi de suite au cours des dernières années, il ya eu beaucoup de prix qui sont entrés dans la ligne de revenus. Dans ce cas, c'est considérablement tiré par le volume qui reflète le succès au sein de nos installations de production. Nos propres installations de production se sont améliorées il ya quelque temps, mais c'est vraiment la chaîne d'approvisionnement, les fournisseurs en particulier.
Et nous l'avons mentionné au cours des deux derniers trimestres, cela s'est limité à certaines catégories clés, c'est toujours vrai. Ainsi, la disponibilité de ces composants continue de rythmer notre production à ce stade, mais elle s'améliore régulièrement. Et le volume a été le moteur de la croissance de nos revenus ce trimestre, ce qui est assez important par rapport aux derniers trimestres.
Tim Wojs -- Robert W. Baird and Company -- Analyste
D'ACCORD. Et vous attendez-vous à des améliorations progressives dans la seconde moitié de l'année ? Ou vous attendez-vous à ce que la mi-temps ressemble davantage au deuxième quart-temps?
Rick Olson - Président et chef de la direction
Je veux dire, tous nos - nous examinons tous les facteurs de haut en bas et tout ce qui est inclus dans nos conseils. Mais nous nous attendons à une amélioration constante de nos opérations à mesure que nos fournisseurs se portent mieux.
Tim Wojs -- Robert W. Baird and Company -- Analyste
D'ACCORD. D'ACCORD. Bien. Et puis, peut-être juste sur le secteur du paysage professionnel, juste en quelque sorte, je suppose, deux questions là-bas.
Comment caractériseriez-vous en quelque sorte les niveaux d'inventaire sur le terrain au sein du type de partie professionnelle de cette entreprise, je suppose, est la première question. Et puis, je suppose que la deuxième question, juste quand vous pensez au type global d'entreprise de paysage professionnel, quelle part de cela attribueriez-vous au propriétaire par rapport au professionnel réel ?
Rick Olson -- Chairman and Chief Executive Officer
Ouais. If you -- first of all, on the inventory question, we, you know, for the last number of years have struggled with enough inventory in the field. That's a category where we have now at least normal, in some cases, higher inventory than is probably optimum in the field for the landscape contractor business. Keep in mind, this is across three brands, the Toro brands, Exmark, and Spartan.
And the homeowner is -- I don't have a specific number for you, but the homeowner is an appreciable portion of that business. And this would be a homeowner that has a large acreage or, you know, the land to justify a more professional product. And so, that's kind of the situation there. So, homeowners is an element of that.
They would be, you know, the less demand coming from homeowners. The pro demand continues to be very strong for LTE landscape contractors and the professional products. So -- and that would correlate to the field inventory as well, which is higher field inventories, so lower end of that range, lower inventory of the more professional grade.
Tim Wojs -- Robert W. Baird and Company -- Analyst
OK. That's helpful. And then, maybe just a last question. Is there -- within the residential business, is there any way to kind of think about how much the -- your 60V products now are as a percentage of that overall business?
Rick Olson -- Chairman and Chief Executive Officer
We -- I don't have a specific number of the 60V reflects. But if you just think about if the residential business is 20% to 25% of our overall business, that's one of the smaller categories overall.
Tim Wojs -- Robert W. Baird and Company -- Analyst
OK. OK. Bien. I appreciate the color and the time.
Good luck at the back half of the year, guys. Merci.
Rick Olson -- Chairman and Chief Executive Officer
OK, thank you. I appreciate the questions.
Operator
One moment for our next question. And our next question will come from Dave MacGregor of Longbow Research. Your line is open.
Dave MacGregor -- Longbow Research -- Analyst
Oui. Good morning, everyone. Congratulations on getting the golf and the special construction velocity. I think that's a good sign.
Rick Olson -- Chairman and Chief Executive Officer
Ouais. Thank you, Dave.
Dave MacGregor -- Longbow Research -- Analyst
Ouais. I mean that's got to be a weight off your mind. I wanted to just maybe pick up on Tim's question on landscape contractor. Can you just talk about what you're seeing in terms of retail demand patterns? I mean it looks like you've set a back-to-back sales events and landscape contractor that extend now through July 31st.
Pretty late into the season, which just suggests the majority of that business in this category this year is going to be incentivized. Is the demand elasticity increasing in that category? And if so, do you make any adjustments for that in your revisions you made to guidance?
Rick Olson -- Chairman and Chief Executive Officer
We -- as a normal process of creating our guidance, we would build in our best thinking with regard to any programs, etc. And programs have come back into the picture. They haven't been much of a factor for the last number of years. But especially, as you can imagine until later spring, we're really counting on more of that normal retail to shift into the later part of the year.
So, that's probably what you're seeing, if you're looking at some -- looking at some programs. I would just -- you know, there was an earlier question about field inventory. I would just say, in general, for all professional products, field inventory is very low at this point, much lower than we'd like to see certainly, for the half of the LTE that we were talking about is the true, you know, professional products. Some of the entry-level portions of that are a little different story that are more commonly purchased by homeowners that prefer professional products.
Dave MacGregor -- Longbow Research -- Analyst
OK. And you talked in your prepared remarks about increased marketing expense. Is this really where you're seeing it is just trying to support the residential and the landscape contractor business, some of these more consumer-facing businesses?
Angie Drake -- Vice President, Finance
Ouais. We've seen those marketing expenses normalize, but we have had kind of a targeted marketing campaign in our residential group, which is really for, you know, kind of the long-term benefits of our premium brand. And that was planful. But yes, we are beginning to see some of those more normal targeted promotions, too, for the sales side of things.
Dave MacGregor -- Longbow Research -- Analyst
OK. And I want to ask about inventories. Your April 30 inventory levels remained pretty much in line with the previous quarter. I noticed in your guidance, you're sort of thinking 90% to 100% conversion now.
I guess, you know, from a timing standpoint, how are you thinking about sort of the timing? And maybe we're talking about extending into 2024. But how are you thinking about the timing of liquidation of the excesses, getting back down to more sort of typical turns.
Angie Drake -- Vice President, Finance
Ouais. I'll first start with probably saying that our inventory is really not where we want it to be. We have a very sharp focus on that this year to really reduce the amount of inventory that we ;have. We did see some improvement in our composition over the quarter where our WIP actually went down a bit.
The majority of our inventory now is sitting in finished goods. And, you know, as we think about the cash flow, we do expect to see stronger cash flow based on all of our working capital factors in the second half.
Dave MacGregor -- Longbow Research -- Analyst
OK, terrific, thanks very much.
Rick Olson -- Chairman and Chief Executive Officer
Merci.
Operator
One moment for our next question. And our next question will come from Tom Hayes of CL King. Your line is open.
Tom Hayes -- CL King and Associates -- Analyst
Thank you, and good morning, and I appreciate you taking my questions. First, on the golf segment, Rick, just wondering, are you seeing any difference in the demand across the spectrum, of course, whether municipal, you know, semiprivate, and private?
Rick Olson -- Chairman and Chief Executive Officer
Ouais. First of all, welcome back. Good to hear from you again.
Tom Hayes -- CL King and Associates -- Analyst
Merci.
Rick Olson -- Chairman and Chief Executive Officer
And the golf as you can imagine, just from looking at the end demand, the interest in what's happening with professional golf situation right now, the demand for golf continues to be very strong, and we see that across the spectrum of types of golf courses. When you get into the municipal courses, municipal budgets for parks, and those outdoor parts of their budgets have been prioritized and are in very healthy conditions. So, even when you get to a municipal and small private level, they're still seeing very strong demand for golfers and that just feeds the funding available to upgrade equipment and do the replacements that they would normally do. So, we're not seeing a difference really top to bottom.
They buy different, you know, suites of equipment. But other than that, the demand is strong across the spectrum.
Tom Hayes -- CL King and Associates -- Analyst
OK. May be just shifting gears a little bit to the rental equipment market. I know some of the public companies in the space have talked about the continued strong demand. And I was just wondering how you guys are seeing it.
Rick Olson -- Chairman and Chief Executive Officer
We see the same. In fact, we are just having a conversation. I asked the leader of our area responsible for rental to go back and look at the numbers again. He came back and confirmed really the strength of all of our industry sources, which says rental continues, and we're seeing that strength ourselves in the near term.
And it's reflected in the orders that are out there for the future as well. So, a lot of drivers of the rental business, but they are very positive about the future.
Tom Hayes -- CL King and Associates -- Analyst
OK, I appreciate it. Thank you very much for the time.
Rick Olson -- Chairman and Chief Executive Officer
Thank you, Tom.
Angie Drake -- Vice President, Finance
Merci.
Operator
One moment for our next question. Our next question is coming from Eric Bosshard of Cleveland Research Company. Your line is open.
Eric Bosshard -- Cleveland Research Company -- Analyst
Merci. Two things, if I could. First of all, in residential, I'd just love some clarity on what's different now versus 90 days ago? What again, just to summarize, what played out differently than expected?
Rick Olson -- Chairman and Chief Executive Officer
Yeah, the -- you know, if you think about when we had our last earnings call, I think we were -- you know, we said residential would be down a little bit from the year relative to what we were -- what we had talked about previously. At that time, we tracked things like the green out in North America and other key markets, and it was actually ahead of pace for the spring to arrive early. And shortly after that call, that shifted in the opposite direction. So, the biggest factor and the one that can trump other factors, including the economy, etc., is weather and seasonal timing.
So, that's what shifted shortly after our last call. We try to reflect our best commentary about where we think things are going. And then, the maybe second factor that we think is -- are the keys for the residential businesses, you know, consumer confidence and the economy, the banking situation that happened shortly thereafter. So, the two biggest factors we think are driving mower demand within residential.
Weather and the economy happened shortly after we had our last commentary. And a positive news is pro is better than we expected at that time. So, that's a substantial offset to what we're seeing on the residential business and that accounts for 75% to 80% of our business but is looking very, very strong.
Eric Bosshard -- Cleveland Research Company -- Analyst
OK. And then, within the timing, the there's a lot of discussion about an extended season. Is it not something -- this is not a business that can be made up? Is there a different appetite from retailers to bring in inventory? Just curious in terms of that point.
Rick Olson -- Chairman and Chief Executive Officer
The dynamics are what you would expect if you're in the place of a dealer. We always work. And I think it was previously mentioned, there are promotions out there to drive sales during the more middle portion of the season. The early portion of the spring is where the natural demand and interest is usually there.
So, if that gets muted it, ships out. People still need to replace their equipment, but they're not -- there's not the same sort of momentum about doing that. That's where we come in with promotions and so forth. But -- so that's kind of the psychology of the end retail customers.
From a dealer standpoint, they're just being logical about managing their inventory. If they didn't sell as many in the spring, they're going to be more hesitant about medium reorders when they do get some retail in the mid-summer. And all of these are factored into our guidance that we go through all of those pluses and minuses. We love to say we can make up for what happened in the spring, but we know realistically that there's lost opportunity in the spring that we can't completely make up.
Eric Bosshard -- Cleveland Research Company -- Analyst
OK. And then, the second, and I assume this is an apples and oranges question, but the backlog increased and the finished goods inventory increased and again, you made a comment that the desire to work down the finished good inventory. Feels like finished good inventory solves backlog, except if we're back to the apples-and-oranges concept. Can you just help expand a little bit on the logic that I'm presenting here?
Rick Olson -- Chairman and Chief Executive Officer
Oui. You've got the logic figured out of the increase in our finished goods inventory that we -- that Angie talked about is on the residential side, and the backlog is the professional side.
Eric Bosshard -- Cleveland Research Company -- Analyst
Perfect. Merci.
Operator
One moment for our next question. And our next question will come from Ted Jackson of Northland Securities. Your line is open.
Ted Jackson -- Northland Securities -- Analyst
Good morning, thanks for taking my questions. I'm just going to ask really quick ones. First, just to kind of beat the inventory horse, if I listened to all the commentary from all the questions that have been asked so far, is it fair to assume is that we look into the back half of 2023 and going into '24 that we should see kind of turns or days improve? And at an absolute level, the inventory number go down and free up some of your inventory and drive some free cash flow.
Angie Drake -- Vice President, Finance
Oui. Our expectation is that we will continue to see inventory improve and that those terms will increase. As we -- today, we still have -- as we just heard on the question before that our finished goods inventory is largely in the residential area, but that's where the improved -- the increase came from. We still have a big need in our professional segment to move finished goods inventory into our channels to field inventory, so an opportunity to move that WIP into finished goods.
We did make good progress in WIP, and we expect to really enter in '24 in a better position. And, overall, that's how it looks.
Ted Jackson -- Northland Securities -- Analyst
OK. No, I mean, I care a lot about free cash flow, so it's a pretty important question. Secondly, on the gross margin, I mean you've really seen some improvement within margins and, you know, the revenue mix is helpful. But the price realization clearly is having an impact as well.
When we think through this year and kind of positioning out into '24, do we -- are those trends to continue? I mean, is there a likelihood that we will see your margins come back to, for lack of a better term, more historic, maybe like in the 34 -- more between 34% and 35% just because you're catching up with regards to inflation, and you see what I'm saying? And then, perhaps, maybe the mix between professional and residential.
Angie Drake -- Vice President, Finance
We haven't guided for F '24 yet, but if we look back at our F '23 guidance, we do expect gross margin improvement, although, you know, initially, we talked about our second half going to be -- our first half is going to be higher than our second half. Now, we're looking at -- sorry, opposite way. Now looking at our first half being higher than our second half really due to the manufacturing adjustments that we'll see based on reduced volume. But our gross margin for Q3 will be similar year over year to what we saw in Q2.
And we continue to see really overall productivity improvements throughout our plants as we continue to see those modest supply chain improvements and are continuing to improve our output.
Ted Jackson -- Northland Securities -- Analyst
So, without putting words in your mouth, just sort of generically as we kind of roll through the things, improving supply chain, you know, catching up with regards to cost inflation, etc., etc., that it's fair to assume not like on a quarter-by-quarter basis, but just generally speaking, just a better margin environment for Toro as we kind of roll through the next year or two.
Angie Drake -- Vice President, Finance
We do expect F '23 margin improvement, and we'll continue to focus on long-term margin improvement as we go forward.
Ted Jackson -- Northland Securities -- Analyst
OK. And now a real deep-in-the-weeds question for you. In the cash flow statement on your distribution and contributions to the finance affiliate, you've been -- it's been a use of cash to the tune of about $2.5 million per quarter. And can you just provide some kind of color on how we should think about that line item in your cash flow statement as we go forward? I mean, it's just something I really need a little guidance for and its importance as it relates to cash flow.
Julie Kerekes -- Treasurer and Senior Managing Director of Global Tax and Investor Relations
Yeah, Ted, this is Julie. That relates to our Red Iron joint venture, and that will just kind of move up and down as our balances with them, move up and down throughout the year. So, we can discuss that further when we talk. I think we're talking several, but yes, yes.
Ted Jackson -- Northland Securities -- Analyst
OK, OK, well thank you for taking my questions.
Rick Olson -- Chairman and Chief Executive Officer
Merci.
Angie Drake -- Vice President, Finance
Yeah, thanks.
Operator
One moment for our next question. And our next question seems to be a follow-up from Dave MacGregor of Longbow Capital Research. Your line is open.
Dave MacGregor -- Longbow Research -- Analyst
Yeah, thanks for taking the follow-up. Rick, just sort of backing away from the quarter and looking at some longer-term drivers here, could you just give us an update on where you are with the autonomous offering in residential? And I guess two things, what are the opportunities here to expand distribution and put the product in front of more consumers? And secondly, I guess based on kind of the early feedback you're getting, what are the consumers focusing on with your product as the sources of competitive differentiation?
Rick Olson -- Chairman and Chief Executive Officer
Bien sûr. I think, you know, one thing I will say is, keeping the residential offering in the context of the other products that we've already talked about and those that are in process, we really see a suite of robotic solutions going forward, of which that particular platform and configuration would be one of them. But we've also shown what we're doing on the golf side. We've shown through our industry trade shows, what we're doing on the landscape contractor side.
And as these needs converge, they will -- they may have a combination of solutions. The specific residential solution that you're talking about, we have operating in limited volume out in the field right now. And we'll be expanding that availability of that product through this year and into the first part of next year as well. So, what they see really as the differentiated piece that's desirable is ability to operate in all conditions with less impact from things like tree canopies and access to GPS.
So, it uses fairly advanced optical systems to be able to create an understanding of its environment, and we think that that will -- although it's a very challenging technical issue. We believe that provides a lot of value to our customers understand ultimately and better satisfaction rate.
Dave MacGregor -- Longbow Research -- Analyst
Intéressant. And I guess, battery and hybrid products overall, you're targeting 20% of motorized product sales by 2025. Where is that percentage today?
Rick Olson -- Chairman and Chief Executive Officer
I think the exact percentage is somewhere a little bit north of 6% at this point. We did publish and have been public about our goal to be 20% by 2025. And we have -- as you've seen, we have been on a steady path releasing electrical battery solutions across all of our markets. We are challenged to keep up with the demand for golf, fully battery zero emission products in golf, including green mowers, walk and rides, the utility vehicles with -- and people movers, with lithium-ion solutions on the -- we just introduced the revolution and the landscape contractor side.
Exmark will be coming with a similar products. We've had our residential products, the 60V Flex-Force platform, just a steady introduction of those products, even in the construction side, the eDingo, the Ultra mud buggy that's electric battery have opened up new opportunities for us to operate indoors. So, we are extremely excited about the progress with electric and battery -- electric battery products. One element to getting to that percentage is the consumer or the end customer uptake and their acceptance of electric as a solution.
We will continue to offer both electric and battery solutions. And in some categories, when you get into a more economically challenged time, it's a bigger upfront purchase. So, we know that there are factors going into the decision. We are absolutely committed to our path to our goal, and we are doing our part to make sure we've got the solutions in place to be able to achieve that.
Dave MacGregor -- Longbow Research -- Analyst
Right, right, thank you for that. Last question from me is just on the acquisition pipeline. You've done fairly significant transactions in 2019, '20, '21, '22. Nothing so far in 2023.
I know that window kind of opens and closes over time based on a number of factors. Just wondering how you're thinking about the acquisition opportunity right now within the bigger capital allocation thought process and what the pipeline looks like right now in terms of the next maybe three to four quarters.
Rick Olson -- Chairman and Chief Executive Officer
We are -- we've talked about it a number of times, we're very disciplined about our capital allocation process. And those priorities remain the same. Acquisition opportunities and M&A are part of those priorities, and the process never ends. So, even after a significant acquisition, we are talking the next day to the -- to another set of people that might be of interest.
I would say there's no significant difference in the amount of, you know, opportunities that might be out there. And that process continues. And again, the most important thing for us is not the opportunities. It's the discipline to make sure we have acquisitions that we don't regret in the future.
We don't regret the acquisitions that we've made. We are delighted with what we've done in the last few years.
Dave MacGregor -- Longbow Research -- Analyst
Droite. Thanks very much, and good luck.
Rick Olson -- Chairman and Chief Executive Officer
OK. Merci.
Angie Drake -- Vice President, Finance
Merci.
Operator
This concludes the Q&A session. Ms. Kerekes, please proceed with the closing remarks.
Julie Kerekes -- Treasurer and Senior Managing Director of Global Tax and Investor Relations
Thank you, Tanya, and thank you all for your questions and interest in The Toro Company. We look forward to talking with everyone again in September to discuss our fiscal 2023 third quarter results.
Operator
[Operator signoff]
Duration: 0 minutes
Call participants:
Julie Kerekes -- Treasurer and Senior Managing Director of Global Tax and Investor Relations
Rick Olson -- Chairman and Chief Executive Officer
Angie Drake -- Vice President, Finance
Sam Darkatsh -- Raymond James -- Analyst
Tim Wojs -- Robert W. Baird and Company -- Analyst
Dave MacGregor -- Longbow Research -- Analyst
Tom Hayes -- CL King and Associates -- Analyst
Eric Bosshard -- Cleveland Research Company -- Analyst
Ted Jackson -- Northland Securities -- Analyst
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