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Announcement:

Moody's affirms Toro's Baa3 unsecured rating, outlook upgraded to stable

01 Feb 2011

Approximately $225 million of rated debt affected

New York, February 01, 2011 -- Moody's Investors Service affirmed The Toro Company's ("Toro") Baa3 senior unsecured rating and revised the rating outlook to stable from negative. The change in outlook reflects the recent year over year revenue and margin improvement and the expectation that the company's end markets and credit metrics will continue to improve.

Positively, throughout the downturn, Toro has continued to invest in innovation and new product introduction stimulating demand and improving its penetration in key markets. New products, those introduced within the last two years, account for more than half of the company's revenues. Additionally, the company initiatives to reduce expenses and working capital needs have helped improve the company's operating margin to 9.3% in FY10 from 8.0% while EBITA to interest improved in fiscal 2010 to 7.1x from 5x in fiscal 2009 and is expected to improve further in 2011 (Moody's adjusted ratios). Improvements in working capital management have also helped the company's liquidity profile.

Going forward, we believe the company's revenues will continue to increase along with improving economic conditions in the US and Asia. However, expenses may be pressured by rising commodities costs. Overall, we believe the company has achieved a level of operating and financial flexibility that should enable it to sustain credit metrics that are supportive of the Baa3 rating.

The following rating was affected by this action:

Senior unsecured affirmed at Baa3.

The ratings outlook was changed to stable from negative.

Toro's professional segment makes up around two thirds of revenues and includes golf course maintenance and irrigation systems. New golf projects in Asia have helped support demand while the US market is starting to show signs of a turnaround. An improving credit environment should help owners upgrade ageing equipment and invest in irrigation systems. The residential market should benefit from strong demand for snow blowers this winter. Over time, as consumer confidence improves and as the residential housing market in the U.S. stabilizes, sales of lawnmowers should also improve. In recent years, the company's international markets, particularly in Asia, have been growing faster than its domestic markets.

Toro's Baa3 senior unsecured rating incorporates the company's reasonable leverage for the rating category, strong brand recognition, and global footprint. The rating also recognizes the company's good liquidity profile. Offsetting these factors is the risk that in a given year the seasonality of its business could vary beyond the norm with dramatic swings in weather having a meaningful impact on product demand.

An upgrade to the rating is unlikely over the near term as the company must contend with the sporadic regional economic recovery and potential higher raw material and employee compensation expenses. Actions that could support a positive outlook include EBITA margins sustained near 15%, and free cash flow/debt consistently above 30%, all adjusted per Moody's methodology, could result in a positive movement in the rating.

Factors which might result in a negative outlook again include a step-up in acquisitions, more aggressive share buybacks or dividends that weaken its credit metrics. Failure to pursue the refinancing or extension of its revolving credit facility before it comes due could cause negative ratings action. Additionally, EBITA margins below 8% or EBITA/interest expense below 4.0x (ratios adjusted per Moody's methodology) could result in a meaningful ratings pressure.

The last rating action was on March 25, 2009 at which time Moody's affirmed the company's Baa3 senior unsecured rating and revised the rating outlook to negative.

The principal methodology used in this rating was Global Manufacturing Industry published in December 2010.

The Toro Company, headquartered in Bloomington, MN, designs, manufactures, and markets professional turf maintenance equipment and services, turf and micro irrigation systems, landscaping equipment (approximately 64% of revenue) and residential yard products, (approximately 36% of revenue) worldwide. Total revenues for the fiscal year ended October 31, 2010 totaled approximately $1.7 billion. Approximately 32% of the company's revenues are from its international business.

New York
Paul Aran
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms Toro's Baa3 unsecured rating, outlook upgraded to stable
No Related Data.
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