Toro (NYSE:TTC) released third-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below.
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Summary
The Toro Company reported a strong third quarter with an 8% increase in net sales and adjusted EPS of $1.33, driven by growth in both professional and residential segments.
The company highlighted strategic product innovations such as the Exmark Radius zero-turn mower and the GrandStand Multi Force line, contributing to sales growth in the professional contractor segment.
The AMP program exceeded its target of $125 million in run-rate savings, bolstering operating margins and free cash flow, leading to $358 million in share repurchases.
Toro raised its full-year guidance for adjusted EPS to a range of $4.60 to $4.65 due to sustained customer demand and productivity initiatives.
Operational highlights included strong adoption of new products in the golf segment and increased market adoption in the underground construction segment with the HammerHead Blue Light technology.
Management expressed confidence in the company's long-term growth potential, emphasizing continued investments in innovation and productivity improvements.
Full Transcript
Marvin, Operator
Good day, ladies and gentlemen, and welcome to the Toro Company's third quarter earnings conference call. My name is Marvin, and I'll be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. As a reminder, this conference is being recorded for replay purposes. I'll now turn the presentation over to your host for today's conference, Heather Hilley, Vice President, Corporate Affairs and Investor Relations.
Please proceed, Ms. Hilley.
Heather Hilley, Vice President, Corporate Affairs and Investor Relations
Good morning, everyone, and thank you for joining us for the Toro Company's third quarter 2026 earnings conference call. I'm Heather Hilley, Vice President of Corporate Affairs and Investor Relations. On the line with me today are Rick Olson, Chairman and Chief Executive Officer; Edric Funk, President and Chief Operating Officer; and Angie Drake, Vice President and Chief Financial Officer. Rick, Edric, and Angie will provide an overview of our third quarter results, which were released earlier this morning, and discuss our priorities and outlook for the remainder of fiscal 2026.
Following their remarks, we'll open the phone lines for a question-and-answer session. Before we begin, please note that any forward-looking statements made today are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks are detailed in our earnings release, investor presentation, and our most recent filings with the SEC. During our remarks we will also reference certain non-GAAP financial measures.
We believe these metrics provide useful insight into the company's performance. Reconciliations to the most directly comparable GAAP measures can be found in this morning's press release. Both the release and our third quarter supplemental presentation are available in the investor information section of our corporate website. With that, I will now turn the call over to Rick.
Rick Olson, President and CEO
Thank you, Heather, and good morning, everyone. We delivered a strong third quarter, growing net sales 8% and generating adjusted earnings per share of $1.33. The sales momentum from the first half continued into Q3, with both our professional and residential segments growing net sales over 8%. Within the professional segment, landscape contractor sales increased double digits, with underground and specialty construction growing mid single digits.
As expected, Golf shipments were down modestly year over year against a strong prior-year comparison. The strength in professional contractor was driven in part by the redesigned Exmark Radius zero-turn mower launched earlier this year. Another key contributor was the GrandStand Multi Force product line. Now equipped with a new, more powerful and fuel-efficient engine, this versatile stand-on machine has numerous attachments, enabling customers to expand services, increase profitability, and remain productive in every season.
Our Ventrac business continues to grow with professional landscape contractors and homeowners with acreage. This season we added to the more than 30 pro-grade attachments with the newly introduced fence post mower. It virtually eliminates one of the most labor-intensive trimming processes, and it's a great example of our innovation process identifying a customer pain point and developing an effective solution. Customer response has exceeded expectations, with demand already surpassing our initial production run.
Rounding out a strong season for professional contractors was a successful Q3 load-in for Boss Snow and Ice Management products. Liquid de-icing technologies and the Snowraider delivered the strongest year-over-year growth rates within the portfolio. Underground Construction continues its strong performance, growing mid single digits in the third quarter. We've seen increased market adoption for our industrial and utility pipe relining solutions like HammerHead Blue Light, which has grown over 30% year to date.
This is an advanced cured-in-place pipe rehabilitation system that avoids the disruption of digging a large trench for a full pipe replacement. Our patented LED Blue Light curing technology cures up to five times faster than traditional steam, hot water, or ambient air methods. Moving on to the residential segment, we grew net sales by over 8%, supported by the continued success of our partnership with Lowe's. Importantly, this growth was accompanied by a margin improvement of 400 basis points year over year.
We remain on track to achieve our goal of sustainable double-digit operating margins in residential. In a moment, Angie will highlight the progress of our AMP program and the resulting margin expansion for the company. In addition to AMP, we are driving working capital improvements year to date. These improvements have contributed to our $425 million in free cash flow at a conversion rate of 128%. As a result of our strong cash flow, we executed $358 million of share repurchases.
We are entering the fourth quarter with strong momentum and high expectations. Healthy end markets, disciplined execution, and ongoing productivity initiatives are driving margin expansion and robust free cash flow. Our strong year-to-date performance gives us the confidence to raise our adjusted EPS guidance to a range of $4.60 to $4.65, up from our prior range of $4.50 to $4.62, bringing the midpoint up over $0.07 to $4.63. Now I'll turn the call over to Angie for the details on the quarter.
Angie Drake, Vice President and Chief Financial Officer
Thank you, Rick, and good morning, everyone. Our third quarter results were driven by strong customer demand and disciplined execution. Net sales increased 8.4% to $1.23 billion, or 6.2% organically. Adjusted operating margin was 13.9%, up 30 basis points from the prior year. This improvement was driven primarily by the benefits of our AMP initiative, which will exceed our target of $125 million in run-rate savings by year end. We launched AMP in 2024 to focus on four key areas: supply base transformation, design-to-value engineering, route-to-market optimization, and operational efficiency.
The program has delivered meaningful benefits across each of these areas and has also been instrumental in helping mitigate tariff-related impacts. While AMP will conclude in fiscal 2026, our commitment to continuous improvement will not. Across our supply chain and functional organizations, we will continue to use the muscle gained by the AMP initiative to improve efficiency, reduce complexity, and enhance profitability. Productivity is a critical part of the Toro Company's DNA.
The net result for Q3 was an adjusted EPS of $1.33. The year-over-year increase was driven by $0.12 from operational performance, $0.05 from share repurchases, and $0.06 from tariff refunds, partially offset by an $0.08 impact from a higher adjusted tax rate and $0.06 of other corporate items, mainly a higher incentive accrual due to year-to-date performance and less Red Iron income due to lower field inventories. The adjusted tax rate in the third quarter was 22.4%, higher versus our expectations due to the geographic mix of earnings.
Our adjusted earnings exclude a non-cash impairment charge of $43 million as part of our AMP-related network optimization and product portfolio rationalization. Moving on to our segment detail, within professional, net sales increased 8.8%, with 6.1% coming from organic growth. Adjusted operating margin was 20.9%, down 40 basis points year over year. This was primarily due to product mix and higher manufacturing costs, partially offset by pricing, productivity improvements, and volume leverage.
Within residential, net sales increased 8.6%. Adjusted operating margin improved to 5.9%, up 400 basis points year over year. The increase was driven by productivity improvements, pricing, volume leverage, and a favorable comparison to a prior-year inventory valuation adjustment. These benefits were partially offset by higher material and manufacturing costs. Turning to balance sheet highlights, we improved inventory by $153 million year over year due to lower finished goods balances.
Accounts receivable were up slightly as a result of the TORNADO acquisition, with accounts payable also up slightly due to higher purchases with a greater level of sales. As a result, working capital improved $217 million year over year, contributing to the strong free cash flow conversion that Rick mentioned. Turning to our outlook, we are raising our full-year guidance based on our sustained broad-based customer demand and the results of our productivity initiatives.
We now expect our full-year net sales to be in the range of 6.3% to 6.6%, up from the prior range of 4% to 6.5%. At the segment level, we anticipate professional net sales to be up mid single digits, continuing the momentum of recent quarters. Residential net sales will be approximately flat as we lap last year's strong snow-related demand. We are closely monitoring winter weather patterns and will react quickly as the season develops. Moving to profitability, the adjusted EPS range is expected to be between $4.60 and $4.65, up from our prior range of $4.50 to $4.62.
The midpoint of our guidance increases from $4.56 to $4.63, reflecting our third quarter outperformance and a better outlook for the fourth quarter. The implied fourth quarter guidance puts net sales between 3.9% and 5.1% and adjusted EPS between $0.93 and $0.98. This guidance includes $7 million of anticipated IEIPA refunds that is less than the previously expected $12 million, as $5 million has been classified as outside of phase two. The refund timing of this portion of IEIPA refunds is uncertain given the current process.
If they are available in the future, we will include them in our guidance at that time. We continue to build our business for long-term profitable growth. This includes prioritizing innovation investments that we believe will deliver outstanding returns, driving sustainable margin expansion with disciplined execution, including our productivity initiatives, and leveraging the talents of our team and the power of our best-in-class distribution networks.
We are confident in our ability to drive significant benefits and opportunities for all of our stakeholders. With that I will turn the call over to Edric.
Edric Funk, President & Chief Operating Officer
Thank you, Angie. I'd like to start today by recognizing and thanking Rick for his leadership, partnership and unwavering commitment to Toro and its people. Rick has led the organization through a remarkable period of transformation and growth. His vision is to strengthen the portfolio and under his guidance the company has successfully navigated the many macro and geopolitical challenges of the past 10 years. Today, the company is in a position of strength and poised to capture the opportunities ahead.
The team did just that in the third quarter, as evidenced by our adjusted operating earnings growth of 11%. This was underpinned by our constant focus on operational excellence. One example was our recent Supplier Summit, which brought together more than 180 organizations. The event reinforced our dedication to building strong supplier partnerships that support supply continuity, innovation and productivity. Direct engagement between leaders of Toro and our supplier partners creates opportunity to identify and accelerate continuous improvement initiatives and to strengthen long-term partnerships that create value for both Toro and our customers.
Relationships have always been a strength of Toro, and our golf business is one great example. In early August, we welcomed 36 golf course leaders to our headquarters, representing top courses from across North America. Participants raved about our engineering and manufacturing operations and were highly enthusiastic about our emerging technology demonstrations in the areas of automation, artificial intelligence, electrification and connected solutions.
The investment we make in people and relationships continues to pay dividends. After two years of exceptional double-digit growth, golf continues to perform in line with our expectations this year. More importantly, the industry's underlying drivers remain strong. We've now placed hundreds of autonomous products across golf facilities worldwide, including the TurfPro, RangePro and GeoLink Autonomous Fairway Mower. Toro's autonomous solutions demonstrated their capabilities on one of golf's biggest stages when Shinnecock Hills hosted the 126th U.S. Open. During tournament week, the TurfPro 500 and RangePro 100 operated together in the practice area, with the RangePro autonomously collecting golf balls while the TurfPro simultaneously maintained the turf. This showcased how automation can help customers optimize labor resources even under the most demanding conditions. I'm very proud of our team for the successful launch of our GeoLink Autonomous Fairway Mower. This product combines the trusted excellence of our renowned quality of cut with advanced autonomous technology to help golf courses maintain superior playing surfaces, all from a smartphone app and allowing the grounds crew to track one or more units as they perform other work on the course. While we've already made considerable progress with this technology, I'm even more excited about what's to come. Next spring we will add another model, the larger Reelmaster 5010H, as we accelerate the commercialization of our autonomous platform launches. We're also seeing excellent adoption of other new product introductions within golf. The new electric greens roller is already sold out for 2026.
This reflects customer appreciation for both its intuitive controls and the built-in pass alignment feature that helps the crew achieve uniform and repeatable results. In addition, the fact that it's all electric eliminates the risk of oil leaks on sensitive putting surfaces. Demand across our businesses continues to be broad based. Strong adoption of new products, continued healthy conditions in golf, and sustained strength in underground and specialty construction position us well to deliver on our updated full-year guidance.
Looking forward, our team remains highly focused on key strategic initiatives that will deliver long-term sustainable value for customers and shareholders alike. Now I'll turn the call back over to Rick for some closing remarks.
Rick Olson, President and CEO
Thank you, Edric. During the past decade, I've had the privilege of leading Toro and working alongside an extraordinary team of dedicated and talented employees. Together, we have accelerated growth, doubling revenues and expanding into new markets. We completed 10 strategic acquisitions, including our largest ever in Charles Machine Works. These investments strengthened and diversified our portfolio, making us more resilient and reducing our reliance on weather patterns and consumer purchase cycles.
The strong performance by Ditch Witch, Ventrac and Tornado this quarter reflects the positive impact of this strategy and the value it creates for all stakeholders. We also significantly advanced our technology capabilities. Whether helping customers reduce downtime through fleet management solutions, addressing labor challenges with autonomous technologies, or offering high-performance gas and electric product options, we continue to innovate. Today, we are expanding these capabilities with AI-enabled business processes and product innovations such as our Spatial Adjust precision irrigation technology.
Our team remains focused on execution and delivering value for customers. Our end markets are healthy, inventory levels are well positioned, and we continue to see encouraging demand trends across the business. I would like to thank our employees, channel partners and shareholders for their continued partnership, dedication and trust. I am confident in our ability to deliver on our updated full-year guidance and to finish the year strong. I am also confident in Toro's future with Edric at the helm.
He is an exceptional leader who understands our business, customers and people. And I know that he and the team will continue to build on our momentum, leading the company into its next chapter of growth and success. Now we'll open up the line for questions.
Marvin, Operator
Ladies and gentlemen, if you wish to ask a question, please press star followed by 1 on your touchtone phone. If your question has been answered or you wish to withdraw your question, please press star followed by 1. Again, please stand by for your first question. And your first question comes from the line of David McGregor of Longbow Research. Your line is now open.
David McGregor, Analyst at Longbow Research
Good morning, everyone. Thanks for taking my questions. It seems like... Yeah. Hi, Rick. And Rick, thanks for all the help over the last years. It's really been a pleasure working with you and I wish you well with whatever comes next.
Rick Olson, President and CEO
Thank you.
David McGregor, Analyst at Longbow Research
I wanted to... Thanks. I guess I wanted to explore the Ditch Witch business, the underground construction business. And it seems as though there's been more of a normalization perhaps now, as well as some of the benefits from the AMP productivity program. But I wonder if you could just talk about where we are right now in terms of margin contribution there and the extent to which maybe there's further upside yet to be achieved.
Rick Olson, President and CEO
Yeah, thanks for asking about the underground business. We are extraordinarily excited about the underground business and particularly the future runway for opportunity there, both for growth, which is driven by the market demand across—you know, we talk about data centers, but also utility work, broadband, et cetera—but the opportunities to continue to grow in profitability internally with the work that we've done. The trajectory from the acquisition to now is pretty remarkable from a profitability standpoint.
We see more opportunity there. If you look specifically at data centers, for example, we were just looking at a case study. You know, it's not so much the work that's done on the site; it's the work that's done to get the data, the power and the utilities to the site. Just as an example, in Frederick, Maryland: 14 miles, 25 drills, 160 people that it took to get the data only—that was a 10-month project. So data centers are a big deal for us, but it's just one slice of the demand that we see in that area.
So that would be more of a drill and a trencher type of opportunity. And then I think you just heard us feature the relining capabilities with our patented blue light system that's multiple times faster than other methods for rehabilitating. And then lastly, just the impact of Tornado and, as we've talked about previously, those are key tools on a drill site or underground sites. That's adjacent to our products, but they also open up nodes to new opportunities of growth just for soft excavation in general as that becomes more important and required in many areas.
David McGregor, Analyst at Longbow Research
Right. And just to build on that, I guess, you know, you've done the Tornado acquisition here. Can you just talk about the extent to which maybe underground is growing as a priority within your capital allocation process, and the extent to which, you know, we might expect inorganic growth to continue there.
Rick Olson, President and CEO
It is a high priority for us and it cuts across different investment categories. So where the largest investment currently in our plants is taking place is to unlock more capacity within our facilities for the Ditch Witch business. And it is a high priority from a non-organic perspective as well. We think there continue to be opportunities for, you know, small, medium and large opportunities within that category as we go forward. So you're exactly right—it does go to the top of our list in several of those categories just based on the opportunity and the runway for continued growth.
David McGregor, Analyst at Longbow Research
And my second question: I wanted to just explore the AMP program here because you've reached $125 million in terms of program to date. I'm not sure what you've got planned—whether there's a formal AMP 2.0 program or whether this is just something you're going to continue to leverage off of going forward. But, you know, if you think about the... I realize it's a little early to be talking about 2027, but just from a construct standpoint, you talked about 8%—sort of EPS, 8% to 10% EPS growth—as part of your algorithm.
But it seems like there's some unrealized drop to the earnings line from the AMP program as well. So I guess I'm thinking about 2027 earnings, and I'm just thinking whether, you know, there's a carryover benefit from AMP that should be supplemental to that 8% to 10% sort of algorithmic growth next year, and we see maybe an above-average level of bottom line growth.
Angie Drake, Vice President and Chief Financial Officer
Thanks for the question, David. I'm really pleased with how the AMP initiative has worked for us and created really durable earnings and margin improvements throughout our business. But we also have said, I think many times, that the timing could not have been better as it helped us offset some of the tariff-related impacts and inflationary impacts that we've seen over the past few. We did mention in our prepared remarks that we expect to achieve our $125 million run-rate savings by year end.
We've actually made it there and still have a productivity pipeline in place and expect that to continue in the future. I think as we look forward, what we would say—and we're not ready to guide yet for F27—but we would certainly say that this has created durable earnings margin potential for us. And what you're referring to is our 8% to 10% kind of near-term growth expectations for EPS. The fact that we had to use some of those savings to offset tariff and commodity inflation, you know, we're not realizing all of that in this year in F26, but as we move forward and realize those run-rate savings as we move into F27, we should be able to see continued margin expansion, to your point.
Marvin, Operator
One moment for our next question. And our next question comes from the line of Mike Shlisky of D.A. Davidson. Your line is now open.
Mike Shlisky, Analyst at D.A. Davidson
Yes, hi, good morning. Yes, thanks. And Rick, I want to echo, thank you for all the information over the last decade or so. It's just been great working with you and partnering with you. Your knowledge has been tremendous and your imparting to all of us has been great, so I really appreciate it. Onto my questions. I want to follow up on David's question about the AMP program. Sounds like you've gotten to where you wanted it to be, maybe even better.
You've always had a kind of a named strategic initiative that the team works on internally. It's not guidance, but there's always been some target a couple years away. Now you pretty much reached the state of the AMP goals. Is there a new named program in the works, and could it actually be a sales-related growth program rather than a margin-related one this coming time around?
Edric Funk, President & Chief Operating Officer
Hey Mike, it's Edric here, and thanks for the question. We've actually been giving that a lot of consideration and are working on the what's next. So as Angie alluded to all the way back when we kicked off the AMP program, our intention and our hope was that the initiative would ultimately become just more ingrained in the culture and something that we'd operationalize over time. And so we don't expect to deviate or lose ground on that. But we are in fact looking at what might be next and not ready to announce anything specific today.
But we do anticipate having another initiative and likely will have some element of growth that's a part of that.
Mike Shlisky, Analyst at D.A. Davidson
Great, thanks for that. I also wanted to ask about some more details on the golf business. I think you had a lot of details to say about autonomous growth and just broadly golf being a strong business. You didn't mention much about irrigation, and I've been hearing a lot about folks taking on some pretty big projects at some courses around the U.S. Any comments on how that's been going, order-wise, installation-wise, and also globally? How's irrigation performed for Toro this year?
Edric Funk, President & Chief Operating Officer
Yeah, thanks for asking. Irrigation has remained strong for us. We've been mentioning in several of the previous calls just about the significant pipeline of projects, and demand remains really, really strong there. And that's fueled by things we've talked about: a number of courses that have reached the end of their useful life for their irrigation system, and so they're looking at doing upgrades and replacements and tapping into some of the new technology that we've developed.
So the demand remains really strong, and the installation rate has been somewhat gated, as we've talked about, by availability of crews to do the work. And that continues to be the case. But we're seeing projects on the books and bids taking place as far out as 2029. So it's been a good year this year, and we expect that demand and momentum to continue.
Mike Shlisky, Analyst at D.A. Davidson
All right, super. I appreciate the help. Thank you.
Marvin, Operator
One moment for our next question. Our next question comes from the line of Tim Wojs of Baird. Your line is now open.
Tim Wojs, Analyst at Robert W. Baird
Hey everybody. Good morning. And Rick, it's been great working with you, and Edric, congrats on being on the hot seat going forward. Maybe just first question for me. It sounds like the lawn and garden, or the professional contractor business, had some pretty good volume growth this quarter. How much of that was snow? How much of that was product-specific to Toro? And I guess as you're exiting the season on the contractor side, how would you assess field inventories at this point, just given we've seen some areas of drought here over the past few months?
Rick Olson, President and CEO
If you just look at landscape contractor in general, really broad-based demand across the categories that you mentioned. We saw very strong demand for our mowing products throughout the summer. Contractors came into the prime mowing season this year feeling healthy from a healthy snow season the prior year. So they came in in good condition. We were in a good position from a field inventory standpoint. Landscape contractor was a key driver for the BOSS shipments that go on to those same contractors—many of them are the same—were very strong.
And it was great to see some of the categories beyond plows—the liquid de-icing and the Snowrator products—really were strong contributors to that as well. So I think that gets to the last part of the question. It is the innovation and the new products that caused the overperformance, probably relative to the market there. The excitement about the refreshment of the Exmark products like the Radius zero turn, and an area that we talked about that is a contractor tool that we haven't talked a lot about in the last couple of years is Ventrac.
Ventrac, the acquisition from 2020, was one of the strongest contributors in terms of percentage growth in the quarter, and I mentioned in the prepared remarks the importance of attachments. It's a super versatile machine. The latest—it sounds like a small deal—but fence post trimming, if you can do that autonomously or automatically, that's a huge productivity pickup for a contractor and even someone that has an acreage or something like that. And what it does is it drives tractor sales. So it's innovation tied to a healthy market, tied to the strength of our portfolio, that drives that for us. And the homeowners—I will say homeowners with acreage that are part of that—they had a decent year. They're a little bit more responsive if you get into drier conditions during the latter part of the season, so a little bit slower there.
Tim Wojs, Analyst at Robert W. Baird
Okay. And you feel like the field is okay exiting the season, or how would you describe that?
Rick Olson, President and CEO
We entered in good condition. We are leaving in great condition. So it sets us up for direct impact of demand as that starts in the spring.
Tim Wojs, Analyst at Robert W. Baird
Okay. I know it's not a huge part of your business, but as investors are thinking about more headlines around Super El Niño, how are you planning that internally? And how does your customer base think about planning for potentially warmer northern temperatures in the winter?
Rick Olson, President and CEO
Tim, we're trying to prepare for any potential outcomes. If you've studied the history, as we have, around what happens when there is an El Niño—in particular the strong El Niño—certainly there are areas that get less snowfall; other areas receive more than normal. As the atmosphere continues to warm, we know that it holds more moisture, and so it sets up the possibility for more extreme snow events. So I'd say as we go into the season, we're prepared for the season.
We're not going to overextend ourselves, but we're not going to overreact in either direction. And you may remember last year we set ourselves up, when we had a better snow season than perhaps expected, that we were able to react quickly and add some product that ultimately flowed through to retail. We're making sure that we've set ourselves up with the same ability to respond if conditions warrant it, but also, on the other side, balancing against not wanting to get back into where field inventory becomes a problem if the weather pattern plays out in a way that we don't have strong snowfall.
Tim Wojs, Analyst at Robert W. Baird
Okay, understood. And then just two questions on margin. First, on the Pro margin, I know down year over year—if you would take out Tornado, how did the Pro margins perform on a year-over-year basis? And then second, the $5 million less of tariffs that's in guidance, which quarter did that get taken out of? Was it Q3 or Q4 or both?
Angie Drake, Vice President and Chief Financial Officer
Yeah. Hi, Tim, this is Angie. So your question on Pro margin: Tornado does have an impact. As we had mentioned at acquisition time, we would see sales growth coming from that—the inorganic sales growth—but that it wouldn't have a strong impact on margin in year one. So there is a little bit of a negative impact to our overall operating margin from the Tornado acquisition. And the IEPA refund, the $5 million, is coming out of Q4. So as we think about our guidance and implied guidance for Q4, that really comes out of the residential operating margin for the most part.
Tim Wojs, Analyst at Robert W. Baird
Okay, sounds good. Thanks for the time, guys. Appreciate it.
Marvin, Operator
Thank you. Thank you. One moment for our next question. And our next question comes from the line of Sam Targos of RJF. Your line is now open.
Sam Darkatsh, Analyst at Raymond James
Yeah. Hey, good morning, Rick, Edric, Angie, how are you?
Rick Olson, President and CEO
Sam, good morning.
Edric Funk, President & Chief Operating Officer
Doing well.
Sam Darkatsh, Analyst at Raymond James
And Edric, again, congratulations on the new post. And Rick, I'm going to obviously echo what everybody else has said. It's been an absolute pleasure working with you over the years. It's been a heck of a ride too, and I'm very hopeful that our paths cross again very soon. Thank you. A few questions here. First off, as it relates to the Canadian retaliatory tariffs, have you been able to ballpark or ring-fence what the general impact might look like at this point?
I know it probably affects Tornado at a minimum, and whether that is included within your fourth-quarter guidance.
Edric Funk, President & Chief Operating Officer
Yeah, Sam, I can speak to that a bit. So the tariff situation is an ever-unfolding, ever-dynamic situation, but based on what has already taken place and what's going into effect here in the near term, really minimal impact to our business. And that just has to do with which tariffs apply to our product lines that we import. So, you know, there's some yet-to-unfold discussions—rhetoric that's taken place—that could change things for next year. We'll monitor that closely. But we have factored everything into our Q4 guidance, and the impact is relatively minimal. And then on the export side, as it relates to the retaliatory side of things, it has in some cases caused our channel partners to ask about making adjustments to the flow of product as they prepare for their upcoming seasons. And so we're working closely with them to manage that flow of product as well. So I'd say the summary comment is everything is contemplated in the updated guidance and relatively minimal impact here in the near term.
Sam Darkatsh, Analyst at Raymond James
Got it. Thank you for that answer. Second question—Angie, if you could help a little bit with a bridge. I know it's early, and way too early for fiscal ’27 guidance per se, but just some line items or factors that are a bit exogenous as it relates to gross tariffs year on year, refunds year on year. I'm coming up with somewhere around a refund headwind of around $10 to $15 million and a gross tariff headwind of somewhere around $20 to $40 million year on year.
Is that math generally accurate? I know you're going to be offsetting it with AMP. You'll offset it with pricing. I'm just trying to get a sense of the gross cost headwinds next year.
Edric Funk, President & Chief Operating Officer
Yeah, I can speak to that one as well, Sam. And I'm trying to see where you may have come up with those numbers. I can probably follow what you might be assuming there. I'd suggest maybe if we take a step back, we're reaching the point where I think it's not particularly useful to look at the tariff number as a standalone number anymore. And I say that because, as you alluded to, there are productivity things that we've put in place. We've made some strategic sourcing decisions, we've continued to make adjustments to our manufacturing network.
And so when you net all of those things out, even with a slight adjustment in the timing of refunds as we look forward, we don't expect next year for tariffs to have a meaningful impact really in one way or the other. Rather, it just becomes part of the overall inflationary message. And as you alluded to, we won't do formal guidance until next quarter. But I'd be happy to share how we're thinking about next year, which is we expect to carry in really strong momentum as we start F27.
We expect our markets to remain strong and continued demand from across the entire portfolio. We talked a bit about amp, Angie reinforced there. As we move some of this year's run rate savings into next year's in-year savings that will help to be a part of offsetting headwinds, whether they're tariff related or otherwise. We're expecting our residential business to return to double digit profitability. As we've been signaling for a while, we're on track to do that and at the end of the day expecting it will continue to expand margins overall and we'll do all of that while continuing to add growth to the company.
And that's growth fueled not only by the market structure that I described, but also by new product introductions. So we're just really excited about next year, to be perfectly honest. And the tariff piece is something we've got a team that's paying attention to, but that's not presenting any kind of outsized influence on our thinking.
Sam Darkatsh, Analyst at Raymond James
That's really helpful. Thank you, Edric. And again, best wishes, Rick, on your next chapter.
Rick Olson, President and CEO
Thank you.
Marvin, Operator
Thank you. This concludes the question and answer session. Ms. Hilley, please proceed to closing remarks.
Heather Hilley, Vice President, Corporate Affairs and Investor Relations
Thank you, everyone, for your questions and interest in the Toro Company. We look forward to talking with you again in December to discuss our fiscal 2026, fourth quarter and full year results.
Marvin, Operator
Thank you for your participation in today's conference. This concludes the program. You may now disconnect.
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