TTC Q4 2025: AMP Cost Savings Target Raised to $125M as Underground and Golf Drive Margin Upside
The Toro Company’s Q4 2025 results underscore a strategic pivot toward operational discipline and targeted growth investments, with the AMP program’s savings target raised to $125 million by 2026. Margin expansion in the professional segment reflects pricing power and productivity, while the Tornado acquisition strengthens underground construction exposure. Guidance balances confidence in core markets with caution on consumer and tariff headwinds, setting the stage for focused margin and cash flow execution in 2026.
Summary
- AMP Program Upside: Cost savings target increased to $125 million, fueling margin expansion and reinvestment.
- Professional Segment Resilience: Underground and golf markets offset softness in residential and enable margin gains.
- 2026 Guidance Signals Cautious Optimism: Management expects margin improvement but embeds macro and tariff risks.
Performance Analysis
Toro Company’s Q4 2025 performance exceeded internal expectations, with both professional and residential segments delivering stronger than anticipated sales. The professional segment, which accounts for roughly 80% of total revenue, held net sales steady year over year at $910 million, as net price realization and higher shipments in underground construction and snow and ice management offset softness in golf, grounds, and zero-turn mowers. Segment earnings rose 2.9%, and the margin expanded to 19.2%, up 60 basis points, driven by pricing and productivity improvements.
The residential segment, while declining 5.1% in Q4 and 14% for the year, outperformed internal forecasts due to strong snow product shipments and channel restocking. Gross margin improvement was a highlight, with Q4 adjusted gross margin rising to 34.5% (from 32.3%) and full-year gross margin also ticking up, both attributed to price realization and productivity. SG&A as a percentage of sales increased, reflecting lower volume and restored incentive compensation. Free cash flow reached a record $578 million with a 146% conversion rate, bolstered by working capital improvements.
- Professional Segment Margin Expansion: Margin rose 60 basis points to 19.2% in Q4, showcasing pricing power and operational leverage.
- Residential Weakness Moderated by Snow: Channel enthusiasm for snow products and cost actions softened the segment’s decline.
- Cash Generation and Capital Return: Record free cash flow drove $441 million in dividends and buybacks, reinforcing balance sheet strength.
Backlog normalization and improved lead times position the company for more predictable 2026 execution, while the AMP cost savings program continues to drive both margin and reinvestment capacity.
Executive Commentary
"Our multi-year Amplifying Maximum Productivity, or AMP, program has already delivered annualized run rate cost savings of $86 million...we are increasing our AMP run rate savings target to $125 million or more by the end of 2026, up from our original target of at least $100 million."
Rick Olson, Chairman and CEO
"We expect annual total company net sales to rise 2% to 5%, reflecting professional segment sales that are expected to grow mid-single digits, and residential segment sales that are expected to decline low to mid single digits. We anticipate total company adjusted gross margin to improve in 2026, underscoring the strength of our business model and our ability to navigate cost pressures while continuing to invest in innovation."
Angie Drake, Vice President and CFO
Strategic Positioning
1. AMP Cost Reduction and Productivity Program
The AMP (Amplifying Maximum Productivity) initiative, a multi-year cost and productivity program, has delivered $86 million in annualized savings and raised its target to $125 million by 2026. Key levers include facility consolidation (over 1 million square feet reduced), a 15% salaried workforce reduction, and divestiture of non-core businesses. Management expects up to 50% of savings to be reinvested in innovation and technology, with the remainder supporting margins.
2. Portfolio Focus: Professional Segment and Growth Markets
Professional segment strength anchors the business model, particularly in underground construction, golf, and grounds. The acquisition of Tornado Infrastructure Equipment, a vacuum excavation and industrial equipment supplier, expands exposure to secular infrastructure and energy trends. The company is investing in smart, connected, and autonomous products, such as the GeoLink mower and AI-enabled irrigation software, to differentiate offerings and address customer labor and productivity needs.
3. Channel and Inventory Discipline
Inventory and channel management have normalized, with field inventory now at healthy levels and lead times returning to historical norms (60-90 days). Backlog improved by $400 million year over year, giving the company flexibility to respond to demand shifts and weather-driven variability, especially in snow and underground products.
4. Tariff and Cost Headwinds Mitigation
Tariff exposure remains a material headwind, with $100 million in tariff costs built into 2026 guidance. The company has systematically reduced China exposure and continues to offset tariff impacts through supply chain actions and selective price increases, but recognizes variability remains a risk.
Key Considerations
Toro’s 2025 results and 2026 outlook reflect a deliberate shift toward operational discipline, margin protection, and targeted growth bets in secular markets. The AMP program’s expanded savings target and strong free cash flow support ongoing capital returns and innovation investments, but management is embedding caution on the pace of residential recovery and tariff risks.
Key Considerations:
- AMP Program Momentum: Expanded savings target underpins both margin expansion and reinvestment in innovation, with $75 million realized in 2025 alone.
- Professional Segment as Growth Engine: Underground construction and golf/grounds remain multi-year growth drivers, offsetting residential volatility.
- Tariff and Inflation Pressures: $100 million in anticipated tariffs for 2026, with steel, aluminum, and China exposures, could pressure margins if not offset by price or productivity.
- Residential Recovery Pacing: Management expects a slow rebound, with Q1 2026 residential sales guided down high teens, improving through the year if consumer sentiment and snow trends hold.
- Capital Allocation Discipline: Share repurchase authorization expanded, dividend raised, and leverage remains at 1.3x, giving flexibility for future M&A or downturns.
Risks
Tariff volatility and inflation in raw materials present ongoing margin risks, with $100 million in tariffs forecast for 2026. Residential demand recovery is uncertain, hinging on macro conditions and consumer sentiment. Acquisition integration, especially with Tornado, could dilute first-year margins. Management’s guidance embeds these risks, but any deterioration in cost or demand environments could pressure results.
Forward Outlook
For Q1 2026, Toro guided to:
- Total company net sales up slightly year-over-year
- Professional segment sales up mid-single digits; residential segment sales down high teens
- Professional segment margin flat; residential margin lower
- Adjusted EPS flat to slightly down versus prior year
For full-year 2026, management expects:
- Net sales growth of 2% to 5%
- Professional segment margin of 18.5% to 19.5%
- Residential margin of 6% to 8%
- Adjusted EPS of $4.35 to $4.50
- Free cash flow conversion above 110%
Management highlighted AMP savings momentum, continued demand in underground/golf, and normalized channel inventory as tailwinds, while embedding caution on macro, tariffs, and consumer confidence.
- AMP savings and productivity expected to build through the year
- Tariff and cost inflation fully embedded in guidance assumptions
Takeaways
Toro enters 2026 with margin and cash flow momentum, disciplined capital allocation, and an expanded cost savings agenda. Growth will be led by professional segment strength and innovation, but residential recovery and tariff risk remain key watchpoints.
- Cost Discipline as Strategic Lever: AMP program expansion and strong execution underpin margin resilience and fund innovation, even as top-line growth remains modest.
- Portfolio Shift Toward Secular Growth: Underground construction and golf/grounds exposure, amplified by Tornado acquisition, position Toro to benefit from infrastructure and labor trends.
- 2026 Hinges on Margin Delivery: Investors should monitor AMP realization, tariff pass-through, and residential channel trends as primary drivers of earnings performance.
Conclusion
Toro’s Q4 2025 results validate its operational discipline and targeted growth strategy, with the AMP program’s expanded savings target and professional segment strength setting a foundation for 2026. Margin management, cash generation, and innovation investment remain central, but tariff and residential demand risks warrant close attention in the coming year.
Industry Read-Through
Toro’s results reinforce a broader industry trend: operational discipline, cost savings programs, and portfolio focus on secular growth markets (infrastructure, golf, smart irrigation) are increasingly critical for margin protection amid macro volatility. The normalization of channel inventory and lead times signals easing supply chain bottlenecks, while persistent tariff and input cost pressures highlight the need for robust mitigation strategies. Peers in construction, outdoor equipment, and specialty manufacturing should note the growing importance of cost productivity programs and the potential for targeted M&A to accelerate exposure to multi-year growth themes.