Toro: Growing the rental portfolio
Toro: Growing the rental portfolio
01/14/2013

New products and acquisitions extend The Toro Co.’s presence 

Editor’s note: Michael Hoffman, chairman and CEO of The Toro Co., Bloomington, Minn., joined the company in 1977 as a commercial service representative. Over the course of his Toro career, Hoffman has held a number of management and executive leadership positions encompassing Toro’s consumer, commercial and international businesses. He was elected CEO in March 2005 and chairman of the board in March 2006. Hoffman attributes his success to the good fortune of working for a good company with great people. As Hoffman puts it, “Our long-term shareholder value begins with our culture. We are successful because it is all about our people — people who genuinely value others.”

Toro has been associated with the equipment rental industry for 15 years, but its focus on the rental field has intensified in recent years. “The real transformation for Toro occurred in the last three or four years. Our portfolio now is much more significant than what it once was,” Hoffman says, having moved well beyond the company’s original offering of compact utility loaders. A graduate of the University of Minnesota, Carlson School of Management — Executive MBA program, Hoffman earned his bachelor’s degree in marketing management at the University of St. Thomas in Saint Paul, Minn. Hoffman recently spoke with Rental Management about the company’s diversification and plans for the future. An edited version of that conversation follows.

Michael Hoffman, left, chairman and CEO of The Toro Co. since 2005, with Rick Rodier, general manager of Toro’s Sitework Systems business, at Toro’s headquarters in Bloomington, Minn.

RM: What do you see as your charge as chairman and CEO of The Toro Co.?

Michael Hoffman: Our culture is to serve — serve our team, serve our customers and serve our shareholders. That is not a theme that started with me, but one rooted in our foundational values. In 2014, we will celebrate our 100th anniversary. When you look back on the history of the company, you find that philosophy to serve was established in our earliest days and continued through the decades. We did get off track a bit in the 1970s. Then the focus became growth at any expense and unsustainable in that regard. We lost our way and it almost cost the company its independence, but we managed to get through it. Ken Melrose became CEO in 1981 and re-grounded the company in its original values. The question gets asked, “What is more important, the culture or the customer?” For Toro, the two are interconnected. If you have a culture of people who care, they will do a better job taking care of the customer. If you take care of the customer better than others, your shareholders will be well cared for. So it’s that circle. For any of us in the company that are in leadership roles, it is to serve the team, customers and shareholders. Then there is the role to lead, make sure you choose the right strategy and choose the right people to be on the bus.

RM: How long have you been in this position now?

Hoffman: It will be eight years in March. Ken retired in March of 2005 and it was a great honor to follow him. He was an extraordinary leader. He was unusual in that he led the company for two and a half decades. Most public company CEOs do not do that. He made a huge difference in both helping Toro survive during those difficult years and then transforming the company. He was a great mentor for me. I have the good fortune to be surrounded by a good team. We feel we’ve continued to make progress.

RM: The company has made several acquisitions and you aren’t just a lawn mower or turf and landscape lawn maintenance company. What prompted getting into these other types of businesses?

Hoffman: Diversification generally helps. If you are too reliant in one area, you can be vulnerable to certain situations. We’ve tried to diversify in our residential and professional businesses, and have seen a greater shift to the professional side of our business over the years. We’re diversified in equipment and irrigation products, and we’ve also diversified on a global scale in the countries we serve.

Then there is the diversification in Rick Rodier’s area, Sitework Systems, and the rental focus, which is closely aligned with our current goals. Rental serves many of our customers today. Some products they buy and use on a capital basis, while other products they rent. For us, rental is both an end market and a channel. It is a bit unique in that regard. It is fair to say we didn’t necessarily have this epiphany one day and said, “We’re going to go hard after the rental market.” We moved into what we call our Sitework Systems business with compact utility loaders, an extension of our landscape products on the construction side more than the maintenance side. That took us into the rental channel. As we gained more experience in the rental channel, we realized we could be a good partner and a place for customers to come for more of their product and solution needs. Toro has a strong commitment to innovation and aftermarket service. Rick has driven that over the years. We’ve been associated with the equipment rental industry now for 15 years. However, the real transformation for Toro occurred in the last three or four years. Our portfolio now is much more significant than what it once was. Toro’s Siteworks business today is much more than compact utility loaders. Some of those products have come by the way of innovation inside the company, like the walk-behind trencher and walk-behind stump grinder. These are terrific products for the rental market. They have been well received and well accepted. Rick also has led the effort to look beyond Toro’s walls to help extend our presence through acquisitions like US Praxis, Lawn Solutions, Stone Construction Equipment and Astec Underground. All of a sudden, the portfolio for rental for The Toro Co. is pretty impressive.

RM: These acquisitions have been coming at a time when the economy has not been that great. How were you able to execute in this environment?

Hoffman: The “Investor Information” section of our website includes a presentation about our business and the markets we serve across golf, landscape contractor and grounds, micro irrigation and residential. As we went through the downturn in 2009, like most companies, we had to take a little more of a shorter horizon, making sure liquidity was there, that we took care of our customers and not leave them vulnerable in such difficult times. Then, we needed to balance the short-term challenges without impacting the
long-term health of the organization. Short term, there was pressure. Long term, we knew that continuing to invest is always the right thing to do. Our teams did that well and continued to drive internal innovation. We continued to make significant investments in engineering. We also opened up the lens a little bit and said, “What opportunities might there be out there to partner up in the industry?” Rick found those with US Praxis, Lawn Solutions and Astec Underground. Stone was an opportunity born out of a company with financial challenges and we hope to take that portfolio of products, continue to innovate, to serve our customers better and build another successful part of the rental business.

Rick Rodier: To add to that, we continued investment in that period while maintaining other elements of our financial position. Internally, we were working hard to make sure we prioritized right and took a deep dive into these things. We’re not a knee-jerk organization. When we do something, we vet it, thoroughly. Does it fit our core competencies and fit our core strategies? We’re not necessarily always thinking opportunistic. Is it following our plan? Mike and the senior team constantly ask the businesses, “Where are you going? What is your plan? How do you plan to get there?” We’ve done some things, even in trying times, that are true to our strategy.

RM: How does equipment rental fit into the company strategy now? In some ways, today’s environment can be a potential golden age for rental because not everyone has capital to buy equipment, but can rent it instead. It also seems more manufacturers are selling more equipment into the rental channel. Is that the same scenario for Toro and is it part of your strategy?

Hoffman: Yes, it is. People, our businesses and end customers have become more sensitive to capital and need to be. My guess is the rental market continues to expand as stores find new products that fit the channel where end users are more likely to rent than own. There is a very good logic there, whether that is all the way from a homeowner or residential customer to a landscape contractor, landscape construction operation or more heavy-duty construction. There are certain products you tend to see as being more likely to show up in rental. If you watched the traffic in a rental store — from residential to heavy construction customers — and asked how many of those customers had experience with Toro equipment in the past, the percentage that have would be significant. We think we can bring a strong offering to the rental industry. We are a great company with a great team of people, who ultimately want to serve our rental partners and end user customers. We think we can be successful.

RM: What are your key concerns and the short-term and long-term outlook? Grass is still going to grow and golf courses need to irrigate. Homeowners may want to create an oasis for a backyard. It seems like the stars are aligning in some ways for demand to grow for a lot of your products.

Hoffman: I think that is accurate from my standpoint. An enterprise wants to grow, so we want to grow this company from where it is today at almost $2 billion in revenue a year to substantially more in the future. The question is how. What areas do you invest in and to what degree will that growth come from your existing markets? We’re in a number of markets that are not delivering double-digit growth by any means. If we want to grow more than the market is growing, then we have to find a way to be more important to our customers in order to take market share. It’s a combination of those things. Another means of achieving growth is by pursuing new markets. You could argue rental is a part of that. It’s not a brand new market, but a big market and our share is relatively smaller. However, Rick and his team have it on a nice growth trajectory. Sometimes you find opportunities in one business, like rental, in products that were already on your radar screen for other businesses. You have to be flexible and keep looking at how all the pieces might fit.

RM: What’s the Toro sales pitch? Why should someone go with Toro versus a competitor?

Hoffman: We have a very strong consumer brand with Toro because we have a long legacy of bringing innovative products to market that serve the customer well and support them with good service. The same is true on the professional side of our business. As an enterprise and as a company, the philosophy is grounded on both innovation and relationships. That sounds simple, but those have been the core values of our success going back to the inception of this company. We are committed to serving the customer better and giving them better products to get the job done faster. For example, we’ve made walk-behind power mowers for homeowners for decades. This past year, we introduced a 30-in. mower we call the TimeMaster. Others have tried larger walk-behind mowers before and given up, but this has been a terrific success for us. If it takes an hour to mow your lawn with a typical 20-in. walk-behind power mower, it will take 35 minutes now with this machine. Time matters. A team of people had the idea and they got it right. That’s a piece of it — the innovation. The follow-up and aftermarket service go hand-in-hand. We know that rental professionals not only want products their customers love and come back to rent, but that when they have service needs, we’re there to support them. Also in the rental business, our TRX tracked trencher and new STX hydraulic stump grinder may share the floor with competitive models, but customers might come in and ask for the Toro because they know the brand and like how our machines perform and deliver what they want. That’s always our charge. It doesn’t matter which channel. It’s all about the end users preferring our brand, our equipment, our innovation and helping bring customers to our rental and retail partners’ businesses.

RM: Where do you see technology headed? Will your equipment continue to be gas-powered or switch over to alternatives?

Hoffman: I see machines continuing to be gas-powered long into the future, but not exclusively. There will be more alternative energy products and we will likely have units in that category. This is a different business, but a good example, in that we introduced the first lithium-ion battery-powered greens mower for the golf industry. Lithium-ion is one of the more significant advances in battery technology. A dozen of these mowers were used at The Olympic Club for the 2012 U.S. Open. That’s one example of an alternative fuel. From a research and development standpoint, we continue to work on fuel-cell technology. We’ve built products that use fuel cells that generate energy without polluting. The emissions are water instead of hydrocarbons. It’s a great technology. It is not an “if” question, but a “when” question whether more of those will be in play. In commercializing those types of machines, the economics have to work for the customer or they will trade off for traditional gas- or diesel-powered products. At Toro, we are a leader in innovation in markets where we compete. The demand for alternative power will increase and we will continue to lead.

RM: Have Tier 4 regulations impacted your business?

Hoffman: We absolutely have to deal with Tier 4 and EPA emissions standards on small engines. We want to do what we can to drive a greener planet. We still use gas and diesel engines, but look for technology and innovation to help us do that and make sure we abide by all the regulations. It goes from products themselves back to the manufacturing plants. How can we make the plants greener and more efficient?

RM: Looking back over last few years and looking forward, what do you see as the company’s greatest accomplishment in the last three years and what do you want to see accomplished in the next three years?

Hoffman: The last three years, we’ve been through a significant economic downturn. In the spirit of the old adage, “What doesn’t kill you makes you stronger,” we are a stronger company today. If you reflect back, we did the right thing, but you never know until later. We didn’t take short-term gains at the expense of the health of the organization. We weren’t immune to the challenges, but we’ve come out of it as a stronger, healthier company with great momentum. Looking forward, we will continue to execute our strategies, to be the innovator, to drive new products and find the right acquisitions to help our company be a stronger, more successful enterprise.


 

Celebrating 100 years of innovation

In 2014, The Toro Co., Bloomington, Minn., will celebrate its 100th anniversary. The company was founded on July 10, 1914, to build tractor engines for The Bull Tractor Co. and was named The Toro Motor Co. due to the company’s association with Bull Tractor.

John Samuel Clapper, a Toro co-founder, was the company’s first president, serving for 29 years and leading the company through a farm depression in the early 1920s, the Great Depression and both World Wars. It was under his leadership that Toro became involved in the the golf and industrial turf management business and started to tap into the homeowner market.

The company was renamed in 1955 as The Toro Manufacturing Corp. and then The Toro Co. in 1971. In 1988, The Toro Co. made the Fortune 500 list of companies and reached $1 billion in sales for the first time in 1997.

Toro has become the preferred or official supplier of a variety of equipment for clients, including the University of Notre Dame, the Rose Bowl, the National Golf Course Owners Association, the Ryder Cup, Walt Disney World® Resort and many more.

The company, in fact helped prepare the field for Super Bowl I in 1966 and formed a partnership with the event that continues today.

In 2000, Toro launched the Dingo® TX compact utility loader, which helped move the company into supplying machines to the equipment rental industry. Since then, Toro has created its Sitework System business, which has developed a Toro walk-behind trencher and walk-behind stump grinder for the rental market. In addition, over the past few years, Toro has acquired other companies to expand its rental portfolio, including Astec Underground, Lawn Solutions, Stone Construction Equipment and US Praxis.