Good morning, everyone, and thank you for joining us for the Toro Company's fourth quarter and year-end 2025 earnings conference call. I'm Heather Hille, Head of 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 fourth quarter and full-year results, which were released earlier this morning, and discuss our priorities and outlook for fiscal 2026. Following their remarks, we'll open the phone lines for a question and answer session. As a reminder, any forward-looking statements that we make this morning are subject to risks and uncertainties, including those described in today's earnings release, investor presentation, and most recent SEC filings, and may cause actual results to differ materially from those contemplated by these statements.
Also, in our remarks, we'll refer to certain non-GAAP financial measures, which we believe are important in evaluating the company's performance. Reconciliations of all non-GAAP numbers to the most directly comparable GAAP numbers are included in this morning's press release, which, along with the fourth quarter presentation containing supplemental information, is posted in the investor information section of our corporate website. With that, I'll turn the call over to Rick.
Thanks, Heather, and good morning, everyone. Our team remains focused on leveraging our diverse portfolio of leading brands, controlling what we can control, and driving operational excellence. In doing so, we delivered fourth-quarter sales and adjusted EPS that exceeded our expectations, achieved full-year professional segment earnings margin of 19.4%, demonstrating the resilience and quality of our core businesses that represent about 80% of our portfolio, generated record free cash flow of $578 million, a conversion rate of 146%, returned $441 million to shareholders through dividends and share repurchases, increased our AMP savings target to $125 million by the end of 2026, and continued investing in technology and innovation that enhance our customer productivity.
We beat our sales expectation for the fourth quarter, reporting consolidated net sales of $1.07 billion. Fourth-quarter professional segment margin grew to 19.2%. This increase was driven by sustained momentum in the underground construction business and better-than-anticipated growth in snow and ice management. Adjusted diluted earnings per share for the fourth quarter were $0.91. This reflected year-over-year earnings improvement in both segments, offset by higher expense related to the restoration of employee incentive compensation.
For the full year, we hit the higher end of our net sales guidance, reporting total consolidated net sales of $4.5 billion. That was down 1.6% from fiscal 2024, with a significant portion of this decrease attributable to the strategic divestitures of company-owned dealers and our Pope product line. We delivered adjusted earnings per diluted share of $4.20, beating both our current-year EPS guidance of about $4.15 and $4.17 reported last year. These results were incredibly strong, given the challenging environment of the past two years.
Through our focus on key growth markets and deliberate actions to improve productivity, we are strengthening our competitive position and accelerating our performance. Specifically, we continue to invest in our Golf and Grounds and underground specialty construction businesses, reflecting the multi-year secular growth trajectory we anticipate for those markets. Our acquisition of Tornado Infrastructure Equipment, which closed last week, is a great example of the strategic investments we are making to better serve customers facing complex infrastructure projects.
Tornado is a leading manufacturer of vacuum excavation and industrial equipment solutions for the underground construction, power transmission, and energy markets. Their products are designed to safely excavate around critical infrastructure to minimize the risk of damage. We are excited to expand our geographic presence and product portfolio as we welcome Tornado to the Toro Company.
Additionally, we continue to protect both our profit margins and market competitiveness through significant productivity improvement and thoughtful net price realization. Our multi-year amplifying maximum productivity, or AMP, program has already delivered annualized run-rate cost savings of $86 million. Some of the actions that are driving these savings include strategic facility closures, reducing our operational footprint by more than 1 million sq ft, a reduction in salaried workforce of nearly 15%, and divestitures of non-core businesses and product lines totaling approximately $60 million in revenue.
These actions, combined with thoughtful supply chain strategies and selective price increases, enabled us to mitigate the effect of tariffs and maintain strong margins in fiscal 2025. Additionally, we are pleased to announce that 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.
We're also carefully managing inventory levels across the spectrum from raw materials to finished goods. As our lead times have recovered to more normal levels, customers are ordering closer to need, positioning us for a clean start as we enter 2026. Largely due to improvements in working capital, our free cash flow for the year was a record $578 million. This resulted in a free cash flow conversion rate of 146%.
We continue to launch products at the forefront of innovation in alternative power, smart connected products, and autonomous solutions that differentiate our offerings and drive significant customer value. Our autonomous GeoLink fairway mower is receiving very positive reviews. It's another excellent example of our expanding technology portfolio. In particular, golf course and commercial customers who are facing labor shortages and budget constraints have expressed their excitement about the tremendous efficiencies inherent in the mower's autonomous capabilities.
Customers are also enthusiastic about our Toro GrandStand MULTI FORCE, a stand-on mower that allows them to attach a plow, power broom, and bagging system. The result is higher productivity across all seasons, and for landscapers and homeowners with acreage, we recently introduced our Exmark Radius, a zero-turn mower with product styling and features that mirror the highly successful Lazer Z.
Collectively, our actions are enhancing our customers' productivity, strengthening our operations and market-leading position, and sustaining our profitable growth. I want to thank our employees and channel partners for their diligence in advancing our product innovations and technology-driven solutions and supporting our efficiency initiatives. Now, Angie will share additional insights for our fourth quarter and full-year results and provide our outlook for 2026.
Thank you, Rick, and good morning, everyone. We delivered strong fourth-quarter results that exceeded our expectations and demonstrated the strength of our diversified portfolio, market-leading innovation, and commitment to operational excellence. As a result, our full-year 2025 sales and earnings also outperformed our guidance. Both the professional and residential segments contributed stronger-than-anticipated sales across multiple businesses, which drove favorable year-over-year operating leverage in the fourth quarter.
Professional segment net sales in the fourth quarter were $910 million, virtually equal to last year's exceptionally strong performance. Net price realization and higher shipments of underground construction and snow and ice products nearly offset anticipated lower shipments in golf, grounds, and zero-turn mowers, as well as the impact of prior-year divestitures. Professional segment earnings for the fourth quarter were $174.7 million, up 2.9% year-over-year.
The resulting earnings margin in the quarter was 19.2%, up 60 basis points from last year, primarily due to net price realization and productivity improvements. This was partially offset by higher material and manufacturing costs and lower net sales volume. For the full year, professional segment net sales, which comprised about 80% of the total company, rose 1.9% to $3.62 billion.
Full-year professional segment earnings were $702.5 million, and earnings margin was 19.4%. This was up from $638.9 million and 18% in fiscal 2024, underscoring our commitment to cost improvement and our purposeful cost reduction measures. In our residential segment, fourth-quarter net sales were $147 million, which were 5.1% lower than the prior year, but exceeded our expectations due to net price realization and higher shipments of snow products, reflecting channel enthusiasm for pre-season stocking.
Additionally, through our deliberate measures to reduce costs, improve productivity, and achieve pricing, we delivered higher-than-expected fourth-quarter residential segment earnings and outperformed prior-year results by $13 million. For the full year, residential segment net sales were $858.4 million, down 14% from prior year. Full-year earnings were $35.8 million, 4.2% of segment net sales.
This compares with fiscal 2024 earnings and earnings margin of $78.4 million and 7.9%, respectively. Now turning to our consolidated results for the fourth quarter and full year. Consolidated net sales for the quarter of $1.07 billion were down 0.9% from Q4 last year due to lower shipments in both segments and prior-year divestitures, partially offset by net price realization. For the full year, net sales were $4.51 billion, essentially in line with 2024 net sales, adjusting for the impact of divestitures.
Our fourth quarter adjusted gross margin of 34.5% improved from 32.3% in the prior fiscal year, primarily due to net price realization and productivity improvements, partially offset by lower net sales volume, higher material and manufacturing costs, and product mix. full-year adjusted gross margin was 34.1% compared to 33.9% in fiscal 2024. This increase was primarily due to net price realization and productivity improvements, partially offset by lower net sales volume, higher material and manufacturing costs, and inventory valuation adjustments.
SG&A expense for both the quarter and the year was 22.5% of net sales, a 30 basis point increase from Q4 a year ago and up 80 basis points from full year 2024. The change for both periods was primarily due to lower net sales volume, partially offset by cost savings. In summary, our fourth quarter adjusted earnings per diluted share were $0.91 compared to $0.95 in the prior year.
The change was driven by higher expenses related to restored employee incentives, mostly offset by an increase in both professional and residential segment earnings. For the full year, adjusted earnings per diluted share were $4.20 compared to $4.17 in fiscal 2024. Primary drivers include higher professional segment earnings and share repurchases, partially offset by lower residential segment earnings.
Turning to our cash flow and balance sheets. Our free cash flow for the year was a record $587 million, a meaningful year-over-year increase that was largely due to net favorable changes in working capital. This resulted in a free cash flow conversion rate of 146%. Additionally, we returned $441 million to shareholders in fiscal 2025 through dividends and share repurchases, demonstrating continued confidence in our ability to generate cash and our commitment to value creation. Our balance sheet remains strong, and it continues to provide financial flexibility.
Our leverage ratio of 1.3x is healthy and well within our stated target range. We continue to take a disciplined approach to capital deployment. By prioritizing strategic investments that drive profitable growth through both organic opportunities and acquisitions, we have generated strong positive momentum in our return on invested capital. Looking ahead to fiscal 2026, we are thoughtfully balancing the strengths and growth opportunities within our businesses with the ongoing pressures of the macro environment.
We are excited about our recent acquisition of Tornado and the longer-term growth trajectory of the vacuum excavation industry, and we are poised to execute on the continued strong demand for our underground construction business. This demand is being driven by new infrastructure installation projects and ongoing maintenance of existing networks.
Thank you, Angie, and good morning, everyone. As evidenced by our better-than-expected results for the year, our decisive actions are enabling us to increase the resilience of our business and to build momentum for future growth. We're strengthening our product portfolio and competitive positioning by strategically investing in technology solutions and markets with strong multi-year growth drivers like golf, grounds, and underground construction.
Our pipeline of new products and features that provide value for our customers is robust, and we're excited by the future potential of several innovations that are still early in their growth life cycle. For example, golf course superintendents will benefit from two new software-as-a-service irrigation products. Our Lynx Central Control System is a mobile version of our industry-leading platform that is changing the way superintendents manage golf course irrigation.
It gives users increased flexibility and control, allowing them to address issues in real time and to improve their efficiency through enhanced communication capabilities, both while on the move. Our AI-enabled Spatial Adjust software, which was released in November, integrates with Toro Irrigation Systems for even more precise water management. It works with Turf Guard soil moisture sensors to optimize the amount of water used on fairways, automatically recommending daily water application rates to achieve the user-defined target moisture level.
Feedback from users who participated in our pilot program was extremely positive, including frequent mention of both improved turf uniformity and playing conditions. Driven by what we expect to be a third consecutive year of record U.S. golf rounds played, we have experienced exceptional growth in golf equipment sales and irrigation projects. In addition to the continued momentum in golf, we're also increasing our focus on grounds opportunities within municipalities, universities, sports fields, and other markets.
We're also actively pursuing opportunities to capitalize on the growing demand for underground construction equipment, which is being propelled by aging infrastructure, the growth in data centers, and energy and telecommunications projects. Our Tornado acquisition is an exciting development in this space, building on our existing relationship with Tornado as a strategic supplier to Ditch Witch. It enables us to expand our reach and capitalize on accelerated growth in vacuum excavation.
Furthermore, we're executing on our commitment to operational excellence through disciplined implementation of our AMP productivity program and optimization of our global supply chain. Our efforts have helped us mitigate increases in materials and manufacturing costs, streamline our supply chain operations, and better align our production capacity with demand.
We also continue to prioritize our relationships with key partners, and we're committed to building on our legacy of engagement to ensure mutual success and customer satisfaction. Last month, we hosted our Toro University hands-on training event for more than 300 members of our distributor partners who span geographies and markets. We equipped them to sell and service our new products so that customers realize the exceptional value we collectively deliver. In addition, we recently celebrated an incredible 100-year relationship with a key distributor partner, Smith Turf and Irrigation.
This long-tenured partnership is a testament to the importance we place on building and sustaining strong relationships. As we look ahead, the factors that contributed to our growth for 111 years will continue to be critical drivers of our performance: investing in growth markets and innovation, maintaining our operational discipline and focus on productivity improvement, and keeping our customers' needs front and center with support from loyal partners. All of these remain key priorities of the Toro Company's strategy and culture, and they are absolutely foundational to our future success. Now, Rick has a few closing remarks.
Thank you, Edric. To close, I want to emphasize our confidence in the Toro Company's trajectory. The steps we are taking to enhance our customers' performance and increase our efficiency will strengthen our competitive advantage and drive continued profitable growth.
In addition, we are being proactive and purposeful as we maintain a disciplined approach to capital allocation, balance sheet flexibility, and strong cash flow. Together with our strategic focus on key growth markets and operational improvements, these actions give us confidence that the Toro Company is positioned to deliver significant value to all our stakeholders for many years to come. Now, Edric, Angie, and I would be happy to take your questions.