Morning, everyone, thank you for joining us for The Toro Company second quarter 2026 earnings conference call. I'm Heather Hille, 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 second 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 second 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.
Thank you, Heather. Good morning, everyone. The Toro Company continued its strong start to the year, exceeding expectations with second quarter top line growth of 8% and adjusted EPS of $1.60. This is the second consecutive quarter of double-digit adjusted earnings growth, driven by strong demand and improving margins. We remain focused on our key strategic priorities: accelerating profitable growth, driving productivity and operational excellence, and empowering people. This disciplined approach is delivering results. Demand was broad-based across our portfolio. Residential net sales grew 4%. Professional net sales grew by 9%. Within professional, we drove mid-single-digit sales growth in golf and grounds, high single-digit sales growth in landscape contractor. We are particularly excited to have achieved low double-digit organic sales growth in underground and specialty construction. A key highlight in underground construction continues to be the JT120 horizontal directional drill.
Designed for maximum uptime, it features advanced capabilities that increase operator efficiency and job site safety. It is built to handle long bores and difficult terrain with ease, and customer response has been strong, with a robust and growing order pipeline. At CONEXPO in March, we highlighted another example of customer-driven innovation. Orange Intel is a customizable fleet management and job site intelligence system. It provides Ditch Witch customers with the ability to optimize productivity, manage maintenance and uptime, enhance security, and integrate all this information across the full job lifecycle. We are helping our customers leverage job site data as a critical enabler to improve their productivity and profitability. Our integration of Tornado is progressing well. Growth is slightly better than anticipated, contributing over 2 percentage points to top-line sales.
We see a long runway of growth for this business as the need for soft excavation is significant and growing. An increasing number of states and countries have requirements around safely uncovering underground utilities. We expect this trend to continue as the ability to mitigate infrastructure damage during excavation gains awareness. Moving on to landscape contractors. After a more normal snow season, they entered Q2 in a healthy position. This helped drive strength across our Toro, Exmark and Ventrac brands. Spring conditions were more typical this year, which provided a favorable year-over-year comparison to the late spring last year, where some second quarter sales fell into the third quarter due to the delayed timing of spring. In golf, strength continues to come from our core products: greens mowers, fairway mowers and contour rotary mowers.
While we are still in the early stages of growth with our autonomous portfolio, customers continue to recognize how our suite of solutions complements their existing fleets, increases productivity, and unlocks new efficiencies in their labor force. Looking at the results across our portfolio, it was particularly impressive that the team achieved our second quarter performance despite macroeconomic and geopolitical headwinds and increased inflationary pressures. In this dynamic environment, we continue to strengthen our capabilities with a specific focus on productivity and operational excellence. As a result, in Q2, residential margins significantly improved to nearly 10%, and pro margins improved to over 20%. At the center of this improvement is our AMP program. Launched in the beginning of fiscal 2024, AMP continues to exceed expectations, reinforcing a productivity mindset across the company.
We accomplished all of this while reducing our field inventory, which remains healthy in the professional segment, with underground and golf largely normalized. Inventory levels for landscape contractor and residential are somewhat below our desired levels as we work to meet pockets of elevated demand, particularly for zero-turn mowers. Taking everything into account, healthy demand, improved lead times, normalized field inventories, and expanding margins, we are raising our full-year guidance. We now expect full-year sales growth in the range of 4%-6.5% and adjusted EPS in the range of $4.50-$4.62. Our performance in the first half of 2026 increases our confidence in our ability to deliver strong results for the full year, even in a dynamic external environment. With that, I'll turn the call over to Angie for more details on the quarter and our outlook.
Thank you, Rick. The team's strong execution in the second quarter drove better-than-expected results. Top-line sales were $1.42 billion, up 8.1% or 5.7% organically. This growth, combined with our focus on productivity and operational excellence, drove adjusted operating margins of 14.4%, up 70 basis points. This represents our highest operating margin in the past 12 quarters and reflects the impact of our AMP productivity program. Our strategic facility closures, reductions in salaried workforce, and divestitures of non-core businesses and product lines have contributed to this strong margin improvement. As we reduce costs and improve efficiencies through AMP, we are also investing in the business. One example is our new paint system at the Perry, Oklahoma facility, which will increase efficiency and capacity to support the strong demand in the underground construction market.
Working capital improvements drove free cash flow of $266 million, an increase of $181 million year-over-year, primarily due to lower inventory levels. Free cash flow conversion was 125%. This continues our strong track record of cash generation and enabled us to return $361 million to shareholders through share repurchases and dividends in the first half of the year. Finally, our second quarter adjusted tax rate was 21.7%, 300 basis points higher than last year, driven by the geographic mix of earnings. As a net result for the second quarter, we increased adjusted EPS 13% to $1.60. This strong result was better than expected and driven by professional segment volume and profitability. Now let me dive deeper into each segment. Professional segment net sales in the second quarter were $1.1 billion, up 9.1% or 6% organically.
Professional segment earnings were $224 million at a margin of 20.3%, up 40 basis points. This was driven by volume, productivity, and net price realization, partially offset by material cost. Residential segment net sales in the second quarter were $310 million, up 4.1% organically. Residential segment earnings were $30 million, and margins were up 430 basis points to 9.8%. This was driven by net price realization, productivity, and volume, partially offset by material, manufacturing, and freight costs. In addition to strong operational execution across both segments, our financial management of the balance sheet continues to provide us with optionality, as demonstrated by our leverage ratio of 1.4x. Looking forward, we will continue to focus on driving top-line growth and productivity as we navigate the uncertain macroeconomic and geopolitical environment. Our strong performance in the second quarter gives us the confidence to raise our guidance.
We now expect top-line growth of 4%-6.5%, versus our prior guidance of 3%-6.5%. This reflects strength in our professional segment, which we now expect to grow in the range of 5%-7% for the year. After a strong second quarter, the outlook for full-year residential sales growth have improved, and we expect it to be about flat even as consumer confidence and inflation continue to be challenging. We are raising full-year adjusted earnings per share to be in the range of $4.50-$4.62, up from the prior range of $4.40-$4.60. This tighter range and higher midpoint reflect our outperformance in the first half of the year and reduced downside risk. Let me take a moment to share the drivers of this increase by walking from our previous guidance midpoint of $4.50 to our new guidance midpoint of $4.56.
We are flowing through our second quarter beat of $0.10 per share and factoring in new headwinds from material and fuel inflation. We estimate the impact from inflation will be approximately $0.16 per share. This is offset by planned productivity and pricing actions, driving approximately $0.16 of favorability. In addition, tax is trending higher for the year due to our geographic mix of earnings or an approximate $0.04 impact to EPS. All of these factors result in the $0.06 increase to our midpoint. We have also evaluated the impact of the April 6 changes for Section 232 tariffs and the benefit of anticipated tariff refunds. Since the vast majority of our manufacturing occurs within the United States, the net impact of these two items would be negligible to our full-year guidance.
We continue to evaluate the most recent changes to the tariff landscape, including the news from earlier this week. For the third quarter, we expect total company sales to be up mid-single digits. We expect professional to be up mid-single digits and residential to be up low single digits. Keep in mind that year-over-year comparisons are impacted by a late spring last year that shifted sales from Q2 into Q3. Also, Q2 is typically our peak margin quarter as it has the highest volume, best factory utilization, and a favorable sales mix. We anticipate normal seasonality this year with Q3 total company margins lower than Q2. Pressures from inflation and tariffs will be more acute in Q3 as the mitigation actions we're taking will not be fully in place until Q4.
We are monitoring weather conditions across the country, where a strong start to spring has given way to potential drought conditions in some key markets. As a result of these factors, we expect third quarter total company adjusted EPS up mid-single digits. The main driver for this adjusted EPS growth rate is a higher year-over-year tax rate and the comparison versus a strong Q3 last year. The team is executing well. We are driving productivity through our AMP Initiative and taking advantage of strong demand across the portfolio. For the full year, we now expect high single-digit adjusted EPS growth and free cash flow conversion of at least 120%. I'll turn the call over to Edric to highlight the progress we are making on operational excellence.
Thank you, Angie. As you heard, we delivered our highest level of operating margin in three years through a relentless focus on productivity and operational excellence. We'll continue to drive meaningful gains through our AMP program by leveraging lean principles, Kaizen events, and continuous improvement projects. Our AMP program remains on track to deliver $125 million in run rate savings by the end of this fiscal year. AMP is about even more than cost savings. Another critical element is the manner in which our teams are leveraging technology to enhance capabilities and drive innovation. Last month, we held our annual technology forum, a dynamic platform to accelerate product innovation and technical excellence by connecting subject matter experts and thought leaders across the company. This event featured the next generation of technological advancements in electrification, smart connected products, autonomous solutions, AI, and manufacturing efficiency.
Examples range from leveraging industrial collaborative robots to using AI-enabled vision systems and machine learning tools to verify component accuracy. Further upstream, we're using augmented reality to quickly verify weld specifications and completeness. All of this ensures consistency, reduces the risk of delays, and continues to enhance overall product quality. There's more we can and will do to continue driving efficiency and innovation. Delivering consistent results in this environment requires us to constantly ask ourselves, "How can we do this better?" It's a question we never stop asking. Now back to Rick for some closing comments.
The rate of change at The Toro Company cannot be overstated. Our technological advances are building off a foundation more than 10 years in the making. We continue to make incredible progress in shaping our future and advancing our core products through innovations in electric, smart, connected, and autonomous solutions. We see the use of AI accelerating our capabilities across all our platforms, from enhancing autonomous vehicle navigation systems to more sophisticated R&D prototyping and simulation, as well as back-office process efficiencies in procurement, legal, and finance. We are empowering our team to think differently about how we work and how we help our customers succeed in their work. I want to thank the team and our channel partners for their customer focus and our strong operational execution in the first half.
This performance and our ability to capitalize on our opportunities give me confidence that we will deliver on our second-half expectations. With that, we'll take your questions.