| How does the Toro Company’s product mix impact its profitability?Accounting in the Headlines

The Toro Company (NYSE: TTC) recently released its third quarter financial results for fiscal year 2024. (Toro has a fiscal year end of October 31.) Toro’s financial results were affected by its product mix across Residential and Professional segments. The Residential segment includes products such as lawn mowers, snow blowers, and smaller gardening equipment that are typically aimed at homeowners and mass-market consumers. The other segments, the Professional segment, offers more specialized equipment, including golf course maintenance machinery, landscape contractor tools, underground construction equipment, and other high-performance products designed for commercial use.

During the third quarter, total net sales increased by 6.9% to $1.16 billion, with the Residential segment seeing significant growth of 52.6%, largely due to increased shipments to mass-market channels like big-box stores. The Professional segment experienced a slight drop in sales, down 1.7% to $880.9 million, due to lower shipments of snow and ice management products, lawn care equipment, and compact utility loaders.

Toro’s profitability depends on the sales mix of its product segments. The Professional segment had a higher earnings percentage (13.9%) compared to the Residential segment (8.1%) in fiscal 2023. However, the company’s overall gross margin improved to 34.8%.

View a quick tutorial video about CVP analysis and sales mix at multiproduct firms at this link and then answer the following questions.

Discussion Questions

1. How does the product mix between Toro’s Residential and Professional segments impact its overall profitability?
2. Toro has two major product segments with different profit margins. How would you calculate the company’s breakeven point considering both the Residential and Professional segments?
3. If Toro’s sales shifted more heavily toward the lower-margin Residential segment, what would be the impact on the company’s overall breakeven point and profitability?
4. Toro aims to increase sales in its higher-margin Professional segment to enhance profitability. What potential risks and benefits does this strategy pose when considering CVP analysis and breakeven calculations?