Angie Drake

Thank you, Rick. And good morning, everyone. We were pleased to drive productivity and price benefits in the quarter and made progress in addressing both order backlog and field inventories. While shipments of lawn care products were impacted by homeowner and dealer caution, we are confident in the strength of our market share and are well positioned for the future.
Consolidated net sales for the quarter were $1.16 billion, up 6.9% from Q3 last year. Reported EPS was $1.14 per diluted share compared to a loss of $0.14 in the third quarter of last year. Adjusted EPS was $1.18 per diluted share, up 24% from $0.95. Now to the segment results, professional segment net sales for the third quarter were $880.9 million, down 1.7% year over year.
This decrease was primarily driven by lower shipments of snow and ice management products and lawn care equipment as we work to reduce field inventories and lower shipments of compact utility loaders with the replenishment of field levels as a result of improved output in recent quarters.
This was partially offset by higher shipments of golf and grounds products and underground construction equipment as we continue to address the robust demand and significant open orders for these businesses. We also saw net price realization in the quarter.
Professional segment earnings for the third quarter were $165.7 million compared to $13 million last year. When expressed as a percentage of net sales, earnings for this segment were 18.8% compared to 1.5%. The positive change in profitability was primarily due to last year's non-cash impairment charges of $151.3 million as well as productivity improvements, favorable product mix with the appreciable growth in golf and ground shipments, and net price realization. This was partially offset by higher material and manufacturing costs and lower net sales volume.
Residential segment net sales for the third quarter were $267.5 million, up 52.6% compared to last year. The strong growth was primarily driven by higher shipments of products to our mass channel. Residential segment earnings for the quarter were $32.6 million, a substantial increase from $3.8 million last year. When expressed as a percentage of net sales, earnings for this segment were 12.2%, up significantly from 2.2%.
The year-over-year increase was largely due to net sales leverage, productivity improvements, and net price realization, primarily driven by lower floor plant costs. This was partially offset by product mix and higher material and manufacturing costs. Turning to our operating results for the total company, our reported and adjusted gross margin were 34.8% and 35.4%, respectively, for the quarter. This compares to 34.4% for both in the same period last year.
The increase was primarily due to productivity improvements and net price realization. This was partially offset by higher material and manufacturing costs and segment mix with growth weighted to residential. SG&A expense as a percentage of net sales for the quarter improved slightly to 22%, a 20-basis-point improvement over the same period last year. The improvement was primarily driven by net sales leverage and lower marketing costs, partially offset by higher incentive expenses.
Operating earnings as a percentage of net sales for the quarter were 12.8% compared to a negative 1.8% in the same period last year. On an adjusted basis, operating earnings as a percentage of net sales were 13.7%, a 150-basis-point increase over 12.2%. Interest expense for the quarter was $14.5 million, down from $15 million last year. The decrease was primarily due to lower average outstanding borrowings, enabled by our significant improvement in free cash flow.
The reported effective tax rate for the third quarter was 17.3% compared with 47.6% a year ago. The decrease was primarily due to the tax impact related to non-cash impairment charges last year, combined with a more favorable geographic mix of earnings this year. The adjusted effective tax rate for the third quarter was 18% compared with 19% last year. This also reflects a more favorable geographic mix of earnings.
Turning to our balance sheet, accounts receivable were $523.3 million, up 36.2% from a year ago, primarily driven by increased shipments to our mass channel as well as payment terms to that channel. This increase was as expected given our strategic partnership with Lowe's, which continues to provide positive momentum within the residential segment.
While not a part of our accounts receivable balance, we once again saw significant improvement in Red Iron DSOs, a decrease of about 30 days. This is a reflection of our progress in rebalancing [dealer field levels] of lawn care products as sell-through continues to exceed sell-in. Inventory at the end of Q3 was $1.08 billion, down 3% compared to last year and slightly lower sequentially from last quarter. The year-over-year decrease was driven by a reduction in both lawn care equipment, finished goods balances, and work in process.
These reductions were partially offset by higher levels of compact utility loaders as those inventories normalize and higher levels of snow and ice management products, as expected, given last winter's lack of snowfall. Accounts payable were $437.8 million, up 7% from last year, primarily driven by the timing of material purchases.
Year-to-date free cash flow was $270.5 million, an improvement of over $200 million compared to last year. As a reminder, the majority of our operating cash flow is typically generated in the second half of our fiscal year based on seasonal flow. We expect that same cadence this year. For the full year, we are confident we will deliver a free cash flow conversion rate of at least 100% based on reported net income. This is significantly higher than the past two years and back in alignment with our 10-year historical average.
Importantly, our balance sheet remains strong. Our leverage ratio is within our stated target of 1 to 2 times on a gross basis, and we continue to have investment-grade credit ratings. This provides financial flexibility to fund investments that drive attractive returns. Our disciplined approach to capital allocation remains unchanged with our first priority to make strategic investments in our business to drive long-term profitable growth, both organically and through acquisitions.
We are acting on this priority with our plan to fund $115 million in capital expenditures during fiscal 2024. This will support new product investments, advanced manufacturing technologies, and capacity for growth within our existing footprint. Our next priority is to return capital to shareholders, both through our regular dividend and share repurchases. We've increased our dividend 6% this year and have consistently grown our dividend payout over time. This demonstrates the conviction we have in our strong and sustainable future cash flows.
With respect to share repurchases, we continue to fund repurchases with excess free cash flow while maintaining our leverage goals. We've invested almost $110 million through Q3 to repurchase nearly 1.2 million shares while also paying off our outstanding revolver borrowings, and we plan to continue repurchasing shares in the fourth quarter. This is a reflection of our substantial improvement in cash flow this year, along with our strong conviction in future growth opportunities.
As we close out the fiscal year, we continue to expect benefits from the sustained strength in demand and significant order backlogs for underground construction products and golf and grounds equipment. For these businesses, field inventory levels remain lower than ideal, and backlog remains elevated, although we continue to make good progress.
On a total company basis, order backlog has improved from the $1.97 billion balance at fiscal 2023 year-end. It is lower both on a year-over-year basis and sequentially from last quarter but still much higher than what we would consider normal. We will provide an updated year-end figure in our annual 10-K filing in December.
For both segments, we expect to continue making progress in normalizing field inventories of lawn care and snow products, although levels remain elevated both for us and industry wide. We've factored this dynamic into our estimates. We've also factored in expectations for a continuation of the increased macro caution we started seeing in July for our homeowner-facing businesses. With this backdrop and based on our current visibility, we are making some adjustments to our guidance.
For the full year, we now expect total company net sales growth of about 1%. For the professional segment, we now expect full-year net sales to be down low single digits, which implies mid-teens growth for the fourth quarter. For the residential segment, we continue to expect net sales to grow at a rate significantly higher than the total company average for the full year. We expect fourth-quarter residential net sales to be down low single digits on a year-over-year basis.
Looking at profitability, we now expect adjusted gross margins and adjusted operating earnings as a percentage of net sales to be slightly lower than last year, a reflection of product mix. Turning to segment profitability, we continue to expect both the professional and residential segment earnings margins to be higher than last year on a full-year basis.
For the professional segment, we now expect a similar earnings margin to last year when you exclude last year's impairment charges. For the residential segment, we expect a high single-digit margin for the full year. For the other activities category, we continue to expect higher expense compared to fiscal 2023. This reflects a return to more normal incentive compensation.
For the fourth quarter, we expect an expense similar to Q1. With that, we now expect full-year adjusted diluted EPS in the range of $4.15 to $4.20. Additionally, for the full year, we continue to expect depreciation and amortization of about $120 million to $130 million and interest expense of about $60 million. We now expect an adjusted effective tax rate of about 19.5%, driven by a more favorable geographic mix of earnings.
We continue to build our business for long-term profitable growth. This includes prioritizing innovation investments that we believe will deliver outstanding returns driving sustainable margin expansion with disciplined execution, including our AMP initiative, and leveraging the talents of our team and the power of our best-in-class distribution networks. We are confident in our ability to drive significant benefits and opportunities for all of our stakeholders.
With that, I'll turn the call back to Rick.

Richard Olson

Thank you, Angie. Our business fundamentals remain strong, and we continue to execute with discipline. For our businesses with sustained strength in demand and elevated backlog, we are successfully driving increased output within our manufacturing footprint. For our businesses that are experiencing a near-term increase in caution driven by macro factors, we expect to be very well positioned as those markets recover.
We continue to benefit from our strong leadership position in attractive end markets, our ever-expanding suite of innovative solutions that perform necessary work with regular replacement cycles, and our deep customer and channel relationships. And importantly, our team is executing well driving productivity and operational efficiency through our AMP initiatives and flexing production to align with market conditions and better serve our customers.
Looking ahead, we are keeping a close eye on macro factors as well as demand dynamics in our specific end markets. For the underground construction market, we expect demand to remain robust and order backlog to remain elevated heading into fiscal 2025. There is a very positive runway for projects to address global infrastructure needs, including communications, utilities, and data centers. These projects are supported by both public and private multi-year spending.
Infrastructure spending remains a positive outlier in the broader construction industry with strong growth forecasted for the foreseeable future. For specialty construction markets, which include our Toro Dingo and Ditch Witch SK lines of compact utility loaders, we are seeing a return to more typical patterns as supply and demand have come into balance with improved lead times. For rental markets, which are meaningful to our specialty construction business, expectations are for a return to mid-single-digit growth next year following three years of double-digit growth.
As we discussed last quarter, our order backlog for compact utility loaders has normalized as expected. For golf and grounds, we expect to continue to see the prioritization of equipment and irrigation purchases supported by healthy budgets and new course development. Worldwide, there are more than 500 significant new and renovation golf projects in the pipeline across 88 countries, and [rounds-played] data continues to reinforce that the golf industry has had a positive reset.
For the first six months of 2024, US rounds played were 2% ahead of last year's pace, which is notable given 2023 was the highest year of US rounds played in history. Our worldwide market leadership position and new product pipeline to address the golf and grounds market is also as strong as ever. This includes our new Groundsmaster e3200 fully electric upfront rotary mower.
This machine leverages our proprietary hyper cell battery system to enable increased productivity with significantly quieter operation, zero exhaust emissions, and no compromise on cut quality. With the sustained strength in orders, we continue to see, in our golf and grounds equipment, we expect order backlog to remain higher than normal for this business into fiscal 2025.
For landscape contractors, we continue to expect stable retail demand driven by regular replacement activity with some pockets of price sensitivity given the interest rate environment and high field levels across the industry. For homeowners, we expect macro uncertainty will continue to drive caution, including trade-down activity, given higher interest rates. We expect demand to be driven by regular replacement needs. And certainly, favorable turf growing conditions would be beneficial.
For snow and ice management, pre-season sell-in demand has been reduced as expected, following a second straight season of below-average snowfall. However, contractor budgets are in good shape following a better turf -rowing season. And if more normal snowfall patterns returned in fiscal 2025, we would expect in-season orders to pick up as well.
The overall consensus is climate patterns are positioned to shift from El Niño to La Niña this year. If that happens, it could be more favorable for snow prospects. We continue to strengthen our position in this market with innovative solutions that help contractors achieve great results while reducing labor requirements. This includes our new entry-level Scout Snowrator, the latest addition in our powerful and versatile Sidewalk Warrior lineup. This new model has garnered much enthusiasm, and initial production is already sold out.
Before we take questions, I'd like to reiterate why we are so excited about the future and what we see as the greatest growth opportunities as we fulfill our corporate purpose of helping customers enrich the beauty, productivity, and sustainability of the land. The opportunities before us are the results not only of our work in fiscal 2024 but the many years of diligence in developing our diversified and complementary portfolio of businesses, our leading market positions, and our deep customer and channel relationships.
First, we are excited about our underground construction business, where we are extremely well positioned as a worldwide market leader with the most comprehensive equipment and brand lineup in the industry. In addition, together with our best-in-class channel, we have very deep relationships with our customers. These relationships, coupled with the sophisticated technology required, are difficult to duplicate.
What makes these competitive differentiators even more compelling are the near- and long-term positive market demand dynamics. As a leader in this space, we are capitalizing on the rapidly growing demand for data communications infrastructure and energy grid modernization, as well as the global focus on replacing aging infrastructure.
Second, much like our underground construction business, our golf business is exciting due to the winning combination of our strong market leadership and long-term market fundamentals. Here, we also have deep relationships with our customers and channel partners and a lineup of industry-leading products and solutions, including our full suite of reduced and zero-exhaust emission offerings.
Importantly, we have a distinct competitive advantage as the only company to offer both equipment and irrigation solutions for this market and as the worldwide market leader in both. Fueling our growth in golf is the sustained global momentum. We are prepared to capitalize on this opportunity with continued innovation and our best-in-class service and support network.
Third, we continue to strengthen our multi-brand leadership in the important zero-turn mower space. This represents the largest single lawn care category for both our professional and residential segments. We've enhanced our market leadership position through investments in our innovative product lineup and the strategic development of our independent dealer networks and mass partnerships. Our momentum in this space positions us extremely well for further growth, especially as these markets return to normal strength.
Fourth, we have a proven ability to leverage our technology and innovation investments across our broad portfolio. This enables the accelerated development of new products that help our customers drive productivity and superior results while enhancing the Toro Company's competitive advantage and ensuring market leadership into the future.
We will continue to drive a return on innovation with prioritized investments in the key technology areas of alternative power, smart, connected, and autonomous solutions. And finally, we have a talented team that is determined to capitalize on all of our opportunities with discipline and build on our long history of delivering consistently strong financial performance.
We have the best network of strategically aligned channel partners focused on going evolve and beyond to serve our customers every day. we have built a strong and agile organization that has been resilient through many macro cycles. We are ready to seize the opportunities that lie ahead to drive value for our customers, our channel partners, and our shareholders in both the near and long term.
With that, we will open up the call for questions.

Question and Answer Session

Operator

(Operator Instructions) Tim Wojs, Baird.

Tim Wojs

Hey, everybody. Good morning. Maybe just my first question on the backlog. If you could maybe give us just a little bit of context. I know you probably won't give us a specific number, but just maybe a little bit of context kind of relatively where the backlog exited the quarter? And then any sort of kind of context around orders like this book-to-bill over one within golf, underground, those types of things.

Richard Olson

Yes, sure. I'll take that, Tim. So on the backlog, if you look at -- by several comparisons, if you look relative to the end of last year, we've made improvements in the backlog, reduced it. If you look at year over year, the backlog is down. And if you look sequentially, the backlog is down.
It's really concentrated in the two areas that we've talked about, the golf and grounds and the underground areas. And the reason we have not cleared the backlog is because of the intake of orders. So the orders in those businesses continue to be extremely strong. From a factory output standpoint, we've made tremendous progress this year. We are at certainly pre-pandemic levels of production.
That's not record production in those plants right now. So the momentum in both of those businesses is tremendous at this point. And that's really the reason for the continued larger backlog position. We do expect for both of those general businesses for the backlog be more normalized by the end of '25. But at this point, we still believe the backlog -- certainly, the backlog will extend into '25 just for those two businesses, where there continues to be extraordinary demand at this point.

Tim Wojs

Okay. No, that's helpful. Thanks. And then just on the lawn and garden or the landscape business, could you just help us tie the comments together around just kind of increased macro caution there, but also kind of getting through the channel inventory? I guess, do you think you're going to land kind of in the same inventory position exiting the season and you're just taking production down to get there? Or is it hey, we'll probably have a little bit higher channel inventory exiting the year, but it's still a lot more manageable to next year? Just trying to kind of marry those two things together.

Richard Olson

I think the number that Angie quoted was 80% of the way at this point in managing that field inventory down. The caution that we saw was from homeowners, especially on larger-ticket items, a little bit of trade down. So the -- we saw a continued strength on residential mass was tremendous in the quarter.
But on the higher-ticket items that tend to go through our dealer network, some of which were the inventory that we're managing down, just a little bit of caution coming in. And especially in July, in the very latter part of our quarter, is what caused that slowdown. And it's really a combination of the end customers themselves, plus just the dealer restocking at that point of the year given the macro environment.

Tim Wojs

Okay. And I guess within Pro in the quarter, was the shortfall kind of relative to your guidance, specifically the landscape business? And was it really kind of tied to the weaker July shipments?

Richard Olson

Exactly, yes.

Tim Wojs

Okay, great. I'll hop back in queue. Thanks for the time.

Richard Olson

Okay, thank you.

Operator

Samuel Darkatsh, Raymond James.

Samuel Darkatsh

Good morning, Rick. Good morning, Angie How are you. Just a follow-on question to what Tim asked. I don't know if it was directly answered, but I think you all were looking to have normalized field inventories and ostensibly Red Iron DSOs by the end of the fiscal year. Are you still on track to do that specifically?

Richard Olson

We're on track, and we're at 80%. We still have some of the year left to go. We may just be slightly not back to zero, but absolutely nothing like where we started this year. So relative to where we started this year, by far, closer to normal. We've made tremendous progress, and it's really a combination of strong retail in those businesses, drawing down our inventory. There's relatively higher general inventory from competitors, et cetera, that are a factor, but we've done what we expected to do. We'll be close to getting exactly where we expect it to be.

Samuel Darkatsh

Got you. And then last quarter, Rick, you indicated at least an early expectation for kind of mid-single-digit organic sales growth for next year. I know you're not going to be formally giving guidance for next year for a bit. But if you could update us at least on what your thinking is for next year's sales growth and how to unpack that, maybe give a more specific framework as to what gives you confidence in your projections as it stands?

Richard Olson

So it's a little bit similar to my -- the previous response. If you think about, I guess, the word that comes to mind is cautiously optimistic about next year. We have high confidence in the things that we're doing to position ourselves for growth next year. And the caution part is just mainly from a macro standpoint. And that was really the driver in July is the discussion as well, interest rate. There's uncertainty about interest rates, the economy. They talked about a recession there for a few weeks. The political environment, the elections, et cetera, some of those we know will be behind us.
So those are -- that's on the cautious side. But from our side, we expect golf and grounds to continue to be very strong, has tremendous momentum. The underground business continues to have a long runway in terms of growth for us. And our plans are now fulfilling that demand much closer to the rate that it's coming in. We'll have a year or two with Lowe's as part of our general mass strategy that's -- honestly, it's at record levels this year from a mass standpoint if you look across all of our partners in that category.
Snow, I mean, just keep in mind, this is a time-out year for snow because of the last two seasons. So if you have anything close to a normal snow season this year, that's going to be a positive for us. The field was already stocked as we came into the season. So that was completely missing from our results in the third quarter with the exception of a very small amount of shipments.
We've made the progress in reducing our field inventory in those lawn care categories that go through our dealers. Incidentally, the contractor customers have continued to be strong. It's really the homeowners where the caution has been and where that adjustment has taken place. And then just back to Lowe's, we will have the benefit of 12 months of business with Lowe's versus 10. We'll be getting into the snow season with them, and that's a very positive factor for us, along with all of our mass partners.

Samuel Darkatsh

Thank you for that answer. My final question, real quick, again, related to your original expectations for the quarter, maybe this is too fine a point, but the change in tax rate from 21% to 19.5%, I guess that implies that the international business was considerably less robust than you thought. Was that the primary driver of the negative variance, Rick?

Angie Drake

I'll take that one, if it's okay, Rick. Really, that was driven by a favorable geographic mix of earnings. So both foreign and some state tax mix, Sam. And then we also did a transfer pricing study that helped us a little bit there. If we think about lowering that for the year -- but next year, we also expect a lower, more like 21%, probably lower than 21%, somewhere 20% to 20.5%. But we'll provide a little more color on that in December.

Samuel Darkatsh

So international business was not materially different than your plan?

Angie Drake

It was not. It has some of the same impacts that we saw that Rick talked about on the residential, and obviously, the snow side of the business and the lawn care. But yes, mostly due to transfer pricing.

Samuel Darkatsh

Got it. Thank you very much. Appreciate it.

Operator

Michael Shlisky, D.A. Davidson & Company.

Michael Shlisky

Yes. Hi, good morning. Thanks for taking my questions. I think you mentioned, if I heard this correctly, 500 courses in 88 countries are pursuing projects to improve their facilities on the golf side. Could you maybe share with us whether that is a mix -- there's a large mix of irrigation in there? Or are they pages of both combined or just the equipment? Just give us a sense as to the kind of opportunity that Toro could get versus, let's say, how this looked to last year with the combination of irrigation and equipment projects.

Richard Olson

Sure. Yes, so pretty much any time there's a renovation of the course itself, if it's reshaping or improving greens or expansion or reconfiguration, it's just, by definition, automatically in irrigation projects because that all gets torn up. There are also -- I don't think actually even at that 500 includes just pure irrigation upgrades. So this would be major -- either major renovations, expansions, or brand-new golf that involve moving dirt. But in every case of the 500, it's impossible to touch a golf course without doing something to the irrigation. So by definition, it's both.

Michael Shlisky

Fantastic. And then just on capital allocation, it wasn't really mentioned much in your prepared comments. But could you just update us on how the M&A market is looking these days? Are there assets for sale? Maybe just kind of -- just what you're looking at, size wise and industry wise, that would be helpful.

Richard Olson

With regard to M&A, as we said, the process number stops. We're always building relationships, and that continues. And our capital allocations remain the same, as you can see in our Investor Deck, but we're always looking for opportunities that would enhance our current customer focus areas or be new opportunities.
It tends to be adjacencies and product lines, but we're also open to anything that would be in our sphere. We just -- we do want to -- we insist on maintaining the discipline that we have about making those selections and making sure that they enhance shareholder value is really the key for us and why we are very discriminating about those.

Michael Shlisky

Just to follow up there, Rick, are there any of the deals looking at in the tech space like a Left Hand again or other similar products? Or are they all [equipment hired]?

Richard Olson

As a general category, technology is definitely one that we're always interested in. They tend to be smaller acquisitions that might be more entrepreneurial, but that is on our list of -- just primarily because of the way that we can leverage our technology across different areas. So that makes them attractive, but they tend to be small but can have a huge impact just like Left Hand Robotics did for us.

Michael Shlisky

Sure. Thanks. I appreciate that. I'll pass it along.

Operator

David MacGregor, Longbow Research.

David MacGregor

Thanks, and good morning, everyone. Rick, you made repeated reference to the slowdown in July. So I guess it kind of begs the question about August. And if you can help us with kind of what we're seeing in August and how that weakness in July may have flowed forward?

Richard Olson

Yes. August, I think, still a little bit of caution, but probably a bit more normalized, I would say. And we've included our expectations based on what we see in our guidance for the rest of the year. It's a -- we obviously knew that snow was not going to be a factor for the fourth quarter. And we've already factored in based on the trajectory that we saw -- that we're seeing in our guidance for the fourth quarter. But still, a little bit of caution from homeowners, and that's included in our writing so far.

Angie Drake

Yes, I'd say we still expect to see that strong demand from underground and golf and grounds as well as we look forward. And it really positions us well for '25 to figure out where we're at today.

David MacGregor

Right. Thanks for that. I guess I wanted to ask you about productivity because that's starting to come up in discussion more frequently. And we guess at this stage of the game, we're far enough along the AMP program that maybe the benefits are exceeding the upfront sort of investment costs. But if you look at the professional segment, adjusting for the year-ago non-cash impairment charge, of course, your margins were actually up 50 basis points despite a pretty weak top-line performance.
So I guess just given the magnitude of the volume decrementals and the higher raw material costs and productivity improvements, most have been pretty substantial. Can you just talk about where you are on AMP and where you are in productivity, and how we should be modeling that going forward [as a good guy]?

Angie Drake

Sure. Yes. Let me first start with just kind of the progress we made on AMP in Q3. We made some great progress. So we continue to identify opportunities for synergies and work alongside that team. But the three notable highlights that we had in the quarter were the supplier summit that Rick mentioned in the prepared remarks, we had about 100 key suppliers in. And they left here, very excited about their opportunity, to partner with us on our growth aspirations.
We also have some portfolio actions in the quarter. You saw the Pope divestiture. That is included in the residential segment. You see that in other income in the residential segment. And then we have some actions that we took to drive future synergies with our Spartan brand, and you'll see that in the professional segment.
Overall, the rest of the expenses with our transformational office and some of the personnel associated with that and consulting expenses are sitting in other activities, David. But overall, productivity continues to be a great project for us. We continue to focus on that, and we're confident in delivering that at least $100 million by F27.

Richard Olson

(Multiple speakers) David, I would just add, as we talked about with particularly our professional business in the underground golf and grounds areas, as those plants operate at a higher level, it really creates the opportunity to work on productivity. The absorption of the plant gets better. And so manufacturing variances left some initiatives. So that contributes to productivity as well as the specific initiatives that we have through AMP.

Angie Drake

And we would just add that we're also leveraging our SG&A costs. So we've worked hard to control what we can.

David MacGregor

Right. Great, okay. Maybe I'll follow up with you a little more on that offline, but just one more if I could. And just -- you talked about material costs were higher in the quarter in both segments. Obviously, you've still got some higher contracted steel prices coming off the balance sheet and the P&L.
But can you help us understand just on the timing of the P&L benefits from lower steel costs? When do we start to see that? Is it -- are we waiting for a contract reset at the beginning of the year and then a 90-day lag for it to come off the balance sheet, or just how should we be thinking about timing around that, please?

Richard Olson

Yes. With regard to commodity costs in general, I think that the biggest focus for us is actually an offshoot of our AMP initiative to work with our suppliers and partners to drive down our costs, both through just competitive pricing, but also through partnering with our suppliers to do better on cost.
From a steel standpoint, I mean overall market, we did see an adjustment probably about 1.5 years ago or so, and we're in a little bit more of a plateau from a market standpoint. We still have major steel contract negotiations coming up. So that's still TBD, but we'll obviously be looking to drive as much improvement as possible on those costs.

Angie Drake

Yes, and anything that we've seen there, we've included that in our guidance to the best of our ability.

David MacGregor

Right. But I guess what I'm trying to really understand is just the timing. And so let's stand back from whether it's up or down and just whatever it is. The timing, do we see that kind of a contract reset at calendar first of the year and then it's 90 days to come off the balance sheet, or can you just help us with the timing?

Richard Olson

That's roughly correct, although there are some continuous processes on negotiations. So it's not -- not everything happens right on a fiscal year basis. There are negotiations through the year.

David MacGregor

Okay. Great. Thanks very much and good luck.

Operator

Eric Bosshard, Cleveland Research Company.

Eric Bosshard

Thank you. Good morning. Just a bit of clarity on the change in the revenue guide. As I listen, you walked through all this, and there's a lot of strength in backlog and the turf-growing season. There's a whole number of things going well. It seems like narrowly this is dealer sell-through and dealer orders that are homeowner driven. Is that the right way to narrow it, or would you narrow it differently than that?

Richard Olson

That's the right way to narrow it. That is the biggest factor through the rest of this year.

Eric Bosshard

Okay. And this was an area that was -- this homeowner piece of the business has been different and worse than expected the last 15 months. Is it incrementally worse now? Was there an assumption that it was stabilizing or getting better? I'm just trying to figure out, this is the first time we've heard about that piece of the business. I'm just trying to figure out what's different now here in the back half than either the trend or the expectation and why

Richard Olson

Yes. I would say that it's consistent with our expectations going back to a year ago, where we recognize based on a significant slowdown in the market at that time. And dealers coming off of three years where they didn't have products and had built up inventory that we needed to go through an inventory adjustment. And we have been -- that's what we've been working on for the last year. And we've made tremendous progress.
We are close to being on track with our inventory reduction plan. I think we've quoted 80%, still have a few months to go in the year. And so that's really what the factor is. We're acknowledging and it's obviously seen in our revenue that there was caution that came into our customers in July and shared with our dealers about taking stock at this time of the year.
That's -- the trajectory changed a little bit at the end of the year. But this is, again, the end of the summer season and much of our selling area. So it's not unusual for both customers and dealers to make decisions. It wasn't -- that's really where the factor came from. So we've been on track with reducing inventory as we suggested a year ago, been working on that. Retail, strong shipments have been much lower for us intentionally to rightsize that field inventory.

Eric Bosshard

Okay. [That's all of my questions.] Thank you.

Operator

Ted Jackson, Northland Capital Markets.

Ted Jackson

Good morning. Thanks for taking the questions. I want to circle around inventory on the balance sheet and just kind of move around it for a bit. You're doing a good job in terms of kind of working through that. When I think about your inventory on the balance sheet and play that out over the next 12 to 18 months -- and first of all is, I would expect it to eventually trend itself down to a more normal level. So my first question is, when you look at your inventory, let's say, turns or days basis, what would your definition of normal be?
And then behind that is, am I correct to assume that glove in hand in terms of bringing down that inventory level on your balance sheet is you bringing down the backlog that you have with regards to underground construction and golf, point being that you're seeing such strength in orders that you have this amount of inventory because you've got all those businesses you've got to kind of work through. And then behind that, even as kind of -- at what point do you think you get to where that kind of normalized level is based upon, say, terms or days? And so that's my question.

Angie Drake

So we continue to realign our inventory, Ted. And we've had a sharp focus, as you know, on that all year long. We did make really good progress in the quarter. So we're down about $25 million sequentially, some of that driven by WIP. So to your point on increasing output, some of that inventory is sitting in WIP so that we can address that backlog for our customers.
And we've made great progress. So we have probably about $75 million to go. We talked last quarter about kind of heading in the right direction and where we wanted our inventory dollars to be. So I'd say we are -- to get to our ideal levels, we're looking at about $75 million still to go.

Ted Jackson

And then if I could ask one more question -- and it's really more not even a question, it's just more of a -- some commentary. This morning, Callaway and Topgolf announced there's kind of a separation. And the rationale behind it is that Topgolf has had some, call it, performance issues as we moved past COVID-19.
And I know that the golf business for you is exceptionally strong, and you continue to comment yourself that rounds played are up and everything. But in the past, it's also been commented that what one of the underlying drivers of that is the bringing in of new golfers through something like Topgolf. Is there anything to read with regards to what's going on, on that side of the business with regards to Topgolf in terms of kind of a longer-term? Just figured I'd ask. That's it for me.

Richard Olson

Certainly, the adjacency, it's a little bit different than our golf course business. And I know that one of the factors is that there are more players in that particular field right now just because of the strength of golf. So I haven't had a chance to look at the information that you're looking at.
But what it does reflect is just the overall interest level in the game of golf and continued growth in all forms, on course, off course, and increasing data that says if you play off course in one of these forms, even on some of these so-called hunting places that it does increase your interest in playing golf on a grass off course, and that's good for us.

Ted Jackson

Well, thanks for taking my questions. And by the way, congratulations on the cash flow generation for the quarter. It was impressive.

Angie Drake

Thank you.

Richard Olson

Thanks.

Operator

Thank you. Ladies and gentlemen, this concludes the question-and-answer session. I would now like to turn the call back over to Julie. Please proceed with closing remarks.

Julie Kerekes

Thank you, Towanda. And thank you, everyone, for your questions and interest in the Toro Company. We look forward to talking with you again in December to discuss our fiscal 2024 fourth-quarter and full-year results.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Everyone, have a good day.