Tootsie Roll Industries, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are primarily with FY2020. Amounts are in U.S. dollars unless stated otherwise. The company operates in one segment: manufacturing and selling confectionery products, primarily in the U.S., Canada, and Mexico.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net product sales | $566.0 million | $467.4 million | +21.1% |
| Total revenue | $570.8 million | $471.1 million | +21.2% |
| Product gross margin | $195.9 million; 34.6% of product sales | $167.7 million; 35.9% | Margin down 1.3 percentage points |
| Operating earnings | $67.1 million; 11.8% of total revenue | $58.2 million; 12.4% | +15.3% |
| Net earnings attributable to Tootsie Roll | $65.3 million | $59.0 million | +10.7% |
| EPS | $0.97 | $0.86 | +12.8% |
| Cash from operating activities | $85.3 million | $74.7 million | +$10.6 million |
| Capital expenditures | $31.4 million | $18.0 million | +$13.5 million |
Fourth-quarter sales rose 30% to $166.6 million from $127.9 million. Fourth-quarter net earnings attributable to the company increased to $20.0 million from $15.0 million, and EPS rose to $0.30 from $0.22.
Liquidity, debt and capital allocation
- Cash, cash equivalents and investments totaled $437.0 million at year-end, versus $429.0 million in 2020. Cash and cash equivalents alone were $105.8 million, down from $166.8 million.
- Working capital was $188.3 million, compared with $250.9 million. Management attributed much of the decline to investments moving into long-term classification.
- Long-term debt was $7.5 million in industrial development bonds; the company reported no outstanding bank borrowings at year-end. The Spanish subsidiary had $0.9 million in short-term bank loans.
- Operating cash flow less capital expenditures was approximately $53.9 million. The company paid $24.1 million in cash dividends and spent $30.2 million on share repurchases. It also continued its annual 3% stock dividend.
Changes, outlook and risks
- Sales recovered as customers and consumers resumed group events, sharing occasions and other activities disrupted by COVID-19. FY2021 sales were 8% above FY2019; fourth-quarter sales were 24% above fourth-quarter 2019.
- Higher ingredient, packaging, energy, freight and labor costs, together with supply-chain disruption, reduced gross margin despite strong sales. Price increases took effect principally in Q4 2021; additional increases for some products were announced for the first half of 2022.
- Management expected input costs and inflation to remain elevated through most, and possibly all, of 2022, and cautioned that margins might not return to historical norms during part or all of the year. The filing gives no quantified sales or earnings guidance and says pandemic effects make 2022 results difficult to predict.
- Year-end order backlog rose to approximately $16.0 million from $3.5 million a year earlier, principally because supply-chain disruption pushed some Q4 sales into Q1 2022.
- Capital spending included approximately $15 million for a U.S. plant rehabilitation and expansion project in 2021; about $2 million of further spending was expected in 2022.
- The multi-employer union pension plan was in “critical and declining” status and was projected to become insolvent within 20 years. Estimated company withdrawal liability was $104.3 million if withdrawal occurred in 2021; management said actual liability and financial-statement effects remain uncertain and could be material in future periods.
- Customer concentration is significant: Walmart represented 22.7% and Dollar Tree 12.1% of FY2021 net product sales; McLane represented 21.0% and also distributes products to retailers. These percentages overlap and should not be added as independent customer exposure.
- Spain reported an operating loss of $0.6 million, improved from $0.7 million in 2020. Management expected further reductions but anticipated losses could continue beyond 2022 and require additional cash financing.
- Other notable exposures include seasonal dependence on Halloween, supply-chain and commodity volatility, reliance on specialized production facilities, and potential product, cyber, regulatory and customer-concentration risks. The company reported no material legal proceedings; ordinary-course claims were not expected to materially affect results.
Important facts for investors to verify
- Whether announced price increases offset continuing inflation and freight costs without materially weakening sales volumes or margins.
- Whether supply-chain recovery converts the elevated backlog into sales and improves operating efficiency.
- Developments in the union pension plan, including any PBGC assistance, future contributions or changes to estimated withdrawal liability.
- Customer concentration and receivables exposure, particularly given the three largest customers’ approximately 36% share of accounts receivable at year-end.
- Progress, remaining cost and expected benefits of the U.S. plant project, and the financial trajectory of the Spanish subsidiary.
The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. Trademark impairment testing was identified as a critical audit matter; no impairment was recorded in 2021.