Business context and reporting period
Tootsie Roll Industries, Inc. filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2023. The company makes and sells confectionery products and earns rental and royalty revenue. Results are seasonal; the third quarter is historically its largest sales quarter because of pre-Halloween demand. Dollar amounts below are in millions unless noted.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $249.9 | $213.2 | $572.1 | $497.3 |
| Net earnings attributable to Tootsie Roll | $34.4 | $26.6 | $62.5 | $50.6 |
| Earnings per share | $0.49 | $0.37 | $0.89 | $0.71 |
| Operating earnings, reported | $45.9 | $35.6 | $73.4 | $83.4 |
- Net product sales rose 17.2% in Q3 and 15.1% year to date. Management attributed growth primarily to higher price realization, with higher volumes also contributing.
- Q3 total gross margin was $85.2 million versus $71.5 million; reported operating earnings increased. For the nine-month period, reported operating earnings declined, while management’s adjusted measure—excluding deferred-compensation market-value effects—rose 29.5% to $81.0 million. Management says these adjustments better reflect underlying operations.
- Nine-month operating cash flow was $39.6 million, up from $30.6 million. Capital expenditures were $19.5 million. Cash and cash equivalents were $47.3 million at September 30.
- Liquidity remained substantial: current assets were $336.1 million, current liabilities $105.6 million, and the current ratio 3.2:1. Cash and short-term investments totaled $135.4 million; including long-term investments, aggregate cash and investments were $378.6 million.
- Debt was limited: $1.0 million of Spanish subsidiary bank loans and $7.5 million of industrial development bonds. The company repurchased $27.6 million of shares and paid $18.8 million in cash dividends during the nine months.
Material changes, outlook and risks
- Higher ingredient, packaging, labor, benefits, maintenance and other manufacturing costs pressured margins. Management said price increases and cost reductions helped, but margins had not returned to historical levels; it expects ingredient costs to be higher in 2024 and cautioned that pricing may not fully offset further inflation.
- Sales benefited from earlier pre-Halloween and other shipments than in 2022. Management expects this timing shift to weigh adversely on Q4 2023 sales and earnings versus Q4 2022. No numerical guidance was provided.
- The company reported improved supply-chain conditions but continued to cite possible disruptions, plant labor challenges, and overtime or extended shifts needed to meet demand. Other stated risks include competition, commodity availability and prices, foreign exchange, and seasonal sell-through.
- A multi-employer union pension plan remains in “critical and declining” status. The company disclosed a historical estimated withdrawal liability of $96.0 million for 2022, while discussing a modeled present-value range of $31.9–$43.7 million for estimated capped payments if it had withdrawn that year. Actual future liability could be higher; the outcome and any financial-statement impact are uncertain and could materially affect future results or cash flows. The plan reapplied for PBGC assistance in October 2023, and the company’s union contract requires continued participation through September 2027.
- The company contributed an additional $20 million to its VEBA trust in Q3 to fund employee benefits through part or all of 2026. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Q3’s earlier seasonal shipments result in the expected Q4 year-over-year sales and earnings headwind.
- How 2024 ingredient and other input costs, pricing, and volumes affect gross margins and earnings.
- Developments in the pension plan’s PBGC application, funded status, and potential withdrawal liability.
- The composition and valuation sensitivity of the company’s investment portfolio, including unrealized losses on available-for-sale securities and trading securities tied to deferred compensation.
- The cash-flow and shareholder-return implications of continued capital spending, share repurchases, dividends, and VEBA funding; the company says it has no formal publicly announced share-repurchase program.