8-K: Tootsie Roll Industries Reports Lower Q4 and Full Year 2024 Results, Cites Challenging Market Conditions

Tootsie Roll Industries announces a decrease in net sales and net earnings for both the fourth quarter and full year of 2024, attributing the results to a challenging market environment and consumer resistance to higher prices.

Summary

• Tootsie Roll Industries reported its financial results for the fourth quarter and twelve months ending December 31, 2024.
• Fourth quarter net sales decreased by 2% to $191.36 million from $195.37 million in 2023.
• Fourth quarter net earnings decreased by 22% to $22.51 million, with earnings per share at $0.32 compared to $0.41 in the previous year.
• Twelve-month net sales decreased by 6% to $715.53 million from $763.25 million in 2023.
• Twelve-month net earnings decreased by 5% to $86.83 million, with earnings per share at $1.22 compared to $1.28 in the previous year.
• The company wrote off $11.01 million of deferred tax assets in the fourth quarter due to changes in tax laws, impacting net earnings.
• Adjusting for the deferred tax asset write-off, fourth quarter net earnings would have increased by 14% and twelve-month net earnings would have increased by 6% compared to 2023.
• The company faced challenges due to customer and consumer resistance to higher prices.
• Gross profit margins benefited from higher price realization and improved plant manufacturing efficiencies.
• Lower sales volumes adversely affected results due to fixed overhead costs.
• The company benefited from a LIFO liquidation during the fourth quarter.
• Increased investment income, higher leasing revenue, and favorable foreign exchange also contributed to net earnings.
• The company is continuing to make investments in plant manufacturing operations.

Sentiment

Score: 4

Explanation: The sentiment is slightly negative due to the reported decreases in net sales and net earnings. While the company highlights some positive factors, the overall financial performance is weaker than the previous year, and there are concerns about rising input costs.

Positives

• Gross profit margins benefited from higher price realization and improvements in plant manufacturing operating efficiencies.
• Net earnings benefited from increased investment income, higher leasing revenue, and more favorable foreign exchange.
• Earnings per share benefited from stock purchases in the open market, resulting in fewer shares outstanding.
• The company is continuing to invest in plant manufacturing operations to meet new customer and consumer product demands.

Negatives

• Fourth quarter net sales decreased by 2% to $191.36 million.
• Fourth quarter net earnings decreased by 22% to $22.51 million.
• Twelve months net sales decreased by 6% to $715.53 million.
• Twelve months net earnings decreased by 5% to $86.83 million.
• The company wrote off $11.01 million of deferred tax assets in the fourth quarter.
• The company faced challenges due to customer and consumer resistance to higher prices.
• Lower sales volumes adversely affected results due to fixed overhead costs.

Risks

• The company faces an overall competitive environment in its industry.
• The company's ability to recover increases in input costs through price increases is a risk.
• Successful distribution and sell-through during Halloween and other seasons is a risk.
• Changes in assumptions, judgments, and risk factors discussed in the Annual Report on Form 10-K could impact results.
• Cocoa and chocolate costs have moved significantly higher in the markets this year, and the company will experience even higher cocoa and chocolate costs in 2025.

Future Outlook

The company expects to experience even higher cocoa and chocolate costs in 2025 as older supply contracts expire and new contracts at higher costs become effective. The company continues to monitor its input costs and is mindful of the effects and limits when passing on higher input costs to customers and consumers.

Management Comments

• Mrs. Gordon said, 'Throughout 2024 we faced a challenging market as customers and consumers became more resistant to higher price realization. These headwinds have had some adverse effect on sales in fourth quarter and twelve months 2024.'
• Mrs. Gordon said, 'Fourth quarter and twelve months 2024 gross profit margins benefited from higher price realization and improvements in plant manufacturing operating efficiencies.'
• Mrs. Gordon said, 'Lower sales volumes adversely affected our results in fourth quarter and twelve months 2024 because much of our plant overhead costs, and certain other costs and operating expenses, do not decrease with lower sales.'

Industry Context

The company notes that many companies in the consumer products industry have increased selling prices in response to increases in input costs. Tootsie Roll has also implemented price increases to improve sales price realization and recover margin declines. The company is mindful of the effects and limits when passing on higher input costs to customers and consumers.

Comparison to Industry Standards

• It's difficult to provide a precise comparison without specific competitor data for the same period.
• However, companies like Hershey's and Mondelez International, which operate in the broader confectionery and snack food industry, are often benchmarks.
• Investors would typically compare Tootsie Roll's sales growth, profit margins, and EPS growth against these larger players to assess its relative performance.
• Given the reported challenges with price realization and input costs, Tootsie Roll's performance appears to be lagging behind some of its larger peers, who have demonstrated more resilience in maintaining profitability.
• The LIFO accounting method can also make direct comparisons challenging, as it can impact reported earnings differently than FIFO or average cost methods used by other companies.

Corporate Governance

Stakeholder Impact

• Shareholders will be impacted by the decrease in net earnings and earnings per share.
• Customers and consumers may face higher prices due to the company's efforts to recover increased input costs.
• Employees may be affected by the company's efforts to improve operational efficiencies.

Next Steps

• The company will continue to monitor its input costs.
• The company will continue to make investments in plant manufacturing operations to meet new customer and consumer product demands, achieve product quality improvements, expand capacity in certain product lines, and increase operational efficiencies.

Key Dates