Tootsie Roll Industries Needs A Major Acquisition To Grow

Aug. 18, 2020 9:20 AM ETTootsie Roll Industries, Inc. (TR), TROLB7 Comments
Carles Diaz Caron profile picture
Carles Diaz Caron
868 Followers

Summary

  • Tootsie Roll Industries is a very old confectionary company.
  • Their products are well known and their profit margins are high.
  • The company has found a limit when it comes to sales and revenues.
  • A M&A approach is a must at this point, and the company has the means.

Investment Thesis

Tootsie Roll Industries (NYSE:TR) has experienced a revenue and sales plateau. The main reason for this is a management's lack of interest in taking a more aggressive approach in terms of a more than needed M&A strategy. This lack of interest is clearly reflected in the fact that the company spends all of its surpluses on paying dividends and buying back shares indefinitely while maintaining a virtually nonexistent debt.

All directors and executive officers own a whopping ~55% of common outstanding shares, and ~83% of class B outstanding shares. Although high insider ownership is often associated with management's commitment to reward shareholders in the long run, this is not the case. The lack of changes in operations and structures of the company over many years suggests that the management is accommodated in its position as long term shareholders. For this reason, I believe that the company will remain stagnant unless there are significant changes in management's attitude. In short, an investment based on the hope that management will change its mindset is not the best idea considering the opportunities we have in the market today.

A brief look at the Tootsie Roll business

Founded in 1896, Tootsie Roll Industries is a major American confectionary company. More than a century has passed since Leo Hirschfield started to sell candies for one penny, when Tootsie Rolls orders were still delivered by horse. Can you recall where were you by then?

Tootsie Rolls Deliveries

Image source: Tootsie Rolls Industries website

Well, today the company operates in more than 75 countries worldwide, employing more than 2,000 people. Its main manufacturing, warehousing, and distribution center is located in Chicago, Illinois, but also operates in other buildings in Tennessee, Delavan, Cambridge, Ontario, Hazleton, Barcelona, and Mexico City.

But the Tootsie empire does not end here. The company has

ChartData by YCharts

ChartData by YCharts

ChartData by YCharts

ChartData by YCharts

ChartData by YCharts

ChartData by YCharts

This article was written by

Carles Diaz Caron profile picture
868 Followers
Subscribe for an average ~20% return per year according to Tipranks. I am a long-term Dividend Growth Investor always looking for new opportunities in the stock market since 2015. In order to find good deals in the stock market, I look for companies that are going through a bad time and carefully assess the chances that the financial situation will return to the path of profitability and growth. My objective is to find stocks that can be bought and held for many years and try to get them for the lowest price possible during temporary headwinds. For me, the most important aspects when analyzing a stock's turnaround chances are that the company's products are essential to a big portion of the population, healthy and stable profit margins, a sustainable debt and dividend, and a long-term trend that suggests the products and services offered will continue to be essential for the decades to come.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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