I've followed Tootsie Roll Industries for years, and previously held a position in the name. It is a who's who of brands, which besides the obvious (Tootsie Rolls, and Tootsie Pops) also includes Charleston Chews, Charms Blow Pops, Dubble Bubble, Junior Mints, Andes Mints, Razzles, and Sugar Daddy to name a handful. This is a solid and potentially valuable portfolio of well-known products, and one that has been profitable for Tootsie Roll for decades.
Unfortunately over the years the company's operating performance has been sliding. In 2004 and 2005, the company's net margins were above 15%. But since then, revenue has stagnated, and net margins have been cut dramatically. Last year, the company bottom-lined 9.5% of revenue, which is nothing to sneeze at, but a far cry from where it was. Revenue has also been flat, increasing less than 10% since 2006.
DOLE data by YCharts
When I owned Tootsie Roll shares, it was in part due to the presumption that aging owners would be selling the business, and that that it would command a nice premium to a company such as Hershey (HSY). I finally gave up on that notion as revenue stagnated, margins declined, and the Gordons showed no interest in selling.
Several years later, the Gordons are still going strong, the stock is doing fairly well, and commanding a rather high 37 price-to-earnaing ratio. Given David Murdock's offer for the rest of Dole, perhaps I had it all wrong. Perhaps the Gordons will be buyers, and not sellers.Let's hear it for the old guys (and gals)! At the time of publication the author held no positions in any of the stocks mentioned. Follow @JonMHellerCFA This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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