I Introduction The Tootsie Roll Industries entered the candy industry in 1896 and since then the company has grown to be one of the best known and largest candy companies in the United States. Some of the most well-known products from Tootsie Roll Industries are Andes Mints, Charleston Chews, Junior Mints, and of course the Tootsie Roll. These products are sold in movie theaters, grocery stores, vending machines, dollar stores and gas stations1. The company is also one of the largest producers of lollipops in the world.
Over the last few decades the company has almost doubled their sales without spending money on advertising or buying out companies that did not fit in with their goals. While this is true in the most recent decade its operating profit margin has dropped to almost half of what it once was2. In more recent years the company has been slowly recovering from the last economical crash. Last year, 2012, the company had a net product sales of $545,985 up from $528,369 in 2011, 3. 3%. The cash flows from their operating activities doubled from 2011 from $50,390 to $101,919.
The company was able to pay $52,431 in dividends including a special $0. 50 per share dividend equaling $29,138. They were also able to pay off a substantial about of their outstanding shares. With the company having started to turn around it is hopeful that they will be able to return to having the profits that they once had3. The majority of this growth has come from personal consumption closely followed by gross private domestic investments, exports, and very little from imports and government consumption and gross investment. II Summary of Recommendation III Macroeconomic Review GDP Growth
The growth domestic profit, GDP, is an indicator of a country’s economic health. The GDP shows the growth from year to year as well as quarter to quarter. In the third quarter of the 2013 the United States GDP grew at a rate of 3. 6 percent. The GDP in the United States comes from its diversified and technologically advanced economy4. The GDP over the last five years has been growing and recovering since the economy collapsed in 2008 (table 1). The GDP in the candy industry has grown around 5. 2% for the last five years. The industries GDP is expected to grow at a similar rate the economy in
general over the next six to eight years. This is an indication that the candy industry is at a mature stage in its product life cycle6. Interest Rates The U. S. inflation rates have slightly fallen over the past ten years which may indicate that the overall price of producing a good may have also fallen (table 2). Particularly for the candy industry the cost of sugar is currently at around a five year low around the price that it was in 20097. (table 3) Similarly the price of cocoa is also around a five year low, close to but not as low as the price of 20099.
(table 4) Demographics Over the last couple of years there has been great focus on making sure that children start eating healthier at a younger age. This has led to candy companies making the switch to advertising to adults instead. While children are still a major demographic of the candy company the Tootsie Roll Industries do not spend a great deal of money or time advertising their products. The Few advertisements that the company does use are fun and whimsical for children and nostalgic ads for adults.
Impact of Economical Trends on Stock Price and Industry Growth Prospects It seems that no matter where the economy is currently at the candy industry is recession proof. This could be that sugary substances are found to comforting to people when they are facing time times. Candy is not normally an expensive purchase so when the economy is not at its best people will still buy candy. Luckily for the Tootsie Roll Industries there products are on the lower end of the price scale of the candy industry. This is due to the fact that they keep their costs low by not spending tons of money on advertising their products.
With the current inflation rates of sugar and cocoa on the lower end it would seem that it the economy is at the right spot for the candy industry to start growing10. Where is the Economy in Terms of the Business Cycle? Since 2001 the United States economy has been pulling itself out of a recession. There have been dips back down since 2001 but they have not fallen down to what they once were11. The economy across the US is recovering, (table 5), this shows that the economy is in a good position for industries everywhere to start growing. This will allow the candy industry
and the Tootsie Roll Industries to be able to keep growing the way it has for the last year or so. This ties back the current prices of the raw goods needed to produce the final product. The drop in prices will allow the profits to grow as the cost of producing them falls12. IV Review of the Company and Its Business A) Industry Analysis I) Classification of industry A) Life Cycle Position The Tootsie Roll Industries has a long history of conservative management, marketing and new product introduction. This has caused the company to have not grown as much as possible over the last couple of years13.
While the products that the company sells at definitely at a stable point in their individual life cycles the company seems as if it will continue to grow as a whole. B) Business Cycle Sensitivity Defining the business cycle sensitivity as either cyclical or defensive is a fine line. It has been shown that during an economic downfall people still tend to buy candy which would suggest that the company would have a defensive business cycle. At the same time the company’s records show that during tough economic times the company’s profit margin was hurt suggesting that the company has cyclical business sensitivity.
I would have to say that the overall the company has a defensive business sensitivity because people do still buy the product during the tough economic times and the fact that there profits drop during these times can be explained by the company lowering their prices so they would still be considered a reasonable price. 2) External Factors A) Technology Trends Since the Tootsie Roll Industries has been open for over a decade and now owns some of the most well-known unadvertised candy and is still a growing business it is not to be believed that the company will ever become obsolete.
The company is has a very large fan base and has a wide variety of products for every type of candy lover. They also have a very large niche of hard candies that dominant the industry. On the other hand the company may have to worry about the acceptance of new technology in the market place. While the Tootsie Roll itself has not changed much over the years the company has admitted that they update their equipment every ten years in order to keep up with efficacy to keep their costs low14. B) Social Changes and Demographics The Candy industry has been affected by some social changes in the last few years.
There have been many moves towards eating healthy and making products healthier. Another big movement has been to make more sweet foods for those with allergies and food sensitivities. This has led many companies to change the way their market their products as to meet their changing demographics. 3) Company Product Market A) Trends and Growth The Tootsie Roll Industries takes a different approach to selling their products than many of their competitors. It said that that most of the sales for the candy industry happens from October to March.
For many companies this means that they sell holiday shaped treats and more specialty candies during these months. While the company does do some special holiday treats such as their candy cane Tootsie Roll centered lollypops, the Tootsie Roll Industry does not take as large of a part of this as other companies. Instead the company focuses on selling their candy in movie theaters during the summer months and experiences large sales around Halloween15. 4) Market Demand A) Industry Concentration and Ease of Entry In the United States there are about 70,000 jobs in the manufacturing of candy in 320 different companies in 40 states.
Many of these companies are family owned 4th or 5th generation companies that have been steadily growing. It can be said that the ease of entering the candy industry is relatively easy and the National Confectioners Association is very big into free trade and support foreign countries having duty-free access to help increase export opportunities. On the other hand with the vast amount of different types of candy in the market one most have a very new and unique item to successfully break into the market16. 5) Competitive Analysis A) Competitors The Tootsie Roll Industries major competitors are Hershey, and Mars.
The Hershey Company is currently launching new products, acquiring new companies such as Brookside, expanding their summer season, global expansion, and doubling their plant capacity. The strategy of the Hershey Company expanding involves new products such as Twizzler Bites and Jolly Rancher Bites might have an effect on the Tootsie Roll Industries and it is a new product that competes with their chewy based products such as Sugar Babies, Sugar Daddy, and their Frooties line17. The Mars Company had decided to go the root of using 100% natural materials, more sustainable approaches, and to try to strengthen the cocoa supple chain.
Through strengthening this chain they hope to raise the standards through the entire industry18. The Mars strategies to attempt raise the standard of the cocoa supply chain could mean more regulations for the Tootsie Rolls Industry but at the same time better product quality. B) Strengths and Weaknesses of Hershey and Mars 1) Market Position The consumers of the candy industry often change what it is that they are looking for, different flavors and even health trends. The Hershey Company has decided to go the route of bringing differentiation to the company by providing different flavored candy bars, promotions, and public relations19.
The Mars Company has decided that the marketing position is best done by not advertising to children under the age of 13, and promoting the health of those children. 2) Profitability and Financial Strength The Hershey Company has been steadily growing since 2008 in the same pattern as the Tootsie Roll Industries but at a higher level. The S&P 500 has the Hershey Company marked at 29. 12. The company’s revenue has been growing about around $3,000 a year and has earnings per share of $3. 50 for the past trailing twelve months. As for the Mars Company it is not a publicly traded company and seems to not publicize its financial earnings20.
3) Product Mix and Quality The Product mix of the Hershey Company includes of chocolate bars, Almond Joy, Mounds, Kit Kat Bars, Hershey Kisses, Reese’s Peanut Butter Cups, Pieces, Whoppers and York Peppermint Patties. The product mix of The Mars Company is 3 Musketeers, Twix, Milky Ways, Combos, Dove Chocolates, Galaxy, 5 Gum, Doublemint, Extra, and even has a pet consumption line. Both companies are dedicated to product quality and have been making moves towards only using the best ingredients as shown by their competition and market position. C) Industry Status
The Tootsie Roll Industries is on the same path as the Hershey Company but on a smaller scale although the Tootsie Roll Industries is trading at a trailing P/E ratio of 39. 5 to the industries 22. 521. B) Company Specific Analysis 1) Company Information A) General Information The Tootsie Roll Industries started as a family company and has expanded since they opened. The company struggled through its early years and has become a company known by many and in now sold in over 75 countries. The company is currently being extremely secretive in its day to day activities as well as its financial status.
One of its strategies has been to continue to expand through the acquisition of other companies. One of the reasons that they have been successful in this is that they have not bought a company that has not fit their profile. They have quoted saying “When consumed in moderation, you can enjoy delicious Tootsie candies without comprising the benefits of a nutritious, well-balanced diet” which is said to line up with their financial outlook. The company has a dividend yield over 1% with more than $67 million in cash22. 2) Products and Markets
The Tootsie Roll Industries have had many of the same products for years but their newest products include Sour Dots, Frooties, and different sized Tootsie Rolls such as the King Size Pouch. Their most current feat is that they have begun to make most of their products kosher, nut, egg and gluten-free. 3) Production, Distribution and Competition The Tootsie Roll Industries produces 64 million Tootsie Rolls a day. Other than this I could not find anything about their production other than the fact that they update their equipment every ten years to help keep costs low. The company has four different distribution and production centers24.
Since the Tootsie Roll Company is so secretive about their business operations finding out how they deal with their competition is almost impossible. 5) Management The Tootsie Roll Industries are run by one of the oldest CEOs in the United States. They are become more and secretive over the years which have many people worried about the future suitability of the company. They have refused to hold quarterly earning meetings, and have had analysts give up on maintaining coverage due to the fact that it has become increasingly harder to receive information 2. V Financial Statement Analysisa
Table 1 5
Table of Inflation Rates by Month and Year (1999-2013)