Tootsie Roll Industries(TR) - 2024 Q2 - Quarterly Report

Sales and Revenue Performance - Net product sales decreased by 6.3% to $148,819 in Q2 2024 compared to $158,837 in Q2 2023, with domestic sales representing 92.3% of total sales[52] - Adjusted earnings from operations decreased by 8.9% to $17,927 in Q2 2024, with unfavorable results from the Mexican subsidiary partially offset by higher price realization[59] - Net earnings attributable to Tootsie Roll Industries, Inc. increased by 10.0% to $15,640 in Q2 2024, with earnings per share rising to $0.22[64] Cost Management and Efficiency - Adjusted product cost of goods sold decreased by 6.7% to $99,610 in Q2 2024, with gross profit margins benefiting from higher price realization and improved manufacturing efficiencies[53] - Selling, marketing, and administrative expenses decreased by 1.5% to $32,670 in Q2 2024, but increased as a percentage of net product sales to 22.0% due to lower sales[56] - Customer freight and delivery expenses decreased by 10.3% to $13,839 in Q2 2024, reflecting a more competitive freight market[57] Financial and Tax Performance - Other income, net increased to $4,900 in Q2 2024, driven by higher investment income on available-for-sale securities and favorable foreign exchange gains[62] - The consolidated effective tax rate decreased to 23.1% in Q2 2024, contributing to higher net earnings[63] - Net cash flows provided by operating activities were $8,777 in the first half of 2024, a favorable increase of $13,919 compared to $(5,142) in the first half of 2023[77] Pension and Employee Benefits - The Bakery and Confectionery Union and Industry International Pension Fund remains in "critical and declining status," with a funded percentage of 47.0% as of January 1, 2023[67] - The funded percentage of the Plan as of January 1, 2023, was 43.6% based on market value, down from 47.0% based on actuarial values[68] - The number of current active employee Plan participants as of January 1, 2023, fell 1% from the previous year and 6% over the past two years[68] - The Company's withdrawal liability would have been $102,200, $96,000, and $104,300 if it had withdrawn from the Plan during 2023, 2022, and 2021, respectively[69] - The Company's pension expense for the Plan in the first half of 2024 was $1,770, compared to $1,951 in the first half of 2023[72] - The Plan was granted approximately $3.4 billion in Special Financial Assistance funds in July 2024[73] Investments and Financial Position - The Company's current ratio was 3.7 to 1 at June 30, 2024, compared to 3.6 to 1 at December 31, 2023[80] - The Company's aggregate cash and cash equivalents and short and long-term investments were $423,894 at June 30, 2024[81] - Net unrealized loss on available for sale investments was approximately $1,600 at June 30, 2024, compared to $7,200 at June 30, 2023, reflecting the impact of rising market interest rates[82] - The company expects to hold most available for sale securities to maturity, anticipating minimal realization of unrealized losses[82] Supply Chain and Market Risks - The company has entered into longer-range supply contracts for cocoa and chocolate needs in 2024 and much of 2025 to mitigate supply risks and cost increases[87] - The cocoa and chocolate markets have reached unprecedented highs, posing a significant risk for the intermediate and possibly longer term[87] - The company's ingredient and packaging costs experienced significant increases in 2022 and 2023, with cocoa and chocolate markets remaining volatile[87] - The company's market risks, other than cocoa and chocolate, have not materially changed since the disclosures in the 2023 Form 10-K[89] Capital Expenditures and Future Plans - The Company is evaluating a plant expansion with an estimated total cost of $70,000 to $80,000 over the next five years[78] VEBA Trust and Employee Benefits Funding - The VEBA trust held $19,436 in cash and cash equivalents at June 30, 2024, up from $19,126 at December 31, 2023, and $1,942 at June 30, 2023[83] - The company added $20,000 in additional funding to the VEBA trust in 2023, with no contributions made during the first half of 2024[83] Foreign Exchange and Interest Rate Risks - The company is exposed to exchange rate fluctuations in the Canadian dollar, Mexican peso, and euro due to operations in Canada, Mexico, and Spain[88] - The company invests primarily in corporate bonds with an average maturity of three to five years to manage interest rate risk[88]