Tootsie Roll Industries(TR) - 2024 Q3 - Quarterly Report

Financial Performance - Net product sales decreased to $223,891 in Q3 2024 from $248,336 in Q3 2023, a decline of 9.8%[63] - Domestic net product sales represented 91.6% of total consolidated net product sales in Q3 2024, with a decrease of 9.7% compared to the prior year[63] - Adjusted earnings from operations were $40,044 in Q3 2024, down 9.4% from $44,215 in Q3 2023[71] - Net earnings attributable to Tootsie Roll Industries, Inc. were $32,844 in Q3 2024, compared to $34,382 in Q3 2023, a decrease of 4.5%[78] Costs and Expenses - Product cost of goods sold decreased to $148,266 in Q3 2024 from $164,163 in Q3 2023, a decrease of 9.9%[64] - Selling, marketing, and administrative expenses increased to $41,825 in Q3 2024 from $39,300 in Q3 2023, an increase of 6.4%[66] - Cocoa and chocolate costs are expected to rise significantly, adversely affecting input costs and margins for the remainder of 2024 and into 2025[65] - The Company is exposed to significant increases in ingredient and packaging costs, particularly in cocoa and chocolate, which have reached unprecedented highs[105] Tax and Earnings Per Share - The consolidated effective tax rate decreased to 22.6% in Q3 2024 from 23.9% in Q3 2023, contributing to higher net earnings[77] - Average shares outstanding decreased from 71,696 in Q3 2023 to 71,379 in Q3 2024, impacting earnings per share positively[78] Future Outlook - The company expects adverse sales trends to continue through the remainder of 2024 and possibly into 2025[63] - The cocoa market is experiencing unprecedented volatility and remains a risk for the intermediate term and possibly longer[105] Pension and Employee Benefits - As of January 1, 2023, the Plan's funded percentage was 47.0%, down from 49.3% in 2022 and 48.5% in 2021, with a market value-adjusted percentage of 43.6%[81] - The number of current active employee Plan participants decreased by 1% from the previous year and 6% over the past two years, reflecting a 55% decline since January 1, 2011[83] - The Company's pension expense for the nine months ended 2024 was $2,579, compared to $2,785 for the same period in 2023, with surcharges of $909 and $982 respectively[87] - The Company received approximately $3.4 billion in Special Financial Assistance from the PBGC in July 2024, aimed at ensuring the Plan's solvency through 2051[88] - The Company expects to use VEBA funds to pay actual costs of employee benefits through part or all of 2027[101] Cash Flow and Investments - Net cash flows from operating activities increased by $30,496, totaling $70,102 for the nine months ended 2024 compared to $39,606 in 2023[94] - Cash used in investing activities was $(32,176) for the nine months ended 2024, with capital expenditures of $13,911 compared to $19,458 in 2023[95] - Aggregate cash and cash equivalents and investments totaled $481,555 at September 30, 2024, up from $427,028 at December 31, 2023[98] - The Company's current ratio was 3.6 to 1 at September 30, 2024, unchanged from December 31, 2023, and improved from 3.2 to 1 at September 30, 2023[97] Expansion Plans - The Company plans a plant expansion with an estimated cost of $70,000 to $80,000 over the next five years to meet projected demand[95] Market Risks - The Company is exposed to exchange rate fluctuations in the Canadian dollar, affecting raw material and packaging costs, as well as labor and local plant operating costs[106] - The Company invests principally in corporate bonds with an average maturity of three to five years to manage its interest rate risk[106] - The Company believes its policies limit exposure to significant interest rate fluctuations, with no material changes in market risks affecting disclosures made in the Form 10-K for the year ended December 31, 2023[107] - The net unrealized loss on available for sale investments was approximately $4,300 and $6,600 at September 30, 2024 and 2023, respectively, reflecting the increase in market interest rates[100] VEBA Trust - The VEBA trust held $16,345, $19,126, and $21,965 of aggregate cash and cash equivalents at September 30, 2024, December 31, 2023, and September 30, 2023, respectively[101] - The Company added $20,000 in additional funding to the VEBA trust in 2023, with no contributions made during the nine months of 2024[101] - The Company has entered into longer-range supply contracts for cocoa and chocolate needs in 2024 and much of 2025 at significantly higher costs than in recent years[105]