NEW YORK, Oct. 18, 2017 /PRNewswire/ -- Report entitled
"More Tricks Than Treats" outlines how Tootsie Roll faces 25%-50% downside risk as a
result of changing snacking preferences, financial
misrepresentation of gross margins and cash flow and management's
failure to attract a buyer
- Brand is Out of Step with Consumers and the Industry:
Tootsie Roll's offering consists of
sugary candies with fading nostalgia (e.g., tootsie roll, tootsie
pop) and poor instore placement. Demand for sugary candies
has begun to fade as consumers demand healthier snack options and
new FDA label requirements place greater emphasis on "added
sugars". Tootsie Roll's
product offering limits its ability to pivot as evidenced by its
unwillingness to join industry SROs focused on initiatives such as
banning marketing to children under the age of 12
- Opaque Financial Disclosures, Overstated Gross Margins and
Inflated Operating Cash Flows: Tootsie
Roll is notoriously secretive about its financials: it
doesn't hold investor conference calls, invite analyst coverage,
disclose key performance drivers and potential asbestos risk.
Tootsie also inflates its gross margins by 800bps, relative to
peers, by excluding shipping, warehousing, and freight costs.
Spruce Point also believes Tootsie has inflated operating cash
flows, through cookie jar accounting, by ~$50m since 2012 though early termination of its
split dollar life insurance policy
- Excessive Takeover Optimism Driving Irrational Valuation: The
perennial bull case is that Tootsie insiders will sell the company,
yet no steps have ever been taken in that direction. Spruce
Point believes there are many "hidden" costs a potential acquirer
would need to absorb that could amount to an extra
$165m - $235m on top of Tootsie's
already rich valuation at 4x, 19x, and 38x 2018E
Sales/EBITDA/EPS
The research report can be found on our website at
www.sprucepointcap.com/tootsie-roll-industries and updates will be
posted on twitter @sprucepointcap. Spruce Point's CIO will
also appear on CNBC's Closing Bell to discuss the thesis in greater
detail.
Spruce Point Capital has a short position in Tootsie Roll
Industries, Inc. and stands to
benefit if its share price falls.
About Spruce Point Capital
Spruce Point Capital
Management, LLC, is a forensic fundamentally-oriented investment
manager that focuses on short-selling, value and special situation
investment opportunities.
Contact
Sean
Donohue
Spruce Point Capital Management
sean.donohue@sprucepointcap.com
212-519-9813
Spruce Point Capital Management, LLC is a member of the
Financial Industry Regulatory Authority, CRD number 288248.
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SOURCE Spruce Point Capital Management, LLC