$19.12
$30.45
bear $19.12
base $26.27
bull $30.45
margin of safety $14.00
market price* $38.23
Tootsie Roll Industries makes and sells candy under brands it has owned for decades: Tootsie Roll, Tootsie Pops, Charms Blow Pop, Dubble Bubble, Andes, Junior Mints, Dots, Sugar Daddy, Charleston Chew and others. Sales are almost entirely in North America, with about 92% of 2025 product sales in the United States and the rest in Canada and Mexico. It has one line of business, no stock options and essentially no debt (a $7.5 million industrial development bond). Its three largest customers are Walmart (about 22% of sales), Dollar Tree including Family Dollar (about 13%) and the wholesaler McLane, which delivers to both. Together they account for roughly 36% of sales. Volumes are mature, and revenue growth has come from price. Owner earnings. We start from operating cash flow, remove the timing swings in working capital, and deduct the capital spending needed to keep the plants running. There is no share-based pay to deduct. On that basis the business produced $53 million to $97 million a year over 2016-2025. Tootsie Roll pays a 3% stock dividend every year, which is economically a stock split, so all per-share history is restated to today's share count. Two adjustments matter. First, the company held about $492 million of cash and investment-grade bonds at the end of 2025. We count those directly as an asset, so we take the after-tax income they earn ($11 million in 2025, and rising with interest rates) out of the earnings stream to avoid counting it twice. The $121 million of trading securities held against executive deferred compensation is treated as matched to that liability and counted neither way. Second, we set aside $75 million of cash for the large seasonal inventory and receivables build ahead of Halloween. That leaves about $410 million of surplus cash and bonds after the bond debt, or about $5.46 per share. Earning power. Earnings stepped up after 2022, when the company raised prices to cover inflation in sugar, cocoa, packaging and freight. Revenue has held between $690 million and $770 million for four years. Cash margins have stayed inside the same 9% to 13.5% band they occupied over the whole decade. So the higher dollar level reflects a higher price base, not unusually fat margins. We therefore take the 2022-2025 median, about $82 million a year of cash earnings before investment income and interest, as the normal level. 2024 was flattered by a one-time LIFO inventory liquidation, and 2017 is excluded because of tax-reform effects. The latest full year fell about 9%. First-half 2026 pretax earnings were about 15% below a year earlier on flat sales. The company has pointed to higher cocoa and chocolate costs, tariffs (about $3.7 million of extra cost in 2025) and a weaker sales mix. We could not see a detailed explanation of the first-half 2026 decline in the filings available to us. We treat it as a cost squeeze of the kind the business has absorbed before, not as a new, permanently lower level. Base case. Earnings fall to about $73 million in 2026, a 9% decline in line with the latest year. They recover to the normal level of about $80 million by 2028 as price catches up with costs, as it did after the 2018-2021 squeeze. After that they grow 1% a year. That is below the roughly 1.5% a year that cash earnings have actually grown since 2016 and the roughly 2% a year revenue has grown over twenty years, all of it from price. Beyond year 10 the same 1% continues, because brands that have sold for more than a century (Tootsie Roll since 1896) are the named reason the earning power lasts. We credit no volume growth, new products or acquisitions. The business is worth about $1.56 billion. It owes $7.5 million and holds about $417 million of surplus cash and bonds, so the equity is worth about $1.97 billion, or $26.27 per share. Bear case. This case repeats the 2018-2021 squeeze, when cash earnings fell from about $70 million to $49-56 million and margins sank to about 9% while costs ran ahead of price. It adds a 2020-style drop in sales: revenue fell 11% that year when Halloween was disrupted. Earnings are $70 million in 2026 and $60 million in 2027. They recover only to $68 million, the bottom of the historical margin band on today's sales, and stay flat with no price growth. After year 10 they shrink 1% a year as unit volumes keep drifting lower, as they have for years. A meaningful loss of shelf space at Walmart or Dollar Tree would land in this case. The business is worth about $1.02 billion. Adding about $410 million of net surplus cash gives about $1.43 billion, or $19.12 per share. The company has almost no borrowing, so no case carries refinancing risk. Bull case. Pricing keeps pace with costs as it has since 2022, and the removal of tariffs on cocoa in late 2025 flows through. Earnings return to about $85 million by 2028, near the 2023-2024 level. They grow 2% a year to year 10 and 1.5% a year after that. The business is worth about $1.88 billion. Adding $410 million of net cash gives about $2.29 billion, or $30.45 per share. The range is narrow because the business is simple, has no debt and has a long, stable record. The value rests on the brands and the cash pile, not on growth. Margin-of-safety price. We are fairly confident in the earnings level: ten years of cash earnings in a narrow margin band, with no leverage and no dilution. The worst plausible outcomes are a long cost squeeze or a slow volume decline as the brands age. A long squeeze could come from cocoa, sugar, or tariffs on cross-border shipments if the USMCA trade agreement review goes badly. The balance sheet would survive any of these comfortably: the company owes almost nothing and holds more than $5 a share of surplus cash and bonds. If we are wrong about the recovery from the 2026 dip, and margins settle at the low end of their range, the shares are worth about $19-20. The ownership structure matters for the holding period. The family controls the company through its Class B stock, so the cash pile is likely to stay on the balance sheet earning bond yields rather than being paid out. The business pays only about $0.35 a share a year in cash dividends, and the 3% stock dividend adds nothing economically. So most of any return has to come from the share price closing the gap to value, which may take several years. From $14, reaching the base value within about four years, plus dividends, implies roughly 20% a year. The bear case over three years implies low double digits a year rather than a loss. That is why the margin-of-safety price is $14. The previous figures for this company were prepared on a different basis and are not comparable.