Company: TR
Filing Date: 2025-08-08
Form Type: 10-Q
Source: 0001558370-25-010878
Chunk: 11

Company: TOOTSIE ROLL INDUSTRIES INC
Filing Date: 2025-08-08
Form: 10-Q
Item: Part I, Item 2
Chunk 11
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 and $312 and $487 of certain deferred compensation expenses in first half 2025 and 2024, respectively. These deferred compensation expenses principally resulted from the changes in the market value of investments and investment income from trading securities relating to compensation deferred in previous years and are not reflective of current operating results. Excluding the adjustment for deferred compensation expenses, product cost of goods sold decreased from $99,610 in second quarter 2024 to $97,660 in second quarter 2025, a decrease of $1,950 or 2.0%; and from $201,977 in first half 2024 to $193,315 in first half 2025, a decrease of $8,662 or 4.3%. As a percentage of net product sales, adjusted product cost of goods sold was 63.8% and 66.9% in second quarter 2025 and 2024, respectively, a decrease of 3.1 percentage points; and 64.5% and 67.3% in first half 2025 and 2024, respectively, a decrease of 2.8 percentage points. Second quarter and first half 2025 product cost of goods sold and gross profit margins benefited from higher price realization implemented to restore margins, improvements in plant manufacturing operating efficiencies, and certain cost reductions.

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In response to increases in input costs in recent years, many companies in the consumer products industry have increased selling prices. We have implemented price increases as well during these periods with the objective of improving sales price realization in order to recover our margin declines. Although we made progress in restoring our margins in second quarter and first half 2025, prices of cocoa and chocolate continue at significantly elevated levels compared to historical prices in past years. As a result, we expect to incur even higher cocoa and chocolate unit costs during the balance of 2025 and into 2026 as many of our older supply contracts expire and new contracts at higher costs become effective. Although the Company continues to monitor its input costs, we are mindful of the effects and limits when passing on the above-discussed higher input costs to our customers as well as the final consumers of our products.

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The Company uses the Last-In-First-Out (LIFO) method of accounting for inventory and costs of goods sold which generally results in lower current net earnings during such periods of increasing costs and higher inflation. As a result, the above-discussed higher cocoa and chocolate costs will have an increasingly adverse effect on our gross profit margins as this year