Spruce Point Capital Releases a Strong Sell Forensic Research Opinion on Tootsie Roll Industries (NYSE: TR)

NEW YORK, Oct. 18, 2017

• 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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