Tootsie Roll Industries, Inc. (TR) Cash Flow Statement

The negative OCF/NI in Q2 2026 and Q2 2025 reflects inventory build-up ahead of Halloween, not operational deterioration. However, the positive OCF/NI in Q4 quarters (2.55 and 3.06) suggests cash conversion is strong when receivables and inventory unwind. Investors should focus on full-year cash conversion rather than quarterly swings, as the pattern is consistent with the company's seasonal business model.

The FCF trajectory is dominated by the Halloween-driven Q4 surge, which generates the bulk of annual cash. Off-peak quarters show negative FCF due to working capital outflows, but this is a recurring pattern. The latest Q2 2026 FCF of -$34.8M is the weakest in the data set, suggesting either higher inventory investment or slower collections, which warrants monitoring against prior-year trends.

The negative working capital changes in Q2 quarters reflect seasonal inventory accumulation for the Halloween season, while Q4 shows positive changes as inventory is sold and receivables collected. This pattern is consistent with the company's reliance on seasonal demand. The magnitude of the Q2 2026 outflow (-$39.9M) is larger than prior years, which may indicate higher input costs or increased inventory levels, but it is not necessarily a red flag given the seasonal nature.

The company's capital deployment is highly conservative, with dividends remaining stable and buybacks sporadic. The near-zero debt and large cash pile suggest management prioritizes financial flexibility over maximizing shareholder returns. The lack of significant acquisitions or buybacks may indicate a stewardship mindset, but it also means cash accumulates on the balance sheet, which could be a drag on returns if not deployed effectively.

The cumulative OCF/NI ratio of approximately 1.19 suggests that earnings are backed by real cash generation, with non-cash charges like D&A providing a buffer. This divergence is positive and indicates that the company's earnings quality is solid over the long term. However, the reliance on working capital swings means that any disruption in seasonal demand could quickly reverse this trend, so investors should monitor inventory and receivable levels closely.