Jewett-Cameron Trading Company Ltd. - 10-Q Summary
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for the period ended November 30, 2009. Jewett-Cameron Trading Company Ltd. is a holding company for subsidiaries operating in the United States, primarily in Oregon. The company operates through four segments: Industrial wood products (Greenwood), Lawn/garden/pet products (JCLC), Seed processing (JCSC), and Industrial tools (MSI).
Key Financial Metrics
| Metric | Q1 2010 (Nov 30, 2009) | Q1 2009 (Nov 30, 2008) |
|---|---|---|
| Sales | $7,374,926 | $10,782,063 |
| Gross Profit | $1,615,598 | $2,216,465 |
| Gross Margin | 21.9% | 20.6% |
| Net Income | $72,630 | $293,475 |
| Earnings Per Share (Basic/Diluted) | $0.03 | $0.12 |
| Cash and Cash Equivalents | $7,648,583 | $7,277,532 |
| Working Capital | $16,037,108 | $15,816,890 |
| Total Debt | $0 | $0 |
| Available Line of Credit | $5,000,000 | $5,000,000 |
Cash Flow: Net cash provided by operating activities was $862,800. Net cash used in investing activities was $42,788. There was no cash flow from financing activities.
Material Changes vs. Prior Period
- Revenue Decline: Sales decreased by $3.4 million (31.6%) year-over-year due to declines across all product lines.
- Segment Performance:
- Industrial Wood (Greenwood): Sales down 26% due to weak demand from boat manufacturers; however, operating loss narrowed significantly.
- Lawn/Garden (JCLC): Sales down 34%, but operating income increased by $100,907 due to steady gross margins and expense management.
- Seed (JCSC): Sales down 49% due to lower new home construction. The segment reported an operating loss of $481,506, driven by a one-time $463,498 inventory write-down.
- Industrial Tools (MSI): Sales increased 67% to $439,900, with operating income rising to $18,323.
- Expense Reduction: Operating expenses decreased by $213,712, primarily due to a 10% reduction in total employment and lower wages/benefits.
- Inventory Management: Inventory decreased by $149,420. Accounts receivable decreased by $1.39 million, improving the Days Sales Outstanding (DSO) from 36.7 to 27.3 days.
Outlook, Risks, and Contingencies
- Outlook: Management notes that the boat manufacturing industry is working down excess inventory and a recovery is not foreseen immediately. The company is exploring alternative uses for industrial wood products. Management is also exploring cash deployment options, including a potential common share repurchase program.
- Legal Proceedings: An ongoing appeal exists regarding a lawsuit with Greenwood Forest Products, Inc. A 2007 judgment awarded $242,604 to the opposing party, for which the company has accrued reserves. The company believes the counterclaim is without merit.
- Risks:
- Customer Concentration: Top 10 customers represented 54% of total sales for the quarter.
- Liquidity: While the company has no debt and a $5M unused line of credit, loss of this credit facility could impact the ability to pay creditors.
- Market Risk: Exposure to interest rate fluctuations on the line of credit and foreign currency exchange rates for contract manufacturing in China.
Investor Verification Checklist
- Verify the sustainability of the 10% workforce reduction and its impact on future operational capacity.
- Monitor the status of the appeal in the Greenwood Forest Products litigation and potential changes to the accrued reserve.
- Assess the timeline for recovery in the boat manufacturing sector, which significantly impacts the Industrial Wood segment.
- Review the specific details of the proposed share repurchase program if announced.
- Confirm the stability of the top 10 customers, who account for over half of total sales.