Jewett-Cameron Trading Company Ltd. — FY2020 Form 10-K
Business context and reporting period. The filing reports the fiscal year ended August 31, 2020, with comparative FY2019 results. Jewett-Cameron sells lawn, garden, pet and other products; industrial wood products; and agricultural seed products, primarily in the United States. The filing includes quarterly results, including Q4, but is an annual report rather than a standalone Q4 filing. Financial amounts below are in U.S. dollars.
Key financial metrics
| Metric | FY2020 | FY2019 |
|---|---|---|
| Sales | $44.95 million | $45.45 million |
| Gross profit / gross margin | $12.47 million / 27.8% | $9.96 million / 21.9% |
| Operating income | $3.86 million | $2.74 million |
| Income before income taxes | $3.89 million | $2.89 million |
| Net income / diluted EPS | $2.78 million / $0.77 | $2.10 million / $0.50 |
| Cash and cash equivalents at year-end | $3.80 million | $9.65 million |
| Net cash from (used in) operating activities | ($2.22 million) | $6.31 million |
| Total assets / total liabilities | $23.28 million / $3.93 million | $22.21 million / $1.78 million |
| Working capital / current ratio | $16.48 million / 5.8 | $17.76 million / 11.3 |
At August 31, 2020, the company had $680,707 in PPP notes payable ($342,326 current and $338,381 long-term). It had no borrowings on its $3 million U.S. Bank line of credit, which was fully available; the company reported compliance with its covenants. Operating cash flow was pressured by increases in accounts receivable and inventory. Capital expenditures were $449,282, and the company repurchased and cancelled 490,120 shares for $3.87 million.
Q4 detail: FY2020 fourth-quarter sales were $14.03 million, gross profit was $4.11 million, and net income was $1.57 million, compared with FY2019 fourth-quarter sales of $11.83 million, gross profit of $2.26 million, and net income of $0.53 million.
Changes versus FY2019
- Sales decreased 1%, but gross margin improved to 27.8% from 21.9%, which management attributed mainly to a more favorable sales mix and fewer lower-margin lumber sales.
- Net income rose 33%; diluted EPS increased to $0.77 from $0.50. The lower weighted-average share count following buybacks also supported per-share results.
- Operating expenses increased $1.39 million to $8.62 million, reflecting growth-related spending, higher wages and benefits, and increased selling, general and administrative costs.
- JCC sales increased to $40.35 million from $38.51 million, and segment income before taxes rose to $3.94 million from $2.04 million. Strong second-half demand for fencing and pet products helped offset a weak first half.
- Greenwood sales fell 42% to $2.29 million and its segment reported a $122,088 loss. Seed sales fell 7% to $2.07 million, though its segment loss narrowed. MSI, the industrial tools business, was closed and wound up during FY2020.
- Cash declined $5.85 million; receivables and inventory increased, while working capital and the current ratio fell. The company also reported higher accounts payable and accrued liabilities.
Outlook, commentary and risks
- Management described FY2020 as a strategic investment year, including MSI’s exit, new product development, additional staff, rebranding, capital projects and ERP implementation. Full ERP implementation was deferred to FY2021.
- Management said the FY2021 outlook was uncertain because of COVID-19 and its economic effects. It increased inventory to reduce potential supply disruptions and planned to broaden product offerings, sales channels and marketing, with a goal of reducing seasonal dependence.
- COVID-19 and Chinese factory shutdowns disrupted supply and deliveries early in the year; later, stay-at-home activity supported demand for certain DIY, fencing and pet products. A return of the 25% tariff rate on affected Chinese imports in September 2020 could increase costs or pressure margins.
- Customer concentration is significant: the largest customer represented 30% of FY2020 sales and the top ten represented 76%. Two suppliers together accounted for $22.25 million of purchases. The company also reported that two customers represented 48% of year-end receivables.
- A Pennsylvania product-liability suit alleges injuries after a dog escaped from a kennel. The case was in its early stages; the insurer was covering the company’s defense fees and costs, and the outcome was described as speculative.
- The company received two PPP loans totaling $680,707 at 1% interest, with a two-year term. It intended to use proceeds for qualifying expenses and could apply for forgiveness, but the filing gives no clear value for any amount ultimately forgiven.
- The company reported effective disclosure controls and management concluded internal control over financial reporting was effective; the external auditor did not attest to that conclusion.
Important facts for investors to verify
- Whether PPP loans were forgiven, and any resulting accounting or repayment obligations.
- Whether elevated receivables and inventory convert to cash as expected, and how liquidity evolves after the year-end cash decline.
- Whether tariff exposure, sourcing constraints and customer concentration affect margins, demand or fulfillment in FY2021.
- Whether the stronger second-half sales trend persists and whether new products, channels and planned investments produce durable returns.
- The status and potential financial exposure of the Pennsylvania product-liability litigation.