Jewett-Cameron Trading Company Ltd. — Form 10-Q Summary
Reporting period: Third quarter and nine months ended May 31, 2015; fiscal year ends August 31. Financial statements are unaudited and presented in U.S. dollars. The company distributes and manufactures specialty metal, wood, seed, and industrial-tool products, primarily in the United States.
Financial results
| Metric | Three months ended May 31, 2015 | Prior-year quarter | Nine months ended May 31, 2015 | Prior-year period |
|---|---|---|---|---|
| Sales | $13.289 million | $15.336 million | $30.755 million | $33.075 million |
| Gross profit / margin | $2.242 million / 16.9% | $2.951 million / 19.2% | $6.014 million / 19.6% | $6.558 million / 19.8% |
| Income from operations | $779,340 | $1.553 million | $1.776 million | $2.505 million |
| Net income | $461,100 | $936,329 | $1.072 million | $1.506 million |
| Basic and diluted EPS | $0.18 | $0.33 | $0.41 | $0.50 |
| Operating cash flow | $3.872 million | $1.677 million | $(11,400) | $(174,856) |
Quarterly sales declined 13% and nine-month sales 7%; net income fell about 51% and 29%, respectively. Operating expenses increased 5% for the quarter and 5% for the nine months, with higher selling, general and administrative costs partly offset by nearly flat wages and lower depreciation and amortization. Lower gross margins reflected raw-material costs and competitive pricing pressure. Quarterly operating cash flow benefited from a substantial inventory reduction and increases in payables and accrued liabilities; nine-month operating cash flow remained slightly negative.
Financial position and capital allocation
- At May 31, 2015, cash was $1.837 million, current assets $16.298 million, current liabilities $1.683 million, and working capital $14.616 million. Working capital declined $1.201 million from August 31, 2014.
- Total assets were $18.616 million and stockholders’ equity $16.877 million. No bank borrowing was outstanding; the company reported the full $3 million revolving credit facility available and covenant compliance. The facility is secured by receivables and inventory.
- Cash decreased $2.491 million over the nine-month period, largely reflecting $2.394 million spent repurchasing and cancelling 208,020 shares. The company repurchased another 4,778 shares for approximately $54,491 after quarter-end; the board terminated the repurchase plan effective July 17, 2015.
- Receivables rose to $4.926 million from $2.443 million, while inventory declined to $8.617 million from $9.154 million. Management reported slower collection and inventory turnover than in the comparable periods.
Business trends, outlook, and risks
- Segment performance: Nine-month industrial wood sales fell 28% to $3.184 million, though the segment returned to operating profit. Lawn, garden, pet and other sales fell 5% to $24.164 million and operating income declined 12%. Seed sales rose 3% to $2.104 million, with improved operating income. Industrial tools sales rose 17% to $1.304 million, but operating income declined.
- Management commentary: Prolonged winter weather delayed lawn-and-garden demand; West Coast port disruptions delayed shipments from China and increased freight costs, with effects continuing into the quarter. The company cited higher raw-material prices and competition as margin pressures. Lawn-and-garden results are seasonal, with the first two fiscal quarters generally slower than the final two. Management did not anticipate a significant near-term marine-market recovery.
- Outlook: The filing provides no quantified earnings or revenue guidance. Management cautions that interim results are not necessarily indicative of full-year performance.
- Contingency: An Oregon lawsuit remains pending before the state Supreme Court. The company disclosed potential exposure of approximately $1.9 million, while its balance sheet included a $97,404 litigation reserve. It recorded $19,983 of litigation-related interest income for the nine months.
- Concentrations and other risks: The top ten customers represented 73% of nine-month sales; four customers accounted for 77% of receivables. Three suppliers each represented more than 10% of purchases. Other risks include retail demand, shipment delays, competition, commodity and freight costs, limited share trading volume, and variable interest rates.
Important facts for investors to verify
- Reconcile the MD&A’s nine-month net income figure of $1,072,477 with the financial statements’ $1,072,447.
- Monitor the outcome and updated estimated exposure in the Greenwood Forest Products litigation, and whether the reserve remains adequate.
- Assess whether receivable growth, slower collection, and customer concentration affect cash generation and credit risk.
- Track recovery in lawn-and-garden demand, port-related costs and delivery timing, and margins under competitive and raw-material pressure.
- Confirm the impact of the terminated repurchase plan on cash, shares outstanding, and future capital allocation.