Jewett-Cameron Trading Company Ltd. (NASDAQ:JCTCF) - Diversified Product Portfolio Driving Steady Performance

Jewett-Cameron Trading Company Ltd. (NASDAQ:JCTCF) is a diversified manufacturer and distributor of a wide range of products, including industrial wood products, lawn and garden items, pet supplies, and agricultural seeds. The company's diverse portfolio and strategic focus have enabled it to navigate the challenging economic landscape and deliver consistent financial results.

Business Overview

Jewett-Cameron operates through four main segments: Industrial Wood Products, Lawn, Garden, Pet and Other, Seed Processing and Sales, and Corporate and Administration. The Industrial Wood Products segment, operated by Greenwood Products, is a processor and distributor of industrial wood products, primarily treated plywood sold to the transportation industry. The Lawn, Garden, Pet and Other segment, operated by Jewett-Cameron Company (JCC), is a wholesaler and manufacturer of an array of pet enclosures, fencing, greenhouses, and other specialty products. The Seed Processing and Sales segment, operated by Jewett-Cameron Seed Company (JCSC), was a processor and distributor of agricultural seeds, but has now ceased active operations. The Corporate and Administration segment provides professional and administrative services to the company's subsidiaries.

Financials

For the fiscal year ended August 31, 2023, Jewett-Cameron reported annual revenue of $54,289,303, annual net income of -$20,626, annual operating cash flow of $5,596,140, and annual free cash flow of $5,269,724. The company's diverse product portfolio and strategic focus have enabled it to navigate the challenging economic landscape and deliver consistent financial results.

In the latest quarter ended May 31, 2024, the company reported revenue of $15,896,017, a decrease of 16% compared to the same period in the prior year. Net income for the quarter was $154,862, or $0.04 per diluted share, compared to net income of $734,951, or $0.21 per diluted share, in the prior-year quarter. The decrease in revenue and net income was primarily due to higher shipping costs, the clearance of some older higher-cost lumber inventory, and a one-time inventory write-down related to the liquidation of the company's remaining pet inventory in Europe.

For the nine months ended May 31, 2024, the company reported revenue of $47,688,051, a decrease compared to the same period in the prior year. Net income for the nine-month period was $912,257, or $0.26 per diluted share, compared to a net loss of $310,847, or $0.09 per diluted share, in the prior-year period. The decrease in revenue was primarily due to the shutdown of the JCSC seed operations, as well as weaker demand for the company's pet and lawn and garden products. However, the company's Industrial Wood Products segment saw a 49% increase in sales during the nine-month period, reflecting a rebound in demand from the company's transit operator customers.

Liquidity

As of May 31, 2024, Jewett-Cameron had working capital of $20,050,299, with cash and cash equivalents of $1,054,704. The company's balance sheet remains strong, with a current ratio of 7.11. In June 2024, the company established a new $6,000,000 asset-based line of credit with Northrim Funding Services, which provides short-term operating capital by purchasing the company's accounts receivable invoices. This new line of credit replaces the company's previous $5,000,000 line of credit with U.S. Bank, which expired on June 30, 2024.

Segment Performance

The Industrial Wood Products segment, operated by Greenwood, reported sales of $2,883,190 for the nine months ended May 31, 2024, an increase of 49% compared to the same period in the prior year. This segment's operating income was $41,146, compared to an operating loss of $80,097 in the prior-year period. The increase in sales and profitability was driven by a rebound in demand from the segment's primary transit operator customers.

The Lawn, Garden, Pet and Other segment, operated by JCC, reported sales of $30,964,142 for the nine months ended May 31, 2024, a decrease of 14% compared to the same period in the prior year. This segment's operating income was $384,102, compared to an operating loss of $594,192 in the prior-year period. The decrease in sales was primarily due to weaker demand for the company's pet and lawn and garden products, as well as the loss of a large one-time order for kennels in the prior-year period.

The Seed Processing and Sales segment, operated by JCSC, reported sales of $83,718 for the nine months ended May 31, 2024, a decrease of 95% compared to the same period in the prior year. This segment's operating income was $32,242, compared to an operating loss of $58,048 in the prior-year period. JCSC ceased active operations at the end of 2023 and is in the process of winding up its business.

Geographic Breakdown

The majority of Jewett-Cameron's sales are derived from the United States, which accounted for $32,444,176, or 96%, of the company's total revenue for the nine months ended May 31, 2024. Canada accounted for $1,384,964, or 4%, of the company's total revenue during the same period. The company also had limited sales in other regions, including Mexico/Latin America/Caribbean, Europe, the Middle East, and Asia/Pacific.

Risks and Challenges

Jewett-Cameron faces several risks and challenges, including the potential for decreased demand for its products, the loss of its top customers, delays in product delivery, and the potential loss of its credit agreement. The company is also exposed to the risks of government actions, such as tariffs, and the potential impact of a contagious disease outbreak, such as the COVID-19 pandemic. Additionally, the company's information technology systems are susceptible to cyber security threats, which could adversely impact its operations and financial condition.

Outlook

Jewett-Cameron has not provided any specific financial guidance for the upcoming fiscal year. However, the company has noted that it expects continued challenges from the ongoing supply chain issues, including delays and higher shipping costs, which may negatively impact its sales and margins in the fourth quarter of fiscal 2024 and into fiscal 2025.

Conclusion

Jewett-Cameron Trading Company Ltd. has demonstrated its ability to navigate the challenging economic environment through its diversified product portfolio and strategic focus. While the company has faced some headwinds in recent quarters, its strong balance sheet and liquidity position, as well as its efforts to expand its customer base and diversify its supplier network, position it well for the future. Investors should closely monitor the company's progress in addressing the supply chain challenges and its ability to maintain profitability in its core business segments.