Gordo, I appreciate your critical analysis. You wrote:
What I do not know is if the cash flow drain is due to some cyclical nature in the business
Yes, the business is seasonal. The last time I spoke with the manager of the local lumber yard, he complained about the slack cold months. I pass by the yard almost every day, and it does look pretty dormant this time of year. I recall that GDL's profits are seasonal, and I guess that cash flow is too.
Also, in a January FP article (from Stockwatch's summary), the reporter writes:
"Goodfellow's priority is to take advantage of the exchange rate and a highly efficient plant and warehouse near Montreal to expand its US lumber products sales, according to Mr Goodfellow. He says these reached US$20 million last year and his company will treble that in the next three years."
Sounds like this in-process expansion would involve building up inventory at the warehouse near Montreal and establishing new accounts with American suppliers, activities requiring cash.
However, even if there is some cyclical nature in the cash flows, in aggregate for 1997, there was a net cash outflow of $9.5M, and a net outflow of $10.6M associated with working capital items. This is not sustainable!!
Now couldn't this be due to the setup of the Western outlets, as this time frame includes the third and fourth quarters?
Actually, I'm not in that great a position to comment because I haven't seen the annual or recent quarterly report yet, just the news releases.
Maybe someone should call the company.
Mike |
