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Insteel Industries Reports Second Quarter 2023 Results

Insteel Industries Inc. (NYSE: IIIN) today announced financial results for its second quarter ended April 1, 2023.

Second Quarter 2023 Results

Net earnings for the second quarter of fiscal 2023 decreased to $5.1 million, or $0.26 per share, from $39.0 million, or $1.99 per diluted share, in the same period a year ago. Earnings for the second quarter were unfavorably impacted by narrower spreads between selling prices and raw material costs, lower shipments and higher manufacturing costs relative to the prior year quarter.

Net sales decreased 25.4% to $159.1 million from $213.2 million in the prior year quarter, driven by customer destocking activities following a protracted period of supply constraints and uncertainty that resulted in inventory accumulation throughout the supply chain. Average selling prices decreased 14.5% and shipments declined by 12.8%. Shipments for the current year quarter were also negatively affected by usual winter weather conditions in several of Insteel’s markets, which impeded construction activity. On a sequential basis, average selling prices decreased 9.4% from the first quarter while shipments increased 5.2% due to the normal seasonal demand upturn.

Gross profit decreased to $13.3 million from $57.1 million in the prior quarter, and gross margin narrowed to 8.3% from 26.8% due to lower spreads between selling prices and raw material costs together with reduced shipments and higher operating costs that reflect lower production volumes and general inflationary trends. The spread compression was driven by the consumption of higher cost inventory purchased in prior periods, together with competitive pricing pressures.

Operating activities generated $46.6 million of cash during the quarter compared with $6.3 million in the prior year quarter due to the relative changes in net working capital. Net working capital provided $39.7 million in the current year quarter, driven by the reduction in inventories and receivables, while using $32.6 million of cash in the prior year quarter.

Six Month 2023 Results

Net earnings for the first six months of fiscal 2023 were $16.2 million, or $0.83 per share, compared with $62.1 million, or $3.17 per diluted share, for the same period a year ago. Earnings for the current year period benefited from a $3.3 million, or $0.13 per share, gain on the sale of property, plant and equipment.

Net sales decreased to $326.0 million from $391.7 million for the prior year period, driven by an 11.4% decrease in shipments and a 6.0% decrease in average selling prices. Gross profit decreased to $31.0 million from $99.4 million in the same period a year ago, and gross margin narrowed to 9.5% from 25.4% due to lower spreads, reduced shipments and higher operating costs.

Operating activities generated $79.6 million of cash compared with $20.1 million in the prior year period due to the relative net change in net working capital. Net working capital provided $57.5 million in the current year, driven by the reduction in inventories and receivables, while using $54.0 million of cash in the prior year period.

Capital Allocation and Liquidity

Capital expenditures for the first six months of fiscal 2023 increased to $15.4 million from $8.6 million for the prior year period. Capital outlays for fiscal 2023 are expected to total up to approximately $30.0 million, primarily focused on expenditures to advance the growth of the engineered structural mesh business and to support cost and productivity improvement initiatives in addition to recurring maintenance needs.

Insteel ended the quarter debt-free with $80.2 million of cash and no borrowings outstanding on its $100.0 million revolving credit facility.

Outlook

“The sharp downward reset in steel prices, together with concerted customer destocking activities, was painful for Insteel. Fortunately, we believe these headwinds have nearly run their course, and we are encouraged by the outlook for shipment volumes and margins as we enter the second half of fiscal 2023,” commented H.O. Woltz III, Insteel’s President and CEO. “We are also pleased to see strong activity in private nonresidential construction markets, the primary demand driver for our products, as well as indications that the housing market is recovering and its downturn may be less severe than we feared. All things considered, we expect 2023 to be a good year for the Company, despite a difficult start.”

Woltz continued, “Up to this point, there has been little tangible impact on our business from the Infrastructure Investment and Jobs Act, although we expect this federal spending to stimulate demand in infrastructure markets over the coming months. During the quarter, we made considerable progress toward completing several capital projects focused on broadening our product offering, expanding our capacity and reducing operating costs. We expect increasing contributions from these investments over the remainder of the year.”

Conference Call

Insteel will hold a conference call at 10:00 a.m. ET today to discuss its second quarter financial results. A live webcast of this call can be accessed on Insteel’s website at https://investor.insteel.com and will be archived for replay until the next quarterly conference call.

About Insteel

Insteel is the nation’s largest manufacturer of steel wire reinforcing products for concrete construction applications. Insteel manufactures and markets prestressed concrete strand and welded wire reinforcement, including engineered structural mesh, concrete pipe reinforcement and standard welded wire reinforcement. Insteel’s products are sold primarily to manufacturers of concrete products and concrete contractors for use, primarily, in nonresidential construction applications. Headquartered in Mount Airy, North Carolina, Insteel operates ten manufacturing facilities located in the United States.

Cautionary Note Regarding Forward-Looking Statements

This news release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. When used in this news release, the words “believes,” “anticipates,” “expects,” “estimates,” “appears,” “plans,” “intends,” “may,” “should,” “could” and similar expressions are intended to identify forward-looking statements. Although we believe that our plans, intentions, and expectations reflected in or suggested by such forward-looking statements are reasonable, they are subject to a number of risks and uncertainties, and we can provide no assurances that such plans, intentions or expectations will be implemented or achieved. Many of these risks and uncertainties are discussed in detail and are updated from time to time in our filings with the U.S. Securities and Exchange Commission (the “SEC”), in particular in our Annual Report on Form 10-K for the year ended October 1, 2022.

All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. All forward-looking statements speak only to the respective dates on which such statements are made, and we do not undertake any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events, except as may be required by law.

It is not possible to anticipate and list all risks and uncertainties that may affect our future operations or financial performance; however, they include, but are not limited to, the following: the impact of COVID-19 on the economy, demand for our products and our operations, including the measures taken by governmental authorities to address it, which may precipitate or exacerbate other risks and/or uncertainties; general economic and competitive conditions in the markets in which we operate; changes in the spending levels for nonresidential and residential construction and the impact on demand for our products; changes in the amount and duration of transportation funding provided by federal, state and local governments and the impact on spending for infrastructure construction and demand for our products; the cyclical nature of the steel and building material industries; credit market conditions and the relative availability of financing for us, our customers and the construction industry as a whole; fluctuations in the cost and availability of our primary raw material, hot-rolled steel wire rod, from domestic and foreign suppliers; competitive pricing pressures and our ability to raise selling prices in order to recover increases in raw material or operating costs; changes in United States or foreign trade policy affecting imports or exports of steel wire rod or our products; unanticipated changes in customer demand, order patterns and inventory levels; the impact of fluctuations in demand and capacity utilization levels on our unit manufacturing costs; our ability to further develop the market for Engineered Structural Mesh (“ESM”) and expand our shipments of ESM; legal, environmental, economic or regulatory developments that significantly impact our business or operating costs; unanticipated plant outages, equipment failures or labor difficulties; and the “Risk Factors” discussed in our Annual Report on Form 10-K for the year ended October 1, 2022 and in other filings made by us with the SEC.

INSTEEL INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except for per share data)
(Unaudited)
 
 
 

Three Months Ended

 

Six Months Ended

April 1,

 

April 2,

 

April 1,

 

April 2,

2023

 

2022

 

2023

 

2022

 
Net sales

$

159,051

 

$

213,209

 

$

325,950

 

$

391,668

 

Cost of sales

 

145,789

 

 

156,140

 

 

294,902

 

 

292,235

 

Gross profit

 

13,262

 

 

57,069

 

 

31,048

 

 

99,433

 

Selling, general and administrative expense

 

7,506

 

 

7,202

 

 

14,632

 

 

19,483

 

Restructuring recoveries, net

 

-

 

 

(365

)

 

-

 

 

(318

)

Other income, net

 

(57

)

 

(11

)

 

(3,399

)

 

(16

)

Interest expense

 

23

 

 

23

 

 

47

 

 

45

 

Interest income

 

(747

)

 

(10

)

 

(1,187

)

 

(24

)

Earnings before income taxes

 

6,537

 

 

50,230

 

 

20,955

 

 

80,263

 

Income taxes

 

1,436

 

 

11,213

 

 

4,731

 

 

18,117

 

Net earnings

$

5,101

 

$

39,017

 

$

16,224

 

$

62,146

 

 
 
Net earnings per share:
Basic

$

0.26

 

$

2.00

 

$

0.83

 

$

3.19

 

Diluted

 

0.26

 

 

1.99

 

 

0.83

 

 

3.17

 

 
Weighted average shares outstanding:
Basic

 

19,503

 

 

19,492

 

 

19,514

 

 

19,487

 

Diluted

 

19,562

 

 

19,623

 

 

19,573

 

 

19,615

 

 
Cash dividends declared per share

$

0.03

 

$

0.03

 

$

2.06

 

$

2.06

 

 
INSTEEL INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
 
 
 

(Unaudited)

 

 

 

(Unaudited)

April 1,

 

December 31,

 

October 1,

 

April 2,

2023

 

2022

 

2022

 

2022

Assets
Current assets:
Cash and cash equivalents

$

80,156

 

$

42,638

 

$

48,316

 

$

69,725

 

Accounts receivable, net

 

65,874

 

 

68,789

 

 

81,646

 

 

80,690

 

Inventories

 

136,492

 

 

171,185

 

 

197,654

 

 

127,049

 

Other current assets

 

5,357

 

 

5,599

 

 

7,716

 

 

5,340

 

Total current assets

 

287,879

 

 

288,211

 

 

335,332

 

 

282,804

 

Property, plant and equipment, net

 

111,946

 

 

107,178

 

 

108,156

 

 

107,159

 

Intangibles, net

 

6,465

 

 

6,653

 

 

6,847

 

 

7,256

 

Goodwill

 

9,745

 

 

9,745

 

 

9,745

 

 

9,745

 

Other assets

 

12,189

 

 

11,969

 

 

11,665

 

 

13,594

 

Total assets

$

428,224

 

$

423,756

 

$

471,745

 

$

420,558

 

 
Liabilities and shareholders' equity
Current liabilities:
Accounts payable

$

36,936

 

$

30,801

 

$

46,796

 

$

58,459

 

Accrued expenses

 

8,153

 

 

14,112

 

 

15,800

 

 

15,357

 

Total current liabilities

 

45,089

 

 

44,913

 

 

62,596

 

 

73,816

 

Long-term debt

 

-

 

 

-

 

 

-

 

 

-

 

Other liabilities

 

18,157

 

 

18,169

 

 

19,405

 

 

21,595

 

Commitments and contingencies
Shareholders' equity:
Common stock

 

19,441

 

 

19,451

 

 

19,478

 

 

19,439

 

Additional paid-in capital

 

82,708

 

 

82,082

 

 

81,997

 

 

79,613

 

Retained earnings

 

263,806

 

 

260,118

 

 

289,246

 

 

228,537

 

Accumulated other comprehensive loss

 

(977

)

 

(977

)

 

(977

)

 

(2,442

)

Total shareholders' equity

 

364,978

 

 

360,674

 

 

389,744

 

 

325,147

 

Total liabilities and shareholders' equity

$

428,224

 

$

423,756

 

$

471,745

 

$

420,558

 

 
INSTEEL INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 

Three Months Ended

 

Six Months Ended

April 1,

 

April 2,

 

April 1,

 

April 2,

2023

 

2022

 

2023

 

2022

Cash Flows From Operating Activities:
Net earnings

$

5,101

 

$

39,017

 

$

16,224

 

$

62,146

 

Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization

 

3,223

 

 

3,640

 

 

6,573

 

 

7,345

 

Amortization of capitalized financing costs

 

16

 

 

16

 

 

32

 

 

33

 

Stock-based compensation expense

 

983

 

 

830

 

 

1,113

 

 

1,102

 

Deferred income taxes

 

(101

)

 

1,100

 

 

(1,479

)

 

1,116

 

Gain on sale of property, plant and equipment and assets held for sale

 

-

 

 

(622

)

 

(3,324

)

 

(608

)

Gain from life insurance proceeds

 

-

 

 

(364

)

 

-

 

 

(364

)

Increase in cash surrender value of life insurance policies over premiums paid

 

(369

)

 

-

 

 

(732

)

 

-

 

Net changes in assets and liabilities:
Accounts receivable, net

 

2,915

 

 

(7,128

)

 

15,772

 

 

(12,773

)

Inventories

 

34,693

 

 

(45,491

)

 

61,162

 

 

(48,000

)

Accounts payable and accrued expenses

 

2,069

 

 

20,036

 

 

(19,451

)

 

6,805

 

Other changes

 

(1,965

)

 

(4,715

)

 

3,681

 

 

3,264

 

Total adjustments

 

41,464

 

 

(32,698

)

 

63,347

 

 

(42,080

)

Net cash provided by operating activities

 

46,565

 

 

6,319

 

 

79,571

 

 

20,066

 

 
Cash Flows From Investing Activities:
Capital expenditures

 

(7,200

)

 

(7,779

)

 

(15,400

)

 

(8,617

)

(Increase) decrease in cash surrender value of life insurance policies

 

(246

)

 

459

 

 

(327

)

 

35

 

Proceeds from sale of assets held for sale

 

-

 

 

6,928

 

 

-

 

 

6,934

 

Proceeds from sale of property, plant and equipment

 

-

 

 

-

 

 

9,920

 

 

-

 

Proceeds from life insurance claims

 

-

 

 

1,456

 

 

-

 

 

1,456

 

Proceeds from surrender of life insurance policies

 

343

 

 

42

 

 

343

 

 

106

 

Net cash (used for) provided by investing activities

 

(7,103

)

 

1,106

 

 

(5,464

)

 

(86

)

 
Cash Flows From Financing Activities:
Proceeds from long-term debt

 

75

 

 

88

 

 

142

 

 

133

 

Principal payments on long-term debt

 

(75

)

 

(88

)

 

(142

)

 

(133

)

Cash dividends paid

 

(584

)

 

(583

)

 

(40,085

)

 

(39,993

)

Payment of employee tax withholdings related to net share transactions

 

(187

)

 

(137

)

 

(187

)

 

(192

)

Cash received from exercise of stock options

 

-

 

 

-

 

 

94

 

 

46

 

Financing costs

 

(164

)

 

-

 

 

(164

)

 

-

 

Repurchases of common stock

 

(1,009

)

 

-

 

 

(1,925

)

 

-

 

Net cash used for financing activities

 

(1,944

)

 

(720

)

 

(42,267

)

 

(40,139

)

 
Net increase (decrease) in cash and cash equivalents

 

37,518

 

 

6,705

 

 

31,840

 

 

(20,159

)

Cash and cash equivalents at beginning of period

 

42,638

 

 

63,020

 

 

48,316

 

 

89,884

 

Cash and cash equivalents at end of period

$

80,156

 

$

69,725

 

$

80,156

 

$

69,725

 

 
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Income taxes, net

$

3,945

 

$

17,970

 

$

4,132

 

$

18,053

 

Non-cash investing and financing activities:
Purchases of property, plant and equipment in accounts payable

 

2,123

 

 

372

 

 

2,123

 

 

372

 

Restricted stock units and stock options surrendered for withholding taxes payable

 

187

 

 

137

 

 

187

 

 

192

 

 

IIIN – E

Contacts

Scot Jafroodi

Vice President,

Chief Financial Officer and Treasurer

Insteel Industries Inc.

(336) 786-2141

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