MOUNT AIRY, N.C.–(BUSINESS WIRE)–Insteel Industries Inc. (NYSE: IIIN) today announced financial results for its third quarter ended July 2, 2022.
Third Quarter 2022 Results
For the third quarter of fiscal 2022, Insteel reported net earnings of $38.6 million, or $1.96 per diluted share, up from $18.4 million, or $0.94 per diluted share, for the same period a year ago. The Company’s results were favorably impacted by strong demand for its reinforcing products and incremental price increases to recover the escalation in raw material and operating costs.
Net sales increased to $227.2 million from $160.7 million for the prior year quarter driven by a 53.9% increase in average selling prices partially offset by an 8.2% decrease in shipments. The average selling price increase was the result of price increases implemented across all product lines to recover rapidly escalating costs. The unfavorable shipment volume comparison was driven by lower activity in the Company’s standard welded wire reinforcement product line together with curtailed operating hours at certain facilities related to staffing challenges. On a sequential basis, average selling prices increased 6.3% while shipments were unchanged compared to the second quarter of fiscal 2022.
Gross profit increased to $58.1 million from $31.5 million in the prior year quarter and gross margin widened 600 basis points to 25.6% from 19.6% in the prior year quarter due to higher spreads between selling prices and raw material costs. Insteel’s net earnings for the current year quarter reflect a $1.0 million decrease in the cash surrender value of life insurance policies, which increased selling, general and administrative (“SG&A”) expense and decreased net earnings per share by $0.04. In the prior year the impact of this item increased net earnings by $0.01 per share.
Operating activities used $5.0 million of cash compared with providing $36.2 million for the prior year quarter due to an increase in net working capital, which used $45.5 million of cash in the current year quarter to fund an increase in inventories. In the prior year quarter, net working capital provided $13.2 million.
Nine Month 2022 Results
Net earnings for the first nine months of fiscal 2022 were $100.7 million, or $5.13 per diluted share, compared to $41.5 million, or $2.13 per diluted share, for the same period a year ago. Net sales increased to $618.8 million from $419.3 million for the prior year period driven by a 62.2% increase in average selling prices partially offset by a 9.1% decrease in shipments. Gross profit increased to $157.5 million from $81.6 million in the same period a year ago and gross margin widened 600 basis points to 25.5% from 19.5% due to higher spreads.
Insteel’s net earnings for the current year period reflect a $1.4 million decrease in the cash surrender value of life insurance policies, which increased SG&A expense and decreased net earnings per share by $0.06. In the prior year period, the impact of this item increased net earnings by $0.06 per share.
Operating activities provided $15.1 million of cash compared with $65.5 million in the prior year period due to an increase in net working capital, which used $99.5 million of cash in the current year period to fund an increase in inventories. In the prior year period, net working capital provided $11.9 million.
Capital Allocation and Liquidity
Capital expenditures for the first nine months of fiscal 2022 decreased to $12.3 million from $13.7 million for the prior year period and are now expected to total up to $20 million in 2022, due to extended delivery horizons for certain capital equipment the Company plans to deploy. Capital outlays for the year are focused on supporting the growth of the engineered structural mesh business, cost and productivity improvement initiatives, and recurring maintenance needs.
Insteel ended the quarter debt-free with $63.0 million of cash and no borrowings outstanding on its $100.0 million revolving credit facility.
Outlook
“We expect our historically strong financial performance to continue for the fiscal fourth quarter,” commented H.O. Woltz III, Insteel’s President and CEO. “Our markets remain robust and economic indicators for non-residential construction activity along with internal customer and market insights point to continued momentum through the balance of the calendar year.”
Woltz continued, “While deliveries of offshore steel wire rod alleviated the raw material shortfalls that constrained production and shipping volumes during the first half of the year, we are increasingly contending with unusually tight labor markets that have prevented full capacity operating schedules at certain facilities. We have responded to this challenge with innovative work schedules and higher pay levels which we believe will support the ramp up in production we expect through the end of the calendar year. Longer term, our capital investment plan should reduce our labor intensity and operating costs, together with supporting other strategic and commercial objectives.”
“As mentioned earlier in the release, during Q3 we began to experience softening conditions in the market for standard welded wire reinforcement which is our most commodity like product line and is the Company’s only product line that is sold through distribution channels rather than directly to end users. Demand for standard welded wire reinforcement is also driven by new home construction to a greater degree than the Company’s other products. During Q3 we believe slowing new home construction together with distribution channels that had recovered from supply shortfalls caused customers to more tightly manage inventories thereby unfavorably affecting our production and shipments. Significantly, we have not detected similar trends in our other markets where backlogs remain extended, and customer optimism is nearly unprecedented.”
Conference Call
Insteel will hold a conference call at 10:00 a.m. ET today to discuss its third 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 2, 2021.
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 2, 2021 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
Nine Months Ended
July 2,
July 3,
July 2,
July 3,
2022
2021
2022
2021
Net sales
$
227,173
$
160,739
$
618,841
$
419,343
Cost of sales
169,091
129,189
461,326
337,714
Gross profit
58,082
31,550
157,515
81,629
Selling, general and administrative expense
8,235
6,184
27,718
25,067
Restructuring charges (recoveries), net
–
1,598
(318
)
2,800
Other expense (income), net
1
35
(15
)
123
Interest expense
23
24
68
73
Interest income
(86
)
(5
)
(110
)
(15
)
Earnings before income taxes
49,909
23,714
130,172
53,581
Income taxes
11,350
5,319
29,467
12,123
Net earnings
$
38,559
$
18,395
$
100,705
$
41,458
Net earnings per share:
Basic
$
1.97
$
0.95
$
5.16
$
2.14
Diluted
1.96
0.94
5.13
2.13
Weighted average shares outstanding:
Basic
19,537
19,352
19,503
19,330
Diluted
19,657
19,573
19,629
19,508
Cash dividends declared per share
$
0.03
$
0.03
$
2.09
$
1.59
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
(Unaudited)
July 2,
April 2,
January 1,
October 2,
July 3,
2022
2022
2022
2021
2021
Assets
Current assets:
Cash and cash equivalents
$
63,045
$
69,725
$
63,020
$
89,884
$
89,827
Accounts receivable, net
81,175
80,690
73,562
67,917
59,349
Inventories
192,447
127,049
81,558
79,049
71,158
Other current assets
6,998
5,340
8,664
10,056
7,479
Total current assets
343,665
282,804
226,804
246,906
227,813
Property, plant and equipment, net
108,265
107,159
103,442
105,624
105,729
Intangibles, net
7,051
7,256
7,460
7,668
7,882
Goodwill
9,745
9,745
9,745
9,745
9,745
Other assets
12,322
13,594
21,328
20,767
20,762
Total assets
$
481,048
$
420,558
$
368,779
$
390,710
$
371,931
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable
$
77,159
$
58,459
$
35,369
$
49,443
$
60,217
Accrued expenses
17,877
15,357
27,205
19,406
15,412
Total current liabilities
95,036
73,816
62,574
68,849
75,629
Long-term debt
–
–
–
–
Other liabilities
21,088
21,595
20,185
19,823
19,306
Commitments and contingencies
Shareholders’ equity:
Common stock
19,506
19,439
19,414
19,408
19,358
Additional paid-in capital
81,349
79,613
78,945
78,688
77,780
Retained earnings
266,511
228,537
190,103
206,384
181,814
Accumulated other comprehensive loss
(2,442
)
(2,442
)
(2,442
)
(2,442
)
(1,956
)
Total shareholders’ equity
364,924
325,147
286,020
302,038
276,996
Total liabilities and shareholders’ equity
$
481,048
$
420,558
$
368,779
$
390,710
$
371,931
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
Nine Months Ended
July 2,
July, 3
July 2,
July, 3
2022
2021
2022
2021
Cash Flows From Operating Activities:
Net earnings
$
38,559
$
18,395
$
100,705
$
41,458
Adjustments to reconcile net earnings to net cash provided by (used for) operating activities:
Depreciation and amortization
3,632
3,629
10,977
10,828
Amortization of capitalized financing costs
16
17
49
49
Stock-based compensation expense
293
240
1,395
1,174
Deferred income taxes
(492
)
430
624
(36
)
Asset impairment charges
–
1,411
–
1,415
(Gain) loss on sale of property, plant and equipment and assets held for sale
13
14
(595
)
125
Gain from life insurance proceeds
–
–
(364
)
–
Increase in cash surrender value of life insurance policies over premiums paid
–
(367
)
–
(1,535
)
Net changes in assets and liabilities:
Accounts receivable, net
(485
)
(1,226
)
(13,258
)
(5,532
)
Inventories
(65,398
)
(2,535
)
(113,398
)
(2,195
)
Accounts payable and accrued expenses
20,392
16,964
27,197
19,642
Other changes
(1,482
)
(749
)
1,782
69
Total adjustments
(43,511
)
17,828
(85,591
)
24,004
Net cash provided by (used for) operating activities
(4,952
)
36,223
15,114
65,462
Cash Flows From Investing Activities:
Capital expenditures
(3,634
)
(4,913
)
(12,251
)
(13,681
)
Decrease (increase) in cash surrender value of life insurance policies
977
(112
)
1,012
(309
)
Proceeds from sale of assets held for sale
–
60
6,934
79
Proceeds from life insurance claims
–
–
1,456
–
Proceeds from surrender of life insurance policies
4
4
110
27
Net cash used for investing activities
(2,653
)
(4,961
)
(2,739
)
(13,884
)
Cash Flows From Financing Activities:
Proceeds from long-term debt
87
96
220
230
Principal payments on long-term debt
(87
)
(96
)
(220
)
(230
)
Cash dividends paid
(585
)
(581
)
(40,578
)
(30,712
)
Payment of employee tax withholdings related to net share transactions
(94
)
(51
)
(286
)
(161
)
Cash received from exercise of stock options
1,604
257
1,650
434
Net cash provided by (used for) financing activities
925
(375
)
(39,214
)
(30,439
)
Net increase (decrease) in cash and cash equivalents
(6,680
)
30,887
(26,839
)
21,139
Cash and cash equivalents at beginning of period
69,725
58,940
89,884
68,688
Cash and cash equivalents at end of period
$
63,045
$
89,827
$
63,045
$
89,827
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Income taxes, net
$
11,945
$
5,062
29,998
10,874
Non-cash investing and financing activities:
Purchases of property, plant and equipment in accounts payable
1,286
946
1,286
946
Restricted stock units and stock options surrendered for withholding taxes payable
94
51
286
161
IIIN – E
Contacts
Mark A. Carano
Senior Vice President,
Chief Financial Officer and Treasurer
Insteel Industries Inc.
(336) 786-2141