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Insteel Industries Reports Third Quarter 2023 Results

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

Third Quarter 2023 Results

Net earnings for the third quarter of fiscal 2023 decreased to $10.6 million, or $0.54 per share, from $38.6 million, or $1.96 per diluted share, for the same period a year ago. The record third quarter financial performance of the prior year was driven by supply shortfalls and inflated average selling prices, a condition that began to revert to normal during the company’s fourth fiscal quarter. Compared to the record performance of 2022, earnings for the third quarter of 2023 were unfavorably impacted by narrower spreads between selling prices and raw material costs, lower shipments, and higher unit manufacturing costs on lower production volume. As reflected in our results, we did not experience accelerating incoming orders during the third quarter, driven by the end of customer destocking, as we expected we would. Shipment volume increased gradually during the quarter, but not until June did we experience higher year-over-year shipments relative to the prior year.

Net sales decreased 27.1% to $165.7 million from $227.2 million in the prior year quarter, driven by a 24.7% decrease in average selling prices and a 3.2% decline in shipments. Net sales for the current quarter were negatively impacted by lower selling prices, primarily due to competitive pricing pressures and the overall decline in steel prices. On a sequential basis, shipments increased 11.3% from the second quarter of fiscal 2023, partially offset by a decrease of 6.4% in average selling prices.

Gross profit decreased to $20.4 million from $58.1 million in the prior year quarter, and gross margin narrowed to 12.3% from 25.6% in the prior year quarter due to lower spreads between selling prices and raw material costs. The spread compression was driven by competitive pricing pressures together with the consumption of higher cost inventory purchased in prior periods. Insteel’s net earnings for the prior 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.

Operating activities generated $23.8 million of cash during the quarter compared with using $5.0 million for the prior year quarter due to the relative changes in net working capital. Net working capital provided $9.6 million in the current year, driven by an increase in payables and a reduction in inventories, while using $45.5 million of cash in the prior year quarter.

Nine Month 2023 Results

Net earnings for the first nine months of fiscal 2023 were $26.8 million, or $1.37 per share, compared with $100.7 million, or $5.13 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. Insteel’s net earnings for the prior 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.

Net sales decreased to $491.7 million from $618.8 million for the prior year period, driven by an 8.6% decrease in shipments and a 13.1% decrease in average selling prices. Gross profit decreased to $51.4 million from $157.5 million in the same period a year ago, and gross margin narrowed to 10.5% from 25.5% due to lower spreads, reduced shipments and higher operating costs.

Operating activities generated $103.3 million of cash compared with $15.1 million in the prior year period due to the relative change in net working capital. Net working capital provided $67.1 million of cash in the current year, driven by the reduction in inventories and receivables, while using $99.5 million of cash in the prior year period.

Capital Allocation and Liquidity

Capital expenditures for the first nine months of fiscal 2023 increased to $26.6 million from $12.3 million for the prior year period and are expected to total up to $35.0 million in 2023, 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 $91.7 million of cash and no borrowings outstanding on its $100.0 million revolving credit facility.

Outlook

“Given the lethargic market conditions we experienced during the third quarter, our financial performance was reasonable, reflecting the easing of headwinds that negatively impacted our results for the first half of fiscal 2023. Shipments and spreads improved during the quarter as inventory levels moderated, although shipment volume was well below our expectations,” commented H.O. Woltz III, Insteel’s President and CEO. “As we head into the fourth fiscal quarter, we expect the modest recovery to continue driven by nonresidential construction activity and the recovery in residential markets.”

Woltz continued, “The outlook for infrastructure construction remains favorable as federal spending from the Infrastructure Investment and Jobs Act is expected to begin to drive demand as we move into the second half of the calendar year and beyond. Additionally, we continued to progress towards completing several ongoing capital projects focused on broadening our product offering, expanding our capacity, and reducing operating costs. We expect the first two projects to be fully commissioned in our fourth fiscal quarter, followed by the remaining project in the first quarter of fiscal 2024.”

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 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 Nine Months Ended
July 1, July 2, July 1, July 2,

2023

2022

2023

2022

 
Net sales

$

165,714

 

$

227,173

 

$

491,664

 

$

618,841

 

Cost of sales

 

145,347

 

 

169,091

 

 

440,249

 

 

461,326

 

Gross profit

 

20,367

 

 

58,082

 

 

51,415

 

 

157,515

 

Selling, general and administrative expense

 

7,924

 

 

8,235

 

 

22,556

 

 

27,718

 

Restructuring recoveries, net

 

-

 

 

-

 

 

-

 

 

(318

)

Other (income) expense, net

 

(24

)

 

1

 

 

(3,423

)

 

(15

)

Interest expense

 

20

 

 

23

 

 

67

 

 

68

 

Interest income

 

(1,097

)

 

(86

)

 

(2,284

)

 

(110

)

Earnings before income taxes

 

13,544

 

 

49,909

 

 

34,499

 

 

130,172

 

Income taxes

 

2,979

 

 

11,350

 

 

7,710

 

 

29,467

 

Net earnings

$

10,565

 

$

38,559

 

$

26,789

 

$

100,705

 

 
 
Net earnings per share:
Basic

$

0.54

 

$

1.97

 

$

1.37

 

$

5.16

 

Diluted

 

0.54

 

 

1.96

 

 

1.37

 

 

5.13

 

 
Weighted average shares outstanding:
Basic

 

19,488

 

 

19,537

 

 

19,506

 

 

19,503

 

Diluted

 

19,548

 

 

19,657

 

 

19,565

 

 

19,629

 

 
Cash dividends declared per share

$

0.03

 

$

0.03

 

$

2.09

 

$

2.09

 

INSTEEL INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
 
(Unaudited) (Unaudited)
July 1, April 1, December 31, October 1, July 2,

2023

2023

2022

2022

2022

Assets
Current assets:
Cash and cash equivalents

$

91,740

 

$

80,156

 

$

42,638

 

$

48,316

 

$

63,045

 

Accounts receivable, net

 

66,363

 

 

65,874

 

 

68,789

 

 

81,646

 

 

81,175

 

Inventories

 

133,126

 

 

136,492

 

 

171,185

 

 

197,654

 

 

192,447

 

Other current assets

 

6,406

 

 

5,357

 

 

5,599

 

 

7,716

 

 

6,998

 

Total current assets

 

297,635

 

 

287,879

 

 

288,211

 

 

335,332

 

 

343,665

 

Property, plant and equipment, net

 

118,788

 

 

111,946

 

 

107,178

 

 

108,156

 

 

108,265

 

Intangibles, net

 

6,278

 

 

6,465

 

 

6,653

 

 

6,847

 

 

7,051

 

Goodwill

 

9,745

 

 

9,745

 

 

9,745

 

 

9,745

 

 

9,745

 

Other assets

 

12,936

 

 

12,189

 

 

11,969

 

 

11,665

 

 

12,322

 

Total assets

$

445,382

 

$

428,224

 

$

423,756

 

$

471,745

 

$

481,048

 

 
Liabilities and shareholders' equity
Current liabilities:
Accounts payable

$

38,075

 

$

36,936

 

$

30,801

 

$

46,796

 

$

77,159

 

Accrued expenses

 

12,984

 

 

8,153

 

 

14,112

 

 

15,800

 

 

17,877

 

Total current liabilities

 

51,059

 

 

45,089

 

 

44,913

 

 

62,596

 

 

95,036

 

Long-term debt

 

-

 

 

-

 

 

-

 

 

-

 

Other liabilities

 

19,257

 

 

18,157

 

 

18,169

 

 

19,405

 

 

21,088

 

Commitments and contingencies
Shareholders' equity:
Common stock

 

19,433

 

 

19,441

 

 

19,451

 

 

19,478

 

 

19,506

 

Additional paid-in capital

 

83,150

 

 

82,708

 

 

82,082

 

 

81,997

 

 

81,349

 

Retained earnings

 

273,460

 

 

263,806

 

 

260,118

 

 

289,246

 

 

266,511

 

Accumulated other comprehensive loss

 

(977

)

 

(977

)

 

(977

)

 

(977

)

 

(2,442

)

Total shareholders' equity

 

375,066

 

 

364,978

 

 

360,674

 

 

389,744

 

 

364,924

 

Total liabilities and shareholders' equity

$

445,382

 

$

428,224

 

$

423,756

 

$

471,745

 

$

481,048

 

INSTEEL INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Three Months Ended Nine Months Ended
July 1, July 2, July 1, July 2,

2023

2022

2023

2022

Cash Flows From Operating Activities:
Net earnings

$

10,565

 

$

38,559

 

$

26,789

 

$

100,705

 

Adjustments to reconcile net earnings to net cash provided by (used for) operating activities:
Depreciation and amortization

 

3,262

 

 

3,632

 

 

9,835

 

 

10,977

 

Amortization of capitalized financing costs

 

13

 

 

16

 

 

45

 

 

49

 

Stock-based compensation expense

 

421

 

 

293

 

 

1,534

 

 

1,395

 

Deferred income taxes

 

488

 

 

(492

)

 

(991

)

 

624

 

Loss (gain) on sale of property, plant and equipment and assets held for sale

 

3

 

 

13

 

 

(3,321

)

 

(595

)

Gain from life insurance proceeds

 

-

 

 

-

 

 

-

 

 

(364

)

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

 

(122

)

 

-

 

 

(854

)

 

-

 

Net changes in assets and liabilities:
Accounts receivable, net

 

(489

)

 

(485

)

 

15,283

 

 

(13,258

)

Inventories

 

3,366

 

 

(65,398

)

 

64,528

 

 

(113,398

)

Accounts payable and accrued expenses

 

6,706

 

 

20,392

 

 

(12,745

)

 

27,197

 

Other changes

 

(458

)

 

(1,482

)

 

3,223

 

 

1,782

 

Total adjustments

 

13,190

 

 

(43,511

)

 

76,537

 

 

(85,591

)

Net cash provided by (used for) operating activities

 

23,755

 

 

(4,952

)

 

103,326

 

 

15,114

 

 
Cash Flows From Investing Activities:
Capital expenditures

 

(11,204

)

 

(3,634

)

 

(26,604

)

 

(12,251

)

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

 

(75

)

 

977

 

 

(402

)

 

1,012

 

Proceeds from sale of assets held for sale

 

-

 

 

-

 

 

-

 

 

6,934

 

Proceeds from sale of property, plant and equipment

 

4

 

 

-

 

 

9,924

 

 

-

 

Proceeds from life insurance claims

 

-

 

 

-

 

 

-

 

 

1,456

 

Proceeds from surrender of life insurance policies

 

15

 

 

4

 

 

358

 

 

110

 

Net cash used for investing activities

 

(11,260

)

 

(2,653

)

 

(16,724

)

 

(2,739

)

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

 

113

 

 

87

 

 

255

 

 

220

 

Principal payments on long-term debt

 

(113

)

 

(87

)

 

(255

)

 

(220

)

Cash dividends paid

 

(583

)

 

(585

)

 

(40,668

)

 

(40,578

)

Payment of employee tax withholdings related to net share transactions

 

(9

)

 

(94

)

 

(196

)

 

(286

)

Cash received from exercise of stock options

 

97

 

 

1,604

 

 

191

 

 

1,650

 

Financing costs

 

(13

)

 

-

 

 

(177

)

 

-

 

Repurchases of common stock

 

(403

)

 

-

 

 

(2,328

)

 

-

 

Net cash (used for) provided by financing activities

 

(911

)

 

925

 

 

(43,178

)

 

(39,214

)

 
Net increase (decrease) in cash and cash equivalents

 

11,584

 

 

(6,680

)

 

43,424

 

 

(26,839

)

Cash and cash equivalents at beginning of period

 

80,156

 

 

69,725

 

 

48,316

 

 

89,884

 

Cash and cash equivalents at end of period

$

91,740

 

$

63,045

 

$

91,740

 

$

63,045

 

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

$

1,521

 

$

11,945

 

$

5,466

 

 

29,998

 

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

 

843

 

 

1,286

 

 

843

 

 

1,286

 

Restricted stock units and stock options surrendered for withholding taxes payable

 

9

 

 

94

 

 

196

 

 

286

 

IIIN – E

Contacts

Scot Jafroodi

Vice President,

Chief Financial Officer and Treasurer

Insteel Industries Inc.

(336) 786-2141

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