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Insteel Industries Reports Third Quarter 2022 Results

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

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