Insteel Industries Reports First Quarter 2023 Results

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Insteel Industries Inc. (NYSE: IIIN) reported a decline in net earnings for Q1 fiscal 2023, totaling $11.1 million ($0.57 per share), down from $23.1 million ($1.18 per share) year-over-year. The decrease was influenced by a 6.5% drop in net sales to $166.9 million and 10.0% lower shipments due to customer destocking amid ongoing construction market weaknesses. Gross margin narrowed significantly to 10.7% from 23.7% last year, attributed to increased costs and lower production volumes. Despite these challenges, operating cash flow improved to $33.0 million. The company anticipates continued impacts from higher-cost inventories and seasonal construction slowdowns but remains optimistic about infrastructure projects boosting demand in the latter half of the fiscal year.

Positive

• Operating cash flow reached $33.0 million, up from $13.6 million in the previous year.
• Paid a special cash dividend of $38.9 million ($2.00 per share) alongside a regular dividend.

Negative

• Net earnings fell from $23.1 million to $11.1 million year-over-year.
• Net sales decreased by 6.5% to $166.9 million due to a 10.0% drop in shipments.
• Gross margin narrowed to 10.7% from 23.7% due to increased costs and lower production volumes.

MOUNT AIRY, N.C.--(BUSINESS WIRE)-- Insteel Industries Inc. (NYSE: IIIN) today announced financial results for its first quarter ended December 31, 2022.

First Quarter 2023 Results

Net earnings for the first quarter of fiscal 2023 decreased to $11.1 million, or $0.57 per share, from record earnings of $23.1 million, or $1.18 per diluted share, in the same period a year ago. Earnings for the current year quarter benefited from a $3.3 million, or $0.13 per share gain on the sale of property, plant and equipment. Insteel’s first quarter results were unfavorably impacted by lower shipments and the narrowing of spreads between selling prices and raw material costs.

Net sales decreased 6.5% to $166.9 million from $178.5 million in the prior year quarter primarily from a 10.0% decrease in shipments partially offset by a 3.9% increase in average selling prices. Shipments into nonresidential construction markets during the first quarter were adversely affected by customer destocking that reflects easing supply chain constraints together with the ongoing weakness in the residential construction market. On a sequential basis, shipments decreased 12.0% from the fourth quarter of fiscal 2022, reflecting the usual seasonal slowdown in construction activity, while average selling prices fell 8.8%.

Gross margin narrowed to 10.7% from 23.7% in the prior year quarter due to the reduction in spreads between selling prices and raw material costs together with a decrease in 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 primarily in fiscal 2022.

Operating activities generated $33.0 million of cash during the quarter compared to $13.6 million in the prior year quarter due to the relative changes in working capital. Working capital provided $17.8 million in the current quarter, driven by the reduction in receivables and inventories, while using $21.4 million in the prior year quarter.

Capital Allocation and Liquidity

Capital expenditures for the first quarter of fiscal 2023 increased to $8.2 million from $0.8 million in the prior year quarter. 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.

On December 23, 2022, Insteel paid a special cash dividend totaling $38.9 million, or $2.00 per share, in addition to its regular quarterly cash dividend of $0.03 per share and ended the quarter with $42.6 million of cash and no borrowings outstanding on its $100.0 million revolving credit facility.

Outlook

“Following a year of record financial results, the first quarter of fiscal 2023 was a period of transition as our supply chain recovers from unprecedented constraints of the prior year,” commented H.O. Woltz III, Insteel’s President and CEO. “As we move into the second quarter, we expect our results will continue to be affected by the consumption of higher cost inventories along with the usual weather-related slowdown in construction activity.”

Woltz continued, “Throughout fiscal 2022, we mentioned the favorable impact on gross margin of steadily increasing steel prices matched against lower cost inventories under our first-in, first-out (“FIFO”) accounting methodology. When steel prices decline, we experience the flipside of the FIFO impact. Our accounting methodology does not diminish the favorable outlook for nonresidential construction markets or our financial performance once the inventory pipeline has normalized. Customer sentiment remains positive, and we expect to benefit from incremental demand from projects funded by the Infrastructure Investment and Jobs Act during the second half of fiscal 2023. Additionally, we should be positively impacted by the completion of several capital projects that will allow us to expand our capacity and reduce the cash cost of production.”

Conference Call

Insteel will hold a conference call at 10:00 a.m. ET today to discuss its first 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.

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 several 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 in our Annual Report on Form 10-K for the year ended October 1, 2022 and may be updated from time to time in our other filings with the U.S. Securities and Exchange Commission (the “SEC”).

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
		December 31,				January 1,
		2022				2022
Net sales		$	166,899			$	178,459
Cost of sales			149,113				136,095
Gross profit			17,786				42,364
Selling, general and administrative expense			7,126				12,281
Restructuring charges, net			-				47
Other income, net			(3,342	)			(5	)
Interest expense			24				22
Interest income			(440	)			(14	)
Earnings before income taxes			14,418				30,033
Income taxes			3,295				6,904
Net earnings		$	11,123			$	23,129
Net earnings per share:
Basic		$	0.57			$	1.19
Diluted			0.57				1.18
Weighted average shares outstanding:
Basic			19,525				19,411
Diluted			19,584				19,636
Cash dividends declared per share		$	2.03			$	2.03

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
		(Unaudited)
		December 31,				January 1,				October 1,
		2022				2022				2022
Assets
Current assets:
Cash and cash equivalents		$	42,638			$	63,020			$	48,316
Accounts receivable, net			68,789				73,562				81,646
Inventories			171,185				81,558				197,654
Other current assets			5,599				8,664				7,716
Total current assets			288,211				226,804				335,332
Property, plant and equipment, net			107,178				103,442				108,156
Intangibles, net			6,653				7,460				6,847
Goodwill			9,745				9,745				9,745
Other assets			11,969				21,328				11,665
Total assets		$	423,756			$	368,779			$	471,745
Liabilities and shareholders' equity
Current liabilities:
Accounts payable		$	30,801			$	35,369			$	46,796
Accrued expenses			14,112				27,205				15,800
Total current liabilities			44,913				62,574				62,596
Long-term debt			-				-				-
Other liabilities			18,169				20,185				19,405
Commitments and contingencies
Shareholders' equity:
Common stock			19,451				19,414				19,478
Additional paid-in capital			82,082				78,945				81,997
Retained earnings			260,118				190,103				289,246
Accumulated other comprehensive loss			(977	)			(2,442	)			(977	)
Total shareholders' equity			360,674				286,020				389,744
Total liabilities and shareholders' equity		$	423,756			$	368,779			$	471,745

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
		Three Months Ended
		December 31,				January 1,
		2022				2022
Cash Flows From Operating Activities:
Net earnings		$	11,123			$	23,129
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization			3,350				3,705
Amortization of capitalized financing costs			16				16
Stock-based compensation expense			130				272
Deferred income taxes			(1,378	)			16
(Gain) loss on sale and disposition of property, plant and equipment			(3,324	)			14
Increase in cash surrender value of life insurance policies over premiums paid			(363	)			(115	)
Net changes in assets and liabilities:
Accounts receivable, net			12,857				(5,645	)
Inventories			26,469				(2,509	)
Accounts payable and accrued expenses			(21,520	)			(13,231	)
Other changes			5,646				7,979
Total adjustments			21,883				(9,498	)
Net cash provided by operating activities			33,006				13,631
Cash Flows From Investing Activities:
Capital expenditures			(8,200	)			(838	)
Increase in cash surrender value of life insurance policies			(81	)			(308	)
Proceeds from sale of property, plant and equipment			9,920				6
Proceeds from surrender of life insurance policies			-				64
Net cash provided by (used for) investing activities			1,639				(1,076	)
Cash Flows From Financing Activities:
Proceeds from long-term debt			67				45
Principal payments on long-term debt			(67	)			(45	)
Cash dividends paid			(39,501	)			(39,410	)
Payment of employee tax withholdings related to net share transactions			-				(55	)
Cash received from exercise of stock options			94				46
Repurchases of common stock			(916	)			-
Net cash used for financing activities			(40,323	)			(39,419	)
Net decrease in cash and cash equivalents			(5,678	)			(26,864	)
Cash and cash equivalents at beginning of period			48,316				89,884
Cash and cash equivalents at end of period		$	42,638			$	63,020
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Income taxes, net		$	187			$	83
Non-cash investing and financing activities:
Purchases of property, plant and equipment in accounts payable			1,520				497
Restricted stock units and stock options surrendered for withholding taxes payable			-				55

IIIN – E

View source version on businesswire.com: https://www.businesswire.com/news/home/20230119005034/en/

Scot Jafroodi

Vice President, Chief Financial Officer and Treasurer

Insteel Industries Inc.

(336) 786-2141

Source: Insteel Industries Inc.

FAQ

What were Insteel Industries' earnings for Q1 fiscal 2023?

Insteel Industries reported net earnings of $11.1 million or $0.57 per share for Q1 fiscal 2023.

How did Insteel's net sales perform in Q1 fiscal 2023?

Net sales for Q1 fiscal 2023 decreased by 6.5% to $166.9 million compared to the previous year.

What caused the decline in Insteel's gross margin?

The gross margin narrowed to 10.7% due to reduced spreads between selling prices and raw material costs, alongside lower shipments.

What is the outlook for Insteel Industries following Q1 fiscal 2023?

Insteel expects continued impacts from higher-cost inventories and seasonal slowdowns, but anticipates demand growth from infrastructure projects in the second half of fiscal 2023.