Insteel Industries Reports Second Quarter 2021 Results

Rhea-AI Summary

Insteel Industries reported strong financial results for Q2 2021, with net earnings reaching $14.9 million ($0.76 per share) compared to $4.4 million ($0.23 per share) in Q2 2020. Net sales increased by 21.0% to $139.0 million, driven by a 15.0% rise in average selling prices and a 5.2% increase in shipments. The gross margin expanded 840 basis points to 21.7%. The company remains debt-free with $58.9 million in cash and an optimistic outlook due to favorable trends in non-residential construction. However, it anticipates tight supply conditions for steel wire rod.

Positive

• Net earnings for Q2 2021 increased to $14.9 million, up from $4.4 million in Q2 2020.
• Net sales rose 21.0% to $139.0 million driven by stronger demand and price increases.
• Gross margin expanded by 840 basis points to 21.7%.
• The company ended the quarter debt-free with $58.9 million in cash.

Negative

• Expectations of tight supply conditions and escalating prices for steel wire rod.
• Potential unpredictable delivery performance from suppliers may cause operational inefficiencies.

MOUNT AIRY, N.C., April 22, 2021 /PRNewswire/ -- Insteel Industries Inc. (NYSE: IIIN) today announced financial results for its second quarter ended April 3, 2021.

Second Quarter 2021 Results

Insteel's second quarter results were favorably impacted by continued strong demand for its reinforcing products. Net earnings increased to $14.9 million, or $0.76 per diluted share, from $4.4 million, or $0.23 per share, in the same period a year ago.

Net sales increased 21.0% to $139.0 million from $114.9 million in the prior year quarter driven by a 15.0% increase in average selling prices and a 5.2% increase in shipments. On a sequential basis, average selling prices increased 12.7% while shipments increased 3.1%. The average selling price increase was largely the result of price increases implemented across all product lines during the quarter to recover rapidly escalating raw material costs.

Gross margin widened 840 basis points to 21.7% from 13.3% in the prior year quarter primarily due to higher spreads between selling prices and raw material costs. Insteel's net earnings for the current quarter reflect a $0.8 million increase in cash surrender value of life insurance policies, which reduced selling, general and administrative ("SG&A") expense, increasing net earnings per share by $0.03. Net earnings for the prior year quarter reflect a $1.2 million decrease in cash surrender value of life insurance policies, which reduced net earnings per share by $0.05.  

Operating activities generated $15.3 million of cash compared with using $3.0 million in the prior year quarter primarily due to an increase in earnings. Working capital used $0.8 million of cash in the current year quarter as compared to using $13.8 million in the prior year quarter.   

Six Month 2021 Results

Net earnings for the first six months of fiscal 2021 increased to $23.1 million, or $1.18 per diluted share, from $4.9 million, or $0.25 per diluted share, in the same period a year ago. Net sales increased 21.7% to $258.6 million from $212.4 million in the prior year period driven by a 12.7% increase in shipments and an 8.0% increase in average selling prices. Gross margin widened 930 basis points to 19.4% from 10.1% due to higher spreads and the increase in shipments. Insteel's net earnings for the current year period reflect a $1.2 million increase in the cash surrender value of life insurance policies, which reduced SG&A expense and $1.2 million of restructuring charges related to the Company's March 16, 2020 acquisition of substantially all the assets of Strand-Tech Manufacturing, Inc. ("STM"), which, in the aggregate, offset resulting in no impact on net earnings per share.

Net earnings for the prior year period reflect a $0.9 million decrease in the cash surrender value of life insurance policies and $0.3 million of restructuring charges and acquisition costs related to the STM acquisition, which, in the aggregate, reduced net earnings per share by $0.05.

Operating activities provided $29.2 million of cash compared with providing $26.6 million in the prior year period primarily due to an increase in earnings. Working capital used $1.3 million of cash in the current year period as compared to providing $10.8 million in the prior year period.

Capital Allocation and Liquidity

Capital expenditures for the first six months of fiscal 2021 increased to $8.8 million from $2.4 million in the prior year period and are expected to total up to $20.0 million in 2021 to complete the upgrade and redeployment of the STM assets, support the growth of our engineered structural mesh business, invest in our information systems, and fund recurring maintenance requirements.

Insteel ended the quarter debt-free with $58.9 million of cash and no borrowings outstanding on its $100.0 million revolving credit facility.

Outlook

"Looking ahead to the second half of our fiscal year, we expect solid performance given the favorable trends in non-residential construction markets along with the usual seasonal upturn in demand," commented H.O. Woltz III, Insteel's president and CEO. "Recent private non-residential construction leading indicators are signaling a rebound in activity close to pre-pandemic levels and public construction activity has remained resilient which causes us to be optimistic about the demand environment for the next couple of quarters."

Woltz continued, "Over the last year we have pursued anti-dumping and countervailing duty trade cases against sixteen countries we believe violated U.S. trade law with respect to their exports of PC strand and standard welded wire reinforcement to U.S. markets.  We are pleased to report that we have received favorable determinations in the cases and expect to obtain margins against every country and every company we targeted. This lengthy process should wrap up by the end of our third quarter.  Our success in addressing illegal trading practices should restore balance in our markets for years to come."

"During our third and fourth quarters, we expect to confront extremely tight supply conditions and escalating prices in both the domestic and international markets for steel wire rod, our primary raw material.  Delivery performance by our suppliers may be unpredictable which could lead to scheduling and operational inefficiencies as we seek to fulfill commitments to our customers.  While we expect a favorable impact on gross margin as we pass rising costs through the supply chain, it should normalize once raw material markets stabilize."   

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://insteelgcs.gcs-web.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 3, 2020.

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 3, 2020 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 3,		March 28,		April 3,		March 28,
		2021		2020		2021		2020
Net sales		$           138,999		$           114,859		$           258,604		$           212,428
Cost of sales		108,771		99,576		208,525		190,908
Gross profit		30,228		15,283		50,079		21,520
Selling, general and administrative expense		10,330		9,602		18,883		15,346
Restructuring charges, net		545		149		1,202		149
Acquisition costs		-		187		-		187
Other expense (income), net		75		(18)		88		(43)
Interest expense		24		26		49		52
Interest income		(5)		(204)		(10)		(430)
Earnings before income taxes		19,259		5,541		29,867		6,259
Income taxes		4,339		1,177		6,804		1,340
Net earnings		$             14,920		$               4,364		$             23,063		$               4,919
Net earnings per share:
Basic		$                 0.77		$                 0.23		$                 1.19		$                 0.26
Diluted		0.76		0.23		1.18		0.25
Weighted average shares outstanding:
Basic		19,328		19,272		19,319		19,266
Diluted		19,517		19,386		19,476		19,378
Cash dividends declared per share		$                 0.03		$                 0.03		$                 1.56		$                 0.06

 

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
		(Unaudited)						(Unaudited)
		April 3,		January 2,		October 3,		March 28,
		2021		2021		2020		2020
Assets
Current assets:
Cash and cash equivalents		$               58,940		$             50,182		$             68,688		$             40,363
Accounts receivable, net		58,123		49,224		53,817		54,912
Inventories		68,623		64,276		68,963		71,685
Other current assets		6,556		5,201		5,570		9,312
Total current assets		192,242		168,883		197,038		176,272
Property, plant and equipment, net		104,680		101,351		101,392		111,674
Intangibles, net		8,095		8,331		8,567		8,951
Goodwill		9,745		9,745		9,745		9,624
Other assets		22,099		21,641		21,160		12,514
Total assets		$             336,861		$           309,951		$           337,902		$           319,035
Liabilities and shareholders' equity
Current liabilities:
Accounts payable		$               44,941		$             31,761		$             38,961		$             38,438
Accrued expenses		14,252		15,012		14,717		9,687
Total current liabilities		59,193		46,773		53,678		48,125
Long-term debt				-		-		-
Other liabilities		18,932		19,444		19,421		20,079
Commitments and contingencies
Shareholders' equity:
Common stock		19,341		19,314		19,304		19,283
Additional paid-in capital		77,351		76,716		76,387		75,661
Retained earnings		164,000		149,660		171,068		158,135
Accumulated other comprehensive loss		(1,956)		(1,956)		(1,956)		(2,248)
Total shareholders' equity		258,736		243,734		264,803		250,831
Total liabilities and shareholders' equity		$             336,861		$           309,951		$           337,902		$           319,035

 

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
		Three Months Ended				Six Months Ended
		April 3,		March 28,		April 3,		March 28,
		2021		2020		2021		2020
Cash Flows From Operating Activities:
Net earnings		$       14,920		$         4,364		$       23,063		$         4,919
Adjustments to reconcile net earnings to net cash provided by (used for)
operating activities:
Depreciation and amortization		3,590		3,513		7,200		6,991
Amortization of capitalized financing costs		16		16		32		32
Stock-based compensation expense		710		941		934		1,127
Deferred income taxes		(402)		419		(466)		605
Loss on sale and disposition of property, plant and equipment		83		2		115		2
Increase in cash surrender value of life insurance policies over premiums paid		(804)		-		(1,168)		-
Net changes in assets and liabilities (net of assets and liabilities acquired):
Accounts receivable, net		(8,899)		(15,647)		(4,306)		(6,870)
Inventories		(4,347)		(3,261)		340		2,338
Accounts payable and accrued expenses		12,430		5,072		2,677		15,297
Other changes		(2,008)		1,614		818		2,167
Total adjustments		369		(7,331)		6,176		21,689
Net cash provided by (used for) operating activities		15,289		(2,967)		29,239		26,608
Cash Flows From Investing Activities:
Acquisition of business		-		(21,500)		-		(21,500)
Capital expenditures		(5,908)		(1,768)		(8,768)		(2,368)
Decrease (increase) in cash surrender value of life insurance policies		-		710		(197)		668
Proceeds from sale of assets held for sale		-		-		19		-
Proceeds from surrender of life insurance policies		5		6		23		6
Net cash used for investing activities		(5,903)		(22,552)		(8,923)		(23,194)
Cash Flows From Financing Activities:
Cash dividends paid		(580)		(1,156)		(30,131)		(1,156)
Proceeds from long-term debt		89		68		134		135
Principal payments on long-term debt		(89)		(68)		(134)		(135)
Payment of employee tax withholdings related to net share transactions		(97)		(76)		(110)		(76)
Cash received from exercise of stock options		49		-		177		-
Net cash used for financing activities		(628)		(1,232)		(30,064)		(1,232)
Net increase (decrease) in cash and cash equivalents		8,758		(26,751)		(9,748)		2,182
Cash and cash equivalents at beginning of period		50,182		67,114		68,688		38,181
Cash and cash equivalents at end of period		$       58,940		$       40,363		$       58,940		$       40,363
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Income taxes, net		$         5,717		$            261		5,812		275
Non-cash investing and financing activities:
Receivable related to post-closing purchase price adjustment for business acquired		-		3,113		-		3,113
Purchases of property, plant and equipment in accounts payable		1,357		274		1,357		274
Restricted stock units and stock options surrendered for withholding taxes payable		97		76		110		76
Accrued liability related to holdback for business acquired		-		1,000		-		1,000

IIIN – E

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SOURCE Insteel Industries, Inc.

FAQ

What were Insteel Industries' net earnings for Q2 2021?

Insteel Industries reported net earnings of $14.9 million for Q2 2021.

How much did Insteel's net sales increase in Q2 2021?

Net sales for Insteel increased by 21.0% to $139.0 million in Q2 2021.

What was the gross margin for Insteel in Q2 2021?

The gross margin for Insteel in Q2 2021 was 21.7%, an increase of 840 basis points from the previous year.

What is the outlook for Insteel Industries in the second half of 2021?

Insteel expects solid performance due to favorable trends in non-residential construction.

What challenges does Insteel foresee in the supply chain?

Insteel anticipates tight supply conditions and unpredictable delivery performance from suppliers.