Insteel Industries Reports Second Quarter 2022 Results

Rhea-AI Summary

Insteel Industries (NYSE: IIIN) reported record second-quarter net earnings of $39.0 million ($1.99 per diluted share), up from $14.9 million ($0.76 per diluted share) year-over-year. Net sales soared to $213.2 million, driven by a 65.4% increase in average selling prices, despite a 7.2% decline in shipments. Gross profit rose to $57.1 million with a gross margin of 26.8%. For the first half of 2022, net earnings hit $62.1 million, while cash from operating activities decreased to $20.1 million due to increased working capital. The company ended the quarter debt-free, with $69.7 million in cash.

Positive

• Record second-quarter net earnings of $39.0 million, or $1.99 per diluted share.
• Net sales increased to $213.2 million, a 65.4% rise in average selling prices.
• Gross profit rose to $57.1 million with an improved gross margin of 26.8%.
• The company ended the quarter debt-free with $69.7 million cash.

Negative

• Shipments decreased by 7.2%, indicating potential challenges in meeting demand.
• Despite strong performance, concerns remain about the impact of record high steel prices.

MOUNT AIRY, N.C.--(BUSINESS WIRE)-- Insteel Industries Inc. (NYSE: IIIN) today announced financial results for its second quarter ended April 2, 2022.

Second Quarter 2022 Results

For the second quarter of fiscal 2022, Insteel reported record quarterly net earnings of $39.0 million, or $1.99 per diluted share, up from $14.9 million, or $0.76 per diluted share, for the same period a year ago. The Company benefitted from strong demand for its reinforcing products and incremental price increases to recover the continued escalation in costs.

Net sales increased to $213.2 million from $139.0 million for the prior year quarter driven by a 65.4% increase in average selling prices and a 7.2% decrease in shipments. The average selling price increase was the result of price increases implemented across all product lines during the quarter to recover rapidly escalating costs, which offset the impact of lower shipments resulting from tight supply conditions for raw materials. On a sequential basis, average selling prices increased 10.1% while shipments increased 8.5%.

Gross profit increased to $57.1 million from $30.2 million in the prior quarter and gross margin widened 510 basis points to 26.8% from 21.7% in the prior year quarter due to higher spreads between selling prices and raw material costs.

Operating activities provided $6.3 million of cash compared with providing $15.3 million for the prior year quarter due to an increase in net working capital, which used $32.6 million of cash in the current year quarter. In the prior year quarter, net working capital used $0.8 million.

Six Month 2022 Results

Net earnings for the first six months of fiscal 2022 were $62.1 million, or $3.17 per diluted share, compared to $23.1 million, or $1.18 per diluted share, for the same period a year ago. Net sales increased to $391.7 million from $258.6 million for the prior year period driven by a 67.5% increase in average selling prices and a 9.5% decrease in shipments. Gross profit increased to $99.4 million from $50.1 million in the same period a year ago and gross margin widened 600 basis points to 25.4% from 19.4% due to higher spreads.

Operating activities provided $20.1 million of cash compared with providing $29.2 million in the prior year period primarily due to the $54 million increase in net working capital in the current year. In the prior year period, net working capital used $1.3 million.

Capital Allocation and Liquidity

Capital expenditures for the first six months of fiscal 2022 decreased to $8.6 million from $8.8 million for the prior year period but are expected to total up to $25 million in 2022, including expenditures to advance the growth of the engineered structural mesh business, to support cost and productivity improvement initiatives, and recurring maintenance needs.

Insteel ended the quarter debt-free with $69.7 million of cash and no borrowings outstanding on its $100.0 million revolving credit facility.

Outlook

“Momentum across our business remains positive driven by robust demand from our customer base and price increase initiatives to recover rapidly rising raw material, labor, utility and freight costs,” commented H.O. Woltz III, Insteel’s President and CEO. “For the balance of our fiscal year, we expect continued strong performance due to underlying strength across all our non-residential construction markets together with the usual seasonal upturn in demand that occurs during our third and fourth quarters.”

Woltz continued, “While concerns surrounding inadequate supplies of domestically produced wire rod persist, we have supplemented our requirements with offshore material to bridge the gaps we previously identified and do not expect raw material-related disruptions to our operations through the fourth fiscal quarter. We have concerns about the impact of record high steel prices on demand for reinforcing products, but up to this point momentum in our markets remains strong and there is no indication of weakening.”

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://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								Six Months Ended
		April 2,				April 3,				April 2,				April 3,
		2022				2021				2022				2021
Net sales		$	213,209			$	138,999			$	391,668			$	258,604
Cost of sales			156,140				108,771				292,235				208,525
Gross profit			57,069				30,228				99,433				50,079
Selling, general and administrative expense			7,202				10,330				19,483				18,883
Restructuring charges, net			(365	)			545				(318	)			1,202
Acquisition costs			-				-				-				-
Other expense (income), net			(11	)			75				(16	)			88
Interest expense			23				24				45				49
Interest income			(10	)			(5	)			(24	)			(10	)
Earnings before income taxes			50,230				19,259				80,263				29,867
Income taxes			11,213				4,339				18,117				6,804
Net earnings		$	39,017			$	14,920			$	62,146			$	23,063
Net earnings per share:
Basic		$	2.00			$	0.77			$	3.19			$	1.19
Diluted			1.99				0.76				3.17				1.18
Weighted average shares outstanding:
Basic			19,492				19,328				19,487				19,319
Diluted			19,623				19,517				19,615				19,476
Cash dividends declared per share		$	0.03			$	0.03			$	2.06			$	1.56

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
		(Unaudited)												(Unaudited)
		April 2,				January 1,				October 2,				April 3,
		2022				2022				2021				2021
Assets
Current assets:
Cash and cash equivalents		$	69,725			$	63,020			$	89,884			$	58,940
Accounts receivable, net			80,690				73,562				67,917				58,123
Inventories			127,049				81,558				79,049				68,623
Other current assets			5,340				8,664				10,056				6,556
Total current assets			282,804				226,804				246,906				192,242
Property, plant and equipment, net			107,159				103,442				105,624				104,680
Intangibles, net			7,256				7,460				7,668				8,095
Goodwill			9,745				9,745				9,745				9,745
Other assets			13,594				21,328				20,767				22,099
Total assets		$	420,558			$	368,779			$	390,710			$	336,861
Liabilities and shareholders' equity
Current liabilities:
Accounts payable		$	58,459			$	35,369			$	49,443			$	44,941
Accrued expenses			15,357				27,205				19,406				14,252
Total current liabilities			73,816				62,574				68,849				59,193
Long-term debt							-				-
Other liabilities			21,595				20,185				19,823				18,932
Commitments and contingencies
Shareholders' equity:
Common stock			19,439				19,414				19,408				19,341
Additional paid-in capital			79,613				78,945				78,688				77,351
Retained earnings			228,537				190,103				206,384				164,000
Accumulated other comprehensive loss			(2,442	)			(2,442	)			(2,442	)			(1,956	)
Total shareholders' equity			325,147				286,020				302,038				258,736
Total liabilities and shareholders' equity		$	420,558			$	368,779			$	390,710			$	336,861

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
		Three Months Ended								Six Months Ended
		April 2,				April 3,				April 2,				April 3,
		2022				2021				2022				2021
Cash Flows From Operating Activities:
Net earnings		$	39,017			$	14,920			$	62,146			$	23,063
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization			3,640				3,590				7,345				7,200
Amortization of capitalized financing costs			16				16				33				32
Stock-based compensation expense			830				710				1,102				934
Deferred income taxes			1,100				(402	)			1,116				(466	)
(Gain) loss on sale of property, plant and equipment and assets held for sale			(622	)			83				(608	)			115
Gain from life insurance proceeds			(364	)							(364	)			-
Increase in cash surrender value of life insurance policies over premiums paid			-				(804	)			-				(1,168	)
Net changes in assets and liabilities:
Accounts receivable, net			(7,128	)			(8,899	)			(12,773	)			(4,306	)
Inventories			(45,491	)			(4,347	)			(48,000	)			340
Accounts payable and accrued expenses			20,036				12,430				6,805				2,677
Other changes			(4,715	)			(2,008	)			3,264				818
Total adjustments			(32,698	)			369				(42,080	)			6,176
Net cash provided by operating activities			6,319				15,289				20,066				29,239
Cash Flows From Investing Activities:
Capital expenditures			(7,779	)			(5,908	)			(8,617	)			(8,768	)
Decrease (increase) in cash surrender value of life insurance policies			459				-				35				(197	)
Proceeds from sale of assets held for sale			6,928				-				6,934				19
Proceeds from life insurance claims			1,456				-				1,456
Proceeds from surrender of life insurance policies			42				5				106				23
Net cash provided by (used for) investing activities			1,106				(5,903	)			(86	)			(8,923	)
Cash Flows From Financing Activities:
Proceeds from long-term debt			88				89				133				134
Principal payments on long-term debt			(88	)			(89	)			(133	)			(134	)
Cash dividends paid			(583	)			(580	)			(39,993	)			(30,131	)
Payment of employee tax withholdings related to net share transactions			(137	)			(97	)			(192	)			(110	)
Cash received from exercise of stock options			-				49				46				177
Net cash used for financing activities			(720	)			(628	)			(40,139	)			(30,064	)
Net increase (decrease) in cash and cash equivalents			6,705				8,758				(20,159	)			(9,748	)
Cash and cash equivalents at beginning of period			63,020				50,182				89,884				68,688
Cash and cash equivalents at end of period		$	69,725			$	58,940			$	69,725			$	58,940
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Income taxes, net		$	17,970			$	5,717				18,053				5,812
Non-cash investing and financing activities:
Purchases of property, plant and equipment in accounts payable			372				1,357				372				1,357
Restricted stock units and stock options surrendered for withholding taxes payable			137				97				192				110

IIIN – E

View source version on businesswire.com: https://www.businesswire.com/news/home/20220421005019/en/

Mark A. Carano

Senior Vice President,

Chief Financial Officer and Treasurer

Insteel Industries Inc.

(336) 786-2141

Source: Insteel Industries Inc.

FAQ

What were Insteel Industries' second-quarter financial results for 2022?

Insteel reported record net earnings of $39.0 million, or $1.99 per diluted share, with net sales of $213.2 million.

How did net sales compare year-over-year for Insteel in Q2 2022?

Net sales increased from $139.0 million in Q2 2021 to $213.2 million in Q2 2022.

What are the recent cash reserves and debt status of Insteel Industries?

Insteel ended the quarter debt-free with $69.7 million in cash.

What is the outlook for Insteel's performance in the coming quarters?

The company expects continued strong performance driven by robust demand and price increase initiatives.

What were the gross profit figures for Insteel in Q2 2022?

Gross profit increased to $57.1 million, with a gross margin of 26.8%.