Insteel Industries Reports Third Quarter 2022 Results

Rhea-AI Summary

Insteel Industries Inc. (NYSE: IIIN) reported a net earnings increase for Q3 2022, achieving $38.6 million ($1.96/share), up from $18.4 million ($0.94/share) a year prior. Net sales soared to $227.2 million, a 41.4% rise due to a 53.9% hike in average selling prices, despite an 8.2% drop in shipments. Gross profit reached $58.1 million, enhancing gross margin to 25.6%. While labor market challenges persisted, the company remains optimistic about continued performance through Q4, despite some softness in the standard welded wire reinforcement market related to new home construction.

Positive

• Net earnings for Q3 2022 rose to $38.6 million from $18.4 million YoY.
• Net sales increased to $227.2 million, a significant rise driven by a 53.9% increase in average selling prices.
• Gross profit improved to $58.1 million, with gross margin expanding to 25.6%.

Negative

• Shipments decreased by 8.2% compared to the previous year.
• Labor market constraints are affecting production capacity.
• Softening conditions were noted in the standard welded wire reinforcement market.

MOUNT AIRY, N.C.--(BUSINESS WIRE)-- 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

View source version on businesswire.com: https://www.businesswire.com/news/home/20220721005053/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's Q3 2022 earnings results?

Insteel reported Q3 2022 net earnings of $38.6 million, or $1.96 per diluted share, an increase from $18.4 million ($0.94/share) in the prior year.

How did Insteel's net sales perform in Q3 2022?

Net sales in Q3 2022 were $227.2 million, up from $160.7 million in the same quarter last year.

What challenges is Insteel facing in its production?

Insteel is contending with tight labor markets that are impacting production capacity.

What is the outlook for Insteel for Q4 2022?

Insteel's management expects continued strong performance in Q4 2022, despite some market softening in certain product lines.

What were the average selling price changes for Insteel's products?

Average selling prices increased by 53.9% year-over-year and by 6.3% sequentially from Q2 2022.