Insteel Industries Reports Third Quarter 2024 Results

Rhea-AI Summary

Insteel Industries (NYSE: IIIN) reported its Q3 2024 financial results. Net earnings decreased to $6.6 million ($0.34 per share) from $10.6 million ($0.54 per share) year-over-year. Net sales fell 12.0% to $145.8 million, driven by a 16.3% decrease in average selling prices, partially offset by a 5.1% increase in shipments. Gross profit declined to $15.4 million (10.6% margin) from $20.4 million (12.3% margin) due to narrower spreads between selling prices and raw material costs.

The company ended the quarter with a strong financial position, having $97.7 million in cash and no debt. Despite challenges, management expressed optimism about the business outlook for fiscal 2025, citing potential benefits from easing inflation, lower interest rates, and infrastructure spending.

Positive

• 5.1% increase in shipments year-over-year
• 20.8% sequential increase in shipments from Q2 2024
• Strong financial position with $97.7 million cash and no debt
• Operating cash flow of $18.7 million in Q3 2024
• Improving demand for reinforcing products, indicating inventory correction

Negative

• Net earnings decreased to $6.6 million from $10.6 million year-over-year
• Net sales decreased 12.0% to $145.8 million year-over-year
• 16.3% decrease in average selling prices year-over-year
• Gross margin narrowed to 10.6% from 12.3% year-over-year
• Challenges in ramping up operating hours due to labor shortages
• Competitive pricing pressures in welded wire reinforcing markets
• Impact of low-priced PC strand imports on selling prices

Insights

Financial Analyst

Insteel Industries' Q3 fiscal 2024 results present a mixed bag for investors. The company reported $6.6 million in net earnings, equivalent to $0.34 per share, 38% lower than the previous year's quarter. A 12% decline in net sales to $145.8 million highlights the ongoing competitive pressures. Furthermore, gross profit dipped to $15.4 million, with gross margins narrowing to 10.6%.

On the positive side, the company remains debt-free with a significant $97.7 million cash balance. This provides a cushion for strategic investments and operational flexibility. The increase in shipments by 5.1% could be an indicator of stabilizing demand and operating cash flow remains robust at $18.7 million.

However, the company faces headwinds, particularly lower selling prices due to competitive pressures and higher raw material costs. This could continue to squeeze margins in the near term. Investors should closely monitor the company's ability to manage these challenges, especially as it works to ramp up operating hours and attract qualified labor.

Key takeaway: While Insteel's financial position is solid, the competitive landscape and input cost pressures pose risks to profitability. Short-term pain could be mitigated by long-term gains if the company successfully navigates these challenges.

Market Research Analyst

Market dynamics for Insteel's core products, including prestressed concrete strand and welded wire reinforcement, are important for understanding its performance. The 16.3% decrease in average selling prices, despite a 5.1% rise in shipments, underscores intense price competition in WWR markets and the impact of imported low-cost PC strand.

It's indicative of supply and demand imbalances and competitive pressures from both domestic and international players. The company's reliance on federal spending through the Infrastructure Investment and Jobs Act could provide a significant tailwind, helping to offset some of these pricing pressures.

Looking forward, easing inflation and potential lower interest rates could be a boon for Insteel, stimulating demand in commercial and residential sectors. However, the persistent challenge of labor shortages needs to be addressed for the company to fully capitalize on these opportunities.

Key takeaway: The broader economic environment and policy developments will play a pivotal role in shaping Insteel's future performance. Investors should watch for signals of improved pricing power and labor market conditions.

MOUNT AIRY, N.C.--(BUSINESS WIRE)-- Insteel Industries Inc. (NYSE: IIIN) (“Insteel” or the “Company”), the nation’s largest manufacturer of steel wire reinforcing products for concrete construction applications, today announced financial results for its third quarter of fiscal 2024 ended June 29, 2024.

Third Quarter 2024 Highlights

• Net earnings of $6.6 million, or $0.34 per share
• Net sales of $145.8 million
• Gross profit of $15.4 million, or 10.6% of net sales
• Operating cash flow of $18.7 million
• Net cash balance of $97.7 million and no debt outstanding as of June 29, 2024
• Improving macroeconomic and business outlooks

Third Quarter 2024 Results

Net earnings for the third quarter of fiscal 2024 decreased to $6.6 million, or $0.34 per share, from $10.6 million, or $0.54 per share, for the same period a year ago. Despite higher shipments, Insteel’s third quarter results were unfavorably impacted by narrower spreads between selling prices and raw material costs relative to the prior year quarter.

Net sales decreased 12.0% to $145.8 million from $165.7 million in the prior year quarter, driven by a 16.3% decrease in average selling prices partially offset by a 5.1% increase in shipments. The decline in net sales was primarily due to lower selling prices, attributed to competitive pricing pressures in welded wire reinforcing (“WWR”) markets and the impact of low-priced PC strand imports. Despite the negative impact of revenues from declining selling prices, we believe improving demand for our reinforcing products validates the view that inventories have largely corrected, which should lead to higher shipments going forward. Ramping up operating hours to accommodate improved demand continues to be challenging, however. On a sequential basis, shipments increased by 20.8% from the second quarter of fiscal 2024, while average selling prices declined by 5.3%. Gross profit decreased to $15.4 million from $20.4 million in the prior year quarter, and gross margin narrowed to 10.6% from 12.3% due to lower spreads between selling prices and raw material costs, partially offset by higher shipments.

Operating activities generated $18.7 million of cash during the quarter compared with $23.8 million in the prior year quarter due to a combination of a reduction in net earnings and the relative change in net working capital. Net working capital provided $7.8 million in the current year, driven by an increase in payables and a reduction in inventories, compared to $9.6 million in the prior year quarter.

Nine Month 2024 Results

Net earnings for the first nine months of fiscal 2024 were $14.6 million, or $0.75 per share, compared with $26.8 million, or $1.37 per share, for the same period a year ago. Earnings for the prior year period benefited from a $3.3 million, or $0.13 per share, gain on the sale of property, plant and equipment.

Net sales decreased to $394.9 million from $491.7 million for the prior year period, driven by a 20.4% decrease in average selling prices partially offset by a 1.0% increase in shipments. Gross profit decreased to $37.4 million from $51.4 million in the same period a year ago, and gross margin narrowed to 9.5% from 10.5% due to lower spreads and higher operating costs partially offset by higher shipments.

Operating activities generated $42.0 million of cash compared with $103.3 million in the prior year period due to a combination of a reduction in net earnings and the relative change in net working capital. Net working capital provided $13.6 million of cash in the current year, driven by the reduction in inventories and receivables, compared to $67.1 million in the prior year period.

Capital Allocation and Liquidity

Capital expenditures for the first nine months of fiscal 2024 decreased to $17.5 million from $26.6 million for the prior year period and are expected to total up to $25.0 million in 2024, 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.

Insteel ended the quarter debt-free with $97.7 million of cash and no borrowings outstanding on its $100.0 million revolving credit facility.

Outlook

“Improving conditions in our markets require that we continue ramping up operating hours at certain WWR plants to manage lead times and maximize shipments. As has been the case for several quarters, it is difficult to attract and retain qualified people in our plants, which is necessary to expand operating hours," commented H.O. Woltz III, Insteel’s President and CEO. “As we move into the fourth fiscal quarter, selling prices and spreads may remain under pressure, particularly where we compete with imported PC strand which is entering the US market at prices lower than the domestic wire rod price. We continue to work with the Administration to resolve certain trade-related anomalies that contribute to this problem. In addition, we remain committed to enhancing our competitive position by leveraging recent capital investments to optimize operations, expand our product line and lower our cash cost of production."

Woltz continued, "Looking ahead to fiscal 2025, we are optimistic about our business outlook. Easing inflation and the potential for lower interest rates will help drive demand in both our commercial and residential end markets, while the infrastructure related portion of our business should begin to benefit from federal spending associated with the Infrastructure Investment and Jobs Act."

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.

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 (“ESM”), 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 September 30, 2023, 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: 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; the impact of rising interest rates on the cost of financing for our customers; 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 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 September 30, 2023, 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
		June 29,				July 1,				June 29,				July 1,
		2024				2023				2024				2023
Net sales		$	145,775			$	165,714			$	394,894			$	491,664
Cost of sales			130,387				145,347				357,521				440,249
Gross profit			15,388				20,367				37,373				51,415
Selling, general and administrative expense			7,879				7,924				22,121				22,556
Other expense (income), net			15				(24	)			2				(3,423	)
Interest expense			19				20				76				67
Interest income			(1,245	)			(1,097	)			(4,051	)			(2,284	)
Earnings before income taxes			8,720				13,544				19,225				34,499
Income taxes			2,155				2,979				4,589				7,710
Net earnings		$	6,565			$	10,565			$	14,636			$	26,789
Net earnings per share:
Basic		$	0.34			$	0.54			$	0.75			$	1.37
Diluted			0.34				0.54				0.75				1.37
Weighted average shares outstanding:
Basic			19,500				19,488				19,502				19,506
Diluted			19,568				19,548				19,579				19,565
Cash dividends declared per share		$	0.03			$	0.03			$	2.59			$	2.09

INSTEEL INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
		(Unaudited)																(Unaudited)
		June 29,				March 30,				December 30,				September 30,				July 1,
		2024				2024				2023				2023				2023
Assets
Current assets:
Cash and cash equivalents		$	97,745			$	83,945			$	85,615			$	125,670			$	91,740
Accounts receivable, net			61,234				55,549				43,354				63,424				66,363
Inventories			89,379				92,530				94,142				103,306				133,126
Other current assets			8,766				7,675				8,706				6,453				6,406
Total current assets			257,124				239,699				231,817				298,853				297,635
Property, plant and equipment, net			127,889				127,534				129,300				120,014				118,788
Intangibles, net			5,528				5,716				5,903				6,090				6,278
Goodwill			9,745				9,745				9,745				9,745				9,745
Other assets			14,329				14,533				13,803				12,811				12,936
Total assets		$	414,615			$	397,227			$	390,568			$	447,513			$	445,382
Liabilities and shareholders' equity
Current liabilities:
Accounts payable		$	34,827			$	25,409			$	23,852			$	34,346			$	38,075
Accrued expenses			9,888				7,975				9,585				11,809				12,984
Total current liabilities			44,715				33,384				33,437				46,155				51,059
Other liabilities			23,885				23,222				23,536				19,853				19,257
Commitments and contingencies
Shareholders' equity:
Common stock			19,445				19,467				19,448				19,454				19,433
Additional paid-in capital			85,599				85,332				84,425				83,832				83,150
Retained earnings			241,254				236,105				230,005				278,502				273,460
Accumulated other comprehensive loss			(283	)			(283	)			(283	)			(283	)			(977	)
Total shareholders' equity			346,015				340,621				333,595				381,505				375,066
Total liabilities and shareholders' equity		$	414,615			$	397,227			$	390,568			$	447,513			$	445,382

INSTEEL INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
		Three Months Ended								Nine Months Ended
		June 29,				July 1,				June 29,				July 1,
		2024				2023				2024				2023
Cash Flows From Operating Activities:
Net earnings		$	6,565			$	10,565			$	14,636			$	26,789
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization			3,837				3,262				11,412				9,835
Amortization of capitalized financing costs			12				13				38				45
Stock-based compensation expense			508				421				1,903				1,534
Deferred income taxes			869				488				3,638				(991	)
Loss (gain) on sale and disposition of property, plant and equipment			26				3				50				(3,321	)
Increase in cash surrender value of life insurance policies over premiums paid			-				(122	)			(1,029	)			(854	)
Net changes in assets and liabilities:
Accounts receivable, net			(5,685	)			(489	)			2,190				15,283
Inventories			3,151				3,366				13,927				64,528
Accounts payable and accrued expenses			10,367				6,706				(2,492	)			(12,745	)
Other changes			(912	)			(458	)			(2,295	)			3,223
Total adjustments			12,173				13,190				27,342				76,537
Net cash provided by operating activities			18,738				23,755				41,978				103,326
Cash Flows From Investing Activities:
Capital expenditures			(3,235	)			(11,204	)			(17,460	)			(26,604	)
Increase in cash surrender value of life insurance policies			(45	)			(75	)			(443	)			(402	)
Proceeds from sale of property, plant and equipment			1				4				4				9,924
Proceeds from surrender of life insurances policies			20				15				25				358
Net cash used for investing activities			(3,259	)			(11,260	)			(17,874	)			(16,724	)
Cash Flows From Financing Activities:
Proceeds from long-term debt			96				113				230				255
Principal payments on long-term debt			(96	)			(113	)			(230	)			(255	)
Cash dividends paid			(584	)			(583	)			(50,359	)			(40,668	)
Payment of employee tax withholdings related to net share transactions			(101	)			(9	)			(262	)			(196	)
Cash received from exercise of stock options			-				97				428				191
Financing costs			-				(13	)			-				(177	)
Repurchases of common stock			(994	)			(403	)			(1,836	)			(2,328	)
Net cash used for financing activities			(1,679	)			(911	)			(52,029	)			(43,178	)
Net increase (decrease) in cash and cash equivalents			13,800				11,584				(27,925	)			43,424
Cash and cash equivalents at beginning of period			83,945				80,156				125,670				48,316
Cash and cash equivalents at end of period		$	97,745			$	91,740			$	97,745			$	91,740
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Income taxes, net		$	2,543			$	1,521			$	3,267			$	5,466
Non-cash investing and financing activities:
Purchases of property, plant and equipment in accounts payable			2,624				843				2,624				843
Restricted stock units and stock options surrendered for withholding taxes payable			101				9				262				196

IIIN – E

View source version on businesswire.com: https://www.businesswire.com/news/home/20240718483722/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' (IIIN) Q3 2024 earnings per share?

Insteel Industries reported earnings of $0.34 per share for Q3 2024, down from $0.54 per share in the same quarter last year.

How much did Insteel Industries' (IIIN) net sales change in Q3 2024 compared to the previous year?

Insteel Industries' net sales decreased by 12.0% to $145.8 million in Q3 2024, compared to $165.7 million in the same quarter of the previous year.

What was Insteel Industries' (IIIN) gross profit margin in Q3 2024?

Insteel Industries' gross profit margin in Q3 2024 was 10.6%, down from 12.3% in the same quarter of the previous year.

How much cash did Insteel Industries (IIIN) have on its balance sheet as of June 29, 2024?

As of June 29, 2024, Insteel Industries had a net cash balance of $97.7 million and no debt outstanding.

What factors are expected to drive demand for Insteel Industries' (IIIN) products in fiscal 2025?

Insteel Industries expects demand to be driven by easing inflation, potential lower interest rates, and federal spending associated with the Infrastructure Investment and Jobs Act in fiscal 2025.