Insteel Industries Reports First Quarter 2020 Results
MOUNT AIRY, N.C., Jan. 16, 2020 /PRNewswire/ -- Insteel Industries, Inc. (NasdaqGS: IIIN) today announced financial results for its first quarter ended December 28, 2019.
First Quarter 2020 Results
Despite favorable conditions in the Company's construction end-markets, Insteel's results for the first quarter of fiscal 2020 continued to be adversely affected by low-priced import competition. Net earnings decreased to $0.6 million, or $0.03 per share, from $4.1 million, or $0.21 per share, in the same period a year ago.
Net sales decreased 6.3% to $97.6 million from $104.1 million in the prior year quarter driven by a 16.1% decrease in average selling prices that offset an 11.7% increase in shipments. On a sequential basis, shipments decreased 10.9% from the fourth quarter of fiscal 2019 reflecting the usual seasonal slowdown while average selling prices decreased 3.4%.
Imports remained at elevated levels in certain of Insteel's markets during the quarter as foreign competitors have increased their production of downstream products such as PC strand and standard welded wire reinforcement in order to circumvent the Section 232 tariffs on imported steel and expand their market share in the U.S. Gross margin narrowed to 6.4% from 10.5% in the prior year quarter primarily due to lower spreads between selling prices and raw material costs largely driven by the import-related pricing pressure. Other income for the prior year quarter includes a $0.7 million gain on the disposition of property, plant and equipment, which increased net earnings per share by $0.02.
Operating activities provided $29.6 million of cash while using $22.8 million in the prior year quarter primarily due to a $24.6 million reduction in working capital driven by an increase in payables and reductions in receivables and inventories.
Capital Allocation and Liquidity
Capital expenditures for the first quarter of fiscal 2020 decreased to $0.6 million from $6.2 million in the prior year quarter and are expected to total up to $17.0 million in 2020 primarily focused on cost and productivity improvement initiatives in addition to recurring maintenance requirements.
Insteel ended the quarter debt-free with $67.1 million of cash and no borrowings outstanding on its $100.0 million revolving credit facility.
Outlook
"Looking ahead to the remainder of fiscal 2020, we should benefit from continued growth in infrastructure construction driven primarily by higher state and local spending in many of our markets together with modest increases in nonresidential construction," commented H.O. Woltz III, Insteel's president and CEO. "We also expect to make significant progress on our primary organic growth initiative, the expansion of our cast-in-place business, as we further our penetration of the rebar market where engineered structural mesh ("ESM") can serve as a more cost-effective solution for many concrete reinforcing applications.
Our markets that are susceptible to imports, however, will continue to be unfavorably impacted by increased pricing pressure until a solution is reached on the Section 232 tariffs that restores the competitiveness of domestic manufacturers of downstream products relative to foreign producers. In the interim, we will maintain our focus on those factors we can control in aggressively pursuing further process improvements and strategic acquisition opportunities."
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://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 PC strand and welded wire reinforcement, including ESM, concrete pipe reinforcement and standard welded wire reinforcement. Insteel's products are sold primarily to manufacturers of concrete products that are used in nonresidential construction. 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 September 28, 2019.
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; 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, including the Section 232 tariffs on imported steel, 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 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 28, 2019 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 28, December 29,
2019 2018
Net sales $97,569 $104,110
Cost of
sales 91,332 93,134
Gross profit 6,237 10,976
Selling,
general and
administrative
expense 5,744 6,534
Other
income, net (25) (829)
Interest
expense 26 30
Interest
income (226) (155)
Earnings
before
income
taxes 718 5,396
Income taxes 163 1,270
Net earnings $555 $4,126
Net earnings
per share:
Basic $0.03 $0.21
Diluted 0.03 0.21
Weighted
average
shares
outstanding:
Basic 19,261 19,223
Diluted 19,370 19,336
Cash
dividends
declared
per share $0.03 $0.03
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited) (Unaudited)
December 28, September 28, December 29,
2019 2019 2018
Assets
Current assets:
Cash and cash equivalents $67,114 $38,181 $15,503
Accounts receivable, net 35,405 44,182 36,524
Inventories 65,252 70,851 115,306
Other current assets 6,470 7,370 5,841
Total current assets 174,241 160,584 173,174
Property, plant and equipment,
net 102,665 104,960 111,171
Intangibles, net 8,337 8,610 9,429
Goodwill 8,293 8,293 8,293
Other assets 12,915 10,562 9,367
Total assets $306,451 $293,009 $311,434
Liabilities and shareholders'
equity
Current liabilities:
Accounts payable $31,919 $21,595 $40,456
Accrued expenses 8,363 6,818 7,453
Total current liabilities 40,282 28,413 47,909
Other liabilities 19,989 18,579 18,143
Shareholders' equity:
Common stock 19,261 19,261 19,223
Additional paid-in capital 74,818 74,632 73,019
Retained earnings 154,349 154,372 154,634
Accumulated other
comprehensive loss (2,248) (2,248) (1,494)
Total shareholders' equity 246,180 246,017 245,382
Total liabilities and
shareholders' equity $306,451 $293,009 $311,434
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
December 28,
December 29,
2019 2018
Cash Flows From Operating Activities:
Net earnings $555 $4,126
Adjustments to reconcile net earnings to net cash provided by (used for)
operating activities:
Depreciation and amortization 3,478 3,242
Amortization of capitalized financing costs 16 16
Stock-based compensation expense 186 174
Deferred income taxes 186 2,131
Gain on sale and disposition of property, plant and equipment (709)
Increase in cash surrender value of life insurance policies over premiums paid (339)
Net changes in assets and liabilities:
Accounts receivable, net 8,777 14,960
Inventories 5,599 (21,149)
Accounts payable and accrued expenses 10,225 (25,145)
Other changes 892 (414)
Total adjustments 29,020 (26,894)
Net cash provided by (used for) operating activities 29,575 (22,768)
Cash Flows From Investing Activities:
Capital expenditures (600) (6,194)
Decrease (increase) in cash surrender value of life insurance policies (42) 518
Proceeds from surrender of life insurance policies 13
Net cash used for investing activities (642) (5,663)
Cash Flows From Financing Activities:
Proceeds from long-term debt 67 90
Principal payments on long-term debt (67) (90)
Payment of employee tax withholdings related to net share transactions (7)
Net cash used for financing activities (7)
Net increase (decrease) in cash and cash equivalents 28,933 (28,438)
Cash and cash equivalents at beginning of period 38,181 43,941
Cash and cash equivalents at end of period $67,114 $15,503
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Income taxes, net $14 $36
Non-cash investing and financing activities:
Purchases of property, plant and equipment in accounts payable 310 1,090
Declaration of cash dividends to be paid 578 576
Restricted stock units and stock options surrendered for withholding taxes payable - 7
IIIN - E
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SOURCE Insteel Industries, Inc.
