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.


"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 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.



         (In thousands except for per share data)


                                                    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

      general and
      expense                                                    5,744                 6,534

      income, net                                                 (25)                (829)

      expense                                                       26                    30

      income                                                     (226)                (155)

          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


         Basic                                                  19,261                19,223

         Diluted                                                19,370                19,336

      per share                                                  $0.03                 $0.03



             (In thousands)

                                                           (Unaudited)                                               (Unaudited)

                                                           December 28,                               September 28,  December 29,

                                                                   2019                                         2019           2018


     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'

      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



             (In thousands)


                                                                                                                                                          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


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