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Insteel Industries Reports First Quarter 2024 Results

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Insteel Industries Inc. (IIIN) announced its financial results for the first quarter of fiscal 2024, reporting net sales of $121.7 million, gross profit of $6.3 million, and net income of $1.1 million. The company also paid a special cash dividend totaling $48.6 million, had a net cash balance of $85.6 million, and no debt outstanding. However, net earnings decreased due to a decrease in average selling prices, and the gross margin narrowed to 5.2% from 10.7% in the prior year quarter. Capital expenditures for the first quarter of fiscal 2024 increased to $12.3 million from $8.2 million in the prior year quarter, and the company ended the quarter with $85.6 million of cash and no borrowings outstanding on its $100.0 million revolving credit facility. Insteel's President and CEO, H.O. Woltz III, expressed optimism for the remainder of fiscal 2024, anticipating stronger market fundamentals and increasing contributions from capital investments.
Positive
  • Net sales of $121.7 million
  • Gross profit of $6.3 million
  • Net cash balance of $85.6 million and no debt outstanding
  • Optimistic outlook for the remainder of fiscal 2024
Negative
  • Net earnings decreased due to a decrease in average selling prices
  • Gross margin narrowed to 5.2% from 10.7% in the prior year quarter

Insteel Industries Inc.'s first quarter fiscal 2024 report indicates a significant drop in net earnings and gross margin, which are critical metrics for investors. The decrease in net sales by 27.1% is primarily due to a reduction in average selling prices, not volume, which remained steady. This suggests that the market is experiencing price sensitivity, possibly due to increased competition or a surplus in supply. The narrowing of spreads between selling prices and raw material costs is a concern, as it reflects pressure on profitability. The operating cash flow remains strong at $21.8 million, which is a positive sign of operational efficiency despite the downturn in earnings.

The payment of a substantial special cash dividend may indicate confidence in the company's liquidity and long-term financial strategy. However, investors might be cautious about the sustainability of such payouts if profitability continues to be pressured. The capital allocation towards modernization and growth initiatives is a positive long-term investment, but the impact on short-term liquidity should be monitored closely, especially in light of the significant dividend payment.

The construction industry, which Insteel serves, is highly cyclical and sensitive to macroeconomic factors. The reported weakness in infrastructure and commercial construction markets could be indicative of broader economic trends or sector-specific challenges. However, the resilience in residential construction markets provides some balance. The seasonal downturn is expected, but the 16.1% sequential decline in shipments suggests a sharper than average slowdown, which stakeholders should consider when evaluating the company's near-term prospects.

Given the company's mention of improved market fundamentals and a positive macroeconomic outlook, it is crucial to analyze upcoming economic data and industry reports for signs of recovery or continued challenges. The optimism expressed by the company's CEO regarding the remainder of fiscal 2024 should be weighed against the potential risks of a volatile market environment and the effects of inflationary pressures on material costs and consumer demand.

The reference to the end of the rising interest rate cycle could have significant implications for Insteel and the broader market. Lower interest rates typically reduce borrowing costs and stimulate investment in construction projects, which could benefit Insteel's business. However, this must be balanced against the risk of inflation, which can erode purchasing power and increase operating costs.

The company's ability to align inventory with business levels and approximate raw material costs with replacement costs suggests effective inventory management, an important factor in maintaining operational flexibility. The macroeconomic outlook will be a critical determinant in assessing the sustainability of Insteel's recovery, as it affects consumer spending, investment in construction and ultimately, the demand for Insteel's products.

MOUNT AIRY, N.C.--(BUSINESS WIRE)-- Insteel Industries Inc. (NYSE: IIIN) (“Insteel” or the “Company”), the largest manufacturer of steel wire reinforcing products for concrete construction applications in the United States, today announced financial results for its first quarter of fiscal 2024 ended December 30, 2023.

First Quarter 2024 Highlights

  • Net sales of $121.7 million
  • Gross profit of $6.3 million, or 5.2% of net sales
  • Net income of $1.1 million, or $0.06 per share
  • Operating cash flow of $21.8 million
  • Payment of special cash dividend totaling $48.6 million, or $2.50 per share
  • Net cash balance of $85.6 million and no debt outstanding as of December 30, 2023
  • Favorable demand profile with improving market fundamentals and macroeconomics outlook

First Quarter 2024 Results

Net earnings for the first quarter of fiscal 2024 decreased to $1.1 million, or $0.06 per share, from earnings of $11.1 million, or $0.57 per share, in the same period a year ago. Net earnings for the prior year quarter include a $3.3 million, or $0.13 per share gain on the sale of property, plant and equipment. Insteel’s first quarter results were unfavorably impacted by the narrowing of spreads between selling prices and raw material costs, together with elevated unit manufacturing costs on lower production levels.

Net sales decreased 27.1% to $121.7 million from $166.9 million in the prior year quarter, driven entirely by a decrease in average selling prices. Shipment volume during the period was essentially unchanged from the prior year and benefited from recovering demand from our residential construction markets, offsetting weakness in infrastructure and commercial construction markets. On a sequential basis, shipments declined 16.1% from the fourth quarter of fiscal 2023, reflecting the typical seasonal slowdown in construction activity, while average selling prices fell 7.9%. Gross margin narrowed to 5.2% from 10.7% in the prior year quarter due to the reduction in spreads between selling prices and raw material costs together with higher operating costs that reflect lower production volumes.

Operating activities generated $21.8 million of cash during the quarter compared to $33.0 million in the prior year as both periods benefited from the relative changes in working capital. Working capital provided $16.3 million in the current quarter, driven by the reduction in receivables and inventories, while providing $17.8 million in the prior year quarter.

Capital Allocation and Liquidity

Capital expenditures for the first quarter of fiscal 2024 increased to $12.3 million from $8.2 million in the prior year quarter. Capital outlays for fiscal 2024 are expected to total up to approximately $30.0 million, primarily focused on expenditures to modernize our facilities and information systems, advance the growth of the engineered structural mesh business and to support cost and productivity improvement initiatives in addition to recurring maintenance needs.

On December 22, 2023, Insteel paid a special cash dividend totaling $48.6 million, or $2.50 per share, in addition to its regular quarterly cash dividend of $0.03 per share and ended the quarter with $85.6 million of cash and no borrowings outstanding on its $100.0 million revolving credit facility.

Outlook

“We stated during the Q4 2023 earnings call that our first quarter would be difficult in view of higher inventory carrying values, competitive pricing pressure, the need to reduce finished goods inventories, and the normal seasonal downturn in construction activity. While all of these factors affected our first quarter results, we are glad to report that we have reached the point where the carrying value of raw materials approximates replacement cost and finished goods inventories are more appropriately aligned with our business level. With pricing turning upward and inventory liquidations substantially complete, we believe that we are past some of the headwinds that adversely affected results during 2023 and the first quarter of 2024. As we look toward the remainder of fiscal 2024, we anticipate stronger market fundamentals and look forward to increasing contributions from the capital investments we have made,” commented H.O. Woltz III, Insteel’s President and CEO.

Mr. Woltz further commented, “Customer sentiment remains mostly positive, and the macroeconomic outlook is improving with the apparent end of the recent rising interest rate cycle. Additionally, we are optimistic about increased demand from spending associated with the Infrastructure Investment and Jobs Act as we progress through the fiscal year. Regardless of the circumstances, we will remain focused on navigating market conditions, strengthening our leadership positions across our product lines, and optimizing our operations to position Insteel for long-term success.”

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://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

December 30,

 

December 31,

2023

 

2022

 
Net sales

$

121,725

 

$

166,899

 

Cost of sales

 

115,455

 

 

149,113

 

Gross profit

 

6,270

 

 

17,786

 

Selling, general and administrative expense

 

6,367

 

 

7,126

 

Other income, net

 

(22

)

 

(3,342

)

Interest expense

 

29

 

 

24

 

Interest income

 

(1,659

)

 

(440

)

Earnings before income taxes

 

1,555

 

 

14,418

 

Income taxes

 

423

 

 

3,295

 

Net earnings

$

1,132

 

$

11,123

 

 
 
Net earnings per share:
Basic

$

0.06

 

$

0.57

 

Diluted

 

0.06

 

 

0.57

 

 
Weighted average shares outstanding:
Basic

 

19,497

 

 

19,525

 

Diluted

 

19,573

 

 

19,584

 

 
Cash dividends declared per share

$

2.53

 

$

2.03

 

INSTEEL INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
 
 
 

(Unaudited)

 

 

December 30,

 

December 31,

 

September 30,

2023

 

2022

 

2023

Assets
Current assets:
Cash and cash equivalents

$

85,615

 

$

42,638

 

$

125,670

 

Accounts receivable, net

 

43,354

 

 

68,789

 

 

63,424

 

Inventories

 

94,142

 

 

171,185

 

 

103,306

 

Other current assets

 

8,706

 

 

5,599

 

 

6,453

 

Total current assets

 

231,817

 

 

288,211

 

 

298,853

 

Property, plant and equipment, net

 

129,300

 

 

107,178

 

 

120,014

 

Intangibles, net

 

5,903

 

 

6,653

 

 

6,090

 

Goodwill

 

9,745

 

 

9,745

 

 

9,745

 

Other assets

 

13,803

 

 

11,969

 

 

12,811

 

Total assets

$

390,568

 

$

423,756

 

$

447,513

 

 
Liabilities and shareholders' equity
Current liabilities:
Accounts payable

$

23,852

 

$

30,801

 

$

34,346

 

Accrued expenses

 

9,585

 

 

14,112

 

 

11,809

 

Total current liabilities

 

33,437

 

 

44,913

 

 

46,155

 

Other liabilities

 

23,536

 

 

18,169

 

 

19,853

 

Commitments and contingencies
Shareholders' equity:
Common stock

 

19,448

 

 

19,451

 

 

19,454

 

Additional paid-in capital

 

84,425

 

 

82,082

 

 

83,832

 

Retained earnings

 

230,005

 

 

260,118

 

 

278,502

 

Accumulated other comprehensive loss

 

(283

)

 

(977

)

 

(283

)

Total shareholders' equity

 

333,595

 

 

360,674

 

 

381,505

 

Total liabilities and shareholders' equity

$

390,568

 

$

423,756

 

$

447,513

 

INSTEEL INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 

Three Months Ended

December 30,

 

December 31,

2023

 

2022

Cash Flows From Operating Activities:
Net earnings

$

1,132

 

$

11,123

 

Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization

 

3,709

 

 

3,350

 

Amortization of capitalized financing costs

 

13

 

 

16

 

Stock-based compensation expense

 

398

 

 

130

 

Deferred income taxes

 

3,348

 

 

(1,378

)

Gain on sale and disposition of property, plant and equipment

 

-

 

 

(3,324

)

Increase in cash surrender value of life insurance policies over premiums paid

 

(675

)

 

(363

)

Net changes in assets and liabilities:
Accounts receivable, net

 

20,070

 

 

12,857

 

Inventories

 

9,164

 

 

26,469

 

Accounts payable and accrued expenses

 

(12,921

)

 

(21,520

)

Other changes

 

(2,404

)

 

5,646

 

Total adjustments

 

20,702

 

 

21,883

 

Net cash provided by operating activities

 

21,834

 

 

33,006

 

 
Cash Flows From Investing Activities:
Capital expenditures

 

(12,268

)

 

(8,200

)

Increase in cash surrender value of life insurance policies

 

(122

)

 

(81

)

Proceeds from sale of property, plant and equipment

 

3

 

 

9,920

 

Proceeds from surrender of life insurance policies

 

5

 

 

-

 

Net cash (used for) provided by investing activities

 

(12,382

)

 

1,639

 

 
Cash Flows From Financing Activities:
Proceeds from long-term debt

 

67

 

 

67

 

Principal payments on long-term debt

 

(67

)

 

(67

)

Cash dividends paid

 

(49,191

)

 

(39,501

)

Payment of employee tax withholdings related to net share transactions

 

(20

)

 

-

 

Cash received from exercise of stock options

 

243

 

 

94

 

Repurchases of common stock

 

(539

)

 

(916

)

Net cash used for financing activities

 

(49,507

)

 

(40,323

)

 
Net decrease in cash and cash equivalents

 

(40,055

)

 

(5,678

)

Cash and cash equivalents at beginning of period

 

125,670

 

 

48,316

 

Cash and cash equivalents at end of period

$

85,615

 

$

42,638

 

 
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Income taxes, net

$

8

 

$

187

 

Non-cash investing and financing activities:
Purchases of property, plant and equipment in accounts payable

 

1,846

 

 

1,520

 

Restricted stock units and stock options surrendered for withholding taxes payable

 

20

 

 

-

 

IIIN – E

Scot Jafroodi

Vice President,

Chief Financial Officer and Treasurer

Insteel Industries Inc.

(336) 786-2141

Source: Insteel Industries Inc.

Insteel Industries Inc. reported net sales of $121.7 million for the first quarter of fiscal 2024.

Insteel Industries Inc. had a gross profit of $6.3 million for the first quarter of fiscal 2024.

Insteel Industries Inc. had a net cash balance of $85.6 million and no debt outstanding as of December 30, 2023.

Insteel Industries Inc.'s President and CEO expressed optimism for the remainder of fiscal 2024, anticipating stronger market fundamentals and increasing contributions from capital investments.
Insteel Industries, Inc.

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Steel Wire Drawing
Manufacturing
Link
Producer Manufacturing, Metal Fabrication, Manufacturing, Steel Wire Drawing
US
Mount Airy

About IIIN

insteel industries, inc. is the nation's largest manufacturer of steel wire reinforcing products for concrete construction applications. we manufacture and market prestressed concrete strand and welded wire reinforcement, including concrete pipe reinforcement, engineered structural mesh and standard welded wire reinforcement. our products are sold primarily to manufacturers of concrete products that are used in nonresidential construction. approximately 800 employees work at insteel facilities located in arizona, florida, georgia, kentucky, missouri, north carolina, pennsylvania, tennessee and texas. the company's common stock is traded on the nasdaq global select market under the symbol iiin.