MOUNT AIRY, N.C., April 16, 2020 /PRNewswire/ -- Insteel
Industries, Inc. (NasdaqGS: IIIN) today announced financial results
for its second quarter ended March 28,
2020.
Second Quarter 2020 Results
Insteel's results for the second quarter of fiscal 2020 were
favorably impacted by robust demand for the Company's concrete
reinforcement products partially offset by the ongoing margin
pressure from low-priced import competition. Net earnings increased
to $4.4 million, or $0.23 per share, from $1.0
million, or $0.05 per share,
in the same period a year ago.
Net sales increased 2.6% to $114.9
million from $111.9 million in
the prior year quarter driven by a 19.7% increase in shipments that
offset a 14.3% decrease in average selling prices. On a sequential
basis, shipments increased 19.2% from the first quarter of fiscal
2020 while average selling prices decreased 1.2%. The strong
shipping performance for the quarter was driven by increased
construction activity in most markets supported by more favorable
weather conditions relative to the prior year quarter.
Gross margin widened 700 basis points to 13.3% from 6.3% in the
prior year quarter primarily due to higher spreads between selling
prices and raw material costs and the increase in shipments.
Despite the overall margin improvement, Insteel's markets that are
susceptible to import competition continued to significantly
underperform the remainder of the business. Insteel's earnings for
the current year quarter reflect a $1.2
million charge to selling, general and administrative
expense ("SG&A expense") associated with the reduction in the
cash surrender value of life insurance policies and $0.3 million of restructuring charges and
acquisition costs related to the Company's March 16, 2020 acquisition of substantially all
of the assets of Strand-Tech Manufacturing, Inc. ("STM"), which, in
the aggregate, reduced net earnings per share by $0.06. Insteel's earnings for the prior year
quarter reflect a $1.0 million gain
from insurance proceeds in other income, which increased net
earnings per share by $0.04.
Operating activities used $3.0
million of cash compared with $18.0
million in the prior year quarter primarily due to the
relative changes in working capital and increase in earnings.
Working capital used $13.8 million of
cash in the current year quarter largely to fund the increase in
sales compared to $21.2 million in
the prior year quarter.
Six Month 2020 Results
Net earnings for the first six months of fiscal 2020 decreased
to $4.9 million, or $0.25 per diluted share, from $5.2 million, or $0.27 per share, in the same period a year ago.
Net sales decreased 1.7% to $212.4
million from $216.1 million in
the prior year period driven by a 15.2% decrease in average selling
prices that offset a 15.9% increase in shipments. Gross margin
widened 180 basis points to 10.1% from 8.3% due to the increase in
shipments and higher spreads. Insteel's earnings for the current
year period reflect a $0.9 million
reduction in the cash surrender value of life insurance policies in
SG&A expense and $0.3 million of
restructuring charges and acquisition costs related to the STM
acquisition, which, in the aggregate, reduced net earnings per
share by $0.05. Insteel's earnings
for the prior year period reflects a $1.0
million gain from insurance proceeds and a $0.7 million gain on the disposition of property,
plant and equipment in other income, which, in the aggregate,
increased net earnings per share by $0.07.
Operating activities provided $26.6
million of cash while using $40.2
million in the prior year period primarily due to the
relative changes in working capital. Working capital provided
$10.8 million of cash in the current
year period largely from an increase in accounts payable and
accrued expenses while using $52.5
million in the prior year period.
Capital Allocation and Liquidity
Capital expenditures for the first six months of fiscal 2020
decreased to $2.4 million from
$8.1 million in the prior year period
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 $40.4 million of cash and no borrowings
outstanding on its $100.0 million
revolving credit facility, providing the Company with substantial
liquidity and financial flexibility.
Outlook
"As we move into the third quarter, our visibility is limited
due to the ongoing uncertainty surrounding the impact of COVID-19
and the additional mitigation measures that may be pursued by
governmental authorities to combat the pandemic," commented H.O.
Woltz III, Insteel's president and CEO. "Considering our debt-free
balance sheet, significant cash on hand and highly variable cost
structure, we believe that Insteel is well-positioned to
successfully navigate through this challenging environment.
Our integration of the STM acquisition and closure plans for the
Summerville facility are proceeding as planned. The consolidation
of facilities should strengthen our competitive position as we
contend with the surge in low-priced imports of PC strand resulting
from the increased production of downstream products by foreign
producers to circumvent the Section 232 tariffs and expand their
market share in the U.S."
Conference Call
Insteel will hold a conference call at 10:00 a.m. ET today to discuss its second 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 engineered structural mesh ("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 eleven 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: 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
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 amounts)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
|
March
28,
|
|
March
30,
|
|
March
28,
|
|
March
30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
114,859
|
|
$
111,948
|
|
$
212,428
|
|
$
216,058
|
Cost of
sales
|
|
99,576
|
|
104,927
|
|
190,908
|
|
198,061
|
Gross profit
|
|
15,283
|
|
7,021
|
|
21,520
|
|
17,997
|
Selling, general and
administrative expense
|
|
9,602
|
|
6,556
|
|
15,346
|
|
13,090
|
Acquisition
costs
|
|
187
|
|
-
|
|
187
|
|
-
|
Restructuring
charges
|
|
149
|
|
-
|
|
149
|
|
-
|
Other income,
net
|
|
(18)
|
|
(971)
|
|
(43)
|
|
(1,800)
|
Interest
expense
|
|
26
|
|
45
|
|
52
|
|
75
|
Interest
income
|
|
(204)
|
|
(12)
|
|
(430)
|
|
(167)
|
Earnings before income taxes
|
|
5,541
|
|
1,403
|
|
6,259
|
|
6,799
|
Income
taxes
|
|
1,177
|
|
354
|
|
1,340
|
|
1,624
|
Net earnings
|
|
$
4,364
|
|
$
1,049
|
|
$
4,919
|
|
$
5,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per
share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
0.23
|
|
$
0.05
|
|
$
0.26
|
|
$
0.27
|
Diluted
|
|
0.23
|
|
0.05
|
|
0.25
|
|
0.27
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
19,272
|
|
19,242
|
|
19,266
|
|
19,233
|
Diluted
|
|
19,386
|
|
19,340
|
|
19,378
|
|
19,338
|
|
|
|
|
|
|
|
|
|
Cash dividends
declared per share
|
|
$
0.03
|
|
$
0.03
|
|
$
0.06
|
|
$
0.06
|
INSTEEL
INDUSTRIES, INC. AND SUBSIDIARIES
|
CONSOLIDATED
BALANCE SHEETS
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
March
28,
|
|
December
28,
|
|
September
28,
|
|
March
30,
|
|
|
2020
|
|
2019
|
|
2019
|
|
2019
|
Assets
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
40,363
|
|
$
67,114
|
|
$
38,181
|
|
$
490
|
Accounts receivable, net
|
|
54,912
|
|
35,405
|
|
44,182
|
|
50,574
|
Inventories
|
|
71,685
|
|
65,252
|
|
70,851
|
|
117,227
|
Other current assets
|
|
9,312
|
|
6,470
|
|
7,370
|
|
6,265
|
Total
current assets
|
|
176,272
|
|
174,241
|
|
160,584
|
|
174,556
|
Property, plant and
equipment, net
|
|
111,674
|
|
102,665
|
|
104,960
|
|
109,377
|
Intangibles,
net
|
|
8,951
|
|
8,337
|
|
8,610
|
|
9,157
|
Goodwill
|
|
9,624
|
|
8,293
|
|
8,293
|
|
8,293
|
Other
assets
|
|
12,514
|
|
12,915
|
|
10,562
|
|
10,188
|
Total
assets
|
|
$
319,035
|
|
$
306,451
|
|
$
293,009
|
|
$
311,571
|
|
|
|
|
|
|
|
|
|
Liabilities and
shareholders' equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
38,438
|
|
$
31,919
|
|
$
21,595
|
|
$
35,124
|
Accrued expenses
|
|
9,687
|
|
8,363
|
|
6,818
|
|
5,991
|
Total
current liabilities
|
|
48,125
|
|
40,282
|
|
28,413
|
|
41,115
|
Long-term
debt
|
|
-
|
|
-
|
|
-
|
|
5,365
|
Other
liabilities
|
|
20,079
|
|
19,989
|
|
18,579
|
|
18,561
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
Common stock
|
|
19,283
|
|
19,261
|
|
19,261
|
|
19,252
|
Additional paid-in capital
|
|
75,661
|
|
74,818
|
|
74,632
|
|
73,667
|
Retained earnings
|
|
158,135
|
|
154,349
|
|
154,372
|
|
155,105
|
Accumulated other comprehensive loss
|
|
(2,248)
|
|
(2,248)
|
|
(2,248)
|
|
(1,494)
|
Total
shareholders' equity
|
|
250,831
|
|
246,180
|
|
246,017
|
|
246,530
|
Total
liabilities and shareholders' equity
|
|
$
319,035
|
|
$
306,451
|
|
$
293,009
|
|
$
311,571
|
|
|
|
|
|
|
|
|
|
INSTEEL
INDUSTRIES, INC. AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
(In
thousands)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
|
March
28,
|
|
March
30,
|
|
March
28,
|
|
March
30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Cash Flows From
Operating Activities:
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
4,364
|
|
$
1,049
|
|
$
4,919
|
|
$
5,175
|
Adjustments to
reconcile net earnings to net cash provided by (used
for)
|
|
|
|
|
|
|
|
|
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
3,513
|
|
3,380
|
|
6,991
|
|
6,622
|
Amortization of
capitalized financing costs
|
|
16
|
|
16
|
|
32
|
|
32
|
Stock-based
compensation expense
|
|
941
|
|
845
|
|
1,127
|
|
1,019
|
Deferred income
taxes
|
|
419
|
|
5
|
|
605
|
|
2,136
|
Loss (gain) on sale
and disposition of property, plant and equipment
|
|
2
|
|
(1,049)
|
|
2
|
|
(1,758)
|
Increase in cash
surrender value of life insurance policies over premiums
paid
|
|
-
|
|
(594)
|
|
-
|
|
(62)
|
Net changes in assets
and liabilities (net of assets and liabilities
acquired):
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
(15,647)
|
|
(14,050)
|
|
(6,870)
|
|
910
|
Inventories
|
|
(3,261)
|
|
(1,921)
|
|
2,338
|
|
(23,070)
|
Accounts
payable and accrued expenses
|
|
5,072
|
|
(5,212)
|
|
15,297
|
|
(30,357)
|
Other
changes
|
|
1,614
|
|
(424)
|
|
2,167
|
|
(838)
|
Total adjustments
|
|
(7,331)
|
|
(19,004)
|
|
21,689
|
|
(45,366)
|
Net cash provided by (used for) operating activities
|
|
(2,967)
|
|
(17,955)
|
|
26,608
|
|
(40,191)
|
|
|
|
|
|
|
|
|
|
Cash Flows From
Investing Activities:
|
|
|
|
|
|
|
|
|
Acquisition of
business
|
|
(21,500)
|
|
-
|
|
(21,500)
|
|
-
|
Capital
expenditures
|
|
(1,768)
|
|
(1,913)
|
|
(2,368)
|
|
(8,107)
|
Decrease
(increase) in cash surrender value of life insurance
policies
|
|
710
|
|
(249)
|
|
668
|
|
(263)
|
Proceeds from
property insurance
|
|
-
|
|
1,048
|
|
-
|
|
1,048
|
Proceeds from
sale of property, plant and equipment
|
|
-
|
|
8
|
|
-
|
|
8
|
Proceeds from
surrender of life insurance policies
|
|
6
|
|
5
|
|
6
|
|
18
|
Net cash used for investing activities
|
|
(22,552)
|
|
(1,101)
|
|
(23,194)
|
|
(7,296)
|
|
|
|
|
|
|
|
|
|
Cash Flows From
Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from
long-term debt
|
|
68
|
|
17,536
|
|
135
|
|
17,626
|
Principal
payments on long-term debt
|
|
(68)
|
|
(12,171)
|
|
(135)
|
|
(12,261)
|
Cash dividends
paid
|
|
(1,156)
|
|
(1,154)
|
|
(1,156)
|
|
(1,154)
|
Payment of
employee tax withholdings related to net share
transactions
|
|
(76)
|
|
(168)
|
|
(76)
|
|
(175)
|
Net cash provided by (used for) financing activities
|
|
(1,232)
|
|
4,043
|
|
(1,232)
|
|
4,036
|
|
|
|
|
|
|
|
|
|
Net increase
(decrease) in cash and cash equivalents
|
|
(26,751)
|
|
(15,013)
|
|
2,182
|
|
(43,451)
|
Cash and cash
equivalents at beginning of period
|
|
67,114
|
|
15,503
|
|
38,181
|
|
43,941
|
Cash and cash
equivalents at end of period
|
|
$
40,363
|
|
$
490
|
|
$
40,363
|
|
$
490
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash paid
during the period for:
|
|
|
|
|
|
|
|
|
Income taxes, net
|
|
$
261
|
|
$
1,351
|
|
$
275
|
|
$
1,387
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
Receivable related to post-closing purchase price adjustment for
business acquired
|
3,113
|
|
-
|
|
3,113
|
|
-
|
Purchases of property, plant and equipment in accounts
payable
|
|
274
|
|
497
|
|
274
|
|
497
|
Restricted stock units and stock options surrendered for
withholding taxes payable
|
76
|
|
168
|
|
76
|
|
175
|
Accrued liability related to holdback for business
acquired
|
|
1,000
|
|
-
|
|
1,000
|
|
-
|
IIIN – E
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SOURCE Insteel Industries, Inc.