Insteel Industries Inc. (NYSE: IIIN) today announced financial
results for its third quarter ended July 1, 2023.
Third Quarter 2023
Results
Net earnings for the third quarter of fiscal 2023 decreased to
$10.6 million, or $0.54 per share, from $38.6 million, or $1.96 per
diluted share, for the same period a year ago. The record third
quarter financial performance of the prior year was driven by
supply shortfalls and inflated average selling prices, a condition
that began to revert to normal during the company’s fourth fiscal
quarter. Compared to the record performance of 2022, earnings for
the third quarter of 2023 were unfavorably impacted by narrower
spreads between selling prices and raw material costs, lower
shipments, and higher unit manufacturing costs on lower production
volume. As reflected in our results, we did not experience
accelerating incoming orders during the third quarter, driven by
the end of customer destocking, as we expected we would. Shipment
volume increased gradually during the quarter, but not until June
did we experience higher year-over-year shipments relative to the
prior year.
Net sales decreased 27.1% to $165.7 million from $227.2 million
in the prior year quarter, driven by a 24.7% decrease in average
selling prices and a 3.2% decline in shipments. Net sales for the
current quarter were negatively impacted by lower selling prices,
primarily due to competitive pricing pressures and the overall
decline in steel prices. On a sequential basis, shipments increased
11.3% from the second quarter of fiscal 2023, partially offset by a
decrease of 6.4% in average selling prices.
Gross profit decreased to $20.4 million from $58.1 million in
the prior year quarter, and gross margin narrowed to 12.3% from
25.6% in the prior year quarter due to lower spreads between
selling prices and raw material costs. The spread compression was
driven by competitive pricing pressures together with the
consumption of higher cost inventory purchased in prior periods.
Insteel’s net earnings for the prior year quarter reflect a $1.0
million decrease in the cash surrender value of life insurance
policies, which increased selling, general and administrative
(“SG&A”) expense and decreased net earnings per share by
$0.04.
Operating activities generated $23.8 million of cash during the
quarter compared with using $5.0 million for the prior year quarter
due to the relative changes in net working capital. Net working
capital provided $9.6 million in the current year, driven by an
increase in payables and a reduction in inventories, while using
$45.5 million of cash in the prior year quarter.
Nine Month 2023 Results
Net earnings for the first nine months of fiscal 2023 were $26.8
million, or $1.37 per share, compared with $100.7 million, or $5.13
per diluted share, for the same period a year ago. Earnings for the
current year period benefited from a $3.3 million, or $0.13 per
share, gain on the sale of property, plant and equipment. Insteel’s
net earnings for the prior year period reflect a $1.4 million
decrease in the cash surrender value of life insurance policies,
which increased SG&A expense and decreased net earnings per
share by $0.06.
Net sales decreased to $491.7 million from $618.8 million for
the prior year period, driven by an 8.6% decrease in shipments and
a 13.1% decrease in average selling prices. Gross profit decreased
to $51.4 million from $157.5 million in the same period a year ago,
and gross margin narrowed to 10.5% from 25.5% due to lower spreads,
reduced shipments and higher operating costs.
Operating activities generated $103.3 million of cash compared
with $15.1 million in the prior year period due to the relative
change in net working capital. Net working capital provided $67.1
million of cash in the current year, driven by the reduction in
inventories and receivables, while using $99.5 million of cash in
the prior year period.
Capital Allocation and
Liquidity
Capital expenditures for the first nine months of fiscal 2023
increased to $26.6 million from $12.3 million for the prior year
period and are expected to total up to $35.0 million in 2023,
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 $91.7 million of cash
and no borrowings outstanding on its $100.0 million revolving
credit facility.
Outlook
“Given the lethargic market conditions we experienced during the
third quarter, our financial performance was reasonable, reflecting
the easing of headwinds that negatively impacted our results for
the first half of fiscal 2023. Shipments and spreads improved
during the quarter as inventory levels moderated, although shipment
volume was well below our expectations,” commented H.O. Woltz III,
Insteel’s President and CEO. “As we head into the fourth fiscal
quarter, we expect the modest recovery to continue driven by
nonresidential construction activity and the recovery in
residential markets.”
Woltz continued, “The outlook for infrastructure construction
remains favorable as federal spending from the Infrastructure
Investment and Jobs Act is expected to begin to drive demand as we
move into the second half of the calendar year and beyond.
Additionally, we continued to progress towards completing several
ongoing capital projects focused on broadening our product
offering, expanding our capacity, and reducing operating costs. We
expect the first two projects to be fully commissioned in our
fourth fiscal quarter, followed by the remaining project in the
first quarter of fiscal 2024.”
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 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 prestressed concrete strand and
welded wire reinforcement, including engineered structural mesh,
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 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 October 1, 2022.
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 Engineered Structural Mesh (“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 October 1, 2022 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 July 1, July 2, July 1, July
2,
2023
2022
2023
2022
Net sales
$
165,714
$
227,173
$
491,664
$
618,841
Cost of sales
145,347
169,091
440,249
461,326
Gross profit
20,367
58,082
51,415
157,515
Selling, general and administrative expense
7,924
8,235
22,556
27,718
Restructuring recoveries, net
-
-
-
(318
)
Other (income) expense, net
(24
)
1
(3,423
)
(15
)
Interest expense
20
23
67
68
Interest income
(1,097
)
(86
)
(2,284
)
(110
)
Earnings before income taxes
13,544
49,909
34,499
130,172
Income taxes
2,979
11,350
7,710
29,467
Net earnings
$
10,565
$
38,559
$
26,789
$
100,705
Net earnings per share: Basic
$
0.54
$
1.97
$
1.37
$
5.16
Diluted
0.54
1.96
1.37
5.13
Weighted average shares outstanding: Basic
19,488
19,537
19,506
19,503
Diluted
19,548
19,657
19,565
19,629
Cash dividends declared per share
$
0.03
$
0.03
$
2.09
$
2.09
INSTEEL INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS (In thousands)
(Unaudited)
(Unaudited) July 1, April 1, December
31, October 1, July 2,
2023
2023
2022
2022
2022
Assets Current assets: Cash and cash equivalents
$
91,740
$
80,156
$
42,638
$
48,316
$
63,045
Accounts receivable, net
66,363
65,874
68,789
81,646
81,175
Inventories
133,126
136,492
171,185
197,654
192,447
Other current assets
6,406
5,357
5,599
7,716
6,998
Total current assets
297,635
287,879
288,211
335,332
343,665
Property, plant and equipment, net
118,788
111,946
107,178
108,156
108,265
Intangibles, net
6,278
6,465
6,653
6,847
7,051
Goodwill
9,745
9,745
9,745
9,745
9,745
Other assets
12,936
12,189
11,969
11,665
12,322
Total assets
$
445,382
$
428,224
$
423,756
$
471,745
$
481,048
Liabilities and shareholders' equity Current
liabilities: Accounts payable
$
38,075
$
36,936
$
30,801
$
46,796
$
77,159
Accrued expenses
12,984
8,153
14,112
15,800
17,877
Total current liabilities
51,059
45,089
44,913
62,596
95,036
Long-term debt
-
-
-
-
Other liabilities
19,257
18,157
18,169
19,405
21,088
Commitments and contingencies Shareholders' equity: Common stock
19,433
19,441
19,451
19,478
19,506
Additional paid-in capital
83,150
82,708
82,082
81,997
81,349
Retained earnings
273,460
263,806
260,118
289,246
266,511
Accumulated other comprehensive loss
(977
)
(977
)
(977
)
(977
)
(2,442
)
Total shareholders' equity
375,066
364,978
360,674
389,744
364,924
Total liabilities and shareholders' equity
$
445,382
$
428,224
$
423,756
$
471,745
$
481,048
INSTEEL INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Three Months Ended Nine Months Ended July 1,
July 2, July 1, July 2,
2023
2022
2023
2022
Cash Flows From Operating Activities: Net earnings
$
10,565
$
38,559
$
26,789
$
100,705
Adjustments to reconcile net earnings to net cash provided by (used
for) operating activities: Depreciation and amortization
3,262
3,632
9,835
10,977
Amortization of capitalized financing costs
13
16
45
49
Stock-based compensation expense
421
293
1,534
1,395
Deferred income taxes
488
(492
)
(991
)
624
Loss (gain) on sale of property, plant and equipment and assets
held for sale
3
13
(3,321
)
(595
)
Gain from life insurance proceeds
-
-
-
(364
)
Increase in cash surrender value of life insurance policies over
premiums paid
(122
)
-
(854
)
-
Net changes in assets and liabilities: Accounts receivable, net
(489
)
(485
)
15,283
(13,258
)
Inventories
3,366
(65,398
)
64,528
(113,398
)
Accounts payable and accrued expenses
6,706
20,392
(12,745
)
27,197
Other changes
(458
)
(1,482
)
3,223
1,782
Total adjustments
13,190
(43,511
)
76,537
(85,591
)
Net cash provided by (used for) operating activities
23,755
(4,952
)
103,326
15,114
Cash Flows From Investing Activities: Capital
expenditures
(11,204
)
(3,634
)
(26,604
)
(12,251
)
(Increase) decrease in cash surrender value of life insurance
policies
(75
)
977
(402
)
1,012
Proceeds from sale of assets held for sale
-
-
-
6,934
Proceeds from sale of property, plant and equipment
4
-
9,924
-
Proceeds from life insurance claims
-
-
-
1,456
Proceeds from surrender of life insurance policies
15
4
358
110
Net cash used for investing activities
(11,260
)
(2,653
)
(16,724
)
(2,739
)
Cash Flows From Financing Activities: Proceeds from
long-term debt
113
87
255
220
Principal payments on long-term debt
(113
)
(87
)
(255
)
(220
)
Cash dividends paid
(583
)
(585
)
(40,668
)
(40,578
)
Payment of employee tax withholdings related to net share
transactions
(9
)
(94
)
(196
)
(286
)
Cash received from exercise of stock options
97
1,604
191
1,650
Financing costs
(13
)
-
(177
)
-
Repurchases of common stock
(403
)
-
(2,328
)
-
Net cash (used for) provided by financing activities
(911
)
925
(43,178
)
(39,214
)
Net increase (decrease) in cash and cash equivalents
11,584
(6,680
)
43,424
(26,839
)
Cash and cash equivalents at beginning of period
80,156
69,725
48,316
89,884
Cash and cash equivalents at end of period
$
91,740
$
63,045
$
91,740
$
63,045
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for: Income taxes, net
$
1,521
$
11,945
$
5,466
29,998
Non-cash investing and financing activities: Purchases of property,
plant and equipment in accounts payable
843
1,286
843
1,286
Restricted stock units and stock options surrendered for
withholding taxes payable
9
94
196
286
IIIN – E
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version on businesswire.com: https://www.businesswire.com/news/home/20230720512089/en/
Scot Jafroodi Vice President, Chief Financial Officer and
Treasurer Insteel Industries Inc. (336) 786-2141
Insteel Industries (NYSE:IIIN)
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