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Oct 17, 2019
Insteel Industries Reports Fourth Quarter And Fiscal 2019 Results

MOUNT AIRY, N.C., Oct. 17, 2019 /PRNewswire/ -- Insteel Industries, Inc. (NasdaqGS: IIIN) today announced financial results for its fourth quarter and fiscal year ended September 28, 2019.

Corporate Logo - Insteel Industries

Fourth Quarter 2019 Results

Despite ongoing growth in the Company's construction end-markets, Insteel's results for the fourth quarter of fiscal 2019 continued to be unfavorably impacted by increasing low-priced import competition. The Company incurred a net loss of $1.8 million, or $0.09 per share, compared with net earnings of $9.4 million, or $0.49 per share, in the same period a year ago.

Net sales decreased 6.6% to $113.4 million from $121.4 million in the prior year quarter driven by a 12.8% decrease in average selling prices that offset a 7.2% increase in shipments. On a sequential basis, shipments decreased 4.0% from the third quarter of fiscal 2019 while average selling prices decreased 6.5%.

Shipments for the current year quarter were adversely impacted by escalating volumes of low-priced imports, which have surged following the imposition of tariffs on imports of upstream steel products, including the Company's raw materials, under Section 232 of the Trade Expansion Act of 1962. Foreign competitors have responded by shifting production to downstream products such as PC strand and standard welded wire reinforcement in order to circumvent the tariffs and further their penetration of the U.S. market. Gross margin narrowed to 3.4% from 16.1% in the prior year quarter due to lower spreads between selling prices and raw material costs largely driven by the increased import competition.

The income tax provision for the prior year quarter includes a $0.4 million, or $0.02 per share, adjustment to reduce the estimated deferred tax gain related to the lower corporate tax rate enacted under the Tax Cuts and Jobs Act. Excluding the deferred tax adjustment in the prior year quarter, Insteel's effective tax rate decreased to 13.1% from 19.3% a year ago.

Cash flow from operations increased to $32.5 million from $4.1 million in the prior year quarter due to a $31.4 million decrease in working capital driven by reductions in inventories and receivables.

Fiscal 2019 Results

Net earnings for fiscal 2019 decreased to $5.6 million, or $0.29 per share, from $36.3 million, or $1.88 per diluted share, in the prior year. Net sales increased 0.6% to $455.7 million from $453.2 million in the prior year driven by an 8.2% increase in average selling prices that offset a 7.1% decrease in shipments. Gross margin narrowed to 6.6% from 15.6% due to the lower spreads and, to a lesser extent, higher manufacturing costs and the reduction in shipments.

Other income for fiscal 2019 includes a $1.1 million gain from insurance proceeds and a $0.5 million gain on the disposition of property, plant and equipment, which, in the aggregate, increased net earnings per share by $0.06. The income tax provision for fiscal 2018 reflects a $3.3 million, or $0.17 per share, deferred tax gain related to the impact of the new tax law. Excluding the deferred tax gain in the prior year, Insteel's effective tax rate increased to 24.9% from 22.7% a year ago.

Cash flow from operations in fiscal 2019 decreased to $6.6 million from $54.0 million in the prior year due to the lower earnings and a $12.0 million increase in working capital driven by a reduction in accounts payable and accrued expenses.

Capital Allocation and Liquidity

Capital expenditures for fiscal 2019 decreased to $10.5 million from $18.4 million in the prior year 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 year debt-free with $38.2 million of cash and no borrowings outstanding on its $100.0 million revolving credit facility.

Outlook

"As we move into fiscal 2020, we expect the continuation of favorable conditions in our construction end-markets," commented H.O. Woltz III, Insteel's president and CEO. "Public construction, particularly for roads and bridges, should remain strong driven by increased state and local spending together with FAST Act and supplementary funding. The latest third-party forecasts for our other primary demand driver, nonresidential construction, reflect continued growth supported by the ongoing economic expansion.

The import-related headwinds, however, are expected to persist in our PC strand and standard welded reinforcement markets as foreign competitors continue to gain market share by underpricing domestic producers. We believe the Administration is aware of the adverse impact of the surge in foreign finished products on our industry and are advocating for action that addresses these unfavorable trends."

Mr. Woltz concluded, "We're making additional investments in our sales and engineering infrastructure to accelerate the growth of our cast-in-place business and leverage our engineered structural mesh ("ESM") manufacturing capabilities, which are unmatched in the industry. Our ESM product offering creates value for contractors by reducing the installation labor and material requirement for a project and compressing the construction timeline. We expect to make considerable progress in furthering our penetration of the rebar market during the coming year."

Conference Call

Insteel will hold a conference call at 10:00 a.m. ET today to discuss its fourth 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 29, 2018.

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 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 29, 2018 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)






























Three Months Ended


Year Ended



(Unaudited)


(Unaudited)


(Unaudited)





September 28,


September 29,


September 28,


September 29,



2019


2018


2019


2018










Net sales


$ 113,403


$ 121,371


$ 455,713


$ 453,217

Cost of sales


109,575


101,827


425,652


382,410

    Gross profit


3,828


19,544


30,061


70,807

Selling, general and administrative expense

5,898


7,525


24,504


28,304

Other expense (income), net


50


121


(1,773)


274

Interest expense


31


40


168


114

Interest income


(117)


(236)


(293)


(515)

    Earnings (loss) before income taxes


(2,034)


12,094


7,455


42,630

Income taxes


(267)


2,686


1,857


6,364

    Net earnings (loss)


$ (1,767)


$ 9,408


$ 5,598


$ 36,266



















Net earnings (loss) per share:









    Basic


$ (0.09)


$ 0.49


$ 0.29


$ 1.90

    Diluted


(0.09)


0.49


0.29


1.88










Weighted average shares outstanding:









    Basic


19,256


19,154


19,243


19,079

    Diluted


19,256


19,353


19,340


19,277










Cash dividends declared per share


$ 0.03


$ 0.03


$ 0.12


$ 1.12

 

 

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)


















(Unaudited)





September 28,


June 29,


September 29,



2019


2019


2018

Assets







Current assets:







    Cash and cash equivalents


$ 38,181


$ 7,449


$ 43,941

    Accounts receivable, net


44,182


50,743


51,484

    Inventories


70,851


104,624


94,157

    Other current assets


7,370


6,911


5,895

        Total current assets


160,584


169,727


195,477

Property, plant and equipment, net


104,960


107,331


106,148

Intangibles, net


8,610


8,884


9,703

Goodwill


8,293


8,293


8,293

Other assets


10,562


10,560


9,913

        Total assets


$ 293,009


$ 304,795


$ 329,534








Liabilities and shareholders' equity







Current liabilities:







    Accounts payable


$ 21,595


$ 31,311


$ 60,059

    Accrued expenses


6,818


6,396


11,929

        Total current liabilities


28,413


37,707


71,988

Long-term debt


-


-


-

Other liabilities


18,579


18,764


15,881

Shareholders' equity:







    Common stock


19,261


19,252


19,223

    Additional paid-in capital


74,632


73,849


72,852

    Retained earnings


154,372


156,717


151,084

    Accumulated other comprehensive loss

(2,248)


(1,494)


(1,494)

        Total shareholders' equity


246,017


248,324


241,665

        Total liabilities and shareholders' equity

$ 293,009


$ 304,795


$ 329,534








 

 

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)












Three Months Ended


Year Ended



(Unaudited)


(Unaudited)


(Unaudited)





September 28,


September 29,


September 28,


September 29,



2019


2018


2019


2018

Cash Flows From Operating Activities:









    Net earnings (loss)


$ (1,767)


$ 9,408


$ 5,598


$ 36,266

    Adjustments to reconcile net earnings (loss) to net cash provided by









      operating activities:









        Depreciation and amortization


3,469


3,240


13,553


12,818

        Amortization of capitalized financing costs


17


17


65


65

        Stock-based compensation expense


856


837


2,057


2,078

        Deferred income taxes


(395)


(486)


1,798


(2,807)

        Loss (gain) on sale and disposition of property, plant and equipment


72


111


(1,688)


381

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

-


(125)


(187)


(553)

        Net changes in assets and liabilities (net of assets and liabilities acquired):









          Accounts receivable, net


6,561


4,348


7,302


(11,200)

          Inventories


33,773


(39,406)


23,306


(12,304)

          Accounts payable and accrued expenses


(8,952)


25,223


(42,592)


28,234

          Other changes


(1,104)


967


(2,604)


991

            Total adjustments


34,297


(5,274)


1,010


17,703

            Net cash provided by operating activities


32,530


4,134


6,608


53,969










Cash Flows From Investing Activities:









    Capital expenditures


(1,132)


(5,968)


(10,512)


(18,449)

    Increase in cash surrender value of life insurance policies


-


(64)


(322)


(355)

    Proceeds from property insurance


-


-


1,192


-

    Proceeds from surrender of life insurance policies


-


13


67


165

    Proceeds from sale of property, plant and equipment


2


-


19


-

    Acquisition of business


-


-


-


(3,300)

        Net cash used for investing activities


(1,130)


(6,019)


(9,556)


(21,939)










Cash Flows From Financing Activities:









    Proceeds from long-term debt


94


82


44,333


372

    Principal payments on long-term debt


(94)


(82)


(44,333)


(372)

    Cash dividends paid


(578)


(577)


(2,310)


(21,333)

    Cash received from exercise of stock options


-


1,839


-


2,081

    Payment of employee tax withholdings related to net share transactions


(64)


(668)


(239)


(942)

    Financing costs


(26)


-


(263)


-

        Net cash provided by (used for) financing activities


(668)


594


(2,812)


(20,194)










Net increase (decrease) in cash and cash equivalents


30,732


(1,291)


(5,760)


11,836

Cash and cash equivalents at beginning of period


7,449


45,232


43,941


32,105

Cash and cash equivalents at end of period


$ 38,181


$ 43,941


$ 38,181


$ 43,941










Supplemental Disclosures of Cash Flow Information:









    Cash paid during the period for:









      Interest


$ -


$ -


$ 49


$ -

      Income taxes, net


(16)


4,224


1,743


7,777

    Non-cash investing and financing activities:









      Purchases of property, plant and equipment in accounts payable


377


967


377


967

      Restricted stock units and stock options surrendered for withholding taxes payable

64


668


239


942










IIIN – E

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/insteel-industries-reports-fourth-quarter-and-fiscal-2019-results-300938015.html

SOURCE Insteel Industries, Inc.

Michael C. Gazmarian, Vice President, CFO and Treasurer, Insteel Industries, Inc., (336) 786-2141, Ext. 3020


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