MOUNT AIRY, N.C., July 17, 2008 - Insteel Industries, Inc. (Nasdaq: IIIN) today announced financial results for the third quarter ended June 28, 2008. Earnings from continuing operations for the quarter were $16.9 million, or $0.97 per diluted share compared with $8.3 million, or $0.46 per diluted share for the same period last year. Net sales for the quarter increased 32.1% to $104.3 million from $79.0 million last year. Average selling prices rose 37.6% while shipments decreased 4.0%.
For the nine-month period ended June 28, 2008, earnings from continuing operations were $28.1 million, or $1.58 per diluted share compared with $19.2 million, or $1.05 per diluted share in the prior year. Net sales for the nine-month period increased 10.8% to $247.6 million from $223.4 million last year. Average selling prices rose 17.2% while shipments decreased 5.5%.
"We are pleased with Insteel's financial performance for the third quarter, especially in light of the continued escalation in raw material costs and difficult conditions that we experienced in certain of our markets," said H.O. Woltz III, Insteel's president and chief executive officer. "Additional price increases were implemented across all our product lines during the quarter to recover these added costs and position the Company to achieve satisfactory results when steel and other commodity prices eventually stabilize. Shipments fluctuated within the quarter due to accelerated purchases by customers driven by the unprecedented frequency and magnitude of the price increases, making it difficult to determine the actual consumption trends for our products."
Gross profit for the quarter increased to $30.9 million (29.6% of net sales) from $17.4 million (22.0% of net sales) a year ago due to higher spreads between average selling prices and raw material costs, which more than offset the lower shipments and higher unit conversion costs. The widening in spreads was driven by the price increases that were implemented during the quarter together with the consumption of lower cost inventory under FIFO accounting. Most of the Company's manufacturing facilities continued to operate on reduced schedules in response to the soft demand.
Operating activities of continuing operations provided $2.6 million of cash during the quarter compared with $16.4 million a year ago primarily due to the year-over-year changes in net working capital which offset the increase in earnings for the quarter. Net working capital used $17.3 million of cash during the quarter while providing $5.0 million a year ago largely due to the increases in inventories and accounts receivable in the current year quarter, which were in turn driven by the sharp escalation in raw material costs and selling prices. Operating cash flow for the quarter was primarily used to fund $2.2 million of capital expenditures and pay $0.5 million of dividends, leaving the Company debt-free at the end of the quarter with $17.5 million of cash. Capital expenditures through the first nine months of fiscal 2008 were $8.4 million and are expected to total $10.0 million for the fiscal year, although the actual amount is subject to change based on adjustments in project timelines or additional investment opportunities that may arise.
Commenting on the outlook for the remainder of fiscal 2008 and for fiscal 2009, Woltz said, "We expect business conditions to become increasingly challenging in view of the anticipated softening in nonresidential construction, particularly for commercial projects. In addition, we foresee further increases in raw material costs in the coming months driven by tight supply in the domestic market and limited availability of imports at competitive prices. It may become more difficult for us to pass on these additional costs depending upon the magnitude of the drop-off in demand and competitive dynamics. We also expect spreads and margins to narrow to more sustainable levels when the pricing for wire rod and our products levels out and the higher cost material begins to be reflected in cost of sales.
"As we navigate our way through these immediate challenges, we are confident that Insteel's competitive position has never been stronger based on our operating costs, our manufacturing capabilities and our financial position. We look forward to improved market conditions that will provide us with an opportunity to more clearly demonstrate the improved earnings power of the Company through the ramp-up of the significant investments we have made in our facilities over the past few years."
Insteel will hold a conference call at 10:00 a.m. ET today to discuss the Company's third quarter financial results. A live webcast of this call can be accessed on the Company's website at http://investor.insteel.com/ and will be archived for replay.
Insteel Industries is one of the nation's largest manufacturers of steel wire reinforcing products for concrete construction applications. The Company manufactures and markets prestressed concrete strand ("PC strand") and welded wire reinforcement, including concrete pipe reinforcement, engineered structural mesh ("ESM") 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 six 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," "plans," "intends," "may," "should" and similar expressions are intended to identify forward-looking statements. Although the Company believes that its plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, such forward-looking statements are subject to a number of risks and uncertainties, and the Company can provide no assurances that such plans, intentions or expectations will be achieved. Many of these risks and uncertainties are discussed in detail in the Company's periodic and other reports and statements, in particular in its Annual Report on Form 10-K for the year ended September 29, 2007, filed with the U.S. Securities and Exchange Commission (the "SEC"). You should carefully review these risks and uncertainties.
All forward-looking statements attributable to the Company or persons acting on its 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 the Company does not undertake and specifically declines 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.
It is not possible to anticipate and list all risks and uncertainties that may affect the Company's 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 the Company operates; the expected softening in demand for the Company's concrete reinforcing products resulting from the anticipated reduction in spending for nonresidential construction, particularly commercial construction; the severity and duration of the downturn in residential construction and the impact on those portions of the Company's business that are correlated with the housing sector; the cyclical nature of the steel and building material industries; fluctuations in the cost and availability of the Company's primary raw material, hot-rolled steel wire rod from domestic and foreign suppliers; the Company's ability to raise selling prices in order to recover increases in wire rod costs; changes in U.S. or foreign trade policy affecting imports or exports of steel wire rod or the Company's products; the impact of increased imports of PC strand; unanticipated changes in customer demand, order patterns and inventory levels; the impact of weak demand and reduced capacity utilization levels on the Company's unit manufacturing costs; the Company's ability to further develop the market for ESM and expand its shipments of ESM; the actual net proceeds realized and closure costs incurred in connection with the Company's exit from the industrial wire business; legal, environmental, economic or regulatory developments that significantly impact the Company's operating costs; unanticipated plant outages, equipment failures or labor difficulties; continued escalation in certain of the Company's operating costs; and the "Risk Factors" discussed in the Company's Annual Report on Form 10-K for the year ended September 29, 2007 and in other filings made by the Company with the SEC.
Michael C. Gazmarian
Vice President, Chief Financial Officer and Treasurer
Insteel Industries, Inc.
336-786-2141, Ext. 3020
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