July 21, 2016

Insteel Industries Reports Third Quarter Financial Results

MOUNT AIRY, N.C., July 21, 2016 /PRNewswire/ -- Insteel Industries, Inc. (NasdaqGS: IIIN) today announced financial results for its third quarter ended July 2, 2016.

Corporate Logo - Insteel Industries.

Third Quarter 2016 Results

Net earnings for the third quarter of fiscal 2016 increased to $13.5 million, or $0.71 per diluted share from $5.4 million, or $0.29 per share in the same period a year ago. Net sales decreased 1.2% to $115.6 million from $117.0 million in the prior year quarter, reflecting a 9.8% increase in shipments offset by a 10.0% decrease in average selling prices. Shipments for both periods were adversely affected by heavy rainfall and flooding in the south central region of the country, particularly during April and May. On a sequential basis, shipments increased 8.8% from the second quarter of fiscal 2016 while average selling prices decreased 1.1%.

Insteel's third-quarter results were favorably impacted by widening spreads between selling prices and raw material costs together with the increase in shipments and lower conversion costs relative to the prior year quarter. The third quarter results for the prior year reflect restructuring charges, a charge related to a customer dispute and a net gain from insurance proceeds, which, in the aggregate, reduced pre-tax earnings by $1.0 million and net earnings per share by $0.03.

Cash flow from operations rose to $21.9 million from $18.1 million in the prior year quarter primarily due to the increase in earnings. Net working capital provided $6.3 million of cash compared with $10.5 million in the prior year quarter. Capital expenditures increased to $4.7 million from $2.2 million in the prior year quarter.

Nine Month 2016 Results

Net earnings for the first nine months of fiscal 2016 increased to $27.4 million, or $1.44 per diluted share from $12.1 million, or $0.64 per diluted share in the same period a year ago. Net sales decreased 4.2% to $315.4 million from $329.4 million in the prior year period, reflecting a 6.8% increase in shipments offset by a 10.3% decrease in average selling prices. The nine-month results for the prior year reflect restructuring charges, a charge related to a customer dispute and a net gain from insurance proceeds, which, in the aggregate, increased pre-tax earnings by $0.3 million and net earnings per share by $0.01.

Cash flow generated from operations rose to $45.7 million from $16.3 million in the prior year period primarily due to the increase in earnings and the relative changes in net working capital. Net working capital provided $7.4 million of cash while using $5.5 million in the prior year period. Capital expenditures increased to $9.1 million from $6.8 million in the prior year period largely due to outlays related to the expansion of the Houston prestressed concrete strand ("PC strand") facility and are not expected to exceed $18.0 million for fiscal 2016.

Balance Sheet and Liquidity

Cash and cash equivalents increased $17.4 million during the third quarter to $53.8 million. Insteel ended the quarter debt-free with no borrowings outstanding on its $100.0 million revolving credit facility.

Outlook

"We expect strong results for our fiscal fourth quarter driven by the favorable conditions in our construction end-markets and usual seasonal strength in demand together with further reductions in our manufacturing costs," commented H.O. Woltz III, Insteel's president and CEO. "Although spreads are likely to narrow from the third quarter due to the consumption of higher cost inventory, we believe they will remain at improved levels.

"As we move into 2017, we are optimistic that the infrastructure-related portion of our business will benefit from the higher degree of funding certainty provided by the recently passed FAST Act. Our strong balance sheet and financial flexibility position us to continue making the investments that are necessary to maintain world-class facilities and pursue additional growth opportunities."

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 http://investor.insteel.com/events.cfm 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 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 Insteel 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 Insteel 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 where appropriate, updated in Insteel's periodic and other reports and statements filed with the U.S. Securities and Exchange Commission (the "SEC"), in particular in its Annual Report on Form 10-K for the year ended October 3, 2015. You should carefully review these risks and uncertainties.

All forward-looking statements attributable to Insteel 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 Insteel 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, except as may be required by law. It is not  possible to anticipate and list all risks and uncertainties that may affect Insteel'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 Insteel operates; reduced spending for nonresidential and residential construction and the impact on demand for Insteel's 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 Insteel's products; the cyclical nature of the steel and building material industries; credit market conditions and the relative availability of financing for Insteel, its customers and the construction industry as a whole; fluctuations in the cost and availability of Insteel's primary raw material, hot-rolled steel wire rod, from domestic and foreign suppliers; competitive pricing pressures and Insteel's ability to raise selling prices in order to recover increases in wire rod costs; changes in United States or foreign trade policy affecting imports or exports of steel wire rod or Insteel's products; unanticipated changes in customer demand, order patterns and inventory levels; the impact of weak demand and reduced capacity utilization levels on Insteel's unit manufacturing costs; Insteel's ability to further develop the market for ESM and expand its shipments of ESM; legal, environmental, economic or regulatory developments that significantly impact Insteel's operating costs; unanticipated plant outages, equipment failures or labor difficulties; continued escalation in certain of Insteel's operating costs; and the "Risk Factors" discussed in Insteel's Annual Report on Form 10-K for the year ended October 3, 2015 and in other filings made by Insteel with the SEC.

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except for per share amounts)

(Unaudited)






























Three Months Ended


Nine Months Ended



July 2,


June 27,


July 2,


June 27,



2016


2015


2016


2015










Net sales


$     115,629


$     117,016


$     315,434


$     329,411

Cost of sales


88,082


101,322


252,849


292,972

    Gross profit


27,547


15,694


62,585


36,439

Selling, general and administrative expense


6,849


6,427


20,820


18,054

Restructuring charges, net


58


345


83


678

Other expense (income), net


223


601


138


(1,038)

Interest expense


40


65


121


273

Interest income


(53)


(1)


(103)


(5)

    Earnings before income taxes


20,430


8,257


41,526


18,477

Income taxes


6,899


2,865


14,135


6,391

    Net earnings


$       13,531


$         5,392


$       27,391


$       12,086



















Net earnings per share:









    Basic


$           0.72


$           0.29


$           1.47


$           0.66

    Diluted


0.71


0.29


1.44


0.64










Weighted average shares outstanding:









    Basic


18,867


18,438


18,690


18,407

    Diluted


19,135


18,828


19,011


18,823










Cash dividends declared per share


$           0.03


$           0.03


$           1.09


$           0.09

 

 

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)






















(Unaudited)




(Unaudited)



July 2,


April 2,


October 3,


June 27,



2016


2016


2015


2015

Assets









Current assets:









    Cash and cash equivalents


$          53,838


$          36,402


$          33,258


$          11,433

    Accounts receivable, net


49,426


48,578


46,782


48,215

    Inventories


63,914


56,574


66,009


70,793

    Other current assets


2,208


2,563


5,309


3,923

        Total current assets


169,386


144,117


151,358


134,364

Property, plant and equipment, net


85,779


83,788


84,178


86,642

Intangibles, net


9,352


9,641


10,220


10,532

Goodwill


6,965


6,965


6,965


6,965

Other assets


7,935


7,813


7,518


10,338

        Total assets


$        279,417


$        252,324


$        260,239


$        248,841










Liabilities and shareholders' equity









Current liabilities:









    Accounts payable


$          39,738


$          30,654


$          32,182


$          33,312

    Accrued expenses


13,376


9,096


13,644


9,775

        Total current liabilities


53,114


39,750


45,826


43,087

Other liabilities


13,212


13,498


14,198


14,844

Shareholders' equity:









    Common stock


18,904


18,786


18,466


18,439

    Additional paid-in capital


66,303


65,370


60,967


60,403

    Retained earnings


130,030


117,066


122,928


113,858

    Accumulated other comprehensive loss


(2,146)


(2,146)


(2,146)


(1,790)

        Total shareholders' equity


213,091


199,076


200,215


190,910

        Total liabilities and shareholders' equity


$        279,417


$        252,324


$        260,239


$        248,841

 

 

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)












Three Months Ended


Nine Months Ended



July 2,


June 27,


July 2,


June 27,



2016


2015


2016


2015

Cash Flows From Operating Activities:









  Net earnings


$      13,531


$        5,392


$      27,391


$      12,086

  Adjustments to reconcile net earnings to net cash provided by operating









    activities:









      Depreciation and amortization


2,909


2,907


8,529


8,704

      Amortization of capitalized financing costs


16


21


48


72

      Stock-based compensation expense


245


229


1,521


1,502

      Deferred income taxes


(274)


(282)


597


546

      Asset impairment charges


-


-


20


237

      Excess tax benefits from stock-based compensation


(420)


(3)


(1,244)


(150)

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


223


(76)


15


(1,755)

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


(172)


-


(268)


(233)

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









        Accounts receivable, net


(848)


(4,190)


(2,644)


2,833

        Inventories


(7,340)


12,646


2,095


11,106

        Accounts payable and accrued expenses


14,484


2,029


7,981


(19,409)

        Other changes


(448)


(570)


1,613


786

          Total adjustments


8,375


12,711


18,263


4,239

            Net cash provided by operating activities


21,906


18,103


45,654


16,325










Cash Flows From Investing Activities:









  Capital expenditures


(4,743)


(2,180)


(9,077)


(6,767)

  Acquisition of intangible asset


-


-


-


(1,460)

  Acquisition of business


-


-


-


480

  Proceeds from fire loss insurance


-


100


-


1,713

  Proceeds from sale of assets held for sale


-


-


180


-

  Proceeds from sale of property, plant and equipment


-


15


60


104

  Proceeds from surrender of life insurance policies


94


-


134


40

  Increase in cash surrender value of life insurance policies


(60)


(38)


(324)


(284)

            Net cash used for investing activities


(4,709)


(2,103)


(9,027)


(6,174)










Cash Flows From Financing Activities:









  Proceeds from long-term debt


101


397


273


60,872

  Principal payments on long-term debt


(101)


(10,397)


(273)


(60,872)

  Cash dividends paid


(567)


(553)


(20,289)


(1,657)

  Cash received from exercise of stock options


1,060


24


4,312


200

  Excess tax benefits from stock-based compensation


420


3


1,244


150

  Payment of employee tax withholdings related to net share transactions


(674)


(6)


(1,303)


(254)

  Financing costs


-


(207)


(11)


(207)

            Net cash provided by (used for) financing activities


239


(10,739)


(16,047)


(1,768)










Net increase in cash and cash equivalents


17,436


5,261


20,580


8,383

Cash and cash equivalents at beginning of period


36,402


6,172


33,258


3,050

Cash and cash equivalents at end of period


$      53,838


$      11,433


$      53,838


$      11,433










Supplemental Disclosures of Cash Flow Information:









  Cash paid during the period for:









    Interest


$                -


$             26


$             -


$           119

    Income taxes, net


3,633


795


12,166


4,198

  Non-cash investing and financing activities:









    Purchases of property, plant and equipment in accounts payable


460


182


460


182

    Restricted stock units and stock options surrendered for withholding taxes payable


674


6


1,303


254

 

IIIN - E

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