October 20, 2016

Insteel Industries Reports Fourth Quarter and Fiscal 2016 Financial Results

MOUNT AIRY, N.C., Oct. 20, 2016 /PRNewswire/ -- Insteel Industries, Inc. (NasdaqGS: IIIN) today announced financial results for its fourth quarter and fiscal year ended October 1, 2016.

Corporate Logo - Insteel Industries. (PRNewsFoto/Insteel Industries, Inc.)

Fourth Quarter 2016 Results

Net earnings for the fourth quarter of fiscal 2016 increased to $9.9 million from $9.6 million in the same period a year ago, while earnings per diluted share was unchanged at $0.51. The fourth-quarter results for the current year reflect a charge related to the settlement and termination of a pension plan, which reduced pre-tax earnings by $2.5 million and net earnings per share by $0.09. The fourth-quarter results for the prior year reflect $0.3 million of net restructuring recoveries, which increased net earnings per share by $0.01.

Insteel's fourth-quarter results were favorably impacted by widening spreads between selling prices and raw material costs relative to the prior year quarter, which offset lower shipments and higher conversion costs. Net sales decreased 12.7% to $103.1 million from $118.1 million in the prior year quarter, reflecting an 8.8% decrease in shipments and a 4.3% decrease in average selling prices. Shipments for the prior year quarter benefited from an extra week based on Insteel's fiscal calendar. On a pro forma basis adjusting both quarters to reflect the same 13-week period as the current year, the year-over-year shipment decrease was 2.9%. Shipments decreased 15.0% sequentially from the third quarter of fiscal 2016 while average selling prices increased 4.9%.

Cash flow from operations fell to $8.9 million from $19.3 million in the prior year quarter primarily due to the relative changes in net working capital, which used $4.2 million of cash while providing $7.8 million in the prior year quarter. Capital expenditures increased to $3.9 million from $0.4 million in the prior year quarter.

Fiscal 2016 Results

Net earnings for fiscal 2016 increased to $37.2 million, or $1.95 per diluted share from $21.7 million, or $1.15 per diluted share in the prior year. The current year results reflect a charge related to the pension plan settlement and termination, which reduced pre-tax earnings by $2.5 million and net earnings per share by $0.09. The prior year results reflect net 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 $0.7 million and net earnings per share by $0.02.

Insteel's fiscal 2016 results were favorably impacted by widening spreads between selling prices and raw material costs relative to the prior year and, to a lesser extent, higher shipments and lower conversion costs. Net sales decreased 6.5% to $418.5 million from $447.5 million in the prior year, reflecting a 2.6% increase in shipments offset by an 8.8% decrease in average selling prices. Shipments for the prior year benefited from an extra week based on Insteel's fiscal calendar. On a pro forma basis adjusting both years to reflect the same 52-week period as the current year, the year-over-year shipment increase was 4.8%.

Cash flow generated from operations rose to $54.5 million from $35.8 million in the prior year primarily due to the increase in earnings. Net working capital provided $3.2 million of cash compared with $2.3 million in the prior year. Capital expenditures increased to $13.0 million from $7.2 million in the prior year largely due to outlays related to the expansion of the Houston prestressed concrete strand ("PC strand") facility and are not expected to exceed $25 million for fiscal 2017.

Balance Sheet and Liquidity

Cash and cash equivalents increased $5.0 million during the fourth quarter to $58.9 million. Insteel ended the year debt-free with no borrowings outstanding on its $100.0 million revolving credit facility.

Outlook

"As we move into fiscal 2017, it is unclear whether the softening in shipments we experienced during the fourth fiscal quarter represents a temporary lull or will persist," commented H.O. Woltz III, Insteel's president and CEO. "Although recent macro indicators for our construction end-markets have been mixed, customer sentiment remains positive and we expect demand for our products will be favorably impacted by the FAST Act together with increased infrastructure spending at the state and local level.

"The expansion of our Houston PC strand facility remains on track to begin start-up activities before the end of the first quarter of fiscal 2017. The investments we are making realign the plant's capacity with the requirements of the Texas market and should position it to achieve costs that are comparable to our other strand facilities."

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 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 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, they 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 are updated from time to time in Insteel's filings 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.

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; changes in the spending levels 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 raw material or operating 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 fluctuations in demand and 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; 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)






























Three Months Ended


Year Ended



(Unaudited)


(Unaudited)


(Unaudited)





October 1,


October 3,


October 1,


October 3,



2016


2015


2016


2015










Net sales


$     103,113


$     118,093


$     418,547


$     447,504

Cost of sales


80,510


96,199


333,359


389,171

    Gross profit


22,603


21,894


85,188


58,333

Selling, general and administrative expense


5,249


7,770


26,069


25,824

Pension plan settlement loss


2,539


-


2,539


-

Restructuring charges (recoveries), net


32


(329)


115


349

Other expense (income), net


45


(75)


183


(1,113)

Interest expense


37


47


158


320

Interest income


(63)


(6)


(166)


(11)

    Earnings before income taxes


14,764


14,487


56,290


32,964

Income taxes


4,910


4,863


19,045


11,254

    Net earnings


$         9,854


$         9,624


$       37,245


$       21,710



















Net earnings per share:









    Basic


$           0.52


$           0.52


$           1.99


$           1.18

    Diluted


0.51


0.51


1.95


1.15










Weighted average shares outstanding:









    Basic


18,945


18,451


18,754


18,418

    Diluted


19,188


18,740


19,055


18,803










Cash dividends declared per share


$           0.03


$           0.03


$           1.12


$           0.12










 

 

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)


















(Unaudited)





October 1,


July 2,


October 3,



2016


2016


2015

Assets







Current assets:







    Cash and cash equivalents


$          58,873


$          53,838


$          33,258

    Accounts receivable, net


47,389


49,426


46,782

    Inventories


71,186


63,914


66,009

    Other current assets


3,039


2,208


5,309

        Total current assets


180,487


169,386


151,358

Property, plant and equipment, net


88,193


85,779


84,178

Intangibles, net


9,063


9,352


10,220

Goodwill


6,965


6,965


6,965

Other assets


8,184


7,935


7,518

        Total assets


$        292,892


$        279,417


$        260,239








Liabilities and shareholders' equity







Current liabilities:







    Accounts payable


$          42,759


$          39,738


$          32,182

    Accrued expenses


11,024


13,376


13,644

        Total current liabilities


53,783


53,114


45,826

Other liabilities


14,543


13,212


14,198

Shareholders' equity:







    Common stock


18,976


18,904


18,466

    Additional paid-in capital


67,817


66,303


60,967

    Retained earnings


139,314


130,030


122,928

    Accumulated other comprehensive loss


(1,541)


(2,146)


(2,146)

        Total shareholders' equity


224,566


213,091


200,215

        Total liabilities and shareholders' equity


$        292,892


$        279,417


$        260,239








 

 

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)














Three Months Ended


Year Ended




(Unaudited)


(Unaudited)


(Unaudited)






October 1,


October 3,


October 1,


October 3,




2016


2015


2016


2015


Cash Flows From Operating Activities:










  Net earnings


$        9,854


$        9,624


$      37,245


$      21,710


  Adjustments to reconcile net earnings to net cash provided by operating










    activities:










      Depreciation and amortization


3,015


3,230


11,544


11,934


      Amortization of capitalized financing costs


17


17


65


89


      Stock-based compensation expense


918


796


2,439


2,298


      Deferred income taxes


(61)


(213)


536


333


      Pension plan settlement, net of cash contribution


620


-


620


-


      Asset impairment charges


-


306


20


543


      Excess tax benefits from stock-based compensation


(473)


(19)


(1,717)


(169)


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


46


(897)


61


(2,652)


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


(212)


-


(480)


(39)


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










        Accounts receivable, net


2,037


1,433


(607)


4,266


        Inventories


(7,272)


4,784


(5,177)


15,890


        Accounts payable and accrued expenses


1,028


1,548


9,009


(17,861)


        Other changes


(635)


(1,354)


978


(568)


          Total adjustments


(972)


9,631


17,291


14,064


            Net cash provided by operating activities


8,882


19,255


54,536


35,774












Cash Flows From Investing Activities:










  Capital expenditures


(3,900)


(386)


(12,977)


(7,153)


  Acquisition of intangible asset


-


-


-


(1,460)


  Acquisition of business


-


-


-


480


  Proceeds from fire loss insurance


-


-


-


1,713


  Proceeds from sale of assets held for sale


-


3,537


180


3,537


  Proceeds from sale of property, plant and equipment


-


28


60


132


  Proceeds from surrender of life insurance policies


6


-


140


40


  Decrease (increase) in cash surrender value of life insurance policies


(51)


150


(375)


(328)


            Net cash provided by (used for) investing activities


(3,945)


3,329


(12,972)


(3,039)












Cash Flows From Financing Activities:










  Proceeds from long-term debt


55


106


328


60,978


  Principal payments on long-term debt


(55)


(106)


(328)


(60,978)


  Cash dividends paid


(570)


(554)


(20,859)


(2,211)


  Cash received from exercise of stock options


753


-


5,065


200


  Excess tax benefits from stock-based compensation


473


19


1,717


169


  Payment of employee tax withholdings related to net share transactions


(558)


(224)


(1,861)


(478)


  Financing costs


-


-


(11)


(207)


            Net cash provided by (used for) financing activities


98


(759)


(15,949)


(2,527)












Net increase in cash and cash equivalents


5,035


21,825


25,615


30,208


Cash and cash equivalents at beginning of period


53,838


11,433


33,258


3,050


Cash and cash equivalents at end of period


$      58,873


$      33,258


$      58,873


$      33,258












Supplemental Disclosures of Cash Flow Information:










  Cash paid during the period for:










    Interest


$             -


$             24


$             -


$           143


    Income taxes, net


7,018


3,607


19,184


7,805


  Non-cash investing and financing activities:










    Purchases of property, plant and equipment in accounts payable


1,746


570


1,746


570


    Restricted stock units and stock options surrendered for withholding taxes payable

558


224


1,861


478












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