July 20, 2017

Insteel Industries Reports Third Quarter 2017 Financial Results

MOUNT AIRY, N.C., July 20, 2017 /PRNewswire/ -- Insteel Industries, Inc. (NasdaqGS: IIIN) today announced financial results for its third quarter ended July 1, 2017.

Corporate Logo - Insteel Industries

Third Quarter 2017 Results

Net earnings for the third quarter of fiscal 2017 decreased to $6.9 million, or $0.36 per share, from $13.5 million, or $0.71 per diluted share, in the same period a year ago. Insteel's results were unfavorably impacted by lower shipment and production volumes together with narrower spreads between selling prices and raw material costs relative to the prior year quarter.

Net sales decreased 16.2% to $96.9 million from $115.6 million in the prior year quarter, reflecting a 20.8% decrease in shipments and a 5.9% increase in average selling prices. Shipments decreased 7.5% sequentially from the second quarter of fiscal 2017 while average selling prices increased 3.5%. Shipments for the quarter were adversely affected by the excessive rainfall in many regions of the country, a reduction in new project activity and competitive pricing pressures. Gross margin narrowed 660 basis points to 17.2% from 23.8% due to the reductions in shipments and spreads, and higher manufacturing costs on the lower production volume.

Cash flow from operations decreased to $4.5 million from $21.9 million in the prior year quarter primarily due to the relative changes in net working capital and the decrease in earnings. Net working capital used $5.8 million of cash while providing $6.3 million in the prior year quarter.

Nine Month 2017 Results

Net earnings for the first nine months of fiscal 2017 decreased to $18.7 million, or $0.98 per diluted share, from $27.4 million, or $1.44 per diluted share in the same period a year ago. Net sales decreased 7.4% to $292.0 million from $315.4 million in the prior year period, reflecting a 7.8% decrease in shipments and a 0.4% increase in average selling prices. Gross margin narrowed 340 basis points to 16.4% from 19.8% due to lower spreads and shipments, and higher manufacturing costs on lower production volume.

Cash flow from operations decreased to $21.6 million from $45.7 million in the prior year period primarily due to the relative changes in net working capital and the decrease in earnings. Net working capital used $7.1 million of cash while providing $7.4 million in the prior year period.

Capital Allocation and Liquidity

Capital expenditures for the first nine months of fiscal 2017 increased to $16.9 million from $9.1 million in the prior year period. Capital outlays for fiscal 2017 are expected to total up to $25.0 million largely related to the expansion of the Houston, Texas prestressed concrete strand ("PC strand") facility, additional investments in engineered structural mesh ("ESM") manufacturing capabilities and further upgrades of production technology and information systems. 

During the first nine months of fiscal 2017, Insteel returned $25.4 million of capital to shareholders through the payment of a special cash dividend of $1.25 per share and three regular quarterly cash dividends of $0.03 per share. Insteel ended the quarter debt-free with $37.8 million of cash and cash equivalents, and no borrowings outstanding on its $100.0 million revolving credit facility.

Outlook

"As we move into the fourth fiscal quarter, the leading indicators for nonresidential construction remain positive and our customers are optimistic that business conditions will improve over the remainder of the year," commented H.O. Woltz III, Insteel's president and CEO. "We believe the recent increases in infrastructure funding that have been authorized at the state and local level will begin to favorably impact demand for our products later in the year. We also expect improved manufacturing costs driven by higher operating volumes together with our process improvement initiatives and the recent upgrading and expansion of our Houston PC strand facility."

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 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 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, 2016.

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 October 1, 2016 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)

(Unaudited)






























Three Months Ended


Nine Months Ended



July 1,


July 2,


July 1,


July 2,



2017


2016


2017


2016










Net sales


$       96,938


$     115,629


$     291,985


$     315,434

Cost of sales


80,262


88,082


244,005


252,849

    Gross profit


16,676


27,547


47,980


62,585

Selling, general and administrative expense


6,216


6,849


19,535


20,820

Restructuring charges, net


60


58


133


83

Other expense, net


50


223


50


138

Interest expense


34


40


103


121

Interest income


(75)


(53)


(175)


(103)

    Earnings before income taxes


10,391


20,430


28,334


41,526

Income taxes


3,522


6,899


9,585


14,135

    Net earnings


$         6,869


$       13,531


$       18,749


$       27,391



















Net earnings per share:









    Basic


$           0.36


$           0.72


$           0.99


$           1.47

    Diluted


0.36


0.71


0.98


1.44










Weighted average shares outstanding:









    Basic


19,025


18,867


19,003


18,690

    Diluted


19,225


19,135


19,219


19,011










Cash dividends declared per share


$           0.03


$           0.03


$           1.34


$           1.09

 

 

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)






















(Unaudited)




(Unaudited)



July 1,


April 1,


October 1,


July 2,



2017


2017


2016


2016

Assets









Current assets:









    Cash and cash equivalents


$          37,848


$          40,185


$          58,873


$          53,838

    Accounts receivable, net


42,307


49,577


47,389


49,426

    Inventories


83,682


59,230


71,186


63,914

    Other current assets


5,182


3,264


3,039


2,208

        Total current assets


169,019


152,256


180,487


169,386

Property, plant and equipment, net


99,383


94,805


88,193


85,779

Intangibles, net


8,195


8,484


9,063


9,352

Goodwill


6,965


6,965


6,965


6,965

Other assets


8,934


8,712


8,184


7,935

        Total assets


$        292,496


$        271,222


$        292,892


$        279,417










Liabilities and shareholders' equity









Current liabilities:









    Accounts payable


$          48,079


$          35,605


$          42,759


$          39,738

    Accrued expenses


7,606


7,222


11,024


13,376

        Total current liabilities


55,685


42,827


53,783


53,114

Other liabilities


17,644


15,736


14,543


13,212

Shareholders' equity:









    Common stock


19,025


19,025


18,976


18,904

    Additional paid-in capital


69,060


68,850


67,817


66,303

    Retained earnings


132,623


126,325


139,314


130,030

    Accumulated other comprehensive loss


(1,541)


(1,541)


(1,541)


(2,146)

        Total shareholders' equity


219,167


212,659


224,566


213,091

        Total liabilities and shareholders' equity


$        292,496


$        271,222


$        292,892


$        279,417

 

 

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,



2017


2016


2017


2016

Cash Flows From Operating Activities:









  Net earnings


$        6,869


$      13,531


$      18,749


$      27,391

  Adjustments to reconcile net earnings to net cash provided by operating activities:








      Depreciation and amortization


2,847


2,909


8,576


8,529

      Amortization of capitalized financing costs


16


16


48


48

      Stock-based compensation expense


210


245


1,343


1,521

      Deferred income taxes


1,795


(274)


2,705


597

      Asset impairment charges


-


-


-


20

      Excess tax benefits from stock-based compensation


-


(420)


(488)


(1,244)

      Loss on sale and disposition of property, plant and equipment


3


223


49


15

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


(208)


(172)


(568)


(268)

      Net changes in assets and liabilities:









        Accounts receivable, net


7,270


(848)


5,082


(2,644)

        Inventories


(24,452)


(7,340)


(12,496)


2,095

        Accounts payable and accrued expenses


11,422


14,484


290


7,981

        Other changes


(1,309)


(448)


(1,739)


1,613

          Total adjustments


(2,406)


8,375


2,802


18,263

            Net cash provided by operating activities


4,463


21,906


21,551


45,654










Cash Flows From Investing Activities:









  Capital expenditures


(6,199)


(4,743)


(16,855)


(9,077)

  Proceeds from surrender of life insurance policies


23


94


100


134

  Increase in cash surrender value of life insurance policies


(53)


(60)


(330)


(324)

  Proceeds from sale of assets held for sale


-


-


-


180

  Proceeds from sale of property, plant and equipment


-


-


-


60

            Net cash used for investing activities


(6,229)


(4,709)


(17,085)


(9,027)










Cash Flows From Financing Activities:









  Proceeds from long-term debt


146


101


322


273

  Principal payments on long-term debt


(146)


(101)


(322)


(273)

  Cash dividends paid


(571)


(567)


(25,440)


(20,289)

  Cash received from exercise of stock options


-


1,060


107


4,312

  Excess tax benefits from stock-based compensation


-


420


488


1,244

  Payment of employee tax withholdings related to net share transactions


-


(674)


(646)


(1,303)

  Financing costs


-


-


-


(11)

            Net cash provided by (used for) financing activities


(571)


239


(25,491)


(16,047)










Net increase (decrease) in cash and cash equivalents


(2,337)


17,436


(21,025)


20,580

Cash and cash equivalents at beginning of period


40,185


36,402


58,873


33,258

Cash and cash equivalents at end of period


$      37,848


$      53,838


$      37,848


$      53,838










Supplemental Disclosures of Cash Flow Information:









  Cash paid during the period for:









    Income taxes, net


$        2,636


$        3,633


$        6,796


$      12,166

  Non-cash investing and financing activities:









    Purchases of property, plant and equipment in accounts payable


2,092


460


2,092


460

    Restricted stock units and stock options surrendered for withholding taxes payable

-


674


646


1,303

 

IIIN - E

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