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Oct 24, 2005
Insteel Industries Reports Fourth Quarter Financial Results
MOUNT AIRY, N.C., October 24, 2005 - Insteel Industries, Inc. (Nasdaq: IIIN) today reported net earnings of $6.4 million, or $0.67 per diluted share, for its fourth fiscal quarter ended October 1, 2005 compared with $9.9 million, or $1.06 per diluted share for the same period last year. Sales for the fourth quarter decreased 10% to $94.8 million from $105.8 million in the prior year quarter. Average selling prices for the fourth quarter decreased 11% while shipments increased 1% from the prior year levels.

For the fiscal year ended October 1, 2005, net earnings decreased to $25.0 million, or $2.64 per diluted share, compared with the record high of $31.5 million, or $3.51 per diluted share for the prior year. Excluding the extraordinary gain on the disposal of assets associated with a discontinued operation, earnings from continuing operations for the current year were $24.3 million, or $2.56 per diluted share. Sales for the year increased 4% to $345.5 million from $332.6 million in the prior year. Average selling prices for the year rose 17% while shipments decreased 11% from the prior year levels. Based on the Company's fiscal calendar, the prior year periods benefited from having one additional week than the comparable current year periods.

"Coming off of the record results of 2004, we are pleased with Insteel's financial performance for the fourth quarter and for fiscal 2005 as a whole in view of the soft market environment that persisted through most of the year," said H.O. Woltz III, Insteel's president and chief executive officer. "Business conditions improved during the fourth quarter, but not of a magnitude that significantly impacted earnings. Shipments were up 3% on a sequential basis and slightly higher than the prior year after an extended stretch of unfavorable year-to-year comparisons. We are hopeful that these improvements are early indications of a more pronounced upturn in demand in fiscal 2006. Gross margins continued to trend at attractive levels but were down from the third quarter due to the consumption of higher cost raw material inventories together with higher unit conversion costs resulting from reduced operating levels at our facilities."

Net cash provided by operating activities for the fourth quarter rose $9.2 million to $13.7 million compared with $4.5 million for the comparable prior year period primarily due to a $17.7 million reduction in inventories in the current year quarter which more than offset the decrease in earnings. The improvement in operating cash flow enabled the Company to pay down approximately $12.4 million of debt during the fourth quarter reducing total debt to $11.9 million at the end of the year. As of October 1, 2005, approximately $9.5 million was drawn and $43.7 million of additional borrowing capacity was available on the Company's revolving credit facility, and $2.4 million was outstanding on its term loan.

"We made significant progress during the quarter in our debt reduction efforts which have served to substantially strengthen the Company's balance sheet," commented Woltz. "Over the last twenty-four months, total debt has been reduced by $58.4 million or 83%, lowering Insteel's debt-to-total capital ratio from 69% to 11%. We are better positioned than ever to capitalize on future growth opportunities and pursue alternatives that deliver value to our shareholders such as the recent reinstitution of our quarterly dividend."


Commenting on the outlook for fiscal 2006, Woltz said, "It appears that the inventory imbalances within our customer base which negatively impacted our order book through most of the year are largely behind us as we approach the slower winter months. Looking ahead to 2006, the demand prospects for concrete reinforcing products are positive driven by the expected continuation of favorable trends in private nonresidential construction spending together with increasing government infrastructure outlays supported by recent passage of the transportation spending bill and post-hurricane reconstruction requirements.

In addition to the favorable demand outlook, we anticipate that the expansions underway in our PC strand and engineered structural mesh ("ESM") operations will generate increasing contributions to earnings as we progress further into fiscal 2006. Both projects serve to increase our production capacity to satisfy expected market growth as well as reduce the manufacturing costs associated with these products. We intend to follow these projects with the deployment of an additional ESM production line in 2006 and a third line in 2007 to capitalize on the growing market acceptance for ESM and to achieve further operating cost reductions. In view of the favorable demand outlook, the timing of these growth initiatives and the strengthening of our balance sheet, we believe that Insteel is ideally situated to continue generating attractive returns for its shareholders."

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, particularly under the "Outlook" section above. When used in this news release, the words "believes," "anticipates," "expects," "plans" 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 are discussed in detail in the Company's periodic reports, in particular in its report on Form 10-K for the year ended October 2, 2004, filed with the U.S. Securities and Exchange Commission. You should carefully read these risk factors.

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 future operations or financial performance of the Company; however, they include, but are not limited to, the following:
  • general economic and competitive conditions in the markets in which the Company operates;
  • the cyclical nature of the steel and building material industries;
  • changes in U.S. or foreign trade policy affecting steel imports or exports;
  • 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 competitively source its raw material requirements;
  • the Company's ability to raise selling prices in order to recover increases in wire rod prices;
  • interest rate volatility;
  • unanticipated changes in customer demand, order patterns and inventory levels;
  • the Company's ability to successfully develop niche products, such as engineered structural mesh ("ESM");
  • legal, environmental or regulatory developments that significantly impact the Company's operating costs;
  • the timely completion of the expansions of the Company's ESM and PC strand operations;
  • unanticipated plant outages, equipment failures or labor difficulties; and
  • continued escalation in medical costs that affect employee benefit expenses.

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