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Jul 22, 2021
Insteel Industries Reports Third Quarter 2021 Results

MOUNT AIRY, N.C.--(BUSINESS WIRE)--Jul. 22, 2021-- Insteel Industries Inc. (NYSE: IIIN) today announced financial results for its third quarter ended July 3, 2021.

Third Quarter 2021 Results

Net earnings increased to $18.4 million, or $0.94 per diluted share, from $6.7 million, or $0.34 per diluted share, in the same period a year ago. Insteel’s third quarter results benefitted from higher spreads between selling prices and raw material costs driven by strong demand for the Company’s reinforcing products and price increases implemented to recover rapidly escalating manufacturing costs.

Net sales increased 31.8% to a record $160.7 million from $122.0 million in the prior year quarter driven by a 32.9% increase in average selling prices offset by a 1.0% decrease in shipment volumes. The average selling price increase was the result of price increases implemented during the quarter, while the decrease in shipment volumes reflects tight supply conditions for raw materials. On a sequential basis, average selling prices increased 14.2%, while shipments increased 1.2%.

Gross margin widened 750 basis points to 19.6% from 12.1% in the prior year quarter primarily due to the higher spreads. Insteel’s net earnings for the current year quarter reflect a $0.4 million increase in cash surrender value of life insurance policies, which reduced selling, general and administrative (“SG&A”) expense, and $1.6 million in restructuring charges related to the Company’s March 16, 2020 acquisition of substantially all the assets of Strand-Tech Manufacturing, Inc. (“STM”) that includes a $1.4 million impairment of an asset held for sale related to the pending disposition of the STM real property, which, in the aggregate, decreased net earnings per share by $0.05. In the prior year the aggregate impact of these items increased net earnings by $0.04 per share.

Operating activities generated $36.2 million of cash compared with $17.3 million in the prior year quarter due to a combination of increased net earnings and a reduction in net working capital, which provided $13.2 million of cash in the current year quarter as compared to $8.4 million in the prior year quarter.

Nine Month 2021 Results

Net earnings for the first nine months of fiscal 2021 increased to $41.5 million, or $2.13 per diluted share, from $11.6 million, or $0.60 per share, in the same period a year ago. Net sales increased 25.4% to $419.3 million from $334.4 million in the prior year period driven by a 16.5% increase in average selling prices and a 7.7% increase in shipments. Gross margin widened 860 basis points to 19.5% from 10.9% due a combination of higher spreads and increased shipments.

Insteel’s net earnings for the current year period reflect a $1.5 million increase in the cash surrender value of life insurance policies, which reduced SG&A expense and $2.8 million of restructuring charges related to the STM acquisition, which, in the aggregate, decreased net earnings per share by $0.05. Net earnings for the prior year period reflect $1.2 million of restructuring and acquisition charges related to the STM acquisition and a $1.1 million gain on the disposition of assets held for sale, which, in the aggregate, offset resulting in no impact on net earnings per share.

Operating activities generated $65.5 million of cash compared with $44.6 million in the prior year period due primarily to an increase in earnings. Working capital provided $11.9 million of cash in the current year period as compared to $19.1 million in the prior year period.

Capital Allocation and Liquidity

Capital expenditures for the first nine months of fiscal 2021 increased to $13.7 million from $3.4 million in the prior year period and are expected to total up to $20.0 million in 2021 to complete the upgrade and redeployment of the STM assets, support the growth of our engineered structural mesh business, invest in our information systems, and fund recurring maintenance requirements.

Insteel ended the quarter debt-free with $89.8 million of cash and no borrowings outstanding on its $100.0 million revolving credit facility.

Outlook

“We are encouraged by the continued strength in private and public non-residential construction markets,” commented H.O. Woltz III, Insteel’s president and CEO. “The swift rebound in widely monitored non-residential construction market leading indicators to almost record levels together with consistent levels of public construction spending give us confidence that demand will remain robust into 2022.”

Woltz continued, “Of increasing concern, however, are ongoing supply constraints and sharply escalating raw material prices in both domestic and international markets that are creating heightened uncertainty for our customers and having an unfavorable impact on our operations. While we are seeking to supplement domestic steel availability with offshore supplies, we do not expect significant relief from tight supply conditions through the end of the calendar year. Despite these challenges, we expect favorable demand and strong financial performance for our fourth fiscal quarter.”

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 https://insteelgcs.gcs-web.com/ 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 prestressed concrete strand and welded wire reinforcement, including engineered structural mesh, concrete pipe reinforcement and standard welded wire reinforcement. Insteel’s products are sold primarily to manufacturers of concrete products and concrete contractors for use, primarily, in nonresidential construction applications. 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 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 3, 2020.

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: the impact of COVID-19 on the economy, demand for our products and our operations, including the measures taken by governmental authorities to address it, which may precipitate or exacerbate other risks and/or uncertainties; 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 Engineered Structural Mesh (“ESM”) and expand our shipments of ESM; legal, environmental, economic or regulatory developments that significantly impact our business or 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 3, 2020 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 data)
(Unaudited)
 
 

Three Months Ended

 

Nine Months Ended

July 3,

 

June 27,

 

July 3,

 

June 27,

 

2021

 

 

 

2020

 

 

 

2021

 

 

 

2020

 

 
Net sales

$

160,739

 

$

121,959

 

$

419,343

 

$

334,387

 

Cost of sales

 

129,189

 

 

107,154

 

 

337,714

 

 

298,062

 

Gross profit

 

31,550

 

 

14,805

 

 

81,629

 

 

36,325

 

Selling, general and administrative expense

 

6,184

 

 

6,694

 

 

25,067

 

 

22,040

 

Restructuring charges, net

 

1,598

 

 

808

 

 

2,800

 

 

957

 

Acquisition costs

 

-

 

 

8

 

 

-

 

 

195

 

Other expense (income), net

 

35

 

 

(1,240

)

 

123

 

 

(1,283

)

Interest expense

 

24

 

 

26

 

 

73

 

 

78

 

Interest income

 

(5

)

 

(22

)

 

(15

)

 

(452

)

Earnings before income taxes

 

23,714

 

 

8,531

 

 

53,581

 

 

14,790

 

Income taxes

 

5,319

 

 

1,867

 

 

12,123

 

 

3,207

 

Net earnings

$

18,395

 

$

6,664

 

$

41,458

 

$

11,583

 

 
 
Net earnings per share:
Basic

$

0.95

 

$

0.35

 

$

2.14

 

$

0.60

 

Diluted

 

0.94

 

 

0.34

 

 

2.13

 

 

0.60

 

 
Weighted average shares outstanding:
Basic

 

19,352

 

 

19,283

 

 

19,330

 

 

19,272

 

Diluted

 

19,573

 

 

19,377

 

 

19,508

 

 

19,378

 

 
Cash dividends declared per share

$

0.03

 

$

0.03

 

$

1.59

 

$

0.09

 

 

 

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
 
 

(Unaudited)

 

 

 

(Unaudited)

July 3,

 

April 3,

 

January 2,

 

October 3,

 

June 27,

 

2021

 

 

 

2021

 

 

 

2021

 

 

 

2020

 

 

 

2020

 

Assets
Current assets:
Cash and cash equivalents

$

89,827

 

$

58,940

 

$

50,182

 

$

68,688

 

$

61,371

 

Accounts receivable, net

 

59,349

 

 

58,123

 

 

49,224

 

 

53,817

 

 

54,901

 

Inventories

 

71,158

 

 

68,623

 

 

64,276

 

 

68,963

 

 

74,269

 

Other current assets

 

7,479

 

 

6,556

 

 

5,201

 

 

5,570

 

 

6,245

 

Total current assets

 

227,813

 

 

192,242

 

 

168,883

 

 

197,038

 

 

196,786

 

Property, plant and equipment, net

 

105,729

 

 

104,680

 

 

101,351

 

 

101,392

 

 

101,089

 

Intangibles, net

 

7,882

 

 

8,095

 

 

8,331

 

 

8,567

 

 

8,810

 

Goodwill

 

9,745

 

 

9,745

 

 

9,745

 

 

9,745

 

 

9,745

 

Other assets

 

20,762

 

 

22,099

 

 

21,641

 

 

21,160

 

 

20,260

 

Total assets

$

371,931

 

$

336,861

 

$

309,951

 

$

337,902

 

$

336,690

 

 
Liabilities and shareholders' equity
Current liabilities:
Accounts payable

$

60,217

 

$

44,941

 

$

31,761

 

$

38,961

 

$

47,891

 

Accrued expenses

 

15,412

 

 

14,252

 

 

15,012

 

 

14,717

 

 

11,839

 

Total current liabilities

 

75,629

 

 

59,193

 

 

46,773

 

 

53,678

 

 

59,730

 

Long-term debt

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Other liabilities

 

19,306

 

 

18,932

 

 

19,444

 

 

19,421

 

 

19,894

 

Commitments and contingencies
Shareholders' equity:
Common stock

 

19,358

 

 

19,341

 

 

19,314

 

 

19,304

 

 

19,283

 

Additional paid-in capital

 

77,780

 

 

77,351

 

 

76,716

 

 

76,387

 

 

75,811

 

Retained earnings

 

181,814

 

 

164,000

 

 

149,660

 

 

171,068

 

 

164,220

 

Accumulated other comprehensive loss

 

(1,956

)

 

(1,956

)

 

(1,956

)

 

(1,956

)

 

(2,248

)

Total shareholders' equity

 

276,996

 

 

258,736

 

 

243,734

 

 

264,803

 

 

257,066

 

Total liabilities and shareholders' equity

$

371,931

 

$

336,861

 

$

309,951

 

$

337,902

 

$

336,690

 

 

 

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 

Three Months Ended

 

Nine Months Ended

July 3,

 

June 27,

 

July 3,

 

June 27,

 

2021

 

 

 

2020

 

 

 

2021

 

 

 

2020

 

Cash Flows From Operating Activities:
Net earnings

$

18,395

 

$

6,664

 

$

41,458

 

$

11,583

 

Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization

 

3,629

 

 

3,635

 

 

10,828

 

 

10,626

 

Amortization of capitalized financing costs

 

17

 

 

17

 

 

49

 

 

49

 

Stock-based compensation expense

 

240

 

 

150

 

 

1,174

 

 

1,277

 

Deferred income taxes

 

430

 

 

(213

)

 

(36

)

 

392

 

Asset impairment charges

 

1,411

 

 

343

 

 

1,415

 

 

343

 

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

 

14

 

 

(1,033

)

 

125

 

 

(1,031

)

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

 

(367

)

 

(731

)

 

(1,535

)

 

-

 

Gain from life insurance proceeds

 

-

 

 

(200

)

 

-

 

 

(200

)

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

 

(1,226

)

 

(20

)

 

(5,532

)

 

(6,890

)

Inventories

 

(2,535

)

 

(2,584

)

 

(2,195

)

 

(246

)

Accounts payable and accrued expenses

 

16,964

 

 

10,969

 

 

19,642

 

 

26,281

 

Other changes

 

(749

)

 

292

 

 

69

 

 

2,444

 

Total adjustments

 

17,828

 

 

10,625

 

 

24,004

 

 

33,045

 

Net cash provided by operating activities

 

36,223

 

 

17,289

 

 

65,462

 

 

44,628

 

 
Cash Flows From Investing Activities:
Acquisition of business

 

-

 

 

3,144

 

 

-

 

 

(18,356

)

Capital expenditures

 

(4,913

)

 

(1,080

)

 

(13,681

)

 

(3,448

)

Increase in cash surrender value of life insurance policies

 

(112

)

 

(70

)

 

(309

)

 

(133

)

Proceeds from sale of assets held for sale

 

60

 

 

1,875

 

 

79

 

 

1,875

 

Proceeds from sale of property, plant and equipment

 

-

 

 

40

 

 

-

 

 

40

 

Proceeds from surrender of life insurance policies

 

4

 

 

189

 

 

27

 

 

195

 

Proceeds from life insurance death benefit

 

-

 

 

200

 

 

-

 

 

200

 

Net cash provided by (used for) investing activities

 

(4,961

)

 

4,298

 

 

(13,884

)

 

(19,627

)

 
Cash Flows From Financing Activities:
Cash dividends paid

 

(581

)

 

(579

)

 

(30,712

)

 

(1,735

)

Proceeds from long-term debt

 

96

 

 

88

 

 

230

 

 

223

 

Principal payments on long-term debt

 

(96

)

 

(88

)

 

(230

)

 

(223

)

Payment of employee tax withholdings related to net share transactions

 

(51

)

 

-

 

 

(161

)

 

(76

)

Cash received from exercise of stock options

 

257

 

 

-

 

 

434

 

 

-

 

Net cash used for financing activities

 

(375

)

 

(579

)

 

(30,439

)

 

(1,811

)

 
Net increase in cash and cash equivalents

 

30,887

 

 

21,008

 

 

21,139

 

 

23,190

 

Cash and cash equivalents at beginning of period

 

58,940

 

 

40,363

 

 

68,688

 

 

38,181

 

Cash and cash equivalents at end of period

$

89,827

 

$

61,371

 

$

89,827

 

$

61,371

 

 
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Income taxes, net

$

5,062

 

$

67

 

$

10,874

 

$

342

 

Non-cash investing and financing activities:
Purchases of property, plant and equipment in accounts payable

 

946

 

 

712

 

 

946

 

 

712

 

Restricted stock units and stock options surrendered for withholding taxes payable

 

51

 

 

-

 

 

161

 

 

76

 

Accrued liability related to holdback for business acquired

 

-

 

 

-

 

 

-

 

 

1,000

 

 

IIIN – E

Mark A. Carano
Senior Vice President,
Chief Financial Officer and Treasurer
Insteel Industries Inc.
(336) 786-2141, Ext. 3038

Source: Insteel Industries Inc.


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