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Insteel Industries Reports Second Quarter 2022 Results

04/21/2022

Insteel Industries Inc. (NYSE: IIIN) today announced financial results for its second quarter ended April 2, 2022.

Second Quarter 2022 Results

For the second quarter of fiscal 2022, Insteel reported record quarterly net earnings of $39.0 million, or $1.99 per diluted share, up from $14.9 million, or $0.76 per diluted share, for the same period a year ago. The Company benefitted from strong demand for its reinforcing products and incremental price increases to recover the continued escalation in costs.

Net sales increased to $213.2 million from $139.0 million for the prior year quarter driven by a 65.4% increase in average selling prices and a 7.2% decrease in shipments. The average selling price increase was the result of price increases implemented across all product lines during the quarter to recover rapidly escalating costs, which offset the impact of lower shipments resulting from tight supply conditions for raw materials. On a sequential basis, average selling prices increased 10.1% while shipments increased 8.5%.

Gross profit increased to $57.1 million from $30.2 million in the prior quarter and gross margin widened 510 basis points to 26.8% from 21.7% in the prior year quarter due to higher spreads between selling prices and raw material costs.

Operating activities provided $6.3 million of cash compared with providing $15.3 million for the prior year quarter due to an increase in net working capital, which used $32.6 million of cash in the current year quarter. In the prior year quarter, net working capital used $0.8 million.

Six Month 2022 Results

Net earnings for the first six months of fiscal 2022 were $62.1 million, or $3.17 per diluted share, compared to $23.1 million, or $1.18 per diluted share, for the same period a year ago. Net sales increased to $391.7 million from $258.6 million for the prior year period driven by a 67.5% increase in average selling prices and a 9.5% decrease in shipments. Gross profit increased to $99.4 million from $50.1 million in the same period a year ago and gross margin widened 600 basis points to 25.4% from 19.4% due to higher spreads.

Operating activities provided $20.1 million of cash compared with providing $29.2 million in the prior year period primarily due to the $54 million increase in net working capital in the current year. In the prior year period, net working capital used $1.3 million.

Capital Allocation and Liquidity

Capital expenditures for the first six months of fiscal 2022 decreased to $8.6 million from $8.8 million for the prior year period but are expected to total up to $25 million in 2022, including expenditures to advance the growth of the engineered structural mesh business, to support cost and productivity improvement initiatives, and recurring maintenance needs.

Insteel ended the quarter debt-free with $69.7 million of cash and no borrowings outstanding on its $100.0 million revolving credit facility.

Outlook

“Momentum across our business remains positive driven by robust demand from our customer base and price increase initiatives to recover rapidly rising raw material, labor, utility and freight costs,” commented H.O. Woltz III, Insteel’s President and CEO. “For the balance of our fiscal year, we expect continued strong performance due to underlying strength across all our non-residential construction markets together with the usual seasonal upturn in demand that occurs during our third and fourth quarters.”

Woltz continued, “While concerns surrounding inadequate supplies of domestically produced wire rod persist, we have supplemented our requirements with offshore material to bridge the gaps we previously identified and do not expect raw material-related disruptions to our operations through the fourth fiscal quarter. We have concerns about the impact of record high steel prices on demand for reinforcing products, but up to this point momentum in our markets remains strong and there is no indication of weakening.”

Conference Call

Insteel will hold a conference call at 10:00 a.m. ET today to discuss its second quarter financial results. A live webcast of this call can be accessed on Insteel’s website at https://investor.insteel.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 2, 2021.

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 2, 2021 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 Six Months Ended
April 2, April 3, April 2, April 3,

2022

2021

2022

2021

 
Net sales

$

213,209

 

$

138,999

 

$

391,668

 

$

258,604

 

Cost of sales

 

156,140

 

 

108,771

 

 

292,235

 

 

208,525

 

Gross profit

 

57,069

 

 

30,228

 

 

99,433

 

 

50,079

 

Selling, general and administrative expense

 

7,202

 

 

10,330

 

 

19,483

 

 

18,883

 

Restructuring charges, net

 

(365

)

 

545

 

 

(318

)

 

1,202

 

Acquisition costs

 

-

 

 

-

 

 

-

 

 

-

 

Other expense (income), net

 

(11

)

 

75

 

 

(16

)

 

88

 

Interest expense

 

23

 

 

24

 

 

45

 

 

49

 

Interest income

 

(10

)

 

(5

)

 

(24

)

 

(10

)

Earnings before income taxes

 

50,230

 

 

19,259

 

 

80,263

 

 

29,867

 

Income taxes

 

11,213

 

 

4,339

 

 

18,117

 

 

6,804

 

Net earnings

$

39,017

 

$

14,920

 

$

62,146

 

$

23,063

 

 
 
Net earnings per share:
Basic

$

2.00

 

$

0.77

 

$

3.19

 

$

1.19

 

Diluted

 

1.99

 

 

0.76

 

 

3.17

 

 

1.18

 

 
Weighted average shares outstanding:
Basic

 

19,492

 

 

19,328

 

 

19,487

 

 

19,319

 

Diluted

 

19,623

 

 

19,517

 

 

19,615

 

 

19,476

 

 
Cash dividends declared per share

$

0.03

 

$

0.03

 

$

2.06

 

$

1.56

 

 
 
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
 
 
 
(Unaudited) (Unaudited)
April 2, January 1, October 2, April 3,

2022

2022

2021

2021

Assets
Current assets:
Cash and cash equivalents

$

69,725

 

$

63,020

 

$

89,884

 

$

58,940

 

Accounts receivable, net

 

80,690

 

 

73,562

 

 

67,917

 

 

58,123

 

Inventories

 

127,049

 

 

81,558

 

 

79,049

 

 

68,623

 

Other current assets

 

5,340

 

 

8,664

 

 

10,056

 

 

6,556

 

Total current assets

 

282,804

 

 

226,804

 

 

246,906

 

 

192,242

 

Property, plant and equipment, net

 

107,159

 

 

103,442

 

 

105,624

 

 

104,680

 

Intangibles, net

 

7,256

 

 

7,460

 

 

7,668

 

 

8,095

 

Goodwill

 

9,745

 

 

9,745

 

 

9,745

 

 

9,745

 

Other assets

 

13,594

 

 

21,328

 

 

20,767

 

 

22,099

 

Total assets

$

420,558

 

$

368,779

 

$

390,710

 

$

336,861

 

 
Liabilities and shareholders' equity
Current liabilities:
Accounts payable

$

58,459

 

$

35,369

 

$

49,443

 

$

44,941

 

Accrued expenses

 

15,357

 

 

27,205

 

 

19,406

 

 

14,252

 

Total current liabilities

 

73,816

 

 

62,574

 

 

68,849

 

 

59,193

 

Long-term debt

 

-

 

 

-

 

Other liabilities

 

21,595

 

 

20,185

 

 

19,823

 

 

18,932

 

Commitments and contingencies
Shareholders' equity:
Common stock

 

19,439

 

 

19,414

 

 

19,408

 

 

19,341

 

Additional paid-in capital

 

79,613

 

 

78,945

 

 

78,688

 

 

77,351

 

Retained earnings

 

228,537

 

 

190,103

 

 

206,384

 

 

164,000

 

Accumulated other comprehensive loss

 

(2,442

)

 

(2,442

)

 

(2,442

)

 

(1,956

)

Total shareholders' equity

 

325,147

 

 

286,020

 

 

302,038

 

 

258,736

 

Total liabilities and shareholders' equity

$

420,558

 

$

368,779

 

$

390,710

 

$

336,861

 

 
 
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Three Months Ended Six Months Ended
April 2, April 3, April 2, April 3,

2022

2021

2022

2021

Cash Flows From Operating Activities:
Net earnings

$

39,017

 

$

14,920

 

$

62,146

 

$

23,063

 

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

 

3,640

 

 

3,590

 

 

7,345

 

 

7,200

 

Amortization of capitalized financing costs

 

16

 

 

16

 

 

33

 

 

32

 

Stock-based compensation expense

 

830

 

 

710

 

 

1,102

 

 

934

 

Deferred income taxes

 

1,100

 

 

(402

)

 

1,116

 

 

(466

)

(Gain) loss on sale of property, plant and equipment and assets held for sale

 

(622

)

 

83

 

 

(608

)

 

115

 

Gain from life insurance proceeds

 

(364

)

 

(364

)

 

-

 

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

 

-

 

 

(804

)

 

-

 

 

(1,168

)

Net changes in assets and liabilities:
Accounts receivable, net

 

(7,128

)

 

(8,899

)

 

(12,773

)

 

(4,306

)

Inventories

 

(45,491

)

 

(4,347

)

 

(48,000

)

 

340

 

Accounts payable and accrued expenses

 

20,036

 

 

12,430

 

 

6,805

 

 

2,677

 

Other changes

 

(4,715

)

 

(2,008

)

 

3,264

 

 

818

 

Total adjustments

 

(32,698

)

 

369

 

 

(42,080

)

 

6,176

 

Net cash provided by operating activities

 

6,319

 

 

15,289

 

 

20,066

 

 

29,239

 

 
Cash Flows From Investing Activities:
Capital expenditures

 

(7,779

)

 

(5,908

)

 

(8,617

)

 

(8,768

)

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

 

459

 

 

-

 

 

35

 

 

(197

)

Proceeds from sale of assets held for sale

 

6,928

 

 

-

 

 

6,934

 

 

19

 

Proceeds from life insurance claims

 

1,456

 

 

-

 

 

1,456

 

Proceeds from surrender of life insurance policies

 

42

 

 

5

 

 

106

 

 

23

 

Net cash provided by (used for) investing activities

 

1,106

 

 

(5,903

)

 

(86

)

 

(8,923

)

 
Cash Flows From Financing Activities:
Proceeds from long-term debt

 

88

 

 

89

 

 

133

 

 

134

 

Principal payments on long-term debt

 

(88

)

 

(89

)

 

(133

)

 

(134

)

Cash dividends paid

 

(583

)

 

(580

)

 

(39,993

)

 

(30,131

)

Payment of employee tax withholdings related to net share transactions

 

(137

)

 

(97

)

 

(192

)

 

(110

)

Cash received from exercise of stock options

 

-

 

 

49

 

 

46

 

 

177

 

Net cash used for financing activities

 

(720

)

 

(628

)

 

(40,139

)

 

(30,064

)

 
Net increase (decrease) in cash and cash equivalents

 

6,705

 

 

8,758

 

 

(20,159

)

 

(9,748

)

Cash and cash equivalents at beginning of period

 

63,020

 

 

50,182

 

 

89,884

 

 

68,688

 

Cash and cash equivalents at end of period

$

69,725

 

$

58,940

 

$

69,725

 

$

58,940

 

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

$

17,970

 

$

5,717

 

 

18,053

 

 

5,812

 

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

 

372

 

 

1,357

 

 

372

 

 

1,357

 

Restricted stock units and stock options surrendered for withholding taxes payable

 

137

 

 

97

 

 

192

 

 

110

 

IIIN – E

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

Source: Insteel Industries Inc.

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