Business Wire | Jul 22, 2021 06:30AM EDT

Insteel Industries Reports Third Quarter 2021 Results

Jul. 22, 2021

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 SUBSIDIARIESCONSOLIDATED 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 6,184 6,694 25,067 22,040 administrative expenseRestructuring charges, 1,598 808 2,800 957 netAcquisition costs - 8 - 195

Other expense (income), 35 (1,240 ) 123 (1,283 )netInterest expense 24 26 73 78

Interest income (5 ) (22 ) (15 ) (452 )

Earnings before income 23,714 8,531 53,581 14,790 taxesIncome 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 sharesoutstanding:Basic 19,352 19,283 19,330 19,272

Diluted 19,573 19,377 19,508 19,378

Cash dividends declared $ 0.03 $ 0.03 $ 1.59 $ 0.09 per shareINSTEEL INDUSTRIES, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands)(Unaudited)

(Unaudited)

July 3,

April 3,

January 2,

October 3,

June 27,

2021

2021

2021

2020

2020

AssetsCurrent assets:Cash and cash equivalents$

89,827

$

58,940

$

50,182

$

68,688

$

61,371

Accounts receivable, net59,349

58,123

49,224

53,817

54,901

Inventories71,158

68,623

64,276

68,963

74,269

Other current assets7,479

6,556

5,201

5,570

6,245

Total current assets227,813

192,242

168,883

197,038

196,786

Property, plant and equipment, net105,729

104,680

101,351

101,392

101,089

Intangibles, net7,882

8,095

8,331

8,567

8,810

Goodwill9,745

9,745

9,745

9,745

9,745

Other assets20,762

22,099

21,641

21,160

20,260

Total assets$

371,931

$

336,861

$

309,951

$

337,902

$

336,690

Liabilities and shareholders' equityCurrent liabilities:Accounts payable$

60,217

$

44,941

$

31,761

$

38,961

$

47,891

Accrued expenses15,412

14,252

15,012

14,717

11,839

Total current liabilities75,629

59,193

46,773

53,678

59,730

Long-term debt-

-

-

-

-

Other liabilities19,306

18,932

19,444

19,421

19,894

Commitments and contingenciesShareholders' equity:Common stock19,358

19,341

19,314

19,304

19,283

Additional paid-in capital77,780

77,351

76,716

76,387

75,811

Retained earnings181,814

164,000

149,660

171,068

164,220

Accumulated other comprehensive loss(1,956

)

(1,956

)

(1,956

)

(1,956

)

(2,248

)

Total shareholders' equity276,996

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 SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands) (Unaudited) (Unaudited)

July 3, April 3, January 2, October 3, June 27,

2021 2021 2021 2020 2020

AssetsCurrentassets:Cash and cash $ 89,827 $ 58,940 $ 50,182 $ 68,688 $ 61,371 equivalentsAccounts 59,349 58,123 49,224 53,817 54,901 receivable,netInventories 71,158 68,623 64,276 68,963 74,269

Other current 7,479 6,556 5,201 5,570 6,245 assetsTotal current 227,813 192,242 168,883 197,038 196,786 assetsProperty,plant and 105,729 104,680 101,351 101,392 101,089 equipment,netIntangibles, 7,882 8,095 8,331 8,567 8,810 netGoodwill 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

Liabilitiesandshareholders'equityCurrentliabilities:Accounts $ 60,217 $ 44,941 $ 31,761 $ 38,961 $ 47,891 payableAccrued 15,412 14,252 15,012 14,717 11,839 expensesTotal current 75,629 59,193 46,773 53,678 59,730 liabilitiesLong-term - - - - - debtOther 19,306 18,932 19,444 19,421 19,894 liabilitiesCommitmentsandcontingenciesShareholders'equity:Common stock 19,358 19,341 19,314 19,304 19,283

Additional 77,780 77,351 76,716 76,387 75,811 paid-incapitalRetained 181,814 164,000 149,660 171,068 164,220 earningsAccumulatedother (1,956 ) (1,956 ) (1,956 ) (1,956 ) (2,248 )comprehensivelossTotal 276,996 258,736 243,734 264,803 257,066 shareholders'equityTotalliabilities $ 371,931 $ 336,861 $ 309,951 $ 337,902 $ 336,690 andshareholders'equityINSTEEL INDUSTRIES, INC. AND SUBSIDIARIESCONSOLIDATED 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 byoperating activities:Depreciation and amortization3,629

3,635

10,828

10,626

Amortization of capitalized financing costs17

17

49

49

Stock-based compensation expense240

150

1,174

1,277

Deferred income taxes430

(213

)

(36

)

392

Asset impairment charges1,411

343

1,415

343

Loss (gain) on sale and disposition of property, plant and equipment14

(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 expenses16,964

10,969

19,642

26,281

Other changes(749

)

292

69

2,444

Total adjustments17,828

10,625

24,004

33,045

Net cash provided by operating activities36,223

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 sale60

1,875

79

1,875

Proceeds from sale of property, plant and equipment-

40

-

40

Proceeds from surrender of life insurance policies4

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 debt96

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 options257

-

434

-

Net cash used for financing activities(375

)

(579

)

(30,439

)

(1,811

)

Net increase in cash and cash equivalents30,887

21,008

21,139

23,190

Cash and cash equivalents at beginning of period58,940

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 payable946

712

946

712

Restricted stock units and stock options surrendered for withholding taxes payable51

-

161

76

Accrued liability related to holdback for business acquired-

-

-

1,000

IIIN - E

View source version on businesswire.com: https://www.businesswire.com/news/home/20210722005058/en/

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