INSTEEL INDUSTRIES, INC. Cautionary Note Regarding Forward-Looking Statements
This report contains forward-looking statements within the meaning of the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995,
particularly under the caption "Outlook" below. When used in this report, the
words "believes," "anticipates," "expects," "estimates," "appears," "plans,"
"intends," "continue," "outlook," "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 numerous
risks and uncertainties and involved certain assumptions. Actual results may
differ materially from those expressed in forward-looking statements, 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 where appropriate, updated in our filings with the
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 business, 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 carbon 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 U.S. or foreign trade policy, including the Section 232 tariff on
imported steel, 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 2020 Annual Report and in other filings
made by us with the SEC .
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Overview
On
COVID-19 Update
In
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Results of Operations
Statements of Operations - Selected Data
(Dollars in thousands)
Three Months Ended
January 2, December 28,
2021 Change 2019
Net sales $ 119,605 22.6 % $ 97,569
Gross profit 19,851 218.3 % 6,237
Percentage of net sales 16.6 % 6.4 %
Selling, general and
administrative expense $ 8,553 48.9 % $ 5,744
Percentage of net sales 7.2 % 5.9 %
Restructuring charges, net $ 657 100.0 % $ -
Other expense (income), net 13 N/M (25 )
Interest expense 25 (3.8 %) 26
Interest income (5 ) (97.8 %) (226 )
Effective income tax rate 23.2 % 22.7 %
Net earnings $ 8,143 N/M $ 555
"N/M" = not meaningful
First Quarter of Fiscal 2021 Compared to First Quarter of Fiscal 2020
Net Sales
Net sales for the first quarter of 2021 increased 22.6% to
Gross Profit
Gross profit for the first quarter of 2021 increased 218.3% to
Selling, General and Administrative Expense
Selling, general and administrative expense ("SG&A expense") for the first
quarter of 2021 increased 48.9% to
Restructuring Charges, Net
Net restructuring charges of
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Income Taxes
Our effective tax rate for the first quarter of 2021 increased to 23.2% from 22.7% for the prior year quarter primarily due to changes in book versus tax differences during the prior year quarter.
Net Earnings
Net earnings for the first quarter of 2021 increased to
Liquidity and Capital Resources
Selected Financial Data
(Dollars in thousands)
Three Months Ended
January 2, December 28,
2021 2019
Net cash provided by operating activities $ 13,950 $ 29,575
Net cash used for investing activities (3,020 ) (642 )
Net cash used for financing activities (29,436 ) -
Net working capital 122,110 133,959
Total debt - -
Percentage of total capital - -
Shareholders' equity $ 243,734 $ 246,180
Percentage of total capital 100.0 % 100.0 %
Total capital (total debt + shareholders' equity)
Operating Activities
Operating activities provided
Operating activities provided
We may elect to adjust our operating activities as there are changes in our construction end-markets, which could materially impact our cash requirements. While a downturn in the level of construction activity adversely affects sales to our customers, it generally reduces our working capital requirements.
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Investing Activities
Investing activities used
Our investing activities are largely discretionary, providing us with the ability to significantly curtail outlays when warranted based on business conditions.
Financing Activities
Financing activities used
Cash Management
Our cash is principally concentrated at one financial institution, which at times exceeds federally insured limits. We invest excess cash primarily in money market funds, which are highly liquid securities that bear minimal risk.
Credit Facility
We have a
We believe that, in the absence of significant unanticipated funding requirements, cash and cash equivalents, net cash generated by operating activities and the borrowing availability provided under the Credit Facility will be sufficient to satisfy our expected requirements for working capital, capital expenditures, dividends and share repurchases, if any. We expect to have access to the amounts available under the Credit Facility as required. However, should we experience future reductions in our operating cash flows due to weakening conditions in our construction end-markets and reduced demand from our customers, we may need to curtail capital and operating expenditures, cease dividend payments, delay or restrict share repurchases and/or realign our working capital requirements.
Should we determine, at any time, that we require additional short-term liquidity, we would evaluate the alternative sources of financing that would be potentially available to provide such funding. There can be no assurance that any such financing, if pursued, would be obtained, or if obtained, would be adequate or on terms acceptable to us. However, we believe that our strong balance sheet and borrowing capacity available to us under our Credit Facility position us to meet our anticipated liquidity requirements for the foreseeable future, including the next 12 months.
Seasonality and Cyclicality
Demand in our markets is both seasonal and cyclical, driven by the level of construction activity, but can also be impacted by fluctuations in the inventory positions of our customers. From a seasonal standpoint, shipments typically reach their highest level of the year when weather conditions are the most conducive to construction activity. As a result, assuming normal seasonal weather patterns, shipments and profitability are usually higher in the third and fourth quarters of the fiscal year and lower in the first and second quarters. From a cyclical standpoint, construction activity and demand for our products is generally correlated with general economic conditions, although there can be significant differences between the relative strength of nonresidential and residential construction for extended periods.
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Impact of Inflation
We are subject to inflationary risks arising from fluctuations in the market prices for our primary raw material, hot-rolled carbon steel wire rod, and, to a much lesser extent, freight, energy and other consumables that are used in our manufacturing processes. We have generally been able to adjust our selling prices to pass through increases in these costs or offset them through various cost reduction and productivity improvement initiatives. However, our ability to raise our selling prices depends on market conditions and competitive dynamics, and there may be periods during which we are unable to fully recover increases in our costs. Inflation did not have a material impact on our sales or earnings during the first quarter of fiscal 2021. The timing and magnitude of any future increases in our raw material costs and the selling prices for our products is uncertain at this time.
Off-Balance Sheet Arrangements
We do not have any material transactions, arrangements, obligations (including
contingent obligations), or other relationships with unconsolidated entities or
other persons, as described by Item 303(a)(4) of Regulation S-K of the
Contractual Obligations
There have been no material changes in our contractual obligations and commitments as disclosed in our 2020 Annual Report other than those which occur in the ordinary course of business.
Critical Accounting Policies
Our Management's Discussion and Analysis of Financial Condition and Results of
Operations is based on our unaudited financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
Recent Accounting Pronouncements
Refer to Note 2 of the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report for recently adopted and issued accounting pronouncements including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements.
Outlook
Looking ahead to the remainder of 2021, we are cautiously optimistic that our
financial results will benefit from continued strong demand in our construction
end-markets. Near term business conditions remain positive and should support
higher shipments and operating levels, and reduced unit manufacturing costs at
our facilities. In particular, our strong growth in the ESM market during the
current quarter should continue and the recent favorable ruling in the PC strand
trade case is expected to have a positive financial impact for us in certain of
our markets going forward. Additionally, the new administration and
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In response to these challenges, we will continue to focus on those factors that we can control: closely managing and controlling our expenses; aligning our production schedules with demand in a proactive manner as there are changes in market conditions to minimize our cash operating costs; and pursuing further improvements in the productivity and effectiveness of all our manufacturing, selling and administrative activities. We also expect gradually increasing contributions from the substantial investments we have made in our facilities in the form of reduced operating costs and additional capacity to support future growth. In addition, we will continue to pursue acquisitions opportunistically in our existing businesses that expand our penetration of markets we currently serve or expand our footprint.
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