Insteel Industries Reports Fourth Quarter and Fiscal 2022 Results
10/20/2022 | 06:31am EST
Insteel Industries Inc. (NYSE: IIIN) today announced financial results for its fourth quarter and fiscal year ended October 1, 2022.
Fourth Quarter 2022 Results
Net earnings for the fourth quarter of fiscal 2022 were $24.3 million, or $1.24 per diluted share, compared to $25.2 million, or $1.28 per share, in the same period a year ago. Net sales increased 21.4% to $208.0 million from $171.3 million in the prior year quarter.
Insteel’s fourth quarter results benefitted from widening spreads between selling prices and raw material costs due to a 26.1% increase in average selling prices from the prior year quarter, implemented to recover rising raw material and operating costs. Ongoing weakness in residential construction activity combined with the negative impact of inventory management measures implemented by many of our customers led to a 3.7% reduction in shipments. On a sequential basis, fourth quarter average selling prices decreased 2.6% due primarily to weakness in residential markets, and shipments decreased 6.0%.
Gross margin decreased 420 basis points to 19.1% from 23.3% in the prior year quarter primarily due to lower shipment volumes and higher plant operating costs. Insteel’s net earnings for the current year quarter reflect a $0.5 million decrease in the cash surrender value of life insurance policies, which increased selling, general and administrative expense, and decreased net earnings per share by $0.02.
Operating activities used $9.4 million of cash during the fourth quarter compared to generating $4.4 million in the prior year quarter due to the relative changes in working capital. Working capital used $34.8 million of cash in the current year compared to using $24.2 million the prior year.
Fiscal 2022 Results
Fiscal 2022 annual revenue and net earnings are the highest on record for the Company. Net earnings increased to $125.0 million, or $6.37 per diluted share, from $66.6 million, or $3.41 per diluted share, in the prior year. Net sales increased 40.0% to $826.8 million from $590.6 million in the prior year driven by a 51.9% increase in average selling prices offset by a 7.8% decrease in shipments.
Gross margin expanded to 23.9% from 20.6% due to the wider spreads. Insteel’s net earnings for fiscal 2022 reflect a $1.9 million decrease in cash surrender value of life insurance policies, which decreased fiscal 2022 net earnings per diluted share by $0.07. Net earnings for the prior year period reflect $1.5 million increase in cash surrender value of life insurance policies and $2.9 million of restructuring charges and acquisition costs related to the Company’s acquisition of substantially all the assets of Strand-Tech Manufacturing, Inc., which, in the aggregate, decreased fiscal 2021 net earnings per diluted share by $0.05.
Operating activities generated $5.7 million of cash compared to $69.9 million in the prior year due to relative changes in working capital. Working capital used $134.3 million in the current year compared to using $12.3 million in the prior year.
Capital Allocation and Liquidity
Capital expenditures for fiscal 2022 decreased to $15.9 million from $17.5 million in the prior year and are expected to total up to approximately $30 million in fiscal 2023 including expenditures primarily to advance the growth of our engineered structural mesh business and to support cost and productivity improvement initiatives as well as recurring maintenance requirements.
Insteel ended the year debt-free with $48.3 million of cash and no borrowings outstanding on its $100.0 million revolving credit facility.
Outlook
“Fiscal 2022 was a record year of financial performance for Insteel, meaningfully exceeding our previous record achieved in fiscal 2021. Our financial results were particularly gratifying in view of the difficult operating conditions experienced at times over the last twelve months. including raw material shortfalls, labor availability challenges and residential construction market weakness,” commented H.O. Woltz III, Insteel’s President and CEO. “We appreciate the contributions of our dedicated employees who persevered through many challenges and our supplier base that supported the Company, allowing us to deliver consistently for customers.”
Mr. Woltz added, “As we look ahead to fiscal 2023, we remain optimistic about demand in our non-residential construction markets, which represent a substantial majority of our sales. Backlogs across our customer base remain solid and third-party non-residential construction indices point to continued expansion. In addition, incremental demand from projects funded by the Infrastructure Investment and Jobs Act should materialize during 2023, contributing positively to the overall demand environment. While weakness in the residential construction markets and heightened uncertainty regarding the future direction of the overall economy are areas we are closely monitoring, our strong balance sheet and flexible operating model position us to navigate any softness we may encounter.”
Conference Call
Insteel will hold a conference call at 10:00 a.m. ET today to discuss its fourth quarter and 2022 fiscal year end 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 (“ESM”), 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.
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 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
Year Ended
(Unaudited)
(Unaudited)
(Unaudited)
October 1,
October 2,
October 1,
October 2,
2022
2021
2022
2021
Net sales
$
207,991
$
171,258
$
826,832
$
590,601
Cost of sales
168,196
131,339
629,522
469,053
Gross profit
39,795
39,919
197,310
121,548
Selling, general and administrative expense
8,330
7,321
36,048
32,388
Restructuring charges (recoveries), net
-
68
(318
)
2,868
Other expense (income), net
103
(9
)
88
114
Interest expense
23
23
91
96
Interest income
(216
)
(6
)
(326
)
(21
)
Earnings before income taxes
31,555
32,522
161,727
86,103
Income taxes
7,249
7,370
36,716
19,493
Net earnings
$
24,306
$
25,152
$
125,011
$
66,610
Net earnings per share:
Basic
$
1.24
$
1.30
$
6.41
$
3.44
Diluted
1.24
1.28
6.37
3.41
Weighted average shares outstanding:
Basic
19,558
19,386
19,517
19,344
Diluted
19,628
19,612
19,629
19,534
Cash dividends declared per share
$
0.03
$
0.03
$
2.12
$
1.62
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
October 1,
July 2,
October 2,
2022
2022
2021
Assets
Current assets:
Cash and cash equivalents
$
48,316
$
63,045
$
89,884
Accounts receivable, net
81,646
81,175
67,917
Inventories
197,654
192,447
79,049
Other current assets
7,716
6,998
10,056
Total current assets
335,332
343,665
246,906
Property, plant and equipment, net
108,156
108,265
105,624
Intangibles, net
6,847
7,051
7,668
Goodwill
9,745
9,745
9,745
Other assets
11,665
12,322
20,767
Total assets
$
471,745
$
481,048
$
390,710
Liabilities and shareholders' equity
Current liabilities:
Accounts payable
$
46,796
$
77,159
$
49,443
Accrued expenses
15,800
17,877
19,406
Total current liabilities
62,596
95,036
68,849
Long-term debt
-
-
Other liabilities
19,405
21,088
19,823
Commitments and contingencies
Shareholders' equity:
Common stock
19,478
19,506
19,408
Additional paid-in capital
81,997
81,349
78,688
Retained earnings
289,246
266,511
206,384
Accumulated other comprehensive loss
(977
)
(2,442
)
(2,442
)
Total shareholders' equity
389,744
364,924
302,038
Total liabilities and shareholders' equity
$
471,745
$
481,048
$
390,710
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
Year Ended
(Unaudited)
(Unaudited)
(Unaudited)
October 1,
October 2,
October 1,
October 2,
2022
2021
2022
2021
Cash Flows From Operating Activities:
Net earnings
$
24,306
$
25,152
$
125,011
$
66,610
Adjustments to reconcile net earnings to net cash provided by (used for) operating activities:
Depreciation and amortization
3,509
3,693
14,486
14,521
Amortization of capitalized financing costs
16
16
65
65
Stock-based compensation expense
1,034
814
2,429
1,988
Deferred income taxes
(297
)
(82
)
327
(118
)
Asset impairment charges
-
-
-
1,415
Loss (gain) on sale and disposition of property, plant and equipment
and assets held for sale
115
-
(480
)
125
Increase in cash surrender value of life insurance policies over premiums paid
-
-
-
(1,533
)
Gain from life insurance proceeds
-
-
(364
)
-
Net changes in assets and liabilities:
Accounts receivable, net
(471
)
(8,568
)
(13,729
)
(14,100
)
Inventories
(5,207
)
(7,891
)
(118,605
)
(10,086
)
Accounts payable and accrued expenses
(29,161
)
(7,751
)
(1,964
)
11,891
Other changes
(3,288
)
(969
)
(1,506
)
(900
)
Total adjustments
(33,750
)
(20,738
)
(119,341
)
3,268
Net cash provided by (used for) operating activities
(9,444
)
4,414
5,670
69,878
Cash Flows From Investing Activities:
Capital expenditures
(3,649
)
(3,819
)
(15,900
)
(17,500
)
Decrease (increase) in cash surrender value of life insurance policies
349
(105
)
1,361
(416
)
Proceeds from sale of assets held for sale
-
-
6,934
79
Proceeds from surrender of life insurance policies
-
5
110
32
Proceeds from life insurance claims
-
-
1,456
-
Net cash used for investing activities
(3,300
)
(3,919
)
(6,039
)
(17,805
)
Cash Flows From Financing Activities:
Proceeds from long-term debt
46
67
266
297
Principal payments on long-term debt
(46
)
(67
)
(266
)
(297
)
Cash dividends paid
(584
)
(582
)
(41,162
)
(31,294
)
Cash received from exercise of stock options
-
648
1,650
1,082
Payment of employee tax withholdings related to net share transactions
(197
)
(504
)
(483
)
(665
)
Repurchases of common stock
(1,204
)
-
(1,204
)
-
Net cash used for financing activities
(1,985
)
(438
)
(41,199
)
(30,877
)
Net (decrease) increase in cash and cash equivalents
(14,729
)
57
(41,568
)
21,196
Cash and cash equivalents at beginning of period
63,045
89,827
89,884
68,688
Cash and cash equivalents at end of period
$
48,316
$
89,884
$
48,316
$
89,884
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Income taxes, net
$
11,485
$
5,925
$
41,483
$
16,799
Non-cash investing and financing activities:
Purchases of property, plant and equipment in accounts payable
946
501
946
501
Restricted stock units and stock options surrendered for withholding taxes payable
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