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Oct 18, 2018
Insteel Industries Reports Fourth Quarter And Fiscal 2018 Financial Results

MOUNT AIRY, N.C., Oct. 18, 2018 /PRNewswire/ -- Insteel Industries, Inc. (NasdaqGS: IIIN) today announced financial results for its fourth quarter and fiscal year ended September 29, 2018.

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Fourth Quarter 2018 Results

Net earnings for the fourth quarter of fiscal 2018 increased to $9.4 million, or $0.49 per share, from $3.8 million, or $0.20 per share, in the same period a year ago. Insteel's fourth-quarter results for fiscal 2018 benefited from higher spreads between selling prices and raw material costs and a lower effective tax rate relative to the prior year quarter.

Net sales increased 25.3% to $121.4 million from $96.9 million in the prior year quarter driven by a 27.3% increase in average selling prices partially offset by a 1.6% decrease in shipments. The reduction in shipments was due to a combination of factors, including competitive pricing pressures, operational issues at certain locations, raw material availability and customer inventory rebalancing. On a sequential basis, average selling prices increased 11.3% from the third quarter of fiscal 2018 while shipments decreased 13.9%. Gross margin increased 390 basis points to 16.1% from 12.2% in the prior year quarter due to the higher spreads. Excluding a $0.4 million adjustment to reduce the estimated deferred tax gain that was recorded in the first quarter of fiscal 2018, Insteel's effective tax rate decreased to 19.3% from 34.9% in the prior year quarter reflecting the reduction in the corporate tax rate under the Tax Cuts and Jobs Act. 

Operating activities provided $4.1 million of cash in the fourth quarter of fiscal 2018 while using $1.2 million of cash in the prior year quarter primarily due to the increase in earnings. Net working capital used $9.8 million of cash compared to $8.4 million in the prior year quarter.

Fiscal 2018 Results

Net earnings for fiscal 2018 increased to $36.3 million, or $1.88 per diluted share, from $22.5 million, or $1.17 per diluted share in the prior year. Insteel's results for fiscal 2018 benefited from a $3.3 million, or $0.17 per share gain on the remeasurement of deferred tax assets and liabilities related to the impact of the new tax law.

Net sales increased 16.5% to $453.2 million from $388.9 million in the prior year driven by an 11.5% increase in average selling prices and a 4.6% increase in shipments. Gross margin increased 20 basis points to 15.6% from 15.4% due to higher spreads, and, to a lesser extent, the increase in shipments and lower unit manufacturing costs on higher production volume. Excluding the deferred tax gain, Insteel's effective tax rate decreased to 22.7% from 34.0% in the prior year.

Cash flow from operations in fiscal 2018 increased to $54.0 million from $20.8 million in the prior year primarily due to the relative changes in net working capital and the increase in earnings. Net working capital provided $4.7 million of cash in fiscal 2018 while using $15.5 million in the prior year.

Capital Allocation and Liquidity

Capital expenditures for fiscal 2018 totaled $18.4 million largely related to further investments in engineered structural mesh ("ESM") manufacturing capabilities, the purchase of the leased Houston facility and production technology upgrades. Capital outlays for fiscal 2019 are expected to total up to $22.0 million primarily focused on cost and productivity improvement initiatives in addition to recurring maintenance.

During fiscal 2018, Insteel returned $21.3 million of capital to shareholders through the payment of a special cash dividend of $1.00 per share in addition to regular quarterly cash dividends of $0.03 per share, marking the third consecutive year in which a special dividend of at least $1.00 per share has been paid. Insteel ended the year debt-free with $43.9 million of cash and cash equivalents, and no borrowings outstanding on its $100.0 million revolving credit facility.

Outlook

"As we head into fiscal 2019, the outlook for our markets remains positive," commented H.O. Woltz III, Insteel's president and CEO. "The leading indicators and industry forecasts for nonresidential building construction are signaling modest growth in the coming year. We believe the infrastructure-related portion of our business will benefit from increased federal funding through the FAST Act and supplemental measures together with higher state and local spending supported by various initiatives in many of our markets. Residential construction is also expected to strengthen driven by favorable employment and demographic trends.

"Business conditions are becoming increasingly challenging, however, due to the Administration's Section 232 imported steel tariff program, which has driven domestic prices for our primary raw material, hot-rolled steel wire rod, well above world market levels. Considering that no tariffs were placed on imports of downstream products such as welded wire reinforcement and PC strand, we expect a surge in low-priced import competition that results in market share erosion and margin compression for domestic producers. We are engaged with the Administration and Congress to arrive at a solution that addresses the unsustainable competitive environment that has developed in the wake of the tariff program. We have also intensified our focus on operational excellence across all of our commercial and manufacturing activities and will continue to pursue strategic investments that strengthen our market and cost leadership positions."

Conference Call

Insteel will hold a conference call at 10:00 a.m. ET today to discuss its fourth 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 PC strand and welded wire reinforcement, including ESM, concrete pipe reinforcement and standard welded wire reinforcement. Insteel's products are sold primarily to manufacturers of concrete products that are used in nonresidential construction. 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 September 30, 2017.

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: 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 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 September 30, 2017 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 amounts)






























Three Months Ended


Year Ended



(Unaudited)


(Unaudited)


(Unaudited)





September 29,


September 30,


September 29,


September 30,



2018


2017


2018


2017










Net sales


$     121,371


$       96,886


$     453,217


$     388,871

Cost of sales


101,827


85,085


382,410


329,090

    Gross profit


19,544


11,801


70,807


59,781

Selling, general and administrative expense


7,525


5,973


28,304


25,508

Restructuring charges, net


-


31


-


164

Other expense, net


121


3


274


53

Interest expense


40


33


114


136

Interest income


(236)


(73)


(515)


(248)

    Earnings before income taxes


12,094


5,834


42,630


34,168

Income taxes


2,686


2,035


6,364


11,620

    Net earnings


$         9,408


$         3,799


$       36,266


$       22,548



















Net earnings per share:









    Basic


$           0.49


$           0.20


$           1.90


$           1.19

    Diluted


0.49


0.20


1.88


1.17










Weighted average shares outstanding:









    Basic


19,154


19,034


19,079


19,011

    Diluted


19,353


19,211


19,277


19,217










Cash dividends declared per share


$           0.03


$           0.03


$           1.12


$           1.37

 

 

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)


















(Unaudited)





September 29,


June 30,


September 30,



2018


2018


2017

Assets







Current assets:







    Cash and cash equivalents


$          43,941


$          45,232


$          32,105

    Accounts receivable, net


51,484


55,832


40,284

    Inventories


94,157


54,751


81,853

    Other current assets


5,895


5,075


5,949

        Total current assets


195,477


160,890


160,191

Property, plant and equipment, net


106,148


102,789


98,670

Intangibles, net


9,703


9,976


7,913

Goodwill


8,293


8,293


6,965

Other assets


9,913


9,778


9,334

        Total assets


$        329,534


$        291,726


$        283,073








Liabilities and shareholders' equity







Current liabilities:







    Accounts payable


$          60,059


$          34,420


$          33,651

    Accrued expenses


11,929


10,017


8,667

        Total current liabilities


71,988


44,437


42,318

Other liabilities


15,881


16,602


17,379

Shareholders' equity:







    Common stock


19,223


19,085


19,041

    Additional paid-in capital


72,852


70,982


69,817

    Retained earnings


151,084


141,953


135,851

    Accumulated other comprehensive loss


(1,494)


(1,333)


(1,333)

        Total shareholders' equity


241,665


230,687


223,376

        Total liabilities and shareholders' equity


$        329,534


$        291,726


$        283,073

 

 

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)












Three Months Ended


Year Ended



(Unaudited)


(Unaudited)


(Unaudited)





September 29,


September 30,


September 29,


September 30,



2018


2017


2018


2017

Cash Flows From Operating Activities:









  Net earnings


$        9,408


$        3,799


$      36,266


$      22,548

  Adjustments to reconcile net earnings to net cash provided by (used for)









    operating activities:









      Depreciation and amortization


3,240


3,073


12,818


11,649

      Amortization of capitalized financing costs


17


17


65


65

      Stock-based compensation expense


837


902


2,078


2,245

      Deferred income taxes


(486)


(202)


(2,807)


2,503

      Loss on sale and disposition of property, plant and equipment


111


15


381


64

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


(125)


(244)


(553)


(812)

      Net changes in assets and liabilities:









        Accounts receivable, net


4,348


2,023


(11,200)


7,105

        Inventories


(39,406)


1,829


(12,304)


(10,667)

        Accounts payable and accrued expenses


25,223


(12,220)


28,234


(11,930)

        Other changes


967


(191)


991


(1,930)

          Total adjustments


(5,274)


(4,998)


17,703


(1,708)

            Net cash provided by (used for) operating activities


4,134


(1,199)


53,969


20,840










Cash Flows From Investing Activities:









  Capital expenditures


(5,968)


(3,720)


(18,449)


(20,575)

  Acquisition of business


-


-


(3,300)


-

  Proceeds from surrender of life insurance policies


13


-


165


100

  Increase in cash surrender value of life insurance policies


(64)


(75)


(355)


(405)

            Net cash used for investing activities


(6,019)


(3,795)


(21,939)


(20,880)










Cash Flows From Financing Activities:









  Proceeds from long-term debt


82


82


372


404

  Principal payments on long-term debt


(82)


(82)


(372)


(404)

  Cash dividends paid


(577)


(571)


(21,333)


(26,011)

  Cash received from exercise of stock options


1,839


-


2,081


107

  Payment of employee tax withholdings related to net share transactions


(668)


(178)


(942)


(824)

            Net cash provided by (used for) financing activities


594


(749)


(20,194)


(26,728)










Net increase (decrease) in cash and cash equivalents


(1,291)


(5,743)


11,836


(26,768)

Cash and cash equivalents at beginning of period


45,232


37,848


32,105


58,873

Cash and cash equivalents at end of period


$      43,941


$      32,105


$      43,941


$      32,105










Supplemental Disclosures of Cash Flow Information:









  Cash paid during the period for:









    Income taxes, net


$        4,224


$        2,504


$        7,777


$        9,300

  Non-cash investing and financing activities:









    Purchases of property, plant and equipment in accounts payable


967


465


967


465

    Restricted stock units and stock options surrendered for withholding taxes payable

668


178


942


824

 

 

IIIN – E

 

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/insteel-industries-reports-fourth-quarter-and-fiscal-2018-financial-results-300731267.html

SOURCE Insteel Industries, Inc.

Michael C. Gazmarian, Vice President, CFO and Treasurer, Insteel Industries, Inc., (336) 786-2141, Ext. 3020


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