Insteel Industries Reports 2nd Quarter Results
04/17/2009 - Insteel Industries reports a net loss of $16.4 million on net sales of $50.4 million for the second quarter, and a net loss of $22.0 million on net sales of $112.2 million for the six months ended March 28, 2009.
Insteel Industries, Inc. reported a net loss of $16.4 million on net sales of $50.4 million for the second quarter, and a net loss of $22.0 million on net sales of $112.2 million for the six months ended March 28, 2009.
Second Quarter Results—The $16.4 million net loss ($0.94 per share) compares to net earnings of $6.9 million ($0.39 per diluted share) for the same period last year. Results include a $16.1-million pre-tax charge ($0.58 per share after-tax) for inventory write-downs to reduce the carrying value of inventory to the lower of cost or market. Net sales of $50.4 million reflect a 34.8% decrease from $77.3 million in the year-ago second quarter. Shipments decreased 45.5% while average selling prices increased 19.7% from the same period last year.
Second-quarter results were unfavorably impacted by reduced shipments, the consumption of higher-cost inventory (inventory purchased prior to the recent collapse in steel prices), and escalated unit conversion costs as the company's overall capacity utilization level fell to 35%. Shipments continued to trend at reduced levels due to customer inventory destocking, the general economic downturn, and tightening in the credit markets.
Although selling prices for Insteel's products have fallen since the beginning of the fiscal year to a lesser extent than the prices for hot-rolled steel wire rod (the company’s primary raw material), the favorable impact from the widening in spreads has not been reflected in results due to inventory write-downs and consumption of higher-cost inventory.
Six Month Results—The $22.0 million net loss ($1.27 per share) compares with net earnings of $11.1 million ($0.62 per diluted share) for the same period last year. Results include a $23.0-million pre-tax charge ($0.82 per share after-tax) for inventory write-downs. Net sales of $112.2 million reflect a 21.7% decrease from net sales of $143.2 million in the same year-ago period. Shipments decreased 41.9% while average selling prices increased 34.9% from the same period last year.
Operating activities used $0.7 million of cash during the second quarter while providing $6.8 million during the same period last year primarily due to the current year loss, which was partially offset by the year-over-year changes in net working capital. Net working capital provided $6.8 million of cash during the quarter while using $3.1 million during the same year-ago period largely due to the reduced operating levels and declining prices during the current year. Capital expenditures for the six-month period were $1.4 million compared with $6.2 million for the same period last year and are expected to total less than $5.0 million for fiscal 2009. Insteel ended the quarter with $0.4 million of borrowings outstanding on its $100.0 million revolving credit facility.
Management Comments—"In the wake of the dramatic drop-off in demand that has occurred since September, our visibility is limited as we move into the second half of the year,” said H.O. Woltz III, Insteel's President and CEO, commenting on the outlook for the remainder of fiscal 2009. “We expect our order book to improve due to the usual seasonal factors together with the anticipated completion of the inventory rebalancing by our customers, although the timing and magnitude of any upturn remains uncertain. We also believe the mismatching of higher raw-material costs with lower selling prices is largely behind us, and expect significant improvement in our margins as the lower replacement costs for wire rod begin to be reflected in cost of sales.
"Despite the losses we have incurred resulting from the unprecedented decline in steel prices, we are pleased with the effectiveness of the measures that we have taken to preserve cash. Absent further deterioration in our markets, we expect to generate strong operating cash flow through the remainder of the fiscal year driven by the anticipated improvement in our financial results together with substantial reductions in our inventory levels. We will continue to focus on cash generation through our ongoing initiatives to minimize operating costs and closely manage working capital while continuing to meet the expectations of our customers."
Insteel, one of the nation's largest manufacturers of steel wire reinforcing products for concrete construction applications, manufactures and markets prestressed concrete strand (PC strand) and welded wire reinforcement, including concrete pipe reinforcement, engineered structural mesh (ESM) 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, N.C., Insteel operates six manufacturing facilities located in the U.S.
