Insteel Industries Reports 2nd Quarter Results
04/16/2008 - Insteel Industries announces net earnings of $6.9 million on net sales of $77.3 million for the second quarter, and earnings from continuing operations of $11.1 million on net sales of $143.2 million for the six months ended March 29, 2008.
Insteel Industries, Inc. announced net earnings of $6.9 million on net sales of $77.3 million for the second quarter, and earnings from continuing operations of $11.1 million on net sales of $143.2 million for the six months ended March 29, 2008.
Second-Quarter Results—Net earnings of $6.9 million ($0.39 per diluted share) compare with net earnings of $4.9 million ($0.27 per diluted share) for the same period last year. Net sales of $77.3 million represent a 3.3% increase compared to net sales of $74.8 million last year. Shipments decreased 6.5% while average selling prices rose 10.6%.
Six-Month Results—Earnings from continuing operations were $11.1 million ($0.62 per diluted share) compare to earnings of $10.9 million ($0.59 per diluted share) in the prior year. Net sales of $143.2 million reflect a 0.9% decrease compared to net sales of $144.5 million last year. Shipments decreased 6.3% while average selling prices increased 5.8%.
Management Comments—"Insteel posted strong financial results for the second quarter, particularly in view of the unprecedented escalation in raw material costs and the weak demand that we experienced in certain of our markets," said H.O. Woltz III, Insteel's President and CEO. "During the quarter, we implemented price increases sufficient to recover these additional costs and benefited from the consumption of lower cost material from inventory. Our shipment performance continued to be mixed, characterized by relatively strong demand for products primarily used in nonresidential construction and weak demand from customers with greater exposure to the housing market."
Second-Quarter Operating Results—Gross profit increased to $15.8 million (20.4% of net sales) from $12.4 million (16.5% of net sales) a year ago due to the higher average selling prices which more than offset higher raw material costs, lower shipments and higher unit conversion costs. Soft demand caused most of the company's manufacturing facilities to continue to operate on reduced schedules.
Operating activities of continuing operations provided $6.8 million of cash during the quarter while using $10.0 million a year ago primarily due to the year-over-year changes in net working capital together with the increase in earnings. Net working capital used $3.1 million of cash while using $15.7 million a year ago, largely due to the $14.6-million decrease in accounts payable and accrued expenses in the prior year that resulted from the reduction in raw material purchases from the levels earlier in the year.
The strong operating cash flow for the quarter enabled the company to repurchase 697,813 shares ($6.2 million) of common stock under its share repurchase authorization; fund $1.3 million of capital expenditures; pay $0.5 million of dividends; and end the quarter debt-free with $17.7 million of cash, unchanged from the previous quarter-end.
The company expects capital expenditures, which totaled $6.2 million through the first six months, to total $10.0 million for the year, although the actual amount is subject to change.
Outlook—Commenting on the outlook for the remainder of fiscal 2008, Woltz said, "We expect business conditions to remain challenging as the ongoing weakness in new home construction and the overall economy begin to have a more pronounced impact on our primary demand driver, nonresidential construction. In addition, we anticipate a continuation of the upward spiral in our raw material costs. Prices for steel wire rod, our primary raw material, have risen to record high levels driven by tight supply conditions in the domestic market resulting from limited import availability together with the continued surge in scrap and other raw material costs for steel producers. Although we have managed thus far to recover these additional costs in our markets, going forward it could become increasingly difficult for us to do so should we experience a significant softening in demand.
"In the face of these challenges, we continue to focus on those factors that we can control: managing our expenses and working capital, closely aligning our operating schedules with customer demand and responding quickly to any changes that occur, and continuing to improve the productivity levels of our manufacturing facilities and our selling and administrative activities.
“With the significant capital projects we have undertaken essentially complete, we are confident that the investments we have made to upgrade and expand our facilities ideally position us to capitalize on future growth in demand and achieve significant cost reductions as market conditions improve and operating levels rise."
Insteel Industries is one of the nation's largest manufacturers of steel wire reinforcing products for concrete construction applications. The company manufactures and markets PC strand and welded wire reinforcement, including concrete pipe reinforcement, 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 United States.
