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Insteel Industries announced Q2 2019 results

Steel News - Published on Mon, 22 Apr 2019

Image Source: PR Newswire
Insteel Industries, Inc announced financial results for its second quarter ended March 30, 2019. Net earnings for the second quarter of fiscal 2019 decreased to USD 1.0 million, or USD 0.05 per share, from USD 5.9 million, or USD 0.31 per share, in the same period a year ago. Insteel's second-quarter results for fiscal 2019 were unfavorably impacted by narrower spreads between selling prices and raw material costs, higher manufacturing costs and lower shipments relative to the prior year quarter.

Net sales increased 4.2% to USD 111.9 million from USD 107.4 million in the prior year quarter driven by a 21.0% increase in average selling prices that offset a 13.9% decrease in shipments. Shipments for the current year quarter were unfavorably impacted by the adverse weather conditions in many of Insteel's markets, which reduced construction activity, together with increasing low-priced import competition. On a sequential basis, shipments increased 11.2% from the first quarter of fiscal 2019 while average selling prices decreased 3.3%. Gross margin narrowed 810 basis points to 6.3% from 14.4% in the prior year quarter due to the lower spreads, higher manufacturing costs and reduction in shipments.

Other income for the current year quarter benefited from a USD 1.0 million gain from insurance proceeds, which increased net earnings per share by USD 0.04.

Operating activities used USD 18.0 million of cash while providing USD 9.7 million in the prior year quarter primarily due to the relative changes in net working capital and the decrease in earnings. Net working capital used USD 21.2 million of cash in the current year quarter largely to fund an increase in accounts receivable compared to USD 0.3 million in the prior year quarter.

Six Month 2019 Results
Net earnings for the first six months of fiscal 2019 decreased to USD 5.2 million, or USD 0.27 per share, from USD 14.0 million, or USD 0.73 per share, in the same period a year ago. Net sales increased 5.3% to USD 216.1 million from USD 205.2 million in the prior year period driven by a 24.6% increase in average selling prices that offset a 15.5% decrease in shipments. Gross margin narrowed 490 basis points to 8.3% from 13.2% due to the higher manufacturing costs and reduction in shipments.

Other income for the current year period benefited from a USD 1.0 million gain from insurance proceeds and a USD 0.7 million gain on the disposition of property, plant and equipment, which, in the aggregate, increased net earnings per share by USD 0.07. The income tax provision for the prior year period benefited from a USD 3.7 million, or USD 0.19 per share, gain on the remeasurement of deferred tax assets and liabilities related to the lower corporate tax rate enacted under the Tax Cuts and Jobs Act. Excluding the deferred tax gain in the prior year period, Insteel's effective tax rate decreased to 23.9% from 24.4% a year ago.

Operating activities used USD 40.2 million of cash while providing USD 24.5 million in the prior year period primarily due to the relative changes in net working capital and the decrease in earnings. Net working capital used USD 52.5 million of cash in the current year period to fund an increase in inventories and reduction in accounts payable and accrued expenses while providing USD 4.3 million in the prior year period.

Capital Allocation and Liquidity
Capital expenditures for the first six months of fiscal 2019 decreased to USD 8.1 million from USD 9.3 million in the prior year period. Capital outlays for fiscal 2019 are expected to total up to USD 22.0 million primarily related to cost and productivity improvement initiatives in addition to recurring maintenance.

Insteel ended the quarter with USD 0.5 million of cash and USD 5.4 million of borrowings outstanding on its USD 100.0 million revolving credit facility.

Outlook
Mr HO Woltz III, Insteel's president and CEO said that "As we move into the second half of fiscal 2019, we expect increasing shipments driven by continued growth in our construction end-markets and the usual seasonal improvement in demand together with the weather-related deferral of business from earlier in the year. PC strand import competition has continued to intensify, however, in the wake of the Section 232 tariff program, which has provided offshore producers with a substantial raw material cost advantage relative to U.S. producers. We are continuing to pursue alternative solutions with the Administration that would eliminate the penalty the tariffs constitute for downstream consumers of steel and level the playing field with foreign competitors. We've made considerable progress with the execution of our ambitious capital investment plan, which is focused on broadening our product offering, reducing our operating costs, updating our production and information systems technology, and strengthening our market leadership positions. We expect increasing contributions from these investments as well as from our ongoing process improvement initiatives over the remainder of the year."

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Posted By : Ratan Singh on Mon, 22 Apr 2019
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