Insteel(IIIN) - 2019 Q2 - Quarterly Report

Financial Performance - Net sales for Q2 2019 increased by 4.2% to $111.9 million, driven by a 21.0% increase in average selling prices, despite a 13.9% decrease in shipments[68] - Gross profit for Q2 2019 decreased by 54.5% to $7.0 million, representing 6.3% of net sales, primarily due to lower spreads between selling prices and raw material costs[69] - Selling, general and administrative (SG&A) expenses for Q2 2019 decreased by 12.3% to $6.6 million, or 5.9% of net sales, due to lower compensation expenses[70] - Net earnings for Q2 2019 decreased to $1.0 million ($0.05 per share) from $5.9 million ($0.31 per share) in the prior year quarter, primarily due to decreased gross profit[73] - For the first half of 2019, net sales increased by 5.3% to $216.1 million, reflecting a 24.6% increase in average selling prices, despite a 15.5% decrease in shipments[74] - Gross profit for the first half of 2019 decreased by 33.5% to $18.0 million, or 8.3% of net sales, due to higher manufacturing costs and lower shipments[75] - Other income for the first half of 2019 was $1.8 million, compared to other expense of $185,000 in the same period last year, primarily from insurance proceeds[77] Cash Flow and Capital Expenditures - Net cash used for operating activities in the first half of 2019 was $40.2 million, primarily due to an increase in working capital components[82] - Capital expenditures decreased to $8.1 million from $9.3 million in the prior year period, with expectations to total up to $22.0 million for fiscal 2019[85] - Financing activities generated $4.0 million in cash during the first half of 2019, a significant improvement compared to a cash usage of $20.4 million in the same period last year, primarily due to lower cash dividend payments of $1.2 million versus $20.2 million previously, which included a special cash dividend of $19.0 million[87] - Cash and cash equivalents, along with net cash generated from operating activities and borrowing availability, are expected to meet working capital and capital expenditure requirements[90] Debt and Equity - Total debt as of March 30, 2019, was $5.4 million, representing 2.1% of total capital, while shareholders' equity was $246.5 million, or 97.9% of total capital[81] - As of March 30, 2019, the company had $5.4 million in borrowings outstanding on its $100.0 million revolving credit facility, with $92.8 million of borrowing capacity available[89] Market Conditions and Future Outlook - The company expects financial results to be positively impacted by growth in construction end-markets and increased federal funding, with leading indicators for nonresidential construction remaining positive[99] - The company anticipates challenges due to rising raw material costs from Section 232 tariffs on imported steel, impacting operational costs and pricing strategies[100] - The company plans to continue pursuing acquisitions to expand market penetration and support future growth[100] Operational Insights - Demand in the company's markets is both seasonal and cyclical, with higher shipments typically occurring in the third and fourth quarters due to favorable weather conditions[92] - A 10% increase in the price of wire rod would have resulted in a $14.5 million decrease in pre-tax earnings, assuming no corresponding change in selling prices[102] - A 25 basis point change in interest rates would have an estimated $13,000 impact on pre-tax earnings over a one-year period based on outstanding borrowings as of March 30, 2019[103] - The company has not experienced any material changes in contractual obligations and commitments as disclosed in the 2018 Annual Report[96]