Insteel(US:IIIN)2021-10-28 14:51Company Overview - Insteel Industries is the largest manufacturer of steel wire reinforcing products for concrete construction, with approximately 85% of sales related to nonresidential construction and 15% to residential construction in fiscal 2021[14]. - The company operates ten manufacturing facilities in the U.S. and focuses on achieving leadership positions, low-cost production, and growth through organic opportunities and strategic acquisitions[16]. - The company is the largest manufacturer of steel wire reinforcing products for concrete construction applications in the U.S.[141]. Acquisitions and Growth - In March 2020, Insteel acquired substantially all assets of Strand-Tech Manufacturing for an adjusted purchase price of $19.4 million, consolidating PC strand operations[17]. - The adjusted purchase price for the STM Acquisition was $19.356 million, with net assets acquired totaling $17.904 million and goodwill of $1.452 million[174][178]. - The company did not acquire any businesses in 2021, contrasting with an acquisition of $18,356,000 in 2020[139]. Sales and Revenue - In fiscal 2021, approximately 70% of net sales were to manufacturers of concrete products, while 30% were to distributors, rebar fabricators, and contractors[23]. - Net sales increased by 25.0% to $590.6 million in 2021 from $472.6 million in 2020, driven by a 25.7% increase in selling prices[92]. - Pro forma combined net sales for the year ended October 3, 2020, were $485.121 million, compared to $487.467 million for the year ended September 28, 2019, reflecting a slight decrease of 0.5%[177]. Financial Performance - Gross profit rose 117.9% to $121.5 million, representing 20.6% of net sales, compared to $55.8 million or 11.8% of net sales in 2020[93]. - Net earnings increased to $66.6 million ($3.41 per diluted share) in 2021 from $19.0 million ($0.98 per diluted share) in 2020[99]. - Total capital increased to $302.0 million in 2021 from $264.8 million in 2020, with shareholders' equity comprising 100% of total capital[101]. Costs and Expenses - Selling, general and administrative expenses increased by 3.3% to $32.4 million, or 5.5% of net sales, from $31.3 million, or 6.6% of net sales in 2020[94]. - Rising labor, medical, and workers' compensation costs are expected to continue, adversely impacting profitability[53]. - Increasing prices for freight, natural gas, and other consumables could negatively affect manufacturing and distribution costs[54]. Cash Flow and Liquidity - Cash and cash equivalents totaled $89.9 million as of October 2, 2021, compared to $68.7 million as of October 3, 2020[100]. - Net cash provided by operating activities was $69.9 million in 2021, up from $56.2 million in 2020[101]. - As of October 2, 2021, the company had $98.6 million of borrowing capacity available under its Credit Facility[108]. Market Conditions and Risks - Demand for Insteel's products is seasonal and cyclical, typically peaking in the third and fourth quarters due to favorable weather conditions for construction[25]. - The primary raw material, hot-rolled carbon steel wire rod, is subject to price fluctuations, with imports representing approximately 16% of total wire rod purchases in fiscal 2021[27]. - Foreign competition in the PC strand and SWWR markets poses a risk to the company's financial results, potentially affecting market share and profit margins[46]. Compliance and Environmental Considerations - The company believes it is in compliance with environmental laws and does not expect material capital expenditures for environmental control facilities during fiscal 2022[40]. - The company faces risks related to climate change, which could impact raw material availability and operational costs[55]. Employee and Labor Relations - As of October 2, 2021, Insteel employed 913 individuals, with no union representation, emphasizing a culture of safety and performance-based compensation[33]. Pension and Retirement Plans - The projected benefit obligation for the Supplemental Retirement Benefit Plans (SRBAs) increased to $12.888 million as of October 2, 2021, up from $11.610 million in 2020, reflecting a year-over-year increase of 11.0%[204]. - The net periodic pension cost for the SRBAs was $843,000 in 2021, a decrease of 12.7% from $966,000 in 2020[206].