Insteel(IIIN) - 2024 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements Unaudited consolidated financial statements show Q2 net sales decreased to $127.4 million but net earnings increased to $6.9 million, with H1 sales and earnings declining year-over-year Consolidated Statements of Operations and Comprehensive Income Consolidated Statements of Operations Highlights (In thousands, except per share amounts) | Metric | Three Months Ended Mar 30, 2024 | Three Months Ended Apr 1, 2023 | Six Months Ended Mar 30, 2024 | Six Months Ended Apr 1, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $127,394 | $159,051 | $249,119 | $325,950 | | Gross profit | $15,715 | $13,262 | $21,985 | $31,048 | | Net earnings | $6,939 | $5,101 | $8,071 | $16,224 | | Diluted EPS | $0.35 | $0.26 | $0.41 | $0.83 | Consolidated Balance Sheets Consolidated Balance Sheet Highlights (In thousands) | Account | March 30, 2024 | September 30, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $83,945 | $125,670 | | Total current assets | $239,699 | $298,853 | | Total assets | $397,227 | $447,513 | | Total current liabilities | $33,384 | $46,155 | | Total shareholders' equity | $340,621 | $381,505 | Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (In thousands) | Cash Flow Activity | Six Months Ended Mar 30, 2024 | Six Months Ended Apr 1, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $23,211 | $79,571 | | Net cash used for investing activities | $(14,586) | $(5,464) | | Net cash used for financing activities | $(50,350) | $(42,267) | | Net (decrease) increase in cash | $(41,725) | $31,840 | Consolidated Statements of Shareholders' Equity - Total shareholders' equity decreased from $381.5 million at September 30, 2023, to $340.6 million at March 30, 2024, primarily due to $49.8 million in cash dividends declared[21] Notes to Consolidated Financial Statements Detailed notes disclose accounting policies, revenue recognition, fair value measurements, stock-based compensation, debt facilities, and share repurchases Net Sales by Product Line (In thousands) | Product Line | Three Months Ended Mar 30, 2024 | Three Months Ended Apr 1, 2023 | Six Months Ended Mar 30, 2024 | Six Months Ended Apr 1, 2023 | | :--- | :--- | :--- | :--- | :--- | | Welded wire reinforcement | $69,750 | $91,378 | $138,552 | $187,346 | | Prestressed concrete strand | $57,644 | $67,673 | $110,567 | $138,604 | | Total | $127,394 | $159,051 | $249,119 | $325,950 | - The company has a $100.0 million revolving credit facility maturing on March 15, 2028, with no outstanding borrowings and $98.5 million available capacity as of March 30, 2024[50] - During the six months ended March 30, 2024, the company repurchased $842,000 (27,935 shares) of its common stock, with $20.4 million remaining for future repurchases[56] - The company operates as a single reportable segment, focused on manufacturing and marketing steel wire reinforcing products for concrete construction[58] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, liquidity, and outlook, noting Q2 net sales decreased but gross profit increased, a strong balance sheet, and a positive H2 outlook Results of Operations Q2 2024 net sales decreased 19.9% to $127.4 million due to lower prices and shipments, while gross profit rose 18.5% to $15.7 million from higher spreads Q2 Fiscal 2024 vs Q2 Fiscal 2023 Performance (Dollars in thousands) | Metric | Q2 2024 | Q2 2023 | Change | Reason for Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $127,394 | $159,051 | (19.9%) | 17.3% decrease in avg. selling prices and 3.2% decline in shipments | | Gross Profit | $15,715 | $13,262 | 18.5% | Higher spreads between selling prices and raw material costs | | Net Earnings | $6,939 | $5,101 | 36.0% | Increased gross profit and interest income, partially offset by higher SG&A | H1 Fiscal 2024 vs H1 Fiscal 2023 Performance (Dollars in thousands) | Metric | H1 2024 | H1 2023 | Change | Reason for Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $249,119 | $325,950 | (23.6%) | 22.4% decrease in avg. selling prices and 1.6% decline in shipments | | Gross Profit | $21,985 | $31,048 | (29.2%) | Lower spreads, higher manufacturing costs, and decreased shipments | | Net Earnings | $8,071 | $16,224 | (50.3%) | Decreased gross profit and other income, partially offset by lower SG&A | Liquidity and Capital Resources Liquidity remains strong with no debt, despite H1 2024 net cash from operations decreasing to $23.2 million, and $50.4 million used for financing, primarily dividends Cash Flow Summary (Six Months Ended, in thousands) | Activity | March 30, 2024 | April 1, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $23,211 | $79,571 | | Net cash used for investing activities | $(14,586) | $(5,464) | | Net cash used for financing activities | $(50,350) | $(42,267) | - Financing activities in H1 2024 included $49.8 million in dividend payments, comprising a $48.6 million special dividend and $1.2 million in regular dividends[87] - Capital expenditures for fiscal 2024 are projected to be up to approximately $30.0 million, targeting cost/productivity initiatives, facility modernization, and growth[85] Outlook Management anticipates positive H2 momentum from seasonal construction, a stable macroeconomic environment, and federal infrastructure spending, while focusing on expense management and acquisitions - The company anticipates growing momentum driven by a seasonal upturn in construction activity and stronger market fundamentals[97] - The outlook for infrastructure construction is favorable, with federal spending from the Infrastructure Investment and Jobs Act expected to increase demand[97] - Strategic focus remains on managing expenses, improving productivity, and pursuing opportunistic acquisitions to expand market penetration or footprint[98] Quantitative and Qualitative Disclosures About Market Risk Primary market risk is hot-rolled carbon steel wire rod price fluctuation, with a 10% increase potentially reducing H1 pre-tax earnings by $15.3 million - The company's most significant market risk is commodity price fluctuation for hot-rolled carbon steel wire rod[100] - A 10% increase in wire rod price would have resulted in a $15.3 million decrease in pre-tax earnings for H1 2024, assuming constant selling prices[100] Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 30, 2024, with no material changes to internal control over financial reporting - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of March 30, 2024[103] - No material changes in internal control over financial reporting occurred during the quarter[104] PART II – OTHER INFORMATION Legal Proceedings The company is involved in ordinary course legal matters, not expecting a material adverse effect on its financial position or results - The company does not anticipate that the ultimate costs to resolve ordinary course lawsuits, claims, and investigations will have a material adverse effect on its financial condition or results[106] Risk Factors No material changes occurred to the risk factors previously disclosed in the 2023 Annual Report on Form 10-K - No material changes to the risk factors set forth in the 2023 Annual Report occurred during the quarter ended March 30, 2024[107] Unregistered Sales of Equity Securities and Use of Proceeds This section details common stock repurchases during Q2 fiscal 2024, totaling 8,859 shares for approximately $303,000 under existing authorization Common Stock Repurchases (Q2 2024) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Dec 31, 2023 - Feb 3, 2024 | 3,500 | $33.86 | | Feb 4, 2024 - Mar 2, 2024 | 4,685 | $34.33 | | Mar 3, 2024 - Mar 30, 2024 | 674 | $34.46 | | Total | 8,859 | N/A | - As of quarter-end, approximately $20.4 million remained available for future repurchases under the $25.0 million share repurchase authorization from November 2008[109] Other Information No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter ended March 30, 2024 - No directors or officers adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter[110] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and financial statements in iXBRL format - Exhibits filed include CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906, and financial data in iXBRL format[113]