Insteel(IIIN)2023-04-20 16:50Financial Data and Key Metrics Changes - Net sales for Q2 2023 were $159.1 million, a decrease of 25.4% year-over-year, while shipments rose 5.2% sequentially from Q1 but fell 12.8% year-over-year [3][21] - Gross profit fell by $43.8 million from the previous year, with gross margin narrowing to 8.3% from 26.8% due to lower spreads and higher unit conversion costs [4][21] - Net earnings dropped to $5.1 million from $39 million a year ago, with earnings per share decreasing to $0.26 from $1.99 [21][22] - Average selling prices declined by 9.4% from Q1 and 14.5% year-over-year, driven by competitive pricing pressures [22] Business Line Data and Key Metrics Changes - The company experienced weaker shipping volumes due to adverse winter weather and ongoing inventory destocking by customers [3][4] - SG&A expenses increased to $7.5 million, representing 4.7% of net sales, up from 3.4% the previous year [5] Market Data and Key Metrics Changes - The Architectural Billings Index (ABI) score increased to 50.4 in March, indicating growth, although new project inquiries grew at a slower pace [8] - The Dodge Momentum Index fell 8.6% from February but remains 24% higher year-over-year [8] - Construction spending data showed a 5% increase year-over-year, with non-residential construction up nearly 17% [9] Company Strategy and Development Direction - The company plans to invest approximately $30 million in capital expenditures for 2023, focusing on expanding product capabilities and improving production efficiency [13][25] - The company is optimistic about the impact of the Infrastructure Investment and Jobs Act, expecting it to positively influence markets in 2023 [31] - New production lines are being installed to better address market needs, with commissioning expected in Q3 and Q4 [32] Management's Comments on Operating Environment and Future Outlook - Management noted that inventory corrections are occurring after a period of constrained supply, and they expect a return to more predictable ordering patterns [11][12] - There is cautious optimism regarding demand recovery in residential markets, with expectations for continued strength in non-residential markets [28][57] - The company is monitoring rising risks related to the U.S. economy but plans to maximize shipments and optimize costs [14] Other Important Information - Cash flow from operations generated $46.6 million, primarily due to a $34.7 million decrease in inventories [6] - The company ended the quarter with $80.2 million in cash and no borrowings on its credit facility [7] Q&A Session Summary Question: Can you speak to the trend line in pricing for your product line, most exposed to residential markets? - Management acknowledged risks but noted that while some projects have been delayed, it is not a trend that compromises their outlook for fiscal 2023 [16][17] Question: Are you seeing any benefit yet from the Infrastructure Investment and Jobs Act? - Management indicated that while volume comparisons remain unfavorable, there is accelerating momentum and customers are returning to normal ordering patterns [37] Question: Are you feeling more confident in the residential markets' recovery this year or in the non-residential remaining strong? - Management expressed pleasant surprise at the recovery in residential markets, noting that customers have returned to purchasing after destocking [57]