Insteel(US:IIIN)2023-01-19 21:15Financial Data and Key Metrics Changes - Net earnings for Q1 2023 decreased to $11.1 million from $23.1 million in the previous year, with earnings per share dropping to $0.57 from $1.18 [6] - Net sales fell by 6.5% year-over-year, driven by a 10% decrease in shipments, partially offset by a 3.9% increase in average selling prices [6] - On a sequential basis, net sales declined by 19.8% from Q4 2022 due to a 12% drop in shipments and an 8.8% decrease in average selling prices [7] - Gross profit fell by $24.6 million year-over-year, with gross margin narrowing to 10.7% from 23.7% [25] Business Line Data and Key Metrics Changes - The residential-related markets have shown weakness since Q3 2022, with no significant recovery expected until interest rates change [3] - Non-residential markets experienced shipment weakness attributed to customer inventory management rather than impaired demand [3] - SG&A expenses decreased to $7.2 million, representing 4.3% of net sales, down from $12.3 million or 6.9% of net sales in the previous year [9] Market Data and Key Metrics Changes - The ABI index for non-residential construction spending remained negative at 46.6, while the Dodge Momentum Index increased to 222.3, reflecting a 40% year-over-year rise [13] - The company noted an inventory imbalance primarily in residential markets, while non-residential construction inventories were more aligned with business levels [15] Company Strategy and Development Direction - The company plans to invest approximately $30 million in capital expenditures for 2023 to enhance product capabilities and reduce production costs [16] - The Infrastructure Investment and Jobs Act is expected to positively impact the company's markets in 2023, addressing long-standing infrastructure investment needs [33] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the non-residential markets, indicating that underlying demand remains robust despite inventory corrections [22][41] - The company is monitoring rising risks related to the U.S. economy while pursuing actions to maximize shipments and optimize costs [43] Other Important Information - The company returned $39.5 million to shareholders through a special cash dividend of $2 per share, marking the second consecutive year of such dividends [12] - Cash flow from operations provided $33 million in Q1, driven by a reduction in working capital [28] Q&A Session Summary Question: What is the impact of customer destocking on non-residential shipments? - Management indicated that the weakness in non-residential shipments was primarily due to customer destocking rather than easing supply chain constraints [52] Question: How do you expect prices to change in the coming quarters? - Management stated that price changes are unpredictable but typically do not see significant price competition when demand is strong [54] Question: What is the outlook for inventory levels? - Management noted that the over-inventory situation is mainly in residential markets and expects to work through this by the second quarter [45]