Release Date: April 17, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Insteel Industries Inc (IIIN, Financial) experienced a significant upturn in business activity during the second fiscal quarter compared to the same period last year.
- Net earnings for the quarter rose to $10.2 million from $6.9 million a year ago, with earnings per share increasing to $0.52 per diluted share from $0.35.
- Shipments for the quarter increased by 28.9% from last year and 17.9% sequentially from Q1, driven by increased activity in construction end markets.
- Gross profit for the quarter increased by $8.8 million from a year ago to $24.5 million, with gross margin expanding to 15.3% from 12.3%.
- The company successfully integrated acquired assets from the first fiscal quarter, contributing to operational and freight synergies.
Negative Points
- Average selling prices declined 2.2% year-over-year, although they rose 5.1% sequentially from the first quarter.
- The supply of wire rod in the US market has become more constrained, leading to price increases and potential disruptions in operations.
- SG&A expenses increased to $10.8 million, driven by higher compensation costs and unfavorable fluctuations in the cash surrender value of life insurance policies.
- The effective tax rate for the quarter increased slightly to 23.2% from 22.5% last year.
- Uncertainties remain due to shifting US trade policies and potential economic fallout from the administration's tariff strategy, affecting long-term demand forecasts.
Q & A Highlights
Q: How are you viewing and managing the broader operating environment given the changing tariff policy and overall uncertainty?
A: H. Woltz, CEO, stated that they saw a distinct acceleration in business beginning in the first quarter, with continued momentum into the second quarter. The company is optimistic about the third and fourth quarters, although raw material availability could be a limiting factor. Despite macroeconomic indicators not reflecting the bullish market conditions, customer optimism and strong backlogs suggest robust business conditions. The company is ramping up operating hours but faces challenges in hiring.
Q: What are your thoughts on the disconnect between macro indicators and what you're seeing on the ground?
A: H. Woltz, CEO, noted the lack of objective data related to product consumption is frustrating, leading them to rely on macro factors. The strong quotation activity suggests solid demand, though it's unclear if macro factors lag or if there's an anomaly in the market. The company continues to analyze these factors.
Q: How are you thinking about pricing in this environment, given rising input costs and the Section 232 extension to downstream products?
A: H. Woltz, CEO, explained that while the Section 232 extension to PC strand is positive, it doesn't eliminate the disadvantage of higher U.S. steel prices compared to world market prices. The company has managed to maintain market presence despite these challenges, and the extension makes it more tenable to continue doing so.
Q: How do you differentiate the current growth environment from the COVID years, which had high inflation and pricing benefits?
A: H. Woltz, CEO, stated that the current growth is based on solid supply and demand fundamentals, unlike the artificial conditions during COVID. The underlying fundamentals today are more solid, and the company is seeing strength in the marketplace that wasn't forecasted.
Q: Are you seeing any pushback on price increases, and are competitors following your lead?
A: H. Woltz, CEO, mentioned that tight supplies and uncertainties about raw material availability are leading to elevated prices for both raw materials and their products. The company expects these conditions to continue through the third quarter, with other companies also turning to offshore markets to supplement domestic supplies.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
