INSTEEL INDUSTRIES INC Q1 FY2025 earnings call

• Improved spreads between selling prices and raw material costs, plus increased demand from concrete reinforcing products offset higher SG&A expenses.
• Made two important acquisitions in first quarter: Engineered Wire Products and O'Brien Wire Products in Texas, expected to deliver solid returns.
• Shipments driven by increased order activity in commercial and infrastructure end markets, and incremental volumes from acquisitions.
• Made price increases in response to rising raw material costs, with additional adjustment earlier this month.
• Acquisitions caused revaluation of acquired inventory, temporarily lowering gross margin by 110 basis points, but impact is nonrecurring.
• SG&A expense increase due to change in life insurance policy value, amortization from acquisitions, restructuring charges, and acquisition costs.
• Macro indicators for construction end markets: Architectural Billing and Dodge Momentum Index showing improving conditions, but public highway street construction down.

Net earnings for the quarter were unchanged at $1.1 million or $0.06 per share. After adjusting for nonrecurring charges, adjusted net earnings increased to $0.10 per share. Shipments increased 11.4% year-over-year but declined 4.5% sequentially. Gross profit improved to $9.5 million from $6.3 million, with gross margin expanding to 7.3% from 5.2%. SG&A expense rose by $1.5 million to $7.9 million. Effective tax rate fell slightly to 26.1%. Cash flow from operations provided $19 million. Inventories at end of quarter were 2.8 months of shipments. No detailed segment-wise revenue contribution provided.

• Expect effective tax rate to run close to 23% for remainder of year.
• Expect to invest approximately $22 million in business during fiscal 2025, targeted at broadening product offering, lowering production costs, enhancing info systems, and maintaining facilities.
• Continued share buyback, with $617,000 of common equity repurchased in first quarter.
• Well positioned to pursue growth opportunities, both organic and through acquisition.

• Risk related to future performance of U.S. economy.
• Impact of Section 232 tariff structure on imported wire rod and downstream products.
• Volatility in raw material supplies and potential import competition affecting margins.

Q: Are you then looking at your revenue growth in '25 to be more driven by favorable pricing or shipment volume growth as you see that demand pick up?

A: Will benefit from increased shipments due to acquisitions, but hard to say if market recovery in legacy business is for real.

Q: What were the annual direct savings from plant shutdown and absorbing into existing facilities? And how would you monetize centralizing the process to your systems?

A: Plant closed was running at marginal or negative EBITDA, will monetize surplus equipment and real estate, impact on SG&A due to intangible amortization from acquisitions.

Q: Where the priorities are what really has a true material impact? Are you looking more that you need to see a better environment on the interest rate side? Or are you looking at the tariffs would be more impactful and beneficial for the Company, if they were to break favorably towards you?

A: Tariffs are bigger news than interest rates in the company's world, Section 232 tariff has impacted, but broader-based tariff system may help in short term.

Q: You mentioned emerging opportunities like warehousing, data centers. Any color on other emerging opportunities?

A: Focus remains on core markets, acquisitions consistent with that focus, will continue doing same things.

Q: In the states you primarily have as end markets or you do more business in that you're approved your products. What kind of granular look on just those that you focus on those DOT budgets for '25, '26?

A: No better insight than industry forecasts, expect infrastructure investment to create demand eventually but can't forecast projected growth.