INSTEEL INDUSTRIES INC Q2 FY2025 earnings call

• The second quarter marked the second consecutive quarter of favorable shipment trends. Improved demand in construction end markets, lower manufacturing costs, and higher production volume drove Q2 performance. • The company successfully integrated acquired assets in the first fiscal quarter. • Discussed the impact of tariffs, including the application of the 25% Section 232 steel tariff to PC strand and other derivative products, which addressed a long-standing anomaly. • Noted tight supplies of primary raw material, hot-rolled steel wire rod, due to mill closures, but a third mill planned to restart production. • Reduced full-year CapEx target to $17 million from $22 million based on forecasted expenditures. • Continued the share buyback program, repurchasing $1.1 million of common equity.

In the second quarter of 2025, Insteel had a strong performance. Net earnings rose to $10.2 million from $6.9 million the previous year, and earnings per share increased to $0.52 per diluted share from $0.35. Excluding nonrecurring restructuring charges, net earnings per share were $0.55. Shipments for the quarter increased 28.9% year-over-year and 17.9% sequentially from Q1. Improved demand in construction end markets, lower manufacturing costs, and higher production volume were key drivers. The primary raw material, steel wire rod, saw price increases, and the company benefited from acquisitions made in the first quarter. Revenue contribution details weren't explicitly broken down by product segment, but overall financials showed growth.

• Cautiously optimistic about the market outlook for the remainder of the year, supported by strong recent shipment trends and order book strength. • Lowered full-year CapEx target to $17 million from $22 million. • Intends to pass through tariff-related higher costs in the form of higher selling prices.

• Uncertainties from U.S. trade policies, including potential reciprocal tariffs that could impact imported capital equipment, spare parts, and operating supplies. • Tight supplies of primary raw material, hot-rolled steel wire rod, due to mill closures and Section 232 tariff impact on Canada and Mexico, leading to higher import risks and costs. • Macro-economic uncertainties clouding the long-term demand forecast related to trade policies.

Q: How are you viewing and managing the broader operating environment, especially with changing tariff policy and uncertainty?

A: The second quarter continued momentum from the first quarter, with robust business. The limiting factor is raw material availability. Customers are optimistic but conditions could change based on trade policy perception. The company is ramping up operating hours but faces challenges in hiring.

Q: How do you differentiate the current growth from the COVID years, and what about pricing in the tariff environment?

A: Current growth is based on solid supply and demand fundamentals unlike COVID's artificial conditions. On tariffs, the extension of 232 to PC strand is positive, but U.S. steel prices still face disadvantage vs imports. Pricing will pass through tariff costs as higher selling prices.