INSTEEL INDUSTRIES INC Q4 FY2025 earnings call

• Strong fourth quarter performance with higher shipments and improved margins.
• Quarterly shipments up 9.8% y/y, but down 5.8% sequentially due to supply constraints easing gradually.
• Gross margin improved to 16.1% due to wider spreads from higher selling prices offsetting raw material cost increases.
• Inventories at end of quarter represented 3.5 months of shipments, up from 2.7 months in Q3, due to imported rod purchases.
• Expect to invest $20 million in CapEx in 2026, focus on reinvestment, financial strength, and returning capital to shareholders.
• Tariffs impact raw materials and imports, with Section 232 tariff on steel and aluminum affecting costs and supply.
• Acquisitions of Upper Sandusky, Ohio and Texas facility performing well, with integration complete.

Net earnings rose to $14.6 million or 74¢ per diluted share compared to $4.7 million or $0.24 per share in the same period last year. Quarterly shipments increased 9.8% year over year, driven by acquisitions and nonresidential construction demand. Gross profit for the quarter rose $16.3 million year over year to $28.6 million, with gross margin improving by 700 basis points to 16.1%. SG&A expense increased to $9.7 million. Cash flow from operations used $17 million in the quarter. Ended the quarter with $38.6 million in cash and is debt-free. Fiscal 2025 saw $24 million returned to shareholders via dividends and share repurchases.

• Entering fiscal 2026 with solid momentum, but macroeconomic uncertainty remains.
• Expect $20 million in CapEx in 2026.
• Focus on reinvesting in business, maintaining financial strength, and returning capital to shareholders in disciplined manner.
• Cautious approach due to mixed economic conditions and residential construction lag.

• Trade policies and economic cycle uncertainties.
• Section 232 tariffs on steel and aluminum affecting raw material costs and imports.
• Uncertainty in tariff administration and impact on costs and supply for imported goods and spare parts.

Q: About demand, confidence level of customers and data center construction filling gap.

A: Confidence positive, data center construction continues but lead times compressed.

Q: On raw material inventory, 3.5 months of shipments.

A: Imported for specific applications due to domestic supply constraints, currently where expected.

Q: Year one contribution from EWP acquisition.

A: Upper Sandusky's performance solid but output moved to other facilities, product mix attractive.

Q: Residential sales portion.

A: Difficult to pinpoint exact end markets, indirect impact through infrastructure in housing developments.

Q: Shipment decline sequentially.

A: Due to production supply issues early in the quarter, resolved now.

Q: Geographic demand strength.

A: Not dominated by one region, project-oriented business varies geographically.

Q: Water infrastructure and IIJA funding.

A: Positive impact from funding, with runway for multiyear benefit.