Insteel Industries, Inc. (NasdaqGS: IIIN) today announced financial results for its fourth quarter and fiscal year ended October 3, 2020.
Fourth Quarter 2020 Results
Insteel's results for the fourth quarter of fiscal 2020 benefitted from robust demand in the Company's construction markets and a rebound in spreads between selling prices and raw material costs from depressed levels of a year ago. Shipments in the fourth quarter of fiscal 2020 were at the highest quarterly level on record for the Company. Net earnings for the fourth quarter of fiscal 2020 were $7.4 million, or $0.38 per share, compared to a net loss of $1.8 million, or $0.09 per share, in the same period a year ago.
Net sales increased 21.9% to $138.2 million from $113.4 million in the prior year quarter driven by a 27.7% increase in shipments that offset a 4.6% decrease in average selling prices. On a sequential basis, shipments increased 12.0% from the third quarter of fiscal 2020 and average selling prices increased 1.1%. The Company benefitted from an extra week in the current year and quarter based on its fiscal calendar.
Gross margin widened 1,070 basis points to 14.1% from 3.4% in the prior year quarter primarily due to wider spreads between selling prices and raw material costs and leverage from higher shipment levels. Earnings for the current year quarter reflect a $0.4 million gain in cash surrender value of life insurance policies in selling, general and administrative expense and $0.7 million of restructuring charges related to the Company's March 16, 2020 acquisition of substantially all of the assets of Strand-Tech Manufacturing, Inc. ("STM"), which in the aggregate decreased net earnings per share by $0.01.
Operating activities provided $11.4 million of cash during the fourth quarter compared to $32.5 million in the prior year quarter due largely to the relative changes in working capital. Working capital generated $0.3 million of cash in the current year compared to $31.4 million the prior year driven by reductions in inventories and receivables in the prior year quarter.
Fiscal 2020 Results
Net earnings for fiscal 2020 increased to $19.0 million, or $0.98 per diluted share, from $5.6 million, or $0.29 per share, in the prior year. Net sales increased 3.7% to $472.6 million from $455.7 million in the prior year driven by a 17.3% increase in shipments that offset an 11.5% decrease in average selling prices, as well as the extra week in the current year based on the Company's fiscal calendar. Gross margin expanded to 11.8% from 6.6% due to the wider spreads and, to a lesser extent, increased shipment volumes.
Insteel's earnings for fiscal 2020 reflect $1.9 million of restructuring charges and acquisition costs related to the STM transaction and a $1.0 million gain on the disposition of assets held for sale, which in the aggregate, decreased fiscal 2020 net earnings per diluted share by $0.04. Insteel's earnings for the prior year period reflect a $1.1 million gain from insurance and $0.5 million gain on the disposition of property, plant and equipment in other income, which increased fiscal 2019 net earnings per diluted share by $0.06.
Operating activities provided $56.2 million of cash compared to $6.6 million in the prior year due to both higher earnings and the relative changes in working capital. Working capital provided $19.4 million in the current year compared to a $12.0 million use of cash in the prior year.
Capital Allocation and Liquidity
Capital expenditures for fiscal 2020 decreased to $7.1 million from $10.5 million in the prior year and are expected to total up to $20 million in 2021 including expenditures to relocate and upgrade the STM assets, to advance the growth of our engineered structural mesh business and to support cost and productivity improvement initiatives and recurring maintenance requirements. The shortfall in 2020 investing activity relative to prior estimates is related solely to timing considerations.
Insteel ended the year debt-free with $68.7 million of cash and no borrowings outstanding on its $100.0 million revolving credit facility.
Outlook
"Looking ahead to fiscal 2021, we expect our financial results will remain vulnerable to uncertain market conditions depending on the strength and direction of the U.S. economic recovery," commented H.O. Woltz III, Insteel's president and CEO. "The latest forecasts for non-residential construction indicate a bottoming or modest improvement, but the sustainability of those trends is not yet clear. Public construction has not experienced the level of weakness forecast at the onset of the pandemic, although the impact varies widely from state to state. Federal action on new transportation spending or proposed state budget relief has the potential to be a positive catalyst if implemented by the U.S. Congress."
Mr. Woltz added, "Despite the economic uncertainties, we remain optimistic about our key initiatives, which should benefit our fiscal 2021 performance. We are pleased with our performance in the engineered structural mesh market during 2020 and expect further growth in 2021. Additionally, the trade cases filed in April and June 2020 alleging illegal activity by importers in the U.S. PC strand and standard welded wire reinforcement markets have progressed favorably. The PC strand cases are now scheduled to conclude during our third fiscal quarter and the standard welded wire reinforcing case is expected to conclude during the fourth fiscal quarter of 2021. As with any litigation, we cannot predict the outcome, but we believe the facts supporting the cases are strong."
About Insteel
Insteel is the nation's largest manufacturer of steel wire reinforcing products for concrete construction applications. Insteel manufactures and markets PC strand and welded wire reinforcement, including ESM, concrete pipe reinforcement and standard welded wire reinforcement. Insteel's products are sold primarily to manufacturers of concrete products that are used in nonresidential construction. Headquartered in Mount Airy, North Carolina, Insteel operates ten manufacturing facilities located in the United States.
