Surry Business

Insteel Industries’ fourth-quarter 2007 earnings were nearly half those in the comparable quarter in 2006, the Mount Airy company reported Oct. 18.

On Thursday, Insteel’s stock price closed down almost 3.8 percent on the news, settling at a new 52-week low: $13.52. Analysts’ consensus estimate had been that Insteel would report fourth-quarter earnings of $0.36 per share. The actual number was 22 percent below expectations.

“Insteel’s fourth-quarter earnings were negatively impacted by the continuation of soft demand in certain markets,” said H.O. Woltz III, Insteel’s president and chief executive officer. “As we had previously reported, the reduction in shipments for the quarter was driven by the continued weakness in housing-related demand, high levels of PC strand imports and unfavorable weather conditions in certain regions of the country that resulted in construction delays.

“Gross margins for the quarter narrowed to 17.1 percent from 22.0 percent in the third quarter and 22.2 percent a year ago due to the reduced shipments, lower spreads between average selling prices and raw material costs, and higher unit conversion costs.

“On a positive note, excluding the impact of our decision not to pursue certain PC strand business during the quarter due to low-priced import competition, shipments were up 2.1 percent from a year ago, reflecting the continued strength of the nonresidential construction sector.”

Earnings from continuing operations in the quarter that ended Sept. 29, 2007, were $5.1 million, or $0.28 per diluted share, compared with $9.5 million, or $0.52 per diluted share for the same period last year. Including the results of discontinued operations, net earnings were $5.2 million, or $0.28 per diluted share compared with $10.1 million, or $0.55 per diluted share in the prior year. Net sales for the fourth quarter decreased 9.9 percent to $74.4 million from $82.5 million in the prior year quarter. Shipments decreased 9.4 percent while average selling prices decreased 0.4 percent.

For the year that ended Sept. 29, 2007, earnings from continuing operations were $24.3 million, or $1.33 per diluted share, compared with $34.4 million, or $1.86 per diluted share in the prior year. Including the results of discontinued operations, net earnings were $24.2 million, or $1.32 per diluted share compared with $33.0 million, or $1.79 per diluted share in the prior year. Net sales for the year decreased 9.6 percent to $297.8 million from $329.5 million last year. Shipments decreased 11.4 percent while average selling prices increased 2.0 percent.

Operating activities of continuing operations provided $6.4 million of cash during the fourth quarter compared with $9.7 million in the year-ago period primarily due to the decrease in earnings. The company funded $3.7 million of capital expenditures, paid $1.1 million in dividends and ended the quarter debt-free with $8.7 million in cash, an increase of $2.4 million from the previous quarter-end.

Capital expenditures for 2008 are currently expected to total $10 million. Insteel is upgrading its Florida PC strand facility and plans additional projects.

Commenting on the outlook for fiscal 2008, Woltz said, “As we approach the seasonally slower months of the year, prices for hot-rolled steel wire rod, our primary raw material, are on the rise and reduced operating rates will have an unfavorable impact on unit conversion costs. Our ability to recover these additional costs will ultimately depend upon the strength of demand and competitive dynamics in our markets.

“At a macro level, the outlook for our primary demand driver, nonresidential construction, remains positive, although we expect some moderation in the growth rate from the elevated levels of recent years. In contrast, conditions in the housing market have continued to deteriorate, making the timing of a recovery uncertain at this point.

“Despite these near-term challenges, we expect increasing contributions from the substantial investments that have been made in our facilities over the past two years as we ramp up production volumes on the new equipment. With engineered structural mesh continuing to gain broader market acceptance as a replacement for rebar, we are well-positioned to capitalize on this growth opportunity through the new production lines at our North Carolina and Texas facilities and are evaluating further expansions.”

Insteel Industries is one of the nation’s largest manufacturers of steel wire reinforcing products for concrete construction applications. The company manufactures and markets PC strand and welded wire reinforcement, including concrete pipe reinforcement, engineered structural mesh (“ESM”) and standard welded wire reinforcement. Insteel’s products are sold primarily to manufacturers of concrete products that are used in nonresidential construction.

Headquartered in Surry County, North Carolina, Insteel operates six manufacturing facilities in the United States.