Hot Stock to Track: Insteel Industries Inc. (NASDAQ: IIIN)

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MOUNT AIRY, N.C, January 31, 2020 – Shares of Insteel Industries Inc. (NASDAQ: IIIN) declined -5.50% to $23.89. The stock traded total volume of 90.948K shares lower than the average volume of 108.36K shares.

Insteel Industries Inc. (NASDAQ: IIIN) reported that the Company incurred a net loss of $1.80M, or $0.09 per share, compared with net earnings of $9.40M, or $0.49 per share, in the same period a year ago.

Net sales decreased 6.6% to $113.40M from $121.40M in the prior year quarter driven by a 12.8% decrease in average selling prices that offset a 7.2% increase in shipments. On a sequential basis, shipments decreased 4.0% from the third quarter of fiscal 2019 while average selling prices decreased 6.5%.

The income tax provision for the prior year quarter includes a $0.40M, or $0.02 per share, adjustment to reduce the estimated deferred tax gain related to the lower corporate tax rate enacted under the Tax Cuts and Jobs Act. Excluding the deferred tax adjustment in the prior year quarter, Insteel’s effective tax rate decreased to 13.1% from 19.3% a year ago.

Cash flow from operations increased to $32.50M from $4.10M in the prior year quarter due to a $31.40M decrease in working capital driven by reductions in inventories and receivables.

Fiscal 2019 Results:

Net earnings for fiscal 2019 decreased to $5.60M, or $0.29 per share, from $36.30M, or $1.88 per diluted share, in the prior year. Net sales increased 0.6% to $455.70M from $453.20M in the prior year driven by an 8.2% increase in average selling prices that offset a 7.1% decrease in shipments. Gross margin narrowed to 6.6% from 15.6% due to the lower spreads and, to a lesser extent, higher manufacturing costs and the reduction in shipments.

Other income for fiscal 2019 includes a $1.10M gain from insurance proceeds and a $0.50M gain on the disposition of property, plant and equipment, which, in the aggregate, increased net earnings per share by $0.06. The income tax provision for fiscal 2018 reflects a $3.30M, or $0.17 per share, deferred tax gain related to the impact of the new tax law. Excluding the deferred tax gain in the prior year, Insteel’s effective tax rate increased to 24.9% from 22.7% a year ago.

Cash flow from operations in fiscal 2019 decreased to $6.60M from $54.00M in the prior year due to the lower earnings and a $12.00M increase in working capital driven by a reduction in accounts payable and accrued expenses.

Capital Allocation and Liquidity:

Capital expenditures for fiscal 2019 decreased to $10.50M from $18.40M in the prior year and are expected to total up to $17.00M in 2020 primarily focused on cost and productivity improvement initiatives in addition to recurring maintenance requirements.

Insteel ended the year debt-free with $38.20M of cash and no borrowings outstanding on its $100.00M revolving credit facility.

IIIN has the market capitalization of $460.15M and its EPS growth ratio for the past five years was -20.10%. The return on assets ratio of the Company was 0.70% while its return on investment ratio stands at 2.00%. Price to sales ratio was 1.01 while 83.10% of the stock was owned by institutional investors.