IIIN - Earnings call transcript Q2 2019 | Insteel Industries, Inc.

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Operator

Good day, ladies and gentlemen. And welcome to the Insteel Industries' Second Quarter 2019 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. to host like Mr. today's now would introduce for your conference, I H. President CEO. Woltz, and may Sir, begin. you

Howard Woltz

morning. Good which for CFO second by you Thank Gazmarian, and quarter to and Mike XXXX our Treasurer, welcome and earnings Vice call, our will me. conducted your be President, interest Insteel

to actual of that to considered in to we forward-looking to the and future factors conditions. up results information. quarter in our Before to information more some statements let could various on and to that current of those currently made occurrence I'll which We risk expectations forward-looking follow over Mike is with on remind me are events comment comments begin, our subject statements and markets risks our obligation the be these review to uncertainties and now today's cause that update the are business from based These available. materially for reflect do on you then to the or call any anticipated filings differ outlook construction second All unanticipated periodic statements are SEC. it for new our projected. results turn described assume financial not are

Michael Gazmarian

good And call. joining morning H. you, us Thank everyone to on the

second reported challenging business highly a fiscal we a morning, XXXX for the earlier in Insteel disappointing quarter environment. As this proved period to be

weather competition inventory of period. the conditions with seasonal Our results in in higher demand, usual many for the priced were of cost the to all-in across quarter consumption adverse markets by prior addition and impacted our unfavorably low purchased import together

competition from out stretched share earnings XXX Shipments wire of by due at came by the adversely have customers, with program. in Shipping a primarily reinforcement but $X.XX volumes are and the in quarter sequentially proceeds period. Excluding the PC delays ago. on also Section the our measures the quarter depressed related standard level from non-recurring QX, which over an strand for year-over-year fell the rebalancing of resulting XX.X% weather-related priced year an XX.X% the tariff insurance taken our to $X.XX inventory rose affected compared import many resulting extended construction and businesses claim, for low gain per welded to

due due to our are to greater markets was material in overall over pressures. up sensitive import-related consumption year-over-year in a reduction which million margin were the and first remainder a to points the X.X% lower reflecting the year basis rest quarter ASPs XX% primarily to cost the fall. together quarter Gross implemented decreased X.X% the sequential the competition in of last discussed a course down the the made raw on in in which $X.X response extent but margin in raw of import XXX drop we've decreased tariffs for The As levels. prices lower have surprisingly offshore producers by relative calls, that to the basis, fell US only reduction I Not domestic to significant basis our higher on due X.X% peak for cost driven costs are with with narrowed spreads cost material, the to the by from in occurred quarter On by combination of $X The provided susceptible ago almost recent associated gross were world for ago material. rod, for XX% the markets a and wire for spreads material the earlier. with shipments. ASPs quarter accounted that the profit escalation a hot-rolled steepest gross and increase most alluded falling competition, shipments. in higher the purchases to year material total we last million X.X%. down shipments, the QX from of from the XX% substantially more accounted first the which costs, Average and year for year business narrowing the incremental in raw costs market manufacturing dropped selling XX% resulted the to for off prices basis increase than competitors than primary spread higher XXX the steel sales while from raw spreads, the driving exceeded from compared of The our first points increases those in reflected the quarter which series shipments a of the contribution ago, to advantage as over a was combined of that down offset from up in quarter pricing were decrease provided from from the most in run year-over-year component import for business. ASPs of to gross cost, reduction the the the the profit quarter compression

and surrender at on electrical Going in insurance the changes quarter million from the consumed outage incentive $X year value the claim $X.X related this rose from weaker benefited forward, price August. I which current as facility market. year-over-year expense should insurance Dayton a year from the referenced of proceeds income to last policies, financial million million from cash the quarter the plan, in for recent gain are a on fire primarily $X.X benefit relative our transformer the a the in fell earlier we by Other from by lower compensation more driven SG&A due life the gradual year inventory. to ago costs rebound reduction these our in capital lower purchases results under a expense driven return for

previous from lower new Section to impact this last rate of of deduction, by the $X.X the of rate book-tax year through the benefit the provided same XX% XX.X% The amount. domestic Our three excluding effective net rate under deferred XX.X% together tax gain production effect tax in differences. XXX reduction the quarters for XX% in plus the all remeasurement for year, as the law first the the changes permanent the the on the prior reflects half last year year, period with tax dropped to year, only of to million the compared elimination from statutory of

level our provision Looking future assumptions ahead book-tax to to the calculation. currently for we earnings, expect of differences related remainder in XXXX rate the XX% and to XX% run effective the to range our tax and entering into permanent to year, of subject fiscal estimates the other of adjustments the

million of activities a due to quarter the $X.X working the increase $X.X million used quarter represented end and shipments inventory of in sheet largely compared months our end Moving second payable accounts cash position in capital accrued cash accounts and balance million increase in Based inventories. a X.X statement, and to flow forecast, extent quarter. that the receivable by was to sales months lesser first reduction a million X.X bill on the at in and $XX.X to QX operating expenses our $XX driven of

to cyclical As to ASPs third well quarter during QX If about beginning sales, improve to impact end of carrying lower and and cost continue manner. to shareholders our growth consumed to sales should allocating focus quarter I maintaining our to cost that reflect flexibility, provided on were fall was financial average flow productivity, capital as not material value QX margin reinvesting QX in the objectives, of inventory three and lower the the above adequate greater in to as as margins of do the our returning cash to quarter pro we at business gross end nature a have would extent. of favorably which inventory, our indicated the reported cost and and balance, a cost cost the the disciplined for managing than is the points for in strength unit the come lower earlier, we forma basis XXX the business, level. In

from million any focused expenditures half cash Going in balances. year the forward, deploying a financial in initiatives and will addition the of us and availability improvement borrowings cost we credit leaving down of in million $X.X facility these $X.X through last million balance to and excess needs. totaled ended capital of on Capital with on year recurring revolving maintenance first flexibility. million million, the $X.X and ample year million outstanding $XX.X cash of $X.X $XXX with to continue hand productivity objectives We

the Florida leading have bridge favorable should or ahead workers support and funding revenue. considering construction, indicator earlier remainder occur registration the benefit contract hauling markets for higher the is facilities. to introduced books extended larger implement new of expect which likely Considering XX certain the business ultimately or impact as vehicle contract encouraged State recent are states levels conditions In construction lagging reinforcing programs, construction. construction taxes demand filed increasing usual are of number our fee XX a We also electrical gradual Looking with of however most and sectors and by for to deferral such pilot to all market Carolina. labor in be our order the to up proposed while by one driven time to generate We're fuel for which also the any of products. a the Texas, markets improved lightings operating impact in continued continue at at three after customer’s the over our for in construction fees and in year, any of studies transportation year, as factors should an in months infrastructure in trends other to reflect year. growth from continue low, to seasonal March, recovery. through others have weather-related pick favorable and of types awards from the have North our the costs states construction Several more lower unemployed legislation first user of period. and legislation an particularly Lightings utilize the and ongoing we expected tightness mileage-based highway is states additional end our growth

package extensions to the XXth, the the up year and in previously an eliminates had increases the The another for Act $X.XX to remaining full on project months highway funding spending XXXX. legislation from receive authority, and bills $XX.X curtail of fiscal cloud federal Following threatened FAST of funding, federal the short-term allows commitments nearly five provided under history, Passage additional of were authorized X% government of supplemental the in shutdown increases year and billion finally fund. XXXX provides to longest states February new their billion general as for funding spending uncertainty enacted. spending US that for including the

most The of over solution the and funding Indexs, an that can Trust be consensus a President leading recent that somewhat Dodge have provides billings to non-residential for infrastructure Congress hopeful permanent reports deliberate As the indicators construction and Momentum the Highway we're the Fund. been revenue reached a details package, mixed. building to for architectural

for close the report, fluctuating XX leveled healthy indicators The projects March, The remain to enable fundamentals out its to and up that Following call future to all average to planning that three turn monthly been support year. to for remain last another within three-month the non-residential public H. near-term. positive. that indicated and since over the continued many levels relatively a in was activity to of contraction market have year-to-date narrow back the fall, The estate XX.X Dodge real weather-related reducing month increases, relatively leading indicator XX.X average now may same Dodge from recent should period ABI latest consecutive X.X% I'll March year. Momentum for prior last building as for the XX.X range. In indicated dropped has somewhat compared growth last AIA of Index, construction

Howard Woltz

you. Thank

import As production adverse we're results driven and Mike shipping which markets. with conditions volumes quarter competition that certain attribute indicated, weak weather primarily growing second in and were we disappointed our by to

year. the should While happy the half believe in QX continue our we the we a demand results, are with underlying reasonably of aren't second strong market during fundamentals that support to and rebound significant

including forced XX% levels PC contract seasonally strand wire Insteel, was welded hot-rolled domestic the rose reflecting order prices raw administration's reinforcement. in in industrial markets. eroded higher the be imports world highly producers As prices to order last about the material of domestic lower few relative steel our volumes for second XXXX, allocation frequently material were for the of Insteel, the US should than most softer US disparity a of In by at performance import as stabilized the competitiveness rod of price, the hot-rolled competitors. to implemented levels gap were tariffs Because consumers be of XXXX to imposition chaotic tariff primary to Section domestic response, prices in tariff Market implementation, has many activity conditions which our initiated The books context and steel market March world including and downstream our market mentioned steel in to rod products, not certain including higher due produced a XXX raw the were to conditions wire wire domestic imports that offshore viewed XX% aftermath construction downstream our calls, affect US hot In between disruptive suppliers which the inadequate those persisted. in steel policies products, customers. proved including that has their that tariff of of availability, program products material steel we've content who in XX% levels earnings and financial and of to to markets of quarter, the steel for fulfill did requirements. increasingly during imposed concerned on the offshore availability of our which than suppliers created on

of PC attractive there relative these compressed products Unfortunately, with markets underselling, are surged remain Predictably, to pricing including producers. for PC highly significant producers levels. margins domestic steel knowledgeable which volumes has reinforcement, Although and to market import we facilitated strands be trade wire substantial policy by is and foreign producers have tariff a no the it severely any and will most predicts products. unaware strand downstream tariff downstream structure world be welded near imported imperative continues affecting downstream many including on - circumstance, analyst that gap most to observers program rod the future, believe XXX of this the for program Section intensive the of eliminate of to imposing downstream penalty wire termination that products XXX the extended Under to the derived in tariff harsh in any that who the from current is continue duration steel administration. order products,

ongoing, While be our our tariff is dialogue efforts to administration expand way to products there is to the will with no successful. our whether predict coverage

that in growing tariff our US which restoring idled of to antithetical that memory. should than are arguably any We volumes an and manufacturing due layoffs are up being stimulated on job be to the are aware structure. XXX import however administration more has is industry plants the outcomes by in ramp recent sector and been the These focused creation

efficiencies manufacturing While matter. toward continue plants operate additional we will our our to reassess tariff compete, resolving manufacturing our strategy, current we work plans are attain the to while and

lowering Turning to million for $XX to and year. Investments be our cost targeted the initial expanding XXXX revisions quarter product of CapEx. our was We move reported to as including toward continue through estimate technology, our that cash last we capabilities, the subject updating systems. information will production

conservative or timelines. occasionally defer no to out for note that time be extended stretch equipment we to and constraints over due cancel should estimates to tended investments, CapEx have plans or our resource product deliveries internal that have While I uncertain

quarter, pursuing new well the on production certain engineered Market conditions the appear During current niche will continue Notwithstanding costs. cash up as reductions in be a ramp to tier will products, bringing substantial of vigilant and support concerns, in mesh be structural favorable investments our concludes up increase both that our additional capacity the operating benefits line contribute organic we've to we're as should year. balance to please the to our our now the remarks explain lead we planned fiscal over Lauren, on from and made we'll and questions? times through procedure asking remain realizing take improve opportunities, operational lower quality. you in growth improving facilities questions. reduce effectiveness prepared manufacturing would the and attractive for our your acquisitions, This focused we and and costs, anticipated substantial for

Operator

you, first Our from KeyBanc gentlemen. Instructions] Capital. question Gibbs Thank with [Operator Phil comes

open. Your line is

Phil Gibbs

Hey, thanks morning, Good for taking my questions. gentlemen.

Howard Woltz

Morning.

Michael Gazmarian

Morning.

Phil Gibbs

further tariffs last you're mean, itself clearly end XXX this user demand. a your how think I some expecting think, and - sounds playing this definitely like appreciate like and products customers, it business you. put there's and resolves candid to longer, on no and you do tariffs downstream bit your field assuming for whole hurting this commentary, I this think seems your counterproductive, on, seems you and for to But and new would the I clients, somewhere. your level I of thing and is me

So where does this end?

Michael Gazmarian

would at case, just but the I point paying, made that is considerable see making place long these It's jobs administration Well, and to I very and be how successful you've difficult as risk administration result we've $XX if made. in sure. I wouldn't think on posed mean, in for can't our position that be question among the comments people empathy in there's for action will project empathy whether is we in we that then manufacturing And the contacts this be could we will I most place. reasonable won't. very would, tell as in action the that - - say whether in a that must And mentioned for really good guess industry you tariffs reasonable at it would the know, threatened skilled hazard really I it our we we if time we but fundamentally taken. that are I or as at some that And don't case just that's

this that me and logical. don't, continue case will adversity for make get we press to of we some take and Insteel at all that in So, And argument matter our then find the we'll where which if point, opportunity lies our And we it. will resolved. opportunity we and optimist in is says highly will comes advantage

Phil Gibbs

think I being plants and cyclical that - you're construction sense. pretty easy mean, it's a I me. is pretty I case at about talking doesn't pretty activity given much idled. Well, fact high It it much really make a makes think sense it's the to easy

You through. on starting election Is the the your of for realistic time? administration little come Act sky opinion your the point? this on did that at new level talk a in What's they FAST trillion during infrastructure the pie that is outlined state bit funding some dollars mind? about this to multiyear the spending rekindling in Or

Howard Woltz

infrastructure views there trillion, it's substantial gets a generated. funding or the are as be the to $X increased and come solution. in think be where Congress but it always end, how would pretty mean, spending, increased to back I consensus differences funding it clear as I administration far that in $X trillion would for Yes. there seems And between from, the whether

So, I think that continues to be biggest question. the

Phil Gibbs

Thanks much. very

Michael Gazmarian

Thank you.

Operator

And our from next Bauer you. Thank Tyson KC comes question with Capital.

line Your open. is

Tyson Bauer

Good morning, gentlemen.

Michael Gazmarian

Good Morning, Tyson.

Howard Woltz

Morning, Tyson.

Tyson Bauer

about in talked you the point improvements a are your volume XXX of kind inventory basis last use, basis you those as other the cost quarters, operating created stronger end increase would or there any turn that incremental differential for seasonally adjustments, from Mike, efficiencies? be

Michael Gazmarian

manufacturing benefit demand, costs expect as business in we year. Yes, from the from as pickup quarter in the as would earlier during the seasonal improved see well usual to deferral we any

we well a benefit. leverage the benefit from raw the dual as costs both operating get lower material should So as

Tyson Bauer

to that cost basis and or this be that improve improvement Would time? equivalent say unable to at

Michael Gazmarian

to would substantial. I as be it believe I'd say point. this unable don't say at quite

Tyson Bauer

Okay.

Michael Gazmarian

of increase depending the the on that we But experienced. magnitude volume

Tyson Bauer

your the now coastal XX% volume gave on inland? there going would into leads the forward that is given Well, versus next and decline the X%, I expectations, on expectations that inland, you difference differential assume, between coastal a question, in

Michael Gazmarian

coastal I'm not inland. and easy as categorize as so to sure. It's

look quarters. not in to are and production, our cash keep and affected. projecting we affected volume But close our our of imports the couple we'll cost look going strategy, deterioration as on we our next of import but are a through significant with is, import the not say, so plan compete just we Let's

Tyson Bauer

in fact comes the you which your just comes rebound I part in significant And second mentioned in normally as this. seasonal effect believe half, into

their kind fiscal but years you're revenues quarters of your way Is past bleeds as three the when positive it year. into work that half, back into Now, should only not what events next had impact of weather in at a we have the these deferral looking first your your has second quarter next system? typically

Michael Gazmarian

make definitely I think of predictors that future. you although we're notoriously poor the case can

Howard Woltz

stretch led or because Assuming December back I fiscal extended go we quarter quarter more record on has quarter loaded a way its in taken through can first period and to weather levels and an extended just of to - conditions work the continued rainfall so that nationwide have out. the an inventory into is began second that mean that early where normalized there basis this the

Tyson Bauer

the - down levels it at Will last next the of ago, Mike, situation work through a benefit couple relative year we and its how these up that as quarters? ballooning look a does way of quarters? cash to get work few way these will because you management see that its inventory next

Michael Gazmarian

But decline will And from a be net increase and we of the over Yes, will offset we'd the that that with balance will mode we sure. - end rise in year down. for course the dropping a with expect borrowing to just see should see stretch see shipments, capital more for short working where the we inventory of the gradually we reduction the year debt by receivables. inventory impact by be believe it free in than in

Tyson Bauer

seems it impact strand, a If suggest of or your negative how very give to bad products? because numbers really It affected out PC like the they are or other overall at we off PC that your sense effective as question. Are than other on strand? Last products. strip as is us we strand obviously weighted more were PC looking has a Okay.

Michael Gazmarian

my affected year strand, and from standard reinforcing is you welded wire the can Well, imports certainly Turkey welded XX because being of by our reinforcement also but from Canada, that. career from Mexico, standard our if imports wire share total first time driver PC significantly shipments, of of primary believe for in its imports is the

the the impact tariff, - shipments and circumventing on no part standard market. our of noticeable happening, on are strand, but that's wire welded imports reinforcement less these XXX is those that the what's So, is PC smaller definitely than

Tyson Bauer

the thing was increased last backyard, the affected in since some it's would Midwest? the you by one bridges expect in the that those? And I-XX in floods activity St. to in gentlemen. effort my Or of reconstruction due Joe you, in Thank Okay. area

Michael Gazmarian

We were impact stimulative products. will although although affected - people I tell and episode, result can't entire job these that adversely point. at were of any come for not standby this for I that demand also would you, I'm frequently in through disasters some personally has on out of And our our specific that knowledgeable it this guess

Tyson Bauer

Okay. Thank gentlemen. you,

Operator

next RBC from Our Global Management. Asset comes Lance James with question

is Your line open.

Lance James

Good morning. you. Thank A couple of questions.

You've always of been either be sheet, cetera. seen whether really out telling there their XXX have additional you have just for acquisition all of top may domestic distressed? balance factories notch operator, this And tariffs, you. opportunities others some pain I'm solid your the shutter wondering about et you competition, some or

Michael Gazmarian

worst was It's is aware we of aware more we scenario. the case this weather some opportunities to solid, products ongoing come persists. our have here that this idled. to, the issue I there guess in I concerns layoffs have layoffs we're in even seen for of we're and regime, that grow a for I for inevitable the going a have other answer And concerns to out but we facilities we opportunities that tariff alluding it's are us should are yes, then long can if stay concerns people the coming. and good are of We're XXX likely the adversity. it face XXX about of however the coverage we And to what gaining who question. in in Yes, think unsuccessful if are And when yes, even I or that's have tariff and that said

Lance James

are you communication to the exactly there avenues of the the administration the one industry. to an lobbying in and your your of is that But that losses are you able of are state industry is it's be what would resolved interested try Great. but general, And my question operate communicate other organization, this or think in because in to more senators communication pain - get - to avenues would kind favorably? through very job your how

Michael Gazmarian

Washington. issues, regulations Well, has our by to because been concerns and as policies, so we're enormously organized to industry overtime trade affected our industry an highly represent government

relevant So significant we all officials anomaly definitely the product House intensive of steel is Commerce, of producing pain vendors in White that use that exist that that from the I would And of interacting administration we with for the have our USTR, steel causing solving infrastructure downstream industry. had itself. Department support mention in this

have and we had been to sufficient just say So, the get people. have has problem good we organized whether it effectively impossible right access the It's to solved. to

Lance James

Great. Well, you your answers. thank for

You good tremendous and luck resolved. really getting it are operators,

Michael Gazmarian

you. Thank

Howard Woltz

Thanks.

Operator

John next Instructions] Our you. [Operator Oppenheimer. with question Thank from comes Koller

Your line is open.

John Koller

How Good morning, gentlemen. are you today?

Howard Woltz

Good morning.

Michael Gazmarian

John. morning, Good How doing? are you

John Koller

I'm all Thanks. right.

Sort or of might to continue be be improvement you curious, competitive to were if the efficiencies, the for and think place Do see since significant would PPD quickly do lines, tariffs moat along you filled once in you I'm things improving this? your quickly it stay a and downstream, same resolved in the in see invest not Thanks. position you do beyond how improve? be point at this -

Michael Gazmarian

emphasize effectiveness tariff make competitors. gap as to have clear on the an toward of that I I a the attractive operational investments invest our that probably would with going and that mean, also I in that information our We're factor in intend continue where relative of loom think will Insteel to XXX won't time we returns be, out over impact to that positions, the our major view that us sorts to and help of our to increase and which strengthen continue manufacturing core we objective in competitors. part would basis, the ongoing business systems this

John Koller

Okay. Thanks.

Operator

Romero Company. question Sidoti Thank with you. & comes Julio next The from

open. is line Your

Julio Romero

good everyone. Hey, morning,

Michael Gazmarian

morning. Good

Julio Romero

Certainly to the but of versus I been for affected. imports affected rest relatively appreciate pricing out the business. you to non-import pressure hold breaking you've pressure ASP, able your your the by pricing steady overall continues tariff

trended, should seasonally the summer stronger have where think months? given we how into going pricing scrap Just prices about

Michael Gazmarian

the service same. Insteel in see demand and product, a And way it's of backlogs way that the that our hasn't we be of our the approaches Well, always changed, levels. and factor terms pricing it's its going to

point steel and Julio. of terms to really that whether pursued of the respect that. they're don't changes our to project this whether with maintain - I that, or all as prices, prices the In scrap disconnect the successful it's have those scrap at difficult to hot-rolled have change whether steel I really answer don't producers

Julio Romero

can And the April regions weather over that by first the Okay. have affected ask up few were seen of all? catch I any at weeks if

Michael Gazmarian

from I the the activity rebounded, quarter. where Yes. second but it it's has has significantly saw in astonishing you I that shipment wouldn't any rebounded But degree. mean, definitely tell we ourselves

Julio Romero

Thank into you. hop Okay, back I'll queue.

Michael Gazmarian

Yes.

Operator

Thank you. a our Capital Gibbs And KeyBanc from is follow-up Phil next question with Markets.

line is reopened. Your

Phil Gibbs

you. appreciate guys, Thank Hey, follow-up but I'm the I all opportunity, set.

Michael Gazmarian

Okay.

Operator

And I'm gentlemen. will questions for hand showing any in to the now Woltz remarks. closing back call any I not the Mr. further queue

Howard Woltz

We at Okay. and look and interest your you. Insteel Thank in appreciate the during quarter, to your Thank follow-up to we earnings the you talking forward encourage you. next call.

Operator

you you gentlemen, This participating a Ladies today's disconnect. all conference. today's and in thank day. and does may for have program conclude Everyone wonderful

Insteel Industries (IIIN) 18 Apr 192019 Q2 Earnings call transcript