IIIN - Earnings call transcript Q2 2020 | Insteel Industries, Inc.

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Insteel Industries Second Quarter 2020 Conference Call. At this time, all participants’ lines are in a listen-only mode. After speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

to conference like speaker to now H. today, would hand over the your I and CEO. President Insteel Woltz, Thank you. Please ahead, go sir.

H. Woltz

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

actual our in periodic subject information based that you SEC. that Before are future occurrence the forward-looking be considered remind the of to to to risks comments not uncertainties or that results forward-looking and are on available. and currently various we statements obligation We do cause from to described events reflect filings are begin, information. These let made with materially the anticipated or could the new is to factors statements, some risk me assume in those on of expectations statements our unanticipated call differ these current which today's any All update projected. are

to now more on financial I'll recent comment the to I'll turn outlook, up conditions follow Mike call and and to market developments. results other business second then quarter our review over

Mike Gazmarian

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

today, to As of strong despite pressure reported markets margin subject XXXX. fiscal earlier we for the our import in posted Insteel quarter competition, continued results second

$X.XX charges the to $X.XX release, share a our year. rose nonrecurring and earnings from Excluding share gains that in were net referenced a last

highest from our by reinforcing last XX.X% the sequentially driven costs prices quarter wider for the strengthening raw for most The conditions to in quarter. QX, XXXX was third for our rising highest weather the strong XX.X% and across markets, performance activity by by quarter increased products. this quarter and concrete between and level shipping more of improvement for year. since generally favorable our third driven of was their second supported from spreads the material earnings year and Shipments the construction demand The the rose history selling

prices from selling our fell and of wire overall fifth reinforcement sequentially quarter. around welded competition, in to straight represented sales declining to PC the The X.X% quarter, pressure QX. severe for continued XX% susceptible but import extent, which our to of standard more Average pricing certain for strand a the lesser markets be

these for which XX% for remainder ASPs markets year-over-year, double was XX% dropped business. our the reduction of the

imported previous import has markets in our imports As the intensified calls, apply of to but rod, hot-rolled of on to wire raw wake products. we've primary on our these finished in steel steel, conveyed competition Section not XXX the which tariffs material,

due to the U.S. The incentivized downstream PC to program $X.X from quarter to primarily competitors extent, material and gross increased has XXX million lesser foreign exports and ago basis points domestic ramp X.X%, injury margin in the from spreads, increase XX.X% the resulting a Gross higher profit to a for undersell widened year the industry. and up strand to their producers, shipments. in aggressively

competition, lower and the manufacturing locations the XXX wide gross While relative to in profit driven during other quarter by with continue basis subject a factors, same margin be significantly import of $X sequential the from points, gross our plants disparity costs. quarter basis, the first on with a supplying widened together facilities. profitability million underperforming There to our markets rose the

business. the of $XX.X around profit that of the as million on X.X% plants million margin of or If combined remainder compared adversely $X.X to gross profit been margin quarter the of a have imports, up a roll you XX.X% gross gross more or to amounted our for gross affected a by our sales only

an of $X.X million The $X by X.X% unfavorable of sharp increase primarily for last to the million $X.X X.X% expense. value increases from was expense insurance and year. from surrender financial legal in driven the life million incentive or compensation largely markets, in remainder due change from stock-based net $X.X in the to with SG&A and policies rose million quarter sales cash the the downturn year-over-year

first from a of $X.X half XX.X% to the Cares fell through effective due Our quarter recorded to XX.X% the carryback year to provisions year last rate million the in NOL Act. of tax the the related benefit

Excluding this XX.X% to year of for effective benefit, have rate half year's our the been would last compared the XX.X%. first as

Looking the year, effective book-tax calculation. and assumptions run estimates the and pretax we earnings, our rate the expect to around XX%, remainder differences the level tax into ahead of other will to provision of entering our subject

cash statement. to activities a unit balance cash the amounts Based forecast of the the months to quarter inventories working in at in much overall Operating the for capital, of sheet driven QX inventories due cost carrying $XX.X million increases close sales relatively end and, quarter million used shipments to our X.X our extent, end the sales. lesser months first build X.X on of reflected average higher compared $X sales. QX, Moving on represented for quarter, receivables flow to and and by a values an with on in basis, the to

objectives, disciplined in our business, cost productivity; our flow maintaining our the allocating and and business our and credit growth the improve may of ample remain cash flexibility that this After financial three challenging hand and on for adequate funding providing we In with over opportunities managing capital the the pursue the $XX.X Strand-Tech flexibility; on develop or million us strength to cyclical and a share acquisition, and manner. $XXX with to growth to million quarter borrowings environment. in we reinvesting additional shareholders our of $X on facility, ended focused outstanding financial revolving in and ability no a cash returning nature

objectives will in deploying balance capital forward, these we continue any cash. Going and excess to

is virus. COVID-XX uncertainty ahead the look fiscal the the limited the of of from we As taken visibility authorities half and due to governmental the control to to the the spread heightened by year, resulting outbreak our actions second

of Insteel thus have infrastructure on working effect backlogs. we a deemed as in through our experienced business has disruptions our customers any be busy have far to and Homeland Department remained had our the not With minimal by operations pandemic the critical Security,

eventual Going developments contain future the depending impact that highly will taken of on it. mitigate and the duration to forward, its determined the are based uncertain, the be actions on that outbreak effectiveness severity are and or however, of

In they believe to credit catalyst these to view remain of through cost ideally our our for debt-free positioned we our we balance sheet, further be and liquidity highly structure, growth are and navigate become a facility challenges hopeful could and available. high opportunities undrawn variable that

over I to will call turn now H. back the

H. Woltz

Mike. you, Thank

prior by favorable concrete our indicated, underlying products driven strong weather reflect more second shipment for to and our seasonal Mike demand results quarter As the return reinforcing patterns. to growth a relative year, normalized

prices. from We our We're material with closer underlying our demand and for average pleased costs raw also and benefited selling the products our QX solid alignment financial between performance.

to regions we've manufacturing at essential, country most to week remained robust operate geographic are regular our as schedules In observing our administrative order for industry offices. impacted exposure last at its response and the have facilities transmission moderation the have those procedures in seen by our on been to although outbreak, pandemic some and continued the our all we've COVID-XX. of over that plants deemed entry has With implemented CDC-recommended managing the and COVID-XX well as our

majority the normal observing procedures adhere customers its operating to the Although, to of requisite the intend remain our spread. we're to the their virus predict impact on schedules while to the of We fulfilling unable the demand, precipitous a plans. to appropriate in ultimate to provided committed we overwhelming people. address our compromising drop-off can requirements, make so do their we prepared we're our that Should without to of safety operating adjustments our eventually experience business,

Last Manufacturing, located Summerville, PC of completed acquisition a month, South certain assets of in the Carolina. we strand Strand-Tech competing producer

the facility our our plan other plants. and service to release transaction, PC close As indicated three Summerville from STM’s the we in strand we announcing customers

into of in finished activities tomorrow expect We the work conversion following that manufacturing cease remaining goods. will process

the STM’s group a facilities, deployed for for in has portion been Additionally, and process retention believe we to we’re transition plans rate. our customers will prior a to that of this Up equipment engineering our other to of to relocation Summerville, refining seamless with point, Insteel former several upgrade our certain its the continue significant pleased been weeks. has

interest employees complicated and expressed the plan the Insteel Summerville pursue COVID-XX. process been listing evaluating equipment machinery by former to on options that opportunities continuing future estate to excess has disposing have facilities, We’re the We facility. by at although – are for posed STM real of assets near the for located in employment the other very for sale challenges operation relocating in who and

that’s that transaction the We’re generate been shareholders. we’re and pleased attractive our for our the confident returns substantial progress plans, made integration executing with will in

XX% alleging the The illegal from countries imports duty the petitions strand entering scope of of Turkey. to market against Today, margins in Shifting these together Insteel, to subsidies XXXX addition domestic petition filed total period. against U.S. over XXX%, PC U. producers of in a dumping which the from strand another strand representing reflects with countervailing egregious in PC to development. producers, XXXX S. countries, XX% to the XX antidumping XXXX, PC investigation two filings, the behavior recent other alleged

with the the Department at should April Commerce We the the of the be of XXXX, the International and impacted September and and for milestones however, from point I cases could XXXX. May Commission. first time tentatively of for half considerations expect line May until procedural Trade of XXXX scheduled the July investigation June, end around Commerce out, and will that run May by Department

extensive As of the and by cases, our are to believe but strongly underlying analysis. these with we not outcome litigation, it’s supported any allegations predict possible facts the

Turning to CapEx.

million, We the have approximately as $XX we expenditures XXXX revisions through previously subject to estimated of move year.

certain which a new following meet a on line, our came the significant projects criteria. all progress to acceptance of year delayed online Our ago failure was production

quarter, vendor resolved line, the second deficiencies. the the substantial completed During performance which equipment modifications the to

the and however, our XXXX As fall to portion deferring are significant likely to a come under into canceling expected in this estimate. any projects. outlays I that XXXX, note, is of we should delay, or CapEx now initial result year’s of not a planned are our

to with significantly capabilities engineered which markets, technology. information expanding in in are focused systems We our are our certain ahead our pushing our upgrading mesh product plans, our reducing costs, capacity structural production on aggressively and addition broadening

become In summary, the uncertain. outlook for XXXX has highly

to We’ll both market point, some continue monitor softening in COVID-XX actions economy acquisition. conditions mitigation aggressively organic in pursuing also coming While up costs. strong to the pursue this see expect attractive growth of measures. appropriate and weight to closely be as to months business full the bears the and our vigilant we our remained to the optimize continue We’ll through opportunities, has

your concludes and prepared This now we’ll our questions. take remarks,

you would the procedure explain questions? please for Justin, asking

Operator

& Romero Thank our comes Company. sir. And from Sidoti Julio question first [Operator you, from Instructions]

now line Your is open.

Julio Romero

Hey, healthy. good morning, everyone. staying Hope you’re

H. Woltz

Julio. Good morning, Yes.

Julio Romero

having you just can facilities? start, distancing seeing manufacturing the rapidly, are current distribution you environment about operating in understand pretty your to things et talk Are your changing I any cetera? you social lines? Just are challenges, but at

H. Woltz

Yes. have we We’ve the adopted everything to as and sources, that by distancing COVID-XX. required, includes cleaning possibly which are as aggressive we’re where that’s by that mitigate but been observing recommended also procedures shift social procedures. staggered We’ve and other posed the reporting can risk all knowledgeable doing well CDC

Julio Romero

Okay. think they in million about to – for kind turning Do that? that margin but you Strand-Tech, to industry? jump that of expect a Fair of sales, capture about you who how captures over I year, last ball right? business I of Or can talk know sales $XX the should become guys profile enough. and did the guess, does those most maybe we

H. Woltz

service with one in entire result, But sourcing. we think expectations. that meets we favorable think, on beyond a expectations, to the them. simply favorable the in the has their Strand-Tech your their go Well, respect, meets convinced at expectations quality can the their value of offer been customer And meets has our we’re concerns base that and industry as pricing overall buy as that for timing day, was Strand-Tech’s us. your end your developed customers I I because improvements the deliver environment And

we So confidence Julio. it’s of earn where up we’re one to their pleased with the have rate this day, these but to things every point, retention

Mike Gazmarian

volume should the just facilities from it pretty reassignment profile, should where and with attractive incremental be of pretty to that with associated we’ll regard Julio, the costs our margin favorable. operating leverage business to following additional be the that benefit, the gain

business. just I our standpoint, relative expect positive overall would margin So that to a be should it from

Julio Romero

forward. XXXX Got in initially then, it. talked But the I your that I under your the just know in to remarks the you I absorbing talked press requirements that $XX going expected. come Strand-Tech million CapEx, you you know That’s CapEx delay, result in as prepared about guess, on about release, that equipment And had a likely lowers helpful. of deal, how CapEx

also guess, going – the just forward? acquisition does about affects CapEx So you that how Strand-Tech how I – your can outlook talk

H. Woltz

But you that that and for I Yes. at CapEx Strand-Tech Well, It most is statement in the come we transaction avoid through part. would about XXXX necessarily CapEx first, planned was tell would the XXXX have correct. not the – the us for XXXX. absolutely avoidance on will

So mean for it’s on the issue to it’s all exactly an whether will when what we new equipment, to there delays timing make It hard next falls this in project depends some is or say. and deposits XXXX CapEx. that year, year hard to say

Julio Romero

appreciate into queue much. Thanks very the others and I I’ll ask back that. some hop Understood, let questions.

Operator

question comes Instructions] Our [Operator Tyson you. next Capital. Thank KC from from Bauer

open. now Your line is

Tyson Bauer

morning, gentlemen. Good

H. Woltz

Tyson. morning, Good

Tyson Bauer

and tariffs we is didn't prior, well level things. have you forward, they've you going we suggest the tariffs go they the and the hits that taken take. insulated to because same they’re $XX the were would suggest those the pretty already because doing is the brunt stable were do would of much million $XX industry what more somewhat they imports, be the And when as that from STM, that million, years since a On that feeling impacts the

H. Woltz

think couple reached to hard declined but Yes, Strand-Tech the had not the them, whether had to bottom, market years was when don't underlying of the they volume there last had and the that been base made kind expect I we over we deterioration customer any for say acquisition. of

Tyson Bauer

well pretty your base own? customer their does And, mirror

H. Woltz

generally minimal favorable and than the which presence import they most is subject of is is competition. the in segment posttension had ours which market, more to that been actually the segment It

Tyson Bauer

Okay. an seems Would incorporating minimal of SG&A, there you asset and as you're facilities? increases back own expect more going-forward be just to to versus it a your

H. Woltz

correct. that's Yes,

Mike Gazmarian

incentive other that contributes the additional but staffing wouldn't and no volume. extent impacts plans, improved any with results SG&A impact performance it there than be Yes, the requirements to associated incremental absorbing to the

Tyson Bauer

you'll talked you the did any price? to add also working original purchase of In that your million press could X market other Okay. willing, do net price, sale the capital sales, out back they purchase clawbacks net which included that release, we excess about to assets or facility, some have potential the the

Mike Gazmarian

No, I would their working in you was net think position line really with right expect. capital what

I to So relating wouldn't anticipate any adjustments that.

Tyson Bauer

one, only than of discussions which that Midwest, in the a And because probably items projects? is much that may less been the been impediments forward, otherwise. regarding certain on two, work Northeast, news other actually seen traffic seen that have because in of here or and up weather; there's least obviously projects you different are of areas At too? have created Okay. speed at you other and night Have the infrastructure benefit pulled

H. Woltz

or the affect we in events. nature sense cast and on of subject go nature of acceleration Tyson, which we're the not wouldn't aware same acceleration those repair read of My schedule rapid in in that ground really based typically information they the in products, are projects. short-term is for certain to underlying our and most demand and place

Tyson Bauer

Okay. then as will seen, it least also at to you not that it occur, things the scheduled on seems industries, to And like various talking have did schedule is what's have that occur starting schedule, are not cautious those scheduled. cancellation, Are also? postponement or on you ones a risk seeing wasn't the at a that necessarily new already but of just something stance delays, in

H. Woltz

we board. result tax we're over think actually I as so. I seeing concerns, receipts what's funding the it, real matter aware time Well, and of across the funding of think but And don't think depressed those is a the are I outlook

Tyson Bauer

Okay.

Mike Gazmarian

impact that gets existing be because, function largely thus customers impacted our a off and and that long persists it far. issue their how it's end, of backlog. lag more pandemic which Yes. now, we've just in turn there. any have there's and get doesn't and switch the remained think to time think an resolution projects through a mean that the I when new busy flow the to of It's I of the extent going immediately, into working a the I from we don't seen stands as pipeline

just mean, it I be of the of function think I COVID-XX. So a duration will

Tyson Bauer

rod shutting your And the that kind will of you that due does and situation? domestic supply kind pricing. implications shut of facilities that think pricing wire down a Characterize down, Alright. keep we I be or here and margin help the has little sticky more have to

H. Woltz

Well.

seen and think circumstances, all, seen dramatic expected than great out market, wire I you which it's moves that needs delivery short environment, you have situation good at is that's mean, We've competitive clearly are this of happening. anyone times probably I in time. capacity the this a is problem to of a scrap. for and question in I a prior would have under who more play uncertainty in all for we've going to deal rod sense over not a downward the supply

Tyson Bauer

question be likely to Okay. the component type parties get countries XX both? a And think that, Administration is The stimulus strand both to include or occur you. board it to filing leadership or the of discussion on –seems infrastructure board, that's seems next would to in you for on a seems PC more can of question house those some being the you your for loaded on on anti-dumping against successful for

H. Woltz

and federal here government Well, certainly I how not under doesn’t think they're bill see of an infrastructure independent circumstances. I up mutually ante don't on another one exclusive. the the

it's still although happen, speculative. will that think I

we having to the facts a allegations infrastructure they strongly believe on cases, are they be whether record anti-dumping and with I of can. do and any by the the the can that are On those is nothing matter see really this facts supported that bill,

Tyson Bauer

we've not help out That requiring Well, the immediately. America in seen Buy would more that they you the certainly of and infrastructure anti-dumping past. as make component could certainly

H. Woltz

for be America mean there, I we're play Buy would I to no coverage if a rules successful on at heard dumping legislative The the cases. take act rather and can't the by that simply our expect play that Well, forced competitors I've impact the are expanded it foreign be wouldn't than to rumblings should all.

we just for recently so the So strand didn't rules. done see successfully by really play until XX to competed have years they in imports we've we've with and what when happens, PC

we're level playing field here. So just hoping restore to a

Tyson Bauer

gentlemen. you, Thank right. All

Operator

Insteel, back Thank you. questions. now like And closing the I'm remarks. call turn for Woltz, showing further would no and I H. CEO to to President

H. Woltz

Thank company. In look in don't next to forward meantime, you Thank We the And contact talking appreciate to interest have you. if to hesitate we questions. you. your quarter. the you us

Operator

Ladies this concludes and you gentlemen, call. today's for conference Thank participating.

disconnect. You now may

Insteel Industries (IIIN) 16 Apr 202020 Q2 Earnings call transcript