Insteel Industries Q3 Earnings Call Highlights

Key Points

• Insteel’s Q3 earnings fell sharply to $9 million, or $0.46 per share, from $15.2 million a year ago as higher raw material, freight and manufacturing costs outweighed modest shipment growth and higher selling prices.
• Demand remains mixed: infrastructure activity stayed reasonably strong, while private non-residential construction was weak and some data center-related shipments were delayed by weather and customer scheduling issues rather than cancelled.
• The company remains financially solid with $22.9 million in cash, no borrowings on its credit facility, and continued share buybacks, while management is also pushing through another price increase to help offset persistent inflationary pressure.

Insteel Industries NYSE: IIIN reported lower fiscal third-quarter earnings as higher selling prices and modestly improved shipments were outweighed by rising raw material, freight and manufacturing costs, executives said on the company’s earnings call.

Scot Jafroodi, vice president, chief financial officer and treasurer, said net earnings fell to $9 million, or $0.46 per share, from $15.2 million, or $0.78 per share, in the prior-year quarter. He said third-quarter shipments increased 1.7% year over year, supported by infrastructure activity, while broader private non-residential construction remained soft.

“Despite the decline in earnings, underlying demand trends remain generally favorable,” Jafroodi said. He added that wet weather in certain regions and scheduling and delivery delays on several customer projects, including data center-related projects, slowed shipments during the quarter. The company views those delays as timing-related rather than evidence of weaker demand.

Margins pressured by higher costs

Average selling prices rose 8.1% from the prior-year quarter and 2.3% sequentially, reflecting pricing actions taken over the past year to offset higher steel wire rod, freight and operating costs. However, Jafroodi said gross profit declined to $20.1 million from $30.8 million a year earlier, while gross margin narrowed to 10.2% from 17.1%.

The year-over-year margin decline was driven primarily by narrower spreads between selling prices and raw material costs, higher freight and manufacturing costs, and lower production volumes that increased unit conversion costs. Sequentially, gross profit improved by $3.6 million from the second quarter, and gross margin rose 60 basis points, reflecting higher shipment volumes and improved spreads.

For the fourth quarter, Jafroodi said Insteel expects gross margins to remain near current levels, with the potential for modest improvement. He said that outlook depends on steady demand, improved manufacturing efficiency from higher production volumes and additional pricing increases sufficient to offset ongoing inflationary pressure.

President and Chief Executive Officer H. Woltz said the company has “struggled to get in front of costs that are rising substantially in every aspect of the business.” He said Insteel recently announced another price increase, effective July 13, to recover rising costs.

“You either absorb these costs or you pass them along, and our choice is to pass them along and not absorb them,” Woltz said during the question-and-answer session.

Infrastructure holds up, private non-residential remains uneven

Woltz characterized infrastructure markets as “reasonably strong” and private non-residential construction, excluding data centers, as “quite weak.” He said data center project delays discussed on the prior quarter’s call continued into the third quarter, but the company has not seen cancellations.

“We expect shipments to private non-res markets, including our data center projects, to accelerate during the current quarter and to remain strong through the end of the calendar year,” Woltz said.

In response to a question from Julio Romero of Sidoti, Woltz said the company is involved in multiple data center projects, not just one, and that shipments are expected to occur regularly once contractors are ready for the material. He said Insteel is focused on projects that are permitted and funded.

Woltz also said the company sees broader long-term opportunities for its engineered structural mesh products beyond data centers, particularly in larger buildings where faster construction is important to owners and contractors. He said the company expects markets it did not participate in two years ago to become a meaningful part of revenue over time.

Balance sheet remains debt-free

Jafroodi said operating activities generated $13.7 million of cash during the quarter, driven primarily by net earnings. Working capital had a minimal impact, providing about $500,000 of cash. Inventories increased by $7.9 million due to continued wire rod purchasing and higher average raw material costs, mostly offset by a $7.8 million increase in accounts payable and accrued expenses.

Inventory at quarter-end represented approximately 3.5 months of forecast fourth-quarter shipments, up slightly from 3.4 months at the end of the second quarter. Jafroodi said inventories have remained elevated in fiscal 2026 as the company supplemented domestic wire rod purchases with offshore material to support customer demand and reduce supply risk. He said inventories are expected to decline monthly during the fourth quarter as seasonal shipment activity progresses.

The company ended the quarter with $22.9 million of cash and no borrowings outstanding on its $100 million revolving credit facility. Insteel repurchased 75,000 shares for $1.9 million during the quarter. Jafroodi said the company’s capital allocation priorities remain investing in the business, maintaining a strong balance sheet and returning excess capital to shareholders through dividends and disciplined buybacks.

Capital expenditures totaled $3.2 million in the quarter. Jafroodi said Insteel now expects full-year capital spending of approximately $15 million, down from a previous estimate of $20 million, due to project timing rather than changes in investment plans. Woltz said the investments will support growth in engineered structural mesh, reduce cash production costs and strengthen information systems.

Tariffs and raw material costs remain key issues

Woltz said the steel industry has been heavily affected by the administration’s tariff policy. He said the Section 232 tariff of 50% on steel imports has pushed U.S. hot-rolled wire rod prices, Insteel’s primary raw material, to levels 50% to 100% above global market prices.

He said the extension of Section 232 tariffs to downstream products derived from hot-rolled steel has reduced imports of prestressed concrete strand, or PC strand. For the first four months of calendar 2026, Woltz said PC strand imports fell 30% from the prior year, based on the most recent data available.

Still, Woltz said foreign competitors can acquire hot-rolled steel at world market prices and pay the tariff, meaning “their economics still work” despite higher uncertainty and costs. He also said Insteel will continue importing the portion of its wire rod requirements it cannot source domestically because domestic production remains below domestic demand.

Jafroodi cited mixed construction indicators, including a May Architecture Billings Index reading of 44.5, a June decline in the Dodge Momentum Index and May construction spending data showing strength in highway and street construction but weaker total non-residential construction spending year over year. He said the indicators support the company’s view that the near-term environment remains mixed while underlying demand drivers in key end markets remain supportive.

“Despite our relatively weak financial performance in Q3, I’m glad to report that we believe market conditions are holding up reasonably well and certainly well enough to support better financial performance from our company,” Woltz said.

About Insteel Industries NYSE: IIIN

Insteel Industries, Inc is a leading manufacturer of steel wire reinforcing products used in concrete construction. The company specializes in the design, fabrication and distribution of welded-wire reinforcement, cut-and-bent reinforcement and related accessories for concrete walls, floors and columns. Its products are employed across residential, commercial and infrastructure projects, providing structural strength and dimensional stability in poured concrete applications.

Key product lines include truss mats—prefabricated, ladder-like assemblies of welded wire designed for rapid placement—and custom cut-and-bent wire assemblies that meet specific engineering requirements.

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