INSTEEL INDUSTRIES INC (IIIN)·Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 net sales rose 6.6% year over year to $129.7M, while diluted EPS was flat at $0.06; gross margin expanded 210 bps YoY to 7.3% as spreads improved, offset by higher SG&A .
• Sequentially, shipments fell 4.5% due to normal seasonality, average selling prices increased 1.1%, and gross margin compressed versus Q4 2024 (9.1%) as purchase accounting on acquired inventory weighed on margin by ~110 bps .
• Company executed and rapidly integrated two acquisitions (EWP for adjusted $67.0M; OWP for adjusted $5.1M) and paid a $1.00/share special dividend alongside its $0.03 regular dividend; ended quarter with $36.0M cash and no debt .
• Management implemented price increases and expects Q2 2025 margin tailwinds as higher selling prices meet lower-cost inventories under first-out methodology; headwinds persist from low-priced PC strand imports and tighter domestic wire rod supply .

What Went Well and What Went Wrong

What Went Well

• Demand recovery: “We are encouraged by recovering order activity we experienced during the first quarter, which is typically seasonally weak” — H.O. Woltz III .
• Integration execution: “Within two weeks of closing, the legacy systems of the acquired companies were disabled and Insteel systems were up and running…integration risk is substantially behind us” — H.O. Woltz III .
• Pricing actions/margin setup: Management raised prices in Q1 and early January; expects Q2 spreads/margins to benefit as higher ASPs align with lower-cost inventories (first-out accounting) .

What Went Wrong

• Margin pressure vs prior quarter: Gross margin of 7.3% in Q1 2025 vs 9.1% in Q4 2024, with ~110 bps drag from inventory revaluation on acquisitions .
• Import competition: Ongoing low-priced PC strand imports continue to pressure selling prices, volumes, and spreads; management is pursuing trade remedies and Section 232 fix .
• Costs and restructuring: SG&A increased YoY; recorded $0.7M restructuring (Warren, OH closure) and $0.3M acquisition costs in the quarter .

Financial Results

Income Statement Comparison (oldest → newest)

Balance Sheet & Cash Flow (oldest → newest)

Q1 2025 Operating KPIs

Note: Adjusted EPS excludes ~$1.0M in restructuring and acquisition-related costs; reported diluted EPS was $0.06 .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “The improved start to the year, together with increasing contributions from our recent acquisitions, positions us well as we move into the balance of fiscal 2025” — H.O. Woltz III .
• “Adjusted net earnings increased to $0.10 per share” after excluding nonrecurring charges; price increases and first-out inventory accounting should favor Q2 margins — Scot Jafroodi .
• “We are well underway in capturing the significant cost reduction synergies…integration risk is substantially behind us” — H.O. Woltz III .
• On trade policy: “We are working with our supplier community and the administration to resolve this anomaly…about 30% of our PC strand market and ~10% of our total revenue is directly affected by import competition” — H.O. Woltz III .

Q&A Highlights

• Demand trends: Broad-based uptick in November/December with optimism across markets; sequential seasonality still normal .
• Pricing confidence: Domestic wire rod supply tightening supported phased price increases; import fill expected later in Q2/Q3 to cover gaps .
• Acquisition synergies: Warren, OH closure addressed negative EBITDA; surplus equipment/real property to be monetized; incremental amortization ~$0.9M remainder FY25 .
• Tariffs vs rates: Management views tariffs as a bigger near-term driver than interest rates; a broader-based tariff regime would likely help near term .
• End-market opportunities: Data centers/warehousing planning strength; continued focus on core markets (tilt-up, pipe, poles) .

Estimates Context

• Wall Street consensus EPS and revenue for Q1 2025 could not be retrieved due to an S&P Global daily request limit; therefore, an estimates comparison is unavailable at this time. If needed, we will refresh once S&P Global access is restored (values would be retrieved from S&P Global).

Key Takeaways for Investors

• Q1 showed early-cycle demand recovery and YoY margin expansion, but sequential margin compression reflects seasonality and acquisition-related purchase accounting; expect Q2 margin uplift from price increases and lower-cost inventories under first-out accounting .
• Strategic M&A expands footprint and supports cost synergies; integration appears ahead of schedule, with SG&A reductions and freight/raw material benefits identified .
• Persistent import pressure in PC strand remains the core headwind; a Section 232 fix or trade actions would be a major stock catalyst if achieved .
• Balance sheet remains flexible (no debt) despite M&A and special dividend; liquidity at $36.0M provides optionality for further growth initiatives .
• CapEx plan (~$22M FY25) targets productivity and product capability expansion; supports medium-term margin normalization as operating rates recover .
• Near-term trading setup: Watch for Q2 spread/margin trajectory vs price increases, import dynamics, and any policy developments; dividend continuity ($0.03) offers modest yield support .
• Medium-term thesis: Demand normalization across commercial/infrastructure, ESM adoption, and synergy capture underpin earnings recovery; tariff resolution would accelerate the path .

Sources: Q1 2025 press release and Form 8-K (incl. financial statements) ; Q1 2025 press release ; Q1 2025 earnings call transcript ; Q4 2024 press release and call ; Q3 2024 press release and call ; Warren, OH facility closure ; EWP acquisition ; dividend declaration (Feb 11, 2025) .