NEW YORK Insteel Industries Inc.s earnings jumped in its fiscal fourth quarter due to an improved price spread between wire rod and finished product, as well as a gradually improving construction market.
The Mount Airy, N.C.-based company posted net income of more than $2.3 million for the three months ended Sept. 28 vs. $833,000 in the same period last year. Sales rose just 0.3 percent to $98.2 million as a 4.7-percent increase in shipments was offset by a 4.2-percent decline in average selling prices.
The overall improving economy continued to undergird shipment volumes, the company said.
"Nonresidential construction, our primary demand driver, should continue to benefit from the ongoing recovery in the housing sector, although we expect growth to remain modest until the economy gains more momentum," vice president Michael Gazmarian said during a conference call with investors.
Insteels gross margins grew to 8.8 percent in the fiscal fourth quarter from 6 percent a year earlier, the company said. Prices of steel wire rod, the companys raw material input, have drifted downward in the past few months due to import pressure and decreasing scrap prices (amm.com, Oct. 10).
"The (wire rod) market has become more competitive ... due to relatively high level of imports and seasonal influences that are adversely affecting demand, and unused capacity in wire rod industry. But the advent of new capacity has added heat to that fire. Its a competitive market," chief executive officer H.O. Woltz III said during the conference call.
But the companys putative improvement in margins has been partially offset by a decline in finished product pricing.
"Pricing pressure were exposed to in welded wire reinforcement is primarily of domestic origin. Our competitors, like us, face lethargic markets and weak demand that is intensifying the competition we see in every region of the country," Woltz said.
The company expects continued gradual growth over the next year.
"Activity levels in our markets improved marginally during the fourth quarter, continuing a trend of sluggish construction spending and employment," Woltz said. In the next quarter, "we expect gradually improving conditions in the absence of a catalyst for a more robust recovery."