Insteel Industries (IIIN), the largest U.S. manufacturer of steel wire reinforcing products for concrete construction, faced a challenging first fiscal quarter in 2025, affected by low volumes and continued pressure on gross margins. Despite these issues, the company is well-positioned for future recovery, expecting increased construction and infrastructure demand by late 2025. The recent acquisitions of Engineered Wire Products, Inc. and O’Brien Wire Products of Texas, Inc. have further strengthened Insteel’s leadership position in the industry.
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With recovering order activity and the contributions of recent acquisitions, the company anticipates growth in the near quarters. The stock trades at a discount, making it a potentially attractive option for value-oriented investors looking for a turnaround situation.
Optimism For a Turnaround
Insteel is a leading manufacturing company specializing in the production of steel wire reinforcing products used in concrete construction applications. The company’s product lineup includes prestressed concrete strand, engineered structural mesh, and standard welded wire reinforcement, as well as concrete pipe reinforcement.
Insteel has recently acquired two companies, Engineered Wire Products, Inc. and O’Brien Wire Products of Texas, Inc., for adjusted purchase prices of $67.0 million and $5.1 million, respectively. Both asset transactions included the acquisition of inventories and production equipment. These acquisitions boost Insteel’s manufacturing capabilities for welded wire reinforcement products used in residential and nonresidential construction.
Company management has expressed optimism for the year ahead, noting a recovery in order activity and increased contributions from the newly acquired companies. The company is strategically focused on optimizing operations, capitalizing on emerging market opportunities, and delivering long-term value to shareholders.
Revenue Gains Lead to Special Dividend
The company recently reported results for Q1 of FY2025, with revenue of $129.7 million surpassing analysts expectations by $12.25 million. Despite a 4.3% decline in average selling prices, net sales grew 6.6% year-over-year, primarily due to an 11.4% increase in shipments. The gains in shipments were driven by positive demand trends in the infrastructure and commercial construction markets, as well as additional volume generated from the two recent acquisitions.
The gross margin expanded to 7.3% in the quarter from 5.2% in the prior year, which is primarily attributed to higher shipment volumes and wider spreads between selling prices and raw material costs. Non-GAAP earnings per share (EPS) of $0.10 were in line with expectations.
Capital expenditures declined from $12.3 million in the previous year to $2.7 million, and the company ended the quarter with a comfortable liquidity position of $36.0 million in cash with no outstanding borrowings on its $100.0 million credit facility. Insteel declared a special cash dividend of $1.00 per share along with a regular quarterly cash dividend of $0.03 per share.
Growth Catalysts in Sight
The stock has been on a downward trend over the past year, shedding 14%. However, it has seen a positive turn recently, climbing 3.85% year-to-date. It trades near the middle of its 52-week price range of $23.60 – $38.40 and shows mixed technical, with positive momentum over shorter moving average time-frames, but lagging the longer moving averages. The P/S ratio of 1x sits at a relative discount to the Industrials sector average of 1.6x.
The construction landscape, in general, seems to be picking up pace. After the weak performance of the Architectural Billings Index in 2024 and 2023, due to factors such as higher rates and previous high levels of activity, noticeable improvements have been observed since mid-2024. Further, while office construction is predicted to continue as a weak sector, data center construction activity is maintaining its robust performance and warehouse construction appears to be bouncing back after a significant correction. These factors will likely act as catalysts driving growth of the share price in the foreseeable future.
Bottom Line on IIIN
Insteel is a prominent player in manufacturing steel wire reinforcing products for concrete construction. While it has grappled with some daunting financial hurdles the past few years, characterized by lower volumes and shrinking gross margins, the company is primed for a comeback, fueled by the expected surge in construction and infrastructure demand by the end of the year. The recent bolstering of its operations through strategic acquisitions further amplifies Insteel’s upside potential. The stock appears underpriced, presenting an opportunity for investors to jump on board a potential turnaround story.
