Insteel Industries, Inc. (IIIN) F2Q10 (Qtr End 04/03/10) Earnings Call Transcript April 22, 2009 10:00 am ET Executives H. Woltz – Chairman, President and CEO Mike Gazmarian – VP, CFO and Treasurer
Analysts Tim Hayes – Davenport & Company Robert Kelly – Sidoti Nat Kellogg – Hudson Securities John Cawler – Oppenheimer Presentation Operator
The prior year loss for the quarter includes the pretax charge of $16.1 million or $0.58 per share after tax for inventory write-downs to reduce the carrying value of inventory to the lower cost-to-market, excluding these write-downs; the year ago loss would have been $0.36 per share.Insteel results for the second quarter were favorably impacted by higher shipment wider spreads between selling prices and raw material cost, lower unit conversion cost and the lower effective income tax rate. Net sales for the quarter increased 3.7% from the prior year driven by 34.7% increase in shipment, which more than offset at 23% decrease in average selling prices. On a sequential basis, net sales rose 26.9% from the first quarter of fiscal 2010. Despite the adverse weather conditions that we experienced during the quarter, Q2 shipments were up 25.7% sequentially from Q1. The sequential increase in shipments were significantly higher than the usual seasonal improvement we experienced between Q1 and Q2 which prior to 2009 had ranged from 8% to 13% over the previous five years. We believe the larger increase this year was driven by customer inventory restocking and hedge buying in anticipation to future price increases, which more than offset the negative impact of the unusually severe winter weather in most of our markets. Even with the pickup in volume for the quarter, our Q2 shipments were still anywhere from 27% to 36% under the comparable period in 2006 to 2008. Average selling prices for the second quarter rose 0.9% sequentially from Q1 due to the price increases that were implemented during the quarter in response to the escalation in the cost of our primary raw material, hot-rolled steel-wire rod. The timing of our increases has lagged somewhat behind the announced increases for wire rod due to competitive pricing pressures.
We've announced additional price increases that have or will be going into effect to recover this higher cost. Gross profit for the second quarter was $6.2 million or 11.9% of net sales compared with the gross loss of $21 million in the prior year. Gross profit for the prior year quarter includes the $16.1 million charge for inventory write-downs diluted to earlier.Excluding these write-downs to prior year growth loss would have been $4.9 million. The year-over-year improvement in gross profit was driven by the lack of inventory write-downs in the current year period. The increase in shipments, wire spread between average selling prices and raw material costs and lower unit conversion costs. Our overall capacity utilization remained at depressed levels for the quarter were showed some improvement increasing to 49% and 33% in the first quarter and 35% a year ago. As a result, total unit production for the quarter was up 39% from last year and 35.3% on a sequential basis from Q1, which translated into sizeable reductions in our unit conversion cost. SG&A expense for the second quarter decreased $0.2 million from the prior year, primarily due to the relative changes in the cash surrender value of life insurance policies, which depreciated in value in the current year quarter of decreasing in the prior year. Our effective income tax rate for the quarter dropped to 17.8%, compared with 35.8% a year ago due to changes in the federal tax regulations regarding the carry back of net operating losses, which increased the amount of the tax refund that we received during the quarter relative to the prior year loss together with changes and permanent book versus tax differences. Read the rest of this transcript for free on seekingalpha.com