Insteel Industries Inc., one of the US' largest manufacturers of steel wire reinforcement products, has reported a net loss of $1.1 million for the first quarter of fiscal 2010 compared with a net loss of $5.6 million for the first quarter of 2009 and net earnings of $2.8 million in the fourth fiscal quarter of 2009.
The net loss for the current year quarter includes a pre-tax charge of $1.9 million for inventory write-downs to reduce the carrying value of inventory to the lower of cost or market.
Net sales for the first quarter of fiscal 2010 ($41.2 million) decreased 33.3 percent from the first quarter of fiscal 2009 ($61.8 million). Shipments for the current year quarter increased 2.9 percent from the first quarter of fiscal 2009 while average selling prices decreased 35.2 percent. On a sequential basis, shipments decreased 31.4 percent from the fourth quarter of fiscal 2009 while average selling prices decreased 1.7 percent.
Insteel said its financial results for the first quarter of fiscal 2010 were unfavorably impacted by depressed shipment volumes, narrowing spreads between selling prices and raw material costs, and elevated unit conversion costs. The typical seasonal downturn during the quarter was compounded by ongoing weakness in nonresidential construction and adverse weather conditions, while the inventory write-downs incurred for the quarter resulted from additional pricing deterioration for standard welded wire reinforcing products. Unit conversion costs were adversely impacted by reduced operating schedules that the company implemented in response to extended year-end shutdowns taken by customers. Insteel's overall capacity utilization for the quarter dropped to 33 percent from 56 percent in the fourth quarter of fiscal 2009 and 42 percent in the first quarter of fiscal 2009.
Regarding the US' ongoing antidumping and countervailing duty investigations against Chinese PC strand which were initiated by Insteel and other US PC strand producers last year, H.O. Woltz III, Insteel's president and CEO , commented, "In response to the trade cases and favorable preliminary determinations, Chinese PC strand producers have essentially exited the US market, which has partially offset the negative impact from the sharp decline in domestic consumption ... Should we ultimately prevail in the final determinations, we expect the favorable impact of these cases to become more apparent in our financial results as market conditions improve."
Commenting on the outlook for the remainder of fiscal 2010, Woltz said, "As we move into the second quarter, we expect business conditions to remain challenging. The downturn in nonresidential construction, particularly for commercial projects, appears to be in its early stages, with minimal improvement anticipated until there is an overall recovery in the economy and in the labor market. There continues to be uncertainty regarding the resolution of a new multi-year federal highway funding authorization. Any favorable impact from the additional infrastructure-related funding provided for under the federal stimulus package is likely to be mitigated by widening budget gaps at the state and local levels.
"In spite of weak demand, prices for our primary raw material, hot-rolled steel wire rod, appear to be trending higher in response to the escalating scrap costs for wire rod producers. It may be difficult for us to recover these additional costs in our markets should the competitive dynamics that we experienced during the first quarter persist. We believe that Insteel's manufacturing costs compare favorably against any of our competitors and expect to emerge from this period of heightened competitive activity with our market share intact, provided that illegal Chinese trading practices are ultimately remedied through the pending PC strand trade cases. In addition, we will continue to seek growth opportunities that may develop in this difficult macro environment."