Insteel Industries (NYSE:IIIN) reported a strong start to fiscal 2026, citing continued improvement in demand for its concrete reinforcing products and solid contributions from acquisitions completed in fiscal 2025. Management said business activity accelerated through the first quarter and noted brisk order entry in January, which contributed to its view that 2026 “will be a strong year for the company,” while also acknowledging uncertainties tied to trade policy, fiscal conditions, and the broader economic cycle.
First-quarter results supported by stronger demand and wider spreads
Chief Financial Officer Scot Jafroodi said first-quarter performance benefited from improved demand that helped widen the spread between selling prices and raw material costs. Net earnings rose to $7.6 million, or $0.39 per share, compared with $1.1 million, or $0.06 per share, in the prior-year period. Jafroodi noted the prior-year quarter included $1 million of restructuring and acquisition-related costs that reduced earnings per share by $0.04.
Pricing actions, margin trends, and January increases
Average selling prices rose 18.8% from the year-ago period, reflecting pricing actions taken during fiscal 2025 to offset higher steel wire rod costs and rising operating expenses. Jafroodi said selling prices were essentially unchanged sequentially because the company did not take additional pricing actions during the quarter. However, with scrap and wire rod prices moving higher again, Insteel implemented price increases across most product lines that took effect earlier in January.
Gross profit increased to $18.1 million from $9.5 million a year ago, and gross margin expanded to 11.3% from 7.3%, driven by wider spreads, higher shipment volumes, and lower unit manufacturing costs. Sequentially, gross profit declined $10.5 million and gross margin narrowed by 480 basis points, which Jafroodi attributed primarily to the consumption of higher-cost inventory under the company’s first-in, first-out accounting method. He said the January price increase is expected to benefit second-quarter spreads and margins as higher selling prices begin to align with the consumption of lower-cost inventories.
SG&A expense increased about $900,000 to $8.8 million, or 5.5% of net sales, compared with $7.9 million, or 6.1% of net sales, in the prior year. The increase was driven primarily by an $800,000 rise in incentive compensation expense under the company’s return on capital-based plan, reflecting stronger financial performance. In the prior-year first quarter, Insteel did not incur incentive compensation expense.
The effective tax rate declined to 21% from 26.1%, primarily due to a reduction in the valuation allowance on deferred tax assets and a discrete item related to state deferred tax calculations. Jafroodi said the company expects an effective tax rate of roughly 23% for the remainder of the year, subject to earnings levels and other assumptions underlying the tax provision.
Working capital, inventory build, and capital returns
Operating cash flow used $700,000 in the quarter, compared with providing $19 million in the year-ago period. Net working capital used $16.6 million of cash, driven by a $34.5 million inventory increase that was partially offset by a $14.1 million reduction in accounts receivable. Jafroodi said the inventory build reflected higher raw material purchases, including “a meaningful amount of offshore material,” and an increase in the average carrying value of inventory.
Quarter-end inventory represented about 3.9 months of shipments on a forward-looking basis (based on forecasted second-quarter volumes), up from 3.5 months at the end of the fourth quarter. Management reiterated that it had expected a temporary inventory build as it supplemented domestic wire rod supply with offshore purchases. Jafroodi said inventories are carried at a unit cost generally in line with first-quarter cost of sales and remain below current replacement levels, and he expects inventory levels to moderate during the second quarter as purchasing normalizes and shipments increase.
The company spent $1.5 million in first-quarter capital expenditures and maintained its full-year target of $20 million. Insteel also returned capital to shareholders, including a $1 per share special cash dividend paid in December totaling $19.4 million, in addition to its regular quarterly dividend. Jafroodi said it marked the ninth time in the last 10 years the company has issued a special dividend. Insteel also repurchased $745,000 of common stock, or roughly 24,000 shares. The quarter ended with $15.6 million in cash and no borrowings on its $100 million revolving credit facility.
Market backdrop: mixed indicators, but steady demand seen
Jafroodi said leading indicators offered a mixed view of nonresidential construction. The Architecture Billings Index registered 45.3 in November, remaining below 50 for a 13th consecutive month, signaling contraction. In contrast, the Dodge Momentum Index rose 7% in December, supported by growth in commercial planning that he said was driven in large part by data center construction; year over year, the index was up 50% overall and 45% in the commercial segment.
He also cited U.S. Department of Commerce data showing total construction spending through August down about 1.6% year over year, with nonresidential down 1.5% and public highway and street construction down about 1%. U.S. cement shipments fell 4.3% in August and were down 3.4% year to date. Despite that backdrop, management said it is encouraged by the demand it is seeing and by customer conversations heading into the balance of the year.
CEO outlines demand drivers, tariffs, and wire rod supply constraints
Chief Executive Officer H. Woltz said the company sees no indication that market activity is poised to subside and discussed what he believes are key demand drivers. He said Insteel believes funding from the Infrastructure Investment and Jobs Act has been responsible for “much of the uptick in demand,” though the company cannot definitively tie any single project to IIJA funding. Woltz noted IIJA funding expires in fall 2026 but said funded projects would proceed into 2027 and beyond, adding that there is currently a consensus of bipartisan support for a replacement mechanism, though he cautioned that remains uncertain.
Woltz also highlighted data center construction as a source of demand expected to remain robust into 2027, while noting increasing community pushback in some areas. He said the company has customer commitments for approved and funded data center projects that should run through calendar 2026 and described data center activity as a “bridge” while other private nonresidential sectors remain weak.
On trade policy, Woltz said the steel industry has been heavily affected by tariff policy, pointing to a Section 232 tariff of 50% on steel imports. He said domestic wire rod prices have risen to levels 50% to 100% higher than global prices, and while PC strand imports are subject to Section 232 tariffs under the derivative products provision, the rise in domestic wire rod prices has diluted that benefit. Woltz also emphasized uncertainty around potential tariff modifications, citing speculation about possible changes for Europe and noting that such commentary increases instability in U.S. markets.
Woltz provided additional detail on domestic wire rod supply constraints, saying U.S. domestic wire rod production is about 3.5 million tons per year versus roughly 5 million tons of apparent domestic consumption. He said recent closures and reduced output have taken substantial capacity offline, contributing to tighter supply. In response, Insteel has sourced part of its wire rod needs offshore, which requires large purchases and increases inventories and working capital. Woltz said net working capital has risen by more than $50 million over the last 12 months, and Insteel expects to continue importing until domestic availability improves, though he expects the working-capital impact to be more muted going forward and anticipates working capital release as market conditions normalize, without providing a quantified estimate.
During Q&A, Woltz said Insteel’s data center business became meaningful in 2025 and has led to “repeat opportunities and robust demand.” He also said the company is not typically “specced in” on projects and instead converts rebar applications to engineered structural mesh based on its value proposition—particularly speed, which he said is important for data center owners focused on rapid completion. Woltz said the company has realized the synergies it expected from its acquisitions and described their performance as positive.
Woltz also discussed CapEx planning, saying the $20 million investment plan is intended to support growth in engineered structural mesh, reduce cash production costs, and strengthen information systems. In response to a question on the mix of spending, he indicated an approximate 50/50 split between maintenance and growth or cost-reduction initiatives was “close to correct,” and pointed to continued focus on technology investments that reduce labor intensity amid ongoing labor availability challenges.
On residential exposure, Woltz said he does not expect a meaningful impact on 2026 from any improvement in residential markets, adding that Insteel’s residential participation is tied to slab-on-grade housing that uses PC strand and is a segment where the company most directly competes with imports. He also noted ongoing inflationary pressures across operations, including upward labor cost pressure, tariff-related costs on non-raw-material purchases such as spare parts, and rising energy costs.
About Insteel Industries (NYSE:IIIN)
Insteel Industries, Inc is a leading manufacturer of steel wire reinforcing products used in concrete construction. The company specializes in the design, fabrication and distribution of welded-wire reinforcement, cut-and-bent reinforcement and related accessories for concrete walls, floors and columns. Its products are employed across residential, commercial and infrastructure projects, providing structural strength and dimensional stability in poured concrete applications.
Key product lines include truss mats—prefabricated, ladder-like assemblies of welded wire designed for rapid placement—and custom cut-and-bent wire assemblies that meet specific engineering requirements.
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