Another sharp increase in costs related to Chinese tariffs, along with a significant revenue decline, contributed to Insteel Industries Inc. having a $1.77 million loss for the fourth quarter.
The Mount Airy corporation had $9.41 million in fourth-quarter net income a year ago.
Insteel said Thursday “it continued to be unfavorably impacted by increasing low-priced import competition.”
In March 2018, the Trump administration placed 25% stainless-steel tariffs on Chinese and other imports.
“Foreign competitors have responded by shifting production to downstream products, such as PC strand and standard welded wire reinforcement, in order to circumvent the tariffs and further their penetration of the U.S. market,” Insteel said.
Insteel gave as examples that through June 30, PC strand imports increased by nearly 50% from the prior year and imports of standard welded wire reinforcing from Mexico increased by 60%.
H.O. Woltz III, Insteel’s president and chief executive, said in a statement that the Trump administration “is aware of the adverse impact of the surge in foreign finished products on our industry and are advocating for action that addresses these unfavorable trends.”
“It appears the administration is firmly committed to its steel trade policy. The only reasonable resolution of these distortions is to extend the Section 232 tariff to include downstream products.”
Insteel had a 9-cent earnings loss, compared with 49 cents in diluted earnings a year ago.
Investors responded to the third consecutive sharp quarterly profit drop by sending Insteel’s share price down Thursday. The share price closed down $1.31, or 6.55%, to $18.69.
The company benefited from having a $267,000 income-tax reduction, compared with a $2.69 million expense a year ago.
For fiscal 2019, Insteel reported just under $6 million in net income, down from $36.3 million in fiscal 2018. Diluted earnings were 29 cents, compared with $1.88 a year ago.
Fourth-quarter sales dropped 6.6% to $126.2 million, while cost of sales increased 7.6% to $109.5 million.
Insteel makes steel-wire reinforcing products largely for infrastructure projects.
Steel material represents 70% of the company’s total product costs.
Because Insteel is a large purchaser of steel for its product mix, it relies on sourcing lower-cost raw material from foreign countries for the 25% of its business not tied to a federal contract.
Since the 1980s, most federal contracts require “Buy American” steel sourcing.
Insteel says the additional cost of raw materials could make some customer orders cost-prohibitive to serve.
“As we move into fiscal 2020, we expect the continuation of favorable conditions in our construction end-markets,” Woltz said.
“Public construction, particularly for roads and bridges, should remain strong driven by increased state and local spending together with FAST Act and supplementary funding.”
Woltz has stressed in previous quarters that Insteel “has no plans to reduce employment levels due to the potential for tariffs on imports of steel products.”
However, he has said “we’ll continue to reassess our manufacturing strategy in response to the unfavorable market changes resulting from the tariff.”
Insteel spent $10.5 million on fiscal 2019 capital investments, less than half of the $22 million it had projected.
For fiscal 2020, it is projecting $17 million in capital investments. The company said it remains debt-free with $38.2 million in cash with no borrowings on a $100 million revolving credit line.