IIIN Q1 Earnings Call: Shipment Growth and Tariff Changes Drive Outperformance

Steel wire manufacturer Insteel (NYSE: IIIN) beat Wall Street’s revenue expectations in Q1 CY2025, with sales up 26.1% year on year to $160.7 million. Its non-GAAP profit of $0.55 per share was 90% above analysts’ consensus estimates.

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StockStory’s Take

Insteel’s first quarter results reflected substantial momentum in shipment volumes and improved cost management, as discussed during the company’s recent earnings call. Management identified stronger demand in construction end markets and operational efficiencies following a recent acquisition as the main contributors to the quarter’s above-expectation revenue and profit. CEO H.O. Waltz highlighted that the acceleration in business activity was “not reflected in the broader macroeconomic indicators” but remained tangible through customer engagement and robust order books.

Looking ahead, management expressed cautious optimism for the remainder of the year, noting that the primary risk lies in the evolving U.S. trade and tariff environment. Waltz pointed to ongoing uncertainties surrounding raw material supply and the impact of new or adjusted tariffs, especially relating to Section 232, as key variables that could influence future performance. The company’s ability to manage these inputs and maintain production levels will be central to meeting its targets in upcoming quarters.

Key Insights from Management’s Remarks

Management emphasized that shipment growth and successful integration of acquired assets were key drivers behind the quarter’s performance and provided updates on tariff impacts and supply chain trends.

• Construction Demand Recovery: Recovery across construction end markets fueled significant shipment volume gains and supported higher production utilization rates, offsetting previous periods of industry softness.
• Tariff Policy Changes: The extension of Section 232 tariffs to finished products, such as PC strand, addressed a years-long competitive disadvantage and is expected to improve Insteel’s market position relative to offshore competitors.
• Raw Material Supply Constraints: Tight domestic supply of hot-rolled steel wire rod, the company’s primary input, remains a concern. Management noted two U.S. mill closures and limited alternative sources, increasing the need for imports and raising supply chain risks.
• Acquisition Integration: Integration of two newly acquired manufacturing facilities has been completed, with operational and freight synergies already being realized. The company closed one facility but reported that the remaining assets are operating efficiently.
• Capital Expenditure Adjustments: Management reduced the full-year capital spending target to $17 million from $22 million, citing acquisition-related resource allocation and a focus on projects that support product expansion and cost reduction.

Drivers of Future Performance

Management’s outlook for the rest of the year centers on demand resilience in construction markets, the impact of tariff changes, and ongoing supply chain uncertainties.

• Tariff and Trade Policy Impact: The company expects the revised Section 232 tariffs to benefit its competitive stance, but any future policy changes or reciprocal tariffs could increase input costs or disrupt capital sourcing.
• Raw Material Availability: The ability to secure adequate supplies of steel wire rod will dictate production volumes and margin stability, especially if domestic shortages persist or imports are delayed.
• End-Market Trends: Management is monitoring commercial and public infrastructure construction trends, noting early signs of improvement in commercial backlogs. However, macroeconomic indicators remain mixed, and future demand could be influenced by broader economic shifts.

Top Analyst Questions

• Julio Romero (Sidoti & Company): Asked about current operating conditions and how management is addressing tariff uncertainty and supply chain challenges; management said the primary constraint is raw material availability, but current demand and order books remain robust.
• Julio Romero (Sidoti & Company): Inquired about the disconnect between weak macro indicators and strong company performance; management explained that customer activity and backlogs are solid, even if broader data lags or diverges.
• Julio Romero (Sidoti & Company): Sought perspective on pricing dynamics in the current environment; management stated that the extension of Section 232 tariffs to finished products is a net positive but acknowledged ongoing disadvantages due to global steel price differences.
• Tyson Bauer (KC Capital): Compared underlying growth drivers now versus during the pandemic; management noted current growth is based on genuine shipment and volume gains rather than artificial inventory or pricing effects.
• Tyson Bauer (KC Capital): Asked if shipment growth, higher utilization, and pricing could align to support margins in coming quarters; management agreed these factors are favorable in the near term, subject to raw material supply constraints.

Catalysts in Upcoming Quarters

Going forward, the StockStory team will be watching (1) the company’s ability to secure sufficient raw material supplies amid tight domestic markets and import lead times, (2) the operational impact and margin effects of new and existing tariffs, and (3) continued shipment growth across construction end markets. Monitoring the integration benefits from recent acquisitions and any shifts in capital spending priorities will also be important for tracking execution against Insteel’s strategic objectives.

Insteel currently trades at a forward P/E ratio of 18.2×. Should you load up, cash out, or stay put? Find out in our free research report.

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