Insteel Industries’ 2026 Q1 Earnings Call: Wire Rod Supply Claims Clash With Past Guidance, Residential Recovery Outlook Shifts

Date of Call: Jan 15, 2026

Financials Results

• EPS: $0.39 per share, up from $0.06 per share in the same period last year (includes $0.04 negative impact from restructuring/acquisition costs in prior year)
• Gross Margin: 11.3%, up 400 basis points year-over-year; down 480 basis points sequentially

Guidance:

• Expect inventory levels to moderate over Q2 as purchasing normalizes and shipments increase.
• Expect effective tax rate for the remainder of the year to be approximately 23%.
• Expect to invest approximately $20 million in plants and information systems in 2026.
• Believe 2026 will be a strong year for the company based on current demand trends and optimism.

Business Commentary:

Strong Financial Performance and Pricing Actions:

• Insteel Industries reported a significant increase in net earnings for Q1 2026, rising to $7.6 million or $0.39 per share, compared with $1.1 million or $0.06 per share in the same period last year.
• This improvement was driven by improved demand for concrete reinforcing products, which allowed for wider spreads between selling prices and raw material costs, along with higher shipment volumes.

Growth in Shipments and Market Demand:

• First quarter shipments increased by 3.8% year-over-year, despite typically being the softest period due to winter weather and holiday schedules.
• The growth in shipments was attributed to improved demand across commercial and infrastructure markets, as well as volume contributions from acquisitions made in fiscal 2025.

Pricing and Cost Management:

• Average selling prices increased by 18.8% year-over-year, reflecting pricing actions taken to offset higher steel wire rod costs and operating expenses.
• With scrap and wire rod prices rising, Insteel implemented price increases across most product lines, effective earlier in the current quarter.

Inventory and Working Capital Impact:

• The company experienced a $34.5 million increase in inventories due to higher raw material purchases, including offshore material, reflecting the challenges in acquiring sufficient domestic wire rod supply.
• This inventory build is a response to constrained domestic wire rod availability, prompting Insteel to seek offshore supply to meet business objectives.

Tax Rate and Expense Management:

• Insteel's effective tax rate decreased to 21% compared to 26.1% in the prior year period, driven by a reduction in the valuation allowance on deferred tax assets and a discrete tax item related to state deferred taxes.
• The company expects its effective tax rate for the remainder of the year to be approximately 23%, subject to various factors like pre-tax earnings and book-to-tax differences.

Sentiment Analysis:

Overall Tone: Positive

• "We delivered a strong start to the year." "Net earnings for the quarter rose $7.6 million or $0.39 per share, compared with $1.1 million or $0.06 per share in the same period last year." "We are encouraged by the level of optimism in our markets, as well as brisk order entry up to this point in January, that causes us to believe that 2026 will be a strong year for the company."

Q&A:

• Question from Julio Romero (Sidoti & Company): Can you give us a little bit more color on these commitments? Are these new commitments in your pipeline? Have they been accelerating? And what’s your sense of how far out these commitments are beyond calendar 2026?
  Response: Management sees repeat opportunities and robust demand in data centers, a new market for Insteel, driven by industry-wide buildout and publicized growth, but did not specify commitment duration beyond 2026.

• Question from Julio Romero (Sidoti & Company): Can you talk about how that was affected, if at all, by constraints of wire rod, both on this quarter and on a go-forward basis?
  Response: Management clarified that inventory growth is due to domestic wire rod supply constraints, forcing offshore purchases, and will continue until domestic availability improves.

• Question from Julio Romero (Sidoti & Company): Are you beginning to realize SG&A leverage from your acquisitions of EWP and OWP at this point in time, or is that leverage still coming to your view?
  Response: Management stated they have realized the synergies expected from the acquisitions, which contributed to improved performance.

• Question from Tyson Bauer (KC Capital): What has allowed you to run counter to those [industry stats]? And are we seeing an underlying acceleration away from just standard rebar to more of your ESM products...?
  Response: Management attributed divergence to internal factors like cast-in-place market work and acquisitions, not necessarily a shift from rebar to ESM products.

• Question from Tyson Bauer (KC Capital): Are you being specced into those designs as you were with some of the online retail customers before in the DCs?
  Response: Management clarified they are not typically specced in; instead, they convert rebar applications to engineered structural mesh based on product value propositions like speed of construction.

• Question from Tyson Bauer (KC Capital): Will that downtick [in inventory] accelerate as we get into fiscal three and fiscal four?
  Response: Management stated inventory moderation depends on shipment levels; they may return to offshore buying if domestic supply-demand doesn't improve significantly.

• Question from Tyson Bauer (KC Capital): The CapEx $20 million, is that roughly split 50/50? Maintenance $10 million, $10 million for whether it be cost reductions or product line expansions...?
  Response: Management confirmed a close approximation, with investments aimed at capacity expansion, cost reduction through technology, and addressing labor availability.

• Question from Tyson Bauer (KC Capital): How quickly can that residential market for you turn where it becomes a benefit...?
  Response: Management believes any residential market improvement would be too slow to impact 2026 meaningfully, with Insteel's exposure focused on PC strand for slabs in housing.

• Question from Tyson Bauer (KC Capital): Labor cost outlook... Have you indexed or looked at labor cost increases for this year and what kind of offsets you have there?
  Response: Management noted upward pressure on labor costs persists, along with other inflationary pressures like tariffs and energy, with each location having independent labor market considerations.

Contradiction Point 1

Wire Rod Supply Constraints and Sourcing Strategy

Contradiction on the severity and uniqueness of domestic wire rod supply issues, impacting sourcing strategy and operational planning.

What impact did wire rod supply constraints have on Q1 volume growth, domestically and moving forward? - Julio Romero (Sidoti & Company)

2026Q1: The **wire rod market situation is unique** due to significant permanent capacity curtailments (down ~25% of apparent consumption) not seen in other hot-rolled steel products. - H. O. Woltz(CEO)

Is the current supply of raw materials normalized, or is further improvement expected? - Julio Romero (Sidoti & Company, LLC)

2025Q4: Supply constraints that limited effective plant operation early in Q4 have been addressed... The company imported materials for specific applications where domestic supply was inadequate. - H.O. Waltz(CEO)

Contradiction Point 2

Residential Construction Market Recovery Outlook

Contradiction on the potential timing and impact of residential construction recovery, affecting demand forecasting.

How quickly could residential market activity (15% of business) improve with administration incentives? - Tyson Bauer (KC Capital)

2026Q1: Impact is unlikely to be **meaningful for 2026**. - H. O. Woltz(CEO)

Does your fiscal 2026 demand outlook include a meaningful recovery in residential construction, considering the wait-and-see approach? - Tyson Bauer (Kansas City Capital Associates)

2025Q4: Some customers believe inventory issues may run their course by the end of the calendar year, **potentially leading to improved residential demand later**. - H.O. Waltz(CEO)

Contradiction Point 3

EWP Acquisition Synergy Realization

Contradiction on whether expected synergies are being realized, impacting assessment of acquisition performance.

Have you started to achieve SG&A leverage from the EWP and OWP acquisitions? - Julio Romero (Sidoti & Company)

2026Q1: The company has realized the synergies expected from the acquisitions. The performance is driven by added shipments and sales volume, and the acquisitions are performing well. - H. O. Woltz(CEO)

How is the integration of Engineered Wire Products progressing, and are there any synergies in freight cost per ton from the acquisition? - Julio Alberto Romero (Sidoti & Company, LLC)

2025Q3: The company competed with the facility for years and knew it was a good operation. Integration has been "solid". The company is learning as much as it is teaching. There is no real comparable performance year-over-year due to a different operating approach post-acquisition, but the facility is productive and the acquisition is viewed positively. - Howard Osler Woltz(CEO)

Contradiction Point 4

Growth Driver and Market Sustainability

Contradiction on whether growth is based on sustainable fundamentals or was previously driven by temporary conditions, affecting market confidence.

What factors have driven Insteel's shipment growth despite industry trends (e.g., 13 months of ABI below 50), and is there a shift from standard rebar to ESM products? - Tyson Bauer (KC Capital)

2026Q1: The divergence began in 2025...aided by internal factors like work in the cast-in-place market and acquisitions. - H. O. Woltz(CEO)

How does current shipment-based growth compare to pandemic-era pricing-driven growth in terms of sustainability? - Tyson Bauer (KC Capital)

2025Q2: The current growth is based on solid underlying supply and demand fundamentals, unlike the artificial conditions created by COVID supply chain disruptions. - H.O. Waltz(CEO)

Contradiction Point 5

Impact of Section 232 Tariffs on Pricing and Competition

Contradiction on the competitive landscape and price increase sustainability amid tariff changes, affecting pricing strategy.

What is the labor cost outlook and potential offsets for increases? - Tyson Bauer (KC Capital)

2026Q1: Sensitivity to competition is lessened due to raw material supply uncertainty. Prices for both hot-rolled wire rod and finished products are rising across the board due to tight supplies. This trend is expected to continue into Q3... - H.O. Waltz(CEO)

How are you adjusting pricing for downstream products like PC strand under Section 232 tariffs, considering rising input costs and supply-demand dynamics? - Julio Romero (Sidoti & Company)

2025Q2: The extension is positive for Insteel...it removes the previous disadvantage. Pricing is currently elevated due to tight wire rod supplies, with offshore suppliers also supplementing. - H.O. Waltz(CEO)