Insteel Industries’ Earnings Calls Clash on Data Center Timelines and Wire Rod Supply Outlooks

Date of Call: Jan 15, 2026

Financials Results

• EPS: $0.39 per share, compared with $0.06 per share in the same period last year (includes $1M restructuring/acquisition costs reducing EPS by $0.04 prior year)
• Gross Margin: 11.3%, up 400 basis points from 7.3% prior year; sequentially narrowed 480 basis points from Q4

Guidance:

• Expect Q2 2026 spreads and margins to benefit from January price increases as higher selling prices align with lower cost inventory under FIFO.
• Expect effective tax rate for remainder of year to be approximately 23%.
• Expect inventory levels to moderate over Q2 as purchasing normalizes and shipments increase.
• Committed to full year CapEx target of $20M, supporting engineered structural mesh growth, cost reduction, and information systems.

Business Commentary:

Financial Performance and Demand Trends:

• Insteel Industries reported a significant increase in net earnings to $7.6 million or $0.39 per share for Q1 2026, up from $1.1 million or $0.06 per share in the same period last year.
• The growth was driven by improved demand for concrete reinforcing products, which widened the spreads between selling prices and raw material costs.

Pricing and Cost Management:

• The company's average selling prices increased 18.8% year-over-year, reflecting actions taken to offset higher steel wire rod costs and rising operating costs.
• This increase was necessary due to tight domestic supply conditions and increased Section 232 steel tariffs impacting the cost structure.

Inventory and Supply Chain Dynamics:

• Q1 inventory levels rose, representing approximately 3.9 months of forward-looking shipments, driven by higher raw material purchases, including offshore material.
• This was a response to domestic supply constraints, necessitating the importation of materials to meet demand and support business objectives.

SG&A Expenses and Tax Rate:

• SG&A expenses rose by approximately $900,000 to $8.8 million, or 5.5% of net sales, driven primarily by an $800,000 increase in compensation expense.
• The effective tax rate decreased to 21% from 26.1% in the prior year period, largely due to a reduction in the valuation allowance on deferred tax assets.

Market Outlook and Strategic Positioning:

• The company is encouraged by the level of optimism in its markets and brisk order entry, expecting 2026 to be a strong year.
• Growth is being supported by funding from the Infrastructure Investment and Jobs Act and the data center construction boom, despite uncertainties related to trade policies and economic conditions.

Sentiment Analysis:

Overall Tone: Positive

• Management expressed being 'pleased with the acceleration of business activity' and 'encouraged by the level of optimism in our markets' and 'brisk order entry'. They believe '2026 will be a strong year' and see 'no indication that the level of activity in our markets is poised to subside'.

Q&A:

• Question from Julio Romero (Sidoti & Company, LLC): Can you give more color on customer commitments for data center projects beyond 2026 and how demand has accelerated?
  Response: Management noted data center business is new but seeing repeat opportunities and robust demand, which aligns with publicized industry build-out.

• Question from Julio Romero (Sidoti & Company, LLC): How was Q1 volume growth affected by wire rod constraints, and are constraints still an issue?
  Response: Wire rod domestic supply is constrained due to capacity curtailments; inventories grew as they supplement with offshore purchases, and they will continue until domestic availability improves.

• Question from Julio Romero (Sidoti & Company, LLC): Are you realizing SG&A leverage from acquisitions like EWP and OWP?
  Response: Management stated they have realized expected synergies from acquisitions, which together with added shipments, meet acquisition objectives.

• Question from Tyson Bauer (Kansas City Capital Associates): What allows Insteel to grow shipments despite industry headwinds like 13 months of ABI billings below 50?
  Response: Internal factors like work in cast-in-place market and acquisitions have helped diverge from macro indicators.

• Question from Tyson Bauer (Kansas City Capital Associates): Are you being spec'd into data center designs, similar to past distribution centers?
  Response: No, they are not spec'd in; they convert rebar applications to engineered structural mesh, leveraging speed and value proposition for data center projects.

• Question from Tyson Bauer (Kansas City Capital Associates): Will inventory downtick accelerate in Q3 and Q4?
  Response: Depends on shipment levels; if strong business conditions continue, inventory should moderate, but they may return to offshore market if domestic supply-demand doesn't improve.

• Question from Tyson Bauer (Kansas City Capital Associates): What is the CapEx split between maintenance and growth/margin improvement?
  Response: Approximately 50-50 split, with focus on capacity expansion, technology for cost reduction, and addressing labor availability.

• Question from Tyson Bauer (Kansas City Capital Associates): How quickly could residential market turn to benefit Insteel given administration incentives?
  Response: Probably not fast enough to impact 2026; Insteel's residential exposure is to post-tensioned slabs using PC strand, where they compete closely with imports.

• Question from Tyson Bauer (Kansas City Capital Associates): What is the labor cost outlook and what offsets do you have?
  Response: Upward pressure on labor costs exists, with increases in reciprocal/232 tariffs, energy, and operational inflation; each location's labor market is considered independently.

Contradiction Point 1

Data Center Project Commitment Visibility and Duration

Contradiction on the timeframe and certainty of data center project commitments.

What are customer commitments for data center projects beyond 2026, and have they accelerated? - Julio Romero (Sidoti & Company, LLC)

2026Q1: Commitments are in place for projects running through calendar 2026. - H.O. Waltz(CEO)

Does the view that data center and infrastructure projects are compensating for commercial and residential gaps persist? Are there new data points or anecdotal evidence since last quarter supporting this? - Julio Romero (Sidoti & Company, LLC)

2025Q4: The trend continues, but the company’s visibility is only a few weeks, not months. - H.O. Waltz(CEO)

Contradiction Point 2

Wire Rod Supply Constraints and Market Status

Contradiction on whether raw material supply constraints have eased or remain severe.

What impact did wire rod supply constraints have on the ~4% shipment growth, and what is the go-forward basis? - Julio Romero (Sidoti & Company, LLC)

2026Q1: Inventory growth occurred because the company was unable to acquire sufficient quantities of wire rod domestically and had to import offshore. This situation is expected to continue until domestic availability improves. The wire rod market is tight due to significant capacity curtailments (~25% of apparent domestic consumption offline)... - H.O. Waltz(CEO)

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

2025Q4: Supply constraints that impacted the beginning of Q4 have eased. The company imported materials to address specific domestic shortages. Raw material availability has improved, and the market has adjusted to different import quantities due to shipping costs. - H.O. Waltz(CEO)

Contradiction Point 3

Nature of Customer Demand and Business Conditions

Contradiction on whether business conditions align with or diverge from broader industry indicators.

What factors enabled Insteel to grow shipments and outperform industry indicators like ABI despite a weak construction market? - Tyson Bauer (Kansas City Capital Associates)

2026Q1: The company's business conditions diverged from macro indicators starting in 2025. - H.O. Waltz(CEO)

Have quoting levels for newer projects followed the same trajectory as the strong business activity mentioned in April into Q3? - Julio Alberto Romero (Sidoti & Company, LLC)

2025Q3: The company is optimistic due to strong demand in project-oriented markets like data centers... which have offset slower commercial construction. - Howard Osler Woltz(CEO)

Contradiction Point 4

Timeline and Impact of Wire Rod Supply Constraints

Contradiction on the severity and duration of wire rod supply constraints and their financial impact.

What impact did wire rod supply constraints have on the ~4% shipment growth this quarter, and what is the go-forward basis? - Julio Romero (Sidoti & Company, LLC)

2026Q1: Inventory growth occurred because the company was unable to acquire sufficient quantities of wire rod domestically and had to import offshore. This situation is expected to continue until domestic availability improves. - H.O. Waltz(CEO)

What is the magnitude of the domestic wire rod supply shortage compared to the COVID years, and how can its impact be quantified? - Tyson Lee Bauer (Kansas City Capital Associates)

2025Q3: The company estimates it has imported 25% to 30% of its steel requirement to address the domestic shortfall, but quantifying the opportunity cost is difficult. - Howard Osler Woltz(CEO)

Contradiction Point 5

Performance and Integration of Recent Acquisitions

Contradiction on the direct financial and operational synergies realized from recent acquisitions.

Are you seeing SG&A leverage from the EWP and OWP acquisitions? - Julio Romero (Sidoti & Company, LLC)

2026Q1: The company has realized the synergies expected from the acquisitions, and this performance, combined with added shipment volumes, is a key factor in the improved financial results. - H.O. Waltz(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: There are no direct year-over-year performance comparisons due to the different operating approaches post-acquisition, but the facility is productive and performing as expected. - Howard Osler Woltz(CEO)