INSTEEL INDUSTRIES INC

Insteel Industries Inc. is the nation's largest manufacturer of steel wire reinforcing products for concrete construction applications ¹. The company operates in the steel and building material industries, which are characterized as cyclical ². Demand in Insteel's markets is both seasonal and cyclical, driven by the level of construction activity, and can also be impacted by fluctuations in the inventory positions of customers ³. Shipments are seasonal, typically reaching their highest level when weather conditions are most conducive to construction activity, with shipments and profitability usually higher in the third and fourth quarters of the fiscal year and lower in the first and second quarters ⁴. Construction activity and demand for the company's products are cyclical based on overall economic conditions, although there can be significant differences between the relative strength of nonresidential and residential construction for extended periods ⁵. For fiscal 2026, approximately 85% of sales were related to nonresidential construction and 15% were related to residential construction ⁶. The markets are highly competitive based on price, quality and service ⁷. Some competitors, such as Wire Mesh Corporation, Nucor Corporation and Oklahoma Steel and Wire, are vertically integrated companies that produce both wire rod and concrete reinforcing products and offer multiple product lines over broad geographic areas, while other competitors are smaller independent companies that offer limited competition in certain markets ⁸. Import competition is also a significant factor in certain segments of the PC strand and SWWR markets that are not subject to "Buy America" requirements ⁹.

Insteel is the nation's largest manufacturer of steel wire reinforcing products for concrete construction applications . The company's primary competitors for WWR products are Wire Mesh Corporation, Concrete Reinforcements, Inc., National Wire Products, Davis Wire Corporation and Oklahoma Steel & Wire Co., Inc. ¹⁰. The primary competitors for PC strand are Sumiden Wire Products Corporation and Wire Mesh Corporation ¹¹. Insteel believes that its substantial wire rod requirements, desirable mix of sizes and grades and strong financial condition represent a competitive advantage by making it a relatively more attractive customer to its suppliers ¹². In view of its strong market positions, broad product offering and national footprint, technologically advanced manufacturing facilities, low-cost production capabilities, sophisticated information systems and financial strength and flexibility, the company believes it is well-positioned to compete favorably with other producers of its concrete reinforcing products ¹³. The company's business strategy is focused on achieving leadership positions in its markets, operating as the lowest cost producer in its industry, and pursuing growth opportunities within its core businesses that further its penetration of the markets it currently serves or expand its footprint ¹⁴.

Insteel's operations are entirely focused on the manufacture and marketing of steel wire reinforcing products for concrete construction applications ¹⁵. The company manufactures and markets prestressed concrete strand (PC strand) and welded wire reinforcement (WWR), including engineered structural mesh (ESM), concrete pipe reinforcement (CPR) and standard welded wire reinforcement (SWWR) ¹⁶. Products are sold mainly to manufacturers of concrete products that are used primarily in nonresidential construction ¹⁷. In fiscal 2026, approximately 70% of net sales were to manufacturers of concrete products and 30% were to distributors, rebar fabricators and contractors ¹⁸. The company did not have any single customer that represented 10% or more of its net sales in fiscal years 2026, 2025 or 2024 ¹⁹. Backlog for the business is minimal due to the relatively short lead times required by customers, and the company believes that the majority of its firm orders as of the end of fiscal 2026 will be shipped during the first quarter of fiscal 2027 ²⁰. The company markets its products through sales representatives who are its employees, selling nationwide across the U.S. and, to a much lesser extent, into Canada, Mexico and Central and South America ²¹. Products are shipped primarily by truck, using common or contract carriers ²².

Insteel's concrete reinforcing products consist of two product lines: PC strand and WWR, and based on the criteria specified in Financial Accounting Standards Board Accounting Standards Codification Topic 280, Segment Reporting, the company has one reportable segment ²³. PC strand is a high strength, seven-wire strand that is used to impart compression forces into precast concrete elements and structures, which may be either pretensioned or posttensioned, providing reinforcement for bridges, parking decks, buildings and other concrete structures ²⁴. Its high tensile strength allows for the casting of longer spans and thinner sections ²⁵. Pretensioned or "prestressed" concrete elements or structures are primarily used in nonresidential construction while posttensioned concrete elements or structures are used in both nonresidential and residential construction ²⁶. WWR is produced as either a standard or a specially engineered reinforcing product for use in nonresidential and residential construction ²⁷. The company produces a full range of WWR products, including ESM, CPR and SWWR ²⁸. ESM is an engineered made-to-order product that is used as the primary reinforcement for concrete elements or structures, frequently serving as a lower cost reinforcing solution than hot-rolled rebar ²⁹. CPR is an engineered made-to-order product that is used as the primary reinforcement in concrete pipe, box culverts and precast manholes for drainage and sewage systems, water treatment facilities and other related applications ³⁰. SWWR is a secondary reinforcing product that is produced in standard styles for crack control applications in residential and light nonresidential construction, including driveways, sidewalks and various slab-on-grade applications ³¹.

In August 2026, Insteel announced plans to close its Upper Sandusky, Ohio manufacturing facility and consolidate its operations into its remaining WWR facilities, with the consolidation intended to improve the operating efficiency and cost competitiveness of its WWR business ³². The company expects to cease manufacturing operations at the facility during the first quarter of fiscal 2027 ³³. Restructuring charges totaled $756,000 in 2026, consisting of $699,000 related to the Upper Sandusky closure and $57,000 related to the prior consolidation initiative, including $547,000 for employee separation costs, $155,000 for facility closure costs and $54,000 for equipment relocation costs ³⁴. Restructuring charges totaled $2.3 million in 2025, consisting of $2.0 million related to the Warren closure and $326,000 for other costs associated with the initial consolidation initiative, including $1.0 million for asset impairment charges, $681,000 for facility closure costs, $371,000 for equipment relocation costs and $251,000 for employee separation costs ³⁵. Acquisition costs of $325,000 were incurred in 2025 for legal, accounting and other professional fees related to the acquisition of Engineered Wire Products, Inc. (the "EWP Acquisition") and the acquisition of O'Brien Wire Products of Texas, Inc. (the "OWP Acquisition") ³⁶. On November 11, 2025, the Board of Directors approved a special cash dividend of $1.00 per share that was paid on December 12, 2025 to shareholders of record as of November 28, 2025 ³⁷. During the quarter ended October 3, 2026, the company repurchased 14,873 shares of common stock ³⁸.

Net sales increased 14.2% to $739.5 million in 2026 from $647.7 million in 2025, reflecting an 11.5% rise in average selling prices and a 2.4% increase in shipments ³⁹. The increase in average selling prices was driven by pricing actions implemented to recover higher raw material, freight and operating costs, while the increase in shipments was primarily due to the benefit of the additional week in fiscal 2026, which included 53 weeks compared with 52 weeks in fiscal 2025 ⁴⁰. Gross profit decreased 19.0% to $75.7 million, or 10.2% of net sales, in 2026 from $93.4 million, or 14.4% of net sales, in 2025 ⁴¹. The year-over-year decrease was primarily due to lower spreads between average selling prices and raw material costs ($12.6 million), higher manufacturing costs ($4.0 million) and other material costs and adjustments ($3.5 million) partially offset by higher shipments ($2.4 million) ⁴². The decrease in spreads was driven by higher raw material costs ($78.7 million) and an increase in freight expense ($7.8 million) partially offset by higher average selling prices ($73.9 million) ⁴³. Selling, general and administrative expense decreased 4.2% to $37.4 million, or 5.1% of net sales, in 2026 from $39.0 million, or 6.0% of net sales, in 2025 ⁴⁴. Net earnings decreased to $29.5 million ($1.51 per diluted share) in 2026 from $41.0 million ($2.10 per diluted share) in 2025 ⁴⁵. The effective income tax rate for 2026 decreased to 22.8% from 23.8% in 2025 ⁴⁶. As of October 3, 2026, cash and cash equivalents totaled $37.5 million compared with $38.6 million as of September 27, 2025 ⁴⁷. Net cash provided by operating activities was $36.6 million in 2026 compared with $27.2 million in 2025 ⁴⁸.

As Insteel enters fiscal 2027, publicly funded infrastructure activity continues to provide a solid foundation for the business, while data center investment remains the primary source of activity in private nonresidential construction markets ⁴⁹. The company's pursuit of growth opportunities within its engineered structural mesh business has broadened its customer base and supported shipment volumes despite softness across much of the broader construction market, and the company expects these opportunities to continue supporting its business in fiscal 2027 ⁵⁰. Domestic wire rod prices remain at historically high levels and well above prices in global markets, while domestic availability continues to be constrained ⁵¹. As a result, the company has supplemented domestic purchases with offshore purchases, contributing to elevated inventories and working capital requirements ⁵². Higher freight costs and persistent inflation across much of the cost structure also continue to pressure profitability ⁵³. The company remains focused on managing the relationship between selling prices and costs and monitoring developments in raw material pricing, transportation costs and trade policy ⁵⁴.

The consolidation of Insteel's welded wire operations is progressing and is expected to generate cost reductions as the transition is completed ⁵⁵. The company will continue investing in the expansion of its engineered structural mesh business and other strategic initiatives that support long-term growth and operating efficiency ⁵⁶. The company expects the consolidation to generate cost reductions and its investments in manufacturing facilities to improve operating efficiency and provide additional capacity to support growth, particularly in its engineered structural mesh business ⁵⁷. The company will also continue to evaluate acquisition opportunities that strengthen its presence in existing markets and expand its geographic footprint ⁵⁸.

Insteel's growth strategy is focused on organic opportunities as well as strategic acquisitions in existing or related markets that leverage its infrastructure and core competencies in the manufacture and marketing of concrete reinforcing products ⁵⁹. The company's business strategy includes pursuing growth opportunities within its core businesses that further its penetration of the markets it currently serves or expand its footprint . The expansion of the customer base for the engineered structural mesh business supported shipment volumes despite continued softness across much of the broader private nonresidential construction market ⁶⁰.

Capital expenditures are expected to total up to approximately $30.0 million in 2027, including expenditures to support expansion of the ESM business, strategic investments in the prestressed concrete strand operations, cost reduction and productivity initiatives, and routine maintenance ⁶¹. As of October 3, 2026, the company had contractual commitments for capital expenditures of $31.3 million expected to be incurred in 2027 and beyond ⁶². The company's investing activities are largely discretionary, providing it with the ability to significantly curtail outlays should future business conditions warrant that such actions be taken ⁶³.

Insteel's sources of liquidity include cash and cash equivalents, cash generated by operating activities and borrowing availability provided under its $100.0 million revolving credit facility ⁶⁴. The company's principal capital requirements include funding working capital, capital expenditures, dividends and any share repurchases ⁶⁵. The company believes that, in the absence of significant unanticipated cash demands, cash and cash equivalents, cash generated by operating activities and the borrowing availability provided under the Credit Facility will be sufficient to satisfy its expected requirements for working capital, capital expenditures, dividends and share repurchases, if any, in both the short- and long-term ⁶⁶. The company pays regular quarterly cash dividends and expects to continue to pay regular quarterly cash dividends in the foreseeable future, though each quarterly dividend payment is subject to review and approval by the Board of Directors ⁶⁷. Under the $25.0 million share repurchase authorization announced on November 18, 2008, which continues in effect until terminated by the Board of Directors, approximately $14.0 million remained available for repurchases as of October 3, 2026 ⁶⁸.

Insteel's operations are capital intensive and require substantial recurring expenditures for the routine maintenance of equipment and facilities ⁶⁹. Although the company expects to finance its business requirements through internally generated funds or from borrowings under its $100.0 million revolving credit facility, it cannot provide any assurances that these resources will be sufficient to support its business ⁷⁰. A material adverse change in operations or financial condition could limit the company's ability to borrow funds under its credit facility, which could further adversely impact its liquidity and financial condition ⁷¹. Any significant future acquisitions could require additional financing from external sources that may not be available on favorable terms, which could adversely impact growth, operations, financial condition and results of operations ⁷².

The company's shipments are typically lower in the first and second fiscal quarters due to the unfavorable impact of winter weather on construction activity during these periods and customer plant shutdowns associated with holidays ⁷³. As a result, cash flows have fluctuated and may continue to fluctuate from quarter to quarter due to these seasonal factors, which could have a negative impact on financial condition and results of operations ⁷⁴.

Demand for Insteel's products is highly variable, and the short lead times for customer orders and minimal backlog that characterize the business make it difficult to forecast the future level of demand ⁷⁵. In some cases, unanticipated softening in demand can be exacerbated by inventory rebalancing measures pursued by customers, which may cause significant fluctuations in sales, profitability and cash flows ⁷⁶. The Section 232 tariff rate applicable to most imported steel and aluminum products is currently 50%, and imported PC strand, as a derivative steel product, is also subject to the 50% tariff ⁷⁷. Tariffs beyond those imposed under Section 232 on steel and aluminum products could increase the costs of other inputs, including consumables, equipment and components ⁷⁸.

Insteel's business is cyclical and can be negatively impacted by prolonged economic downturns, elevated interest rates or constrained credit conditions that reduce the level of construction activity and demand for its products ⁷⁹. Demand for the company's products is highly variable and difficult to forecast due to minimal backlog and unanticipated changes that can occur in customer order patterns or inventory levels . The company's financial results can be negatively impacted by the volatility in the cost and availability of its primary raw material, hot-rolled carbon steel wire rod, which it purchases from both domestic and foreign suppliers ⁸⁰. Based on 2026 shipments and average wire rod cost reflected in cost of sales, a 10% increase in the price of wire rod would have resulted in a $46.3 million decrease in annual pre-tax earnings, assuming there was not a corresponding change in selling prices ⁸¹. The Section 232 tariff rate applicable to most imported steel and aluminum products is currently 50%, and imported PC strand, as a derivative steel product, is also subject to the 50% tariff . Foreign competition could adversely impact financial results, as certain PC strand and SWWR markets are subject to foreign import competition on an ongoing basis ⁸². The company's manufacturing facilities are subject to unexpected equipment failures, operational interruptions and casualty losses ⁸³. The company's labor, medical and workers' compensation costs have increased in recent years and may continue to rise ⁸⁴.

Management's message to shareholders emphasizes disciplined cost management, completing the consolidation of welded wire operations, aligning production schedules with customer demand, and improving the productivity and effectiveness of manufacturing, selling and administrative activities ⁸⁵. The company remains focused on managing the relationship between selling prices and costs and monitoring developments in raw material pricing, transportation costs and trade policy . Management expects the consolidation of welded wire operations to generate cost reductions and investments in manufacturing facilities to improve operating efficiency and provide additional capacity to support growth, particularly in the engineered structural mesh business . The company will also continue to evaluate acquisition opportunities that strengthen its presence in existing markets and expand its geographic footprint . Management's strategic priorities for the period ahead include investing in the expansion of the engineered structural mesh business, completing the consolidation of welded wire operations, and maintaining financial flexibility through a strong balance sheet ⁸⁶. The company's business strategy is focused on achieving leadership positions in its markets, operating as the lowest cost producer in its industry, and pursuing growth opportunities within its core businesses .