Insteel Seems To Be Shrugging Off Serious Margin Pressures

There are a lot of things about Insteel's (IIIN) business model that make it a challenging company to model. Although the company has had success in coaxing construction companies to use its welded wire reinforcement products instead of rebar, demand is driven by non-residential construction (and public construction, to a lesser degree) and there's not much Insteel can do to drive that. What's more, the company competes with rebar manufacturers like Nucor (NUE) and Commercial Metals (CMC), but also turns to companies like Nucor to buy the wire rod it needs, putting it in a sometimes-challenging spot between competing with rebar on price and trying to maintain a healthy spread between its rod costs and end-user pricing.

Margin pressures have hit Insteel hard recently on higher wire rod pricing, and the tariff actions taken by the U.S. government aren't going to help Insteel's supply situation (though they should help somewhat on protecting it from imported competing products). Insteel has managed volatile pricing before, and while there will be lags and turbulence, I believe the company's own pricing actions will help restore margins later this year. A bigger question remains the ongoing health of the non-residential construction market and whether these high input prices finally bring an end to a long recovery and expansion. Although I feel far less confident in my Insteel model than I'd like, I'm not sure I see a lot of upside from here.

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Insteel Seems To Be Shrugging Off Serious Margin Pressures