IIIN Q3 Deep Dive: Margin Recovery Amid Tariff Pressures and Mixed Construction Demand

October 17, 2025 at 01:31 AM EDT

IIIN Cover Image

Steel wire manufacturer Insteel (NYSE: IIIN) missed Wall Street’s revenue expectations in Q3 CY2025, but sales rose 32.1% year on year to $177.4 million. Its non-GAAP profit of $0.75 per share was 4.9% below analysts’ consensus estimates.

Is now the time to buy IIIN? Find out in our full research report (it’s free for active Edge members).

Insteel (IIIN) Q3 CY2025 Highlights:

Revenue: $177.4 million vs analyst estimates of $181 million (32.1% year-on-year growth, 1.9% miss)
Adjusted EPS: $0.75 vs analyst expectations of $0.79 (4.9% miss)
Adjusted EBITDA: $24.94 million vs analyst estimates of $24.84 million (14.1% margin, in line)
Operating Margin: 10.7%, up from 3.6% in the same quarter last year
Market Capitalization: $588.5 million

StockStory’s Take

Insteel’s third quarter results drew a negative market reaction, as the company’s revenue and earnings per share came in below Wall Street expectations. Management attributed the quarter’s performance to higher shipment volumes and improved spreads between selling prices and raw material costs, particularly in nonresidential construction markets. However, supply constraints in domestic steel wire rod led to increased reliance on imports, contributing to inventory build and higher costs. CEO Howard Osler Woltz acknowledged, “Residential construction continues to lag significantly, as it has all year,” and noted that while demand recovery is real, uncertainties tied to tariffs and broader economic cycles remain.

Looking forward, Insteel’s outlook is shaped by ongoing strength in nonresidential construction, recovery in project-related demand, and continued uncertainty around raw material costs due to tariff policies. Management sees potential for further benefit from federal infrastructure funding, with Woltz highlighting, “There is runway remaining as regards to the benefit of IIJA funding to Insteel’s P&L.” However, caution persists around residential construction, which is not expected to rebound meaningfully in the near term, and the company remains vigilant regarding the impact of tariffs and economic conditions on both costs and demand.

Key Insights from Management’s Remarks

Insteel’s management pointed to margin expansion, improved supply chain flexibility, and acquisition integration as key drivers of the quarter, while also flagging ongoing headwinds from tariffs and residential market softness.

Margin expansion through pricing: Management credited improved gross margins to effective pricing actions, as higher average selling prices more than offset raw material cost increases. This was supported by the ability to quickly adjust prices in response to market changes and leverage lower-cost inventory under their first-in, first-out (FIFO) accounting method.
Nonresidential demand resilience: The company saw stronger demand in nonresidential construction, particularly from infrastructure and data center projects, helping offset ongoing weakness in the residential sector. Project-related business, such as cast-in-place applications, contributed meaningfully to volumes.
Tariff impact on supply chain: The Section 232 tariff on steel imports increased raw material costs and complicated domestic sourcing, pushing Insteel to supplement supply with offshore wire rod purchases. Management noted these imports provided price certainty but led to elevated inventory levels and potential margin volatility in coming quarters.
Acquisition integration complete: Insteel successfully integrated its recent Upper Sandusky and Texas acquisitions, with both facilities performing as expected. The company highlighted a broadened product mix and operational improvements resulting from these deals.
Inventory strategy adjustments: To address supply constraints, Insteel increased inventories, especially of imported materials. While this ensured production continuity, it also raised average inventory costs and could compress margins as higher-cost materials are consumed.

Drivers of Future Performance

Management expects nonresidential construction demand, tariff-driven cost pressures, and inventory normalization to shape results in upcoming quarters.

Nonresidential and infrastructure momentum: Insteel anticipates continued strength in nonresidential construction, supported by federal infrastructure funding and robust activity in sectors like data centers. Management believes the Infrastructure Investment and Jobs Act (IIJA) is beginning to drive increased project activity, which could extend for several years.
Tariff and raw material risk: Elevated Section 232 tariffs on steel imports remain a headwind, raising raw material costs and impacting sourcing decisions. The company expects ongoing volatility in input prices and will continue to rely on both domestic and offshore suppliers to balance cost and availability, which may introduce margin variability.
Inventory and margin management: Elevated inventory levels, driven by increased import purchases, are expected to gradually normalize. However, management cautioned that as higher-cost inventory is consumed, margins could face short-term compression unless additional price increases can be implemented.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will monitor (1) the pace at which Insteel normalizes inventory levels and manages potential margin compression, (2) the company’s ability to maintain pricing power in the face of volatile raw material costs and tariffs, and (3) ongoing demand strength in nonresidential construction and the realization of infrastructure project pipelines. Execution on acquisition synergies and further clarity on tariff impacts will also serve as key indicators for assessing progress.

Insteel currently trades at $30.32, down from $37.54 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free for active Edge members).

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