Good day, ladies and gentlemen, and welcome to the Insteel Industries’ Fourth Quarter 2016 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would like to introduce your host for today’s conference H. Woltz from Insteel’s President and CEO. You may begin.

Good morning. Thank you for your interest in Insteel and welcome to our fourth quarter 2016 earnings call, which will be conducted by Mike Gazmarian, our Vice President, CFO and Treasurer, and me. Before we begin, let me remind you that some of the comments made on today’s call are considered to be forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially from those projected. These risk factors are described in our periodic filings with the SEC. All forward-looking statements are based on our current expectations and information that is currently available. We do not assume any obligation to update these statements in the future, to reflect the occurrence of anticipated or unanticipated events or new information. I’ll now turn it over to Mike to review our fourth quarter financial results and the macro indicators for our markets and then I’ll follow-up to comment more on market conditions and our business outlook.

Thank you, H. As we reported earlier this morning, excluding the non-recurring charges and gains that were noted in our press release, Insteel’s net earnings for the fourth quarter improved to $11.5 million from $9.4 million a year ago. And earnings per diluted share rose to $0.60 from $0.50, bringing the total for fiscal 2016 to $2.04 a share, the second highest in our history. The strong results were achieved despite weaker-than-anticipated conditions in our construction end markets, with shipments falling 15% sequentially from Q3 and 2.9% year-over-year on a comparable basis, adjusting for the extra week in the prior-year quarter. The slowdown appeared to be driven by a combination of factors, including project delays related to the uncertainty in the economy, the ongoing construction labor shortage, and adverse weather conditions in certain of our markets. NOAA reported that August rainfall in the South Central States, which includes our largest market, Texas, was the wettest on record at more than double the historical average. Adjusting for the extra week in the prior-year period, our shipments into Texas for the quarter were down 15% from a year ago, while our total shipments into all other markets were relatively flat. The Ohio Valley and upper Midwest regions also experienced unusually heavy rainfall during the quarter, which slowed construction activity. Shipments have improved thus far in October, although the day-to-day trends have remained choppy, making it difficult to determine whether the recent softening we experienced was temporary or will redevelop as we move into what is typically our slowest quarter of the year. Average selling prices for the fourth quarter were up 4.9% sequentially as we benefited from the full quarter impact of the price increases that were implemented during Q3 and at the beginning of Q4. Gross profit for the quarter rose…

Thank you, Mike. As reflected in our release and Mike’s comments, our fourth quarter results were adversely affected by weaker-than-expected demand for our reinforcing products. The underlying drivers of the disappointing volume are not entirely clear, given the mixed signals from macro indicators for our markets versus the generally positive outlook of our customers. Accordingly, we are unsure whether the slowdown will persist or if the pickup in demand that we’ve seen so far in October will continue. Given the short lead times and minimal backlog in our business, our visibility is always limited. The underlying demand trends will likely be difficult to discern during the first fiscal quarter due to the usual seasonal factors, including holiday schedules, implying that we may not have better clarity until our second quarter. While we benefited from widening spreads during Q4, competitive pricing activity picked up over the course of the quarter, likely driven by weaker business conditions together with the decline in steel scrap prices and a related reduction in wire rod costs. After escalating sharply during Q2 and Q3 of 2016, wire rod costs have fallen in recent months, reflecting the weakening market for steel scrap. We expect the pressure on spreads and margins will lessen as we begin to consume more recent lower cost purchases most likely in our second quarter, assuming the ASPs fall less than raw material cost. We mentioned on previous calls that a PC strand competitor was starting up a new manufacturing plant in South Carolina during our second quarter. Events have unfolded substantially as expected, and we continue to experience pricing pressure related to their ramp up during the fourth quarter. Another competitor has announced plans to build a strand plant in Texas that is expected to start up in 2017. While the future growth…

Thank you. [Operator Instructions] And our first question comes from the line of Tyson Bauer from KC Capital. Your line is open.

Good morning, gentlemen.

Good morning, Tyson.

Good morning, Tyson.

Couple quick questions. Given the weather situation in Texas hitting you with volumes and shipments and the federal government not doing us any favor by doing the continuing res. We always ask this question in regards to weather situations, whether we lose that business or whether it gets pushed to the right, especially in the Texas market. You talked about some project delays. Are we seeing things that are still on the board? We just don’t know when they’re going to actually take place? Or are we just pushing things off into October into November – off to the right. And the second part of this question is if we have another continuing res and the states are dependent upon matching funds, what point do we get to where we lose a construction season as opposed to just having reduced spending?

Tyson, let me address the first part of the question concerning timing. Our view is that the weather neither creates nor destroys demand for our product, but it can shift the consumption of products from maybe within a quarter. But no demand has been destroyed by weather. We had customers who were unable to ship their products to construction sites because they were out of space. So it affected their production rates, and therefore our shipments. But particularly with respect to Texas, we don’t see any negative trends that would fundamentally change the outlook there, which is positive. And then on the second part of the question concerning the potential for another continuing resolution, it may be a likely outcome, but it’s hard to say until the lawmakers return to Washington. But to lose an entire season, I wouldn’t expect, keep in mind that the increase is only just a little over 5% that we are expecting to see from the FAST Act. So a continuing resolution, while not desirable, wouldn’t be entirely negative.

And we’ve seen, what, 14, 15 states increase gas taxes, increase their spending and bonding levels. So is it your expectation that you are going to see a benefit in 2017 whether or not we are at the old federal spending levels or whether we have that extra 5%?

Yes, that’s correct. I think the biggest benefit coming out of the FAST Act is just the improved visibility through the longer duration versus the short-term extensions that we’ve been dealing with for an extended period.

Okay. And then last question, margins. You talked about we’ll get some contraction here as we go into the weaker quarters. You had a pretty strong comp last year. Is your weak – or your narrowing on the margins relative on a sequential basis? Or on a year-to-year, we are still about 400 basis points above where we started fiscal 2016. So when you talk about margins narrowing, what’s that relative to the fourth quarter or last…

Right. The reference was sequentially where we would see some narrowing relative to Q4. And that’s just based on our beginning inventory valuation for the quarter being higher than the prior quarter end.

So year-over-year, we are still in a favorable position?

Yes.

All right, thank you.

Thank you. And our next question comes from the line of Michael Conti from Sidoti Capital. You may begin.

Hey, good morning, everyone.

Good morning, Mike.

Good morning, Mike.

Yes. Just wanted to touch on the Texas market and just the new capacity being brought online. Does that shift your strategy to add additional production lines in that market? I remember on the last call, you mentioned adding a third line. What I’m asking may be in regards to a fourth line or maybe even a fifth line, just given that infrastructure spending in Texas continues to be robust. Or I guess should we just expect some of your capital spending to go towards additional upgrades to bring down the conversion costs?

We are focused right now on finishing the project that is underway. On future additions of capacity – it will be driven by the market needs in the Texas environment. And I would just repeat that we view Texas as a very attractive market long-term. And I think over time that you’ll see a disproportionate amount of our CapEx heading to serve the Texas market. Right now, we’re just focused on finishing up the project that we have underway and bringing it online efficiently.

Got it, okay. And then Mike, looking out to fiscal 2017, are there any quarters that have an extra week or maybe impacted by one less week of sales?

No, we won’t have that issue this year. It’ll be on the same 52-week period. So the comps for the coming year should be on the same basis.

Okay. And then SG&A came in much lower than I expected. How should we think of SG&A in fiscal 2017, just given you don’t really have the incentive comps?

Yes, I think just on driving it off the current year – that the total year amount would be appropriate. The fourth quarter was skewed lower by that incentive comp issue that I mentioned. But if you just consider the total year run rate that should be just pretty representative of what we’d be looking at next year.

Got it, thanks.

Thank you. [Operator Instructions] And I’m showing no questions in queue at this time.

Okay. Thank you for your interest in Insteel. We look forward to talking with you next quarter.