인스틸 인더스트리스(IIIN) 2026 회계연도 4분기 실적 발표 회의: 매출 증가, 마진 축소

핵심 요약

• 2026 회계연도 4분기 순매출은 출하량 증가와 판매가 인상에 힘입어 전년 동기 대비 17.9% 증가한 2억 930만 달러를 기록했습니다. 이번 분기는 전년 동기의 13주와 달리 14주로 구성되었습니다.
• 순이익은 전년 동기 1,460만 달러(희석 주당 0.74달러)에서 770만 달러(주당 0.40달러)로 감소했습니다. 실적에는 70만 달러의 구조조정 비용이 포함되어 주당순이익(EPS)이 0.03달러 감소했습니다.
• 선재, 운반비, 제조 및 단위 가공비 상승이 가격 인상 효과를 상회함에 따라 매출총이익률은 610베이시스포인트(bp) 하락한 10.0%를 기록했습니다.
• 동일한 13주 기준 출하량은 전년 동기 대비 2.2% 증가했으나 전분기 대비로는 5.4% 감소했습니다. 인프라, 데이터센터 건설 및 엔지니어링 구조용 메쉬가 수요를 뒷받침했습니다.
• 경영진은 높은 투입 원가와 계절적 수요 약세가 2027 회계연도 1분기 마진을 압박할 것으로 예상합니다. 가격 인상 조치와 어퍼 샌더스키 공장 폐쇄 및 용접 와이어 사업 통폐합에 따른 비용 절감이 이를 뒷받침할 것으로 기대됩니다.
• 인스틸은 신규 엔지니어링 구조용 메쉬 생산 라인 구축을 위한 약 2,000만 달러를 포함해 2027 회계연도에 약 3,000만 달러의 설비투자를 계획하고 있습니다.

주요 재무 데이터

사업 및 운영 실적

공공 인프라 지출이 핵심 수요 기반을 유지한 가운데, 데이터센터 건설과 엔지니어링 구조용 메쉬의 성장이 전반적인 민간 비주거용 건설 약세를 상쇄하는 데 기여했습니다. 연초에 지연되었던 프로젝트들의 출하가 이번 분기에 시작되었으며, 경영진은 지연이 취소가 아닌 시점의 문제였다고 설명했습니다.

엔지니어링 구조용 메쉬 사업은 지속적으로 확장하며 인스틸 포트폴리오에서 더욱 중요한 비중을 차지하고 있습니다. 경영진은 프로젝트 관련 사업의 매출 비중이 커지고 있으며, 이는 기존 사업을 대체하기보다는 추가적인 성장을 이끌기 위한 것이라고 밝혔습니다.

주택 시장, 특히 슬라브 온 그레이드(slab-on-grade) 포스트텐션용 제품의 수요는 여전히 약세를 보였습니다. 경영진은 2027 회계연도에 유의미한 주택 경기 회복 가능성을 낮게 보면서도 추가적인 악화는 없을 것으로 전망했습니다.

원자재 수급은 계속 제한적이었습니다. 인스틸은 미국 철강 선재 수급 부족 규모를 약 130만 톤으로 추정했으며, 제한적인 내수 공급을 보완하기 위해 해외 조달을 지속적으로 활용했습니다. 기말 재고는 예상 출하량 기준 약 3.4개월 분량으로, 3분기 말의 3.5개월에서 감소했습니다.

회사는 2025년 12월 이후 여섯 차례 가격 인상을 단행했으며 일곱 번째 인상을 발표했습니다. 경영진은 원자재, 운반비 및 기타 가공비 상승분을 회수할 계획이라고 밝혔으나, 비원자재 비용의 인플레이션은 비용이 발생한 후에야 가시화되는 경우가 많다고 덧붙였습니다.

경영진 전망

경영진은 2027 회계연도에도 주 및 연방 정부 자금이 전반적으로 정체되겠지만 견조한 수준을 유지하면서 인프라 수요가 비교적 견조하게 지속될 것으로 예상합니다. 데이터센터 모멘텀 역시 이어질 것으로 보이며, 데이터센터 외 파이프라인의 증가세는 전반적인 민간 비주거용 시장의 회복 신호일 수 있습니다.

2027 회계연도 1분기에는 높은 투입 원가와 계절적 수요 감소가 마진을 계속 압박할 것으로 예상됩니다. 최근의 가격 인상, 어퍼 샌더스키 공장 폐쇄, 용접 와이어 사업 통폐합은 2027 회계연도가 진행됨에 따라 비용을 절감하고 효율성을 개선할 것으로 기대됩니다.

인스틸은 세전이익 및 장부-세무 차이에 따라 달라질 수 있으나, 2027 회계연도 실효세율을 약 23%로 예상하고 있습니다.

2027 회계연도 설비투자(CAPEX)는 총 약 3,000만 달러로 예상됩니다. 이 중 약 2,000만 달러는 기존 시설 내 신규 엔지니어링 구조용 메쉬 라인 구축에 투입될 예정입니다. 추가 지출에는 PC 강선(PC strand) 설비 및 비용 절감, 제품 품질 향상을 위한 업그레이드가 포함됩니다.

리스크 및 관전 포인트

• 철강 선재, 운반비, 인건비, 전력비, 화학품 등 기타 제조 원가 상승은 가격 인상이 이를 반영할 때까지 마진을 지속적으로 압박할 수 있습니다.
• 무역확장법 232조 관세, 반덤핑 및 상계관세 조치로 인해 해외 조달이 복잡해졌으며 캐나다산 공급의 경쟁력이 약화되었습니다.
• 경영진은 PC 강선 분야에서의 해외 경쟁 심화와 주택 관련 수요의 지속적인 약세를 언급했습니다.
• 기저 수요가 견조하더라도 프로젝트 일정 및 납품 지연으로 인해 사전 예고 없이 출하 변동성이 발생할 수 있습니다.
• 전반적인 비주거용 지표는 엇갈린 모습을 보이고 있으며, 경영진은 경제 여건과 관세 정책을 둘러싼 상당한 불확실성을 인정했습니다.
• 엔지니어링 구조용 메쉬 생산능력 증설은 확정된 고객 수요가 아닌 경영진의 시장 전망에 기반하고 있습니다.

애널리스트 Q&A 주요 내용

경영진은 지연되었던 데이터센터 프로젝트의 출하가 시작되었으며, 취소가 아닌 지연이었다고 말했습니다. 다만 출하 시점은 프로젝트 일정에 따라 달라질 수밖에 없으며, 회사는 해당 프로젝트들의 실적 기여도를 수치화하지는 않았습니다.

데이터센터 외 엔지니어링 구조용 메쉬 기회와 관련해 인스틸은 더 많은 잠재 프로젝트를 포착하고 있으나, 아직 대규모 확정 수주잔고를 확보하지는 못했습니다. 프로젝트들은 일반적으로 처음부터 인스틸 제품을 기준으로 설계되지 않기 때문에 다른 보강 방식을 전환해야 합니다.

계획된 2,000만 달러 규모의 엔지니어링 구조용 메쉬 라인은 생산능력 제약으로 인해 고객 서비스와 성장이 제한받는 것을 방지하기 위한 것입니다. 경영진은 생산량과 가공비가 제품 믹스에 크게 좌우될 것이라고 언급하며, 구체적인 생산능력 증가폭이나 가동 개시일은 밝히지 않았습니다.

견적 가격은 정해진 기간 동안만 유효합니다. 지연된 프로젝트가 해당 기간 내에 출하되지 않는 경우, 인스틸은 자동 원가 연동 방식에 의존하지 않고 가격을 재조정합니다.

경영진은 인스틸의 전국적인 생산 거점이 장거리 운송의 필요성을 줄이고 고객과 가까운 시설에 주문을 배정할 수 있어 프로젝트 대응에 강점이 된다고 설명했습니다.

실적 발표 컨퍼런스 콜 전문

전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

Operator

Hello, everyone. Thank you for joining us, and welcome to the Insteel Industries Fourth Quarter 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to H. Woltz, President and Chief Executive Officer. H., please go ahead.

H.O. Waltz

Good morning. Thank you for your interest in Insteel, and welcome to our fourth quarter 2026 conference call, which will be conducted by Scot Jafroodi, our Vice President, CFO and Treasurer; and me.

Before we begin, let me remind you that some of the comments made in our presentation are considered to be forward-looking statements that are subject to various risks and uncertainties, which could cause actual results to differ materially from those projected. These risk factors are described in our periodic filings with the SEC.

Looking back at 2026, public funding for infrastructure improvements continued to be a solid foundation for Insteel's markets. Except for data center activity, private nonresidential markets were disappointing and housing, the smallest of Insteel's markets, was weak and adversely affected by a host of unfavorable developments.

I will turn the call over to Scot to comment on our financial results. And following his comments, I'll pick the call back up to discuss our business outlook.

Scot Jafroodi

Thank you, H., and good morning to everyone joining us on the call. As reported in our earnings release this morning, our fourth quarter results reflected the challenging cost environment that persisted throughout fiscal 2026. Net earnings were $7.7 million or $0.40 per share compared with $14.6 million or $0.74 per diluted share in the prior year quarter. This quarter results included $700,000 of restructuring charges related to the consolidation of our welded wire operations announced in August. These charges reduced net earnings by $0.03 per diluted share.

Before discussing sales and shipments, I'd like to note that fiscal 2026 was a 53-week year, resulting in a 14-week fourth quarter compared with 13 weeks in both the prior year fourth quarter and the third quarter of fiscal 2026. Accordingly, net sales and shipment volumes benefited from the additional week. Net sales for the quarter were $209.3 million, up 17.9% from $177.4 million in the prior year period. Total shipments increased 10.6% year-over-year and 2.5% sequentially from the third quarter, with both comparisons benefiting from the additional week in the current year quarter.

On a comparable 13-week basis, shipments increased 2.2% from the prior year quarter, but decreased 5.4% sequentially from the third quarter. From a demand standpoint, fourth quarter shipments remained supported by healthy infrastructure spending and ongoing data center-related construction activity. Continued expansion of our engineered structural mesh business also contributed to shipment activity and helped offset softness across much of the broader private nonresidential construction market.

During the quarter, we began shipping on several projects that had previously been delayed. Although scheduling and delivery delays continue to affect the timing of certain shipments, we believe these issues reflect project-specific timing factors rather than any deterioration in underlying demand. Overall, customer sentiment remains generally positive, supporting our confidence in the demand outlook across our key end markets as we enter fiscal 2027.

Moving from shipment activity to pricing, average selling prices increased 6.6% from the prior year quarter and increased 3.3% from the third quarter, reflecting pricing actions implemented to recover higher steel wire rod, freight and other operating costs. We continue to closely manage the spread between selling prices and our underlying costs to support margins and profitability. Gross profit for the quarter was $21 million compared to $28.6 million a year ago, while gross margin declined 610 basis points to 10% from 16.1%.

The year-over-year decrease reflects narrower spreads between selling prices and raw material costs, higher freight and manufacturing expenses and elevated unit conversion costs due to lower-than-expected production volumes. Pricing actions partially offset these pressures, but the increase in average selling prices was not sufficient to fully recover the higher costs. Sequentially, gross profit increased by $0.9 million from $20.1 million in the third quarter, while gross margin edged down to 10% from 10.2%.

Looking ahead to the first quarter of fiscal 2027, we expect to see increasing benefits from the closure of our Upper Sandusky facility and the consolidation of our welded wire operations, which should contribute to lower costs and improve operating efficiency. Elevated input costs and seasonally lower demand are expected to continue pressuring margins in the near term. However, our recently announced price increase, together with the savings and efficiency gains from the Upper Sandusky closure and welded wire operation consolidation should provide additional margin support and position us to improve profitability as we move through the year.

SG&A expense for the quarter was $10.4 million or 5% of net sales, compared with $9.7 million or 5.5% of net sales in the prior year period. The year-over-year increase primarily reflected higher payroll and other labor-related costs associated with the additional week in the current year quarter, as well as a $666,000 year-over-year unfavorable change in the cash surrender value of life insurance policies, resulting from weaker financial market performance. These increases were partially offset by a $700,000 reduction in compensation expense under our return on capital incentive plan, reflecting lower financial performance relative to the prior year.

Our effective tax rate for the fourth quarter was 24.2% compared with 24.4% a year ago. For the full fiscal year, our effective tax rate was 22.8% compared with 23.8% in fiscal 2025. The decrease was mainly driven by changes in book-to-tax differences. Looking ahead to fiscal 2027, we expect our effective rate to run around 23%, subject to the level of pretax earnings, book-to-tax differences and the other assumptions and estimates that compose our tax provision calculation.

Turning to the cash flow statement and balance sheet. Operating activities generated $18.2 million of cash during the fourth quarter compared with a use of $17 million in the prior year period. Changes in net working capital contributed $4.6 million of cash, primarily due to lower inventory levels, partially offset by an increase in accounts receivable. For the full year, cash provided by operating activities increased $36.6 million from $27.2 million in fiscal 2025.

Our inventory position at the -- at year-end represented approximately 3.4 months of shipments on a forward-looking basis, calculated from our first fiscal -- first quarter fiscal 2027 forecast, down slightly from 3.5 months at the end of the third quarter. Inventory remained elevated throughout fiscal 2026 as we supplemented constrained domestic rod availability with imported material to meet customer demand and reduce supply risk. We expect inventory balances to remain near current levels through the first quarter as we continue to offset limited domestic supply with offshore purchases.

At the end of the fourth quarter, inventory is valued at an average unit cost generally consistent with the cost reflected in fourth quarter cost of sales and favorable to current replacement cost. We invested $2.7 million in capital expenditures during the fourth quarter, bringing total capital spending to $11.8 million for the year compared with $8.2 million in fiscal 2025. Looking ahead, we expect fiscal 2027 capital expenditures to total approximately $30 million. H. will provide more details in his remarks.

While investing in the business to support growth and reduce costs remains our top priority, we continue to return capital to shareholders throughout the course of the fiscal year. The combination of a $1 per share special dividend paid in the first quarter and 4 regular quarterly dividends of $0.03 per share resulted in total dividends of $1.12 per share for the year. We also continue to repurchase shares under our existing buyback program, acquiring approximately 15,000 shares during the fourth quarter and approximately 114,000 shares for the full year at a total cost of $3.2 million. We remain confident in the long-term value of our shares and view share repurchases as an effective component of our disciplined capital allocation strategy.

We closed the fiscal year with $37.5 million of cash and no borrowings outstanding under our $100 million revolving credit facility, leaving us well-positioned to fund our operating needs and pursue investment opportunities.

Turning to the macro indicators for our construction end markets, recent data continues to present a mixed picture for the outlook. In September, the Architectural Billings Index declined to 44.7 from 47.2 in August, indicating a further deterioration of business conditions at architectural firms. The index remains below the 50 threshold that separates expansion from contraction, with the pace of decline accelerating during the month. While inquiries for new projects increased, newly signed design contracts weakened significantly, suggesting continued pressure on future nonresidential construction activity.

The Dodge Momentum Index, which measures nonresidential building projects entering the planning stage, increased 2.4% in September. The gain was driven by a 9.4% increase in institutional planning, supported by strength in education, health care and government projects. Commercial planning declined 1.3% as slower activity in data center and warehouse projects more than offset improvement across several other commercial categories. Overall, the index continues to indicate a healthy pipeline of projects, although the composition of planning activity remains uneven.

The most recent construction spending data from the U.S. Census Bureau show that total spending increased 0.9% on a seasonally adjusted annual basis in August, but declined 1.7% from a year earlier. Nonresidential construction spending increased 0.7% from July and 0.5% year-over-year, while highway and street construction, a key end market for our products, increased 0.2% for the month and 4.6% from the prior year. Taken together, these indicators suggest that nonresidential construction conditions remain mixed as we enter fiscal 2027.

Public infrastructure spending and data center investment continues to support demand while activity across much of the broader private nonresidential market remains soft. Against this backdrop, we remain focused on the factors within our control: managing costs, improving operating efficiencies and allocating capital in a disciplined manner.

This concludes my prepared remarks. I'll now turn the call back over to H.

H.O. Waltz

Thank you, Scot. As we reported last quarter, infrastructure markets have been reasonably strong for the company, and we believe we will see a repeat performance from infrastructure applications in 2027. Funding at state and federal levels looks like it will be fairly flat in 2027 but will remain at healthy levels as analyzed by ARTBA, among others.

Concerning private nonresidential construction markets, we believe the data center momentum will continue through 2027, and we're evaluating many non-data center projects, which gives us confidence we will see more well-rounded demand in broader market segments than in 2026. In other words, it looks like a recovery may be underway in the private nonresidential market.

During our Q2 and Q3 conference calls, we reported delays in shipments to data center projects, which seemed to ripple throughout the supply chain. We can now report that the delays were, in fact, delays and not cancellations, as shipments have commenced on essentially the schedule originally communicated, just later. Clearly, though, the delays came with minimal notice, and there was little we could do to backfill the holes created by project delays. Lower shipping performance was the result.

Housing, of course, has been stuck in a trough for several quarters, and we see no reasonable prospect for a meaningful recovery in 2027. At the same time, we do not expect further deterioration in housing. It should be noted that over the last couple of years, we have dramatically expanded the market for our engineered structural mesh and shipments have grown to become a meaningful part of our business. While the general softness in construction markets masked our progress, our performance would have lagged substantially had we not pursued new applications and new markets.

We expect to continue growing in 2027 and beyond. With fewer growth paths in our traditional markets, we expect growth in those to mirror the growth in the overall construction market. Unfavorable market trends in housing and light private commercial construction, together with insufficient domestic wire rod supplies, led to severe margin compression during fiscal 2026 in the standard welded wire reinforcement market, with the expected impact on shipments and profitability.

Another obstacle adversely affecting our financial performance has been the impact of inflation on nearly every product or service we acquire to operate our plants. The situation is particularly concerning with respect to our primary raw material, hot-rolled steel wire rod, following the Section 232 tariff rate rising to 50% and adding Canada and Mexico to the list of covered countries. Canadian mills, which were regularly active in our supply chain, immediately became uncompetitive relative to domestic prices and other offshore prices. Since the Section 232 tariff changes in 2025, we have been unable to source adequate volumes of wire rod in North America and have been forced to purchase significant quantities from other more remote producers.

By our calculation, there is a supply deficit of steel wire rod produced in the U.S. of approximately 1.3 million tons. With few, if any, investments being made to expand domestic output of wire rod, the deficit must be imported, which has become more difficult as we navigate around antidumping and countervailing duty orders in addition to the Section 232 tariff.

Today, it appears domestic wire rod producers have little competition in their markets and have elected to make hay while the sun shines and eschew investments in additional capacity. Domestic prices have risen to the extent that the Section 232 tariff applicable to derivative products such as PC strand has become nearly meaningless. Offshore competitors once again have a distinct advantage relative to domestic producers of PC strand. Needless to say, the housing downturn, together with trade policies adversely affecting domestic PC strand producers, severely pressured shipment volumes and profitability in the slab-on-grade post-tension market for PC strand, where import competition is rampant.

Aside from inflationary trends and trade policy obstacles affecting raw material markets, costs have also risen rapidly for labor, electricity, chemicals, carbide, copper, spare parts and nearly every other input into our manufacturing process. Notably, diesel fuel prices have surged in recent months, dramatically increasing costs for inbound and outbound transportation. Our company has always focused intently on managing costs, but today's environment has overwhelmed all efforts to stem the tide of rising costs through internal actions. As a result, we've implemented 6 price increases since December 2025, and a seventh has been announced with an effective date of a few days from now. This is unprecedented in my years in this business.

Turning to CapEx, as mentioned in the release, we expect to invest approximately $30 million in our plants and information systems infrastructure during 2027. Our largest investment, approximating $20 million, is focused on expanding our engineered structural mesh capacity with the addition of a new production line at an existing facility. We also plan to install new equipment to service the PC strand market, which should increase output and reduce manufacturing costs.

Other investments will constitute replacements and upgrades to existing equipment and facilities that will reduce cost and/or improve product quality. I would point out with respect to our engineered structural mesh investment that we know existing capacity will be consumed in the near term, which will adversely affect customer service and stymie growth if not addressed. But we do not know the market conditions that might confront us upon start-up of the new line. Our judgment is that the company and its shareholders are best served by making this capacity addition now, rather than a year from now.

In the short term, our timing may be good, or it may be bad. In the long term, however, the investment is essential. Consistent with past practice, we will provide quarterly updates on our investment activities and expectations as the year progresses.

Finally, let me mention that activities surrounding the closure of the Upper Sandusky, Ohio, facility and the redistribution of that demand to other Insteel facilities are proceeding on schedule and as expected. The Upper Sandusky workforce is a can-do group, and we're very appreciative of their professionalism through this difficult process. As we've indicated on several occasions, the closure is not related to the people at the plant or their effectiveness. The plant is simply in the wrong location to fit well into Insteel's manufacturing footprint and other Insteel facilities have ample excess capacity to handle the output heretofore produced at Upper Sandusky. This was not a close call, but it was a difficult call by our management team that is committed to doing the right thing for Insteel.

Looking ahead, we're aware of the substantial risks related to the state of the economy and the administration's tariff and trade policies. Regardless of developments in these areas, we're well-positioned to pursue growth-related activities, both organic and through acquisition and actions to optimize our costs.

This concludes our prepared remarks, and we'll now take your questions. Melissa, would you please explain the procedure for asking questions again?

Operator

[Operator Instructions] Your first question comes from the line of Julio Romero with Sidoti & Company.

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Julio Romero

H., good to hear that the shipments began on several of the delayed projects. And in the last call, you said you expected those shipments to pick up in the September quarter and remain strong through calendar year-end. I think you also mentioned some potential continued scheduling delays, if I'm not mistaken. Just help us think if the strength through the end of the calendar year is still the right expectation? And then also, could you help us size how meaningful the shipments were in the quarter?

H.O. Waltz

Well, as you know, it's a week-to-week business in a lot of respects, Julio. And our forecast is reflective of the conditions that we currently see for our first and second quarters. And how that all shakes out remains to be seen. In our engineered structural mesh business, I expect that we'll continue to see good growth.

Julio Romero

Understood. On the engineered structural mesh business, you mentioned, H., you're evaluating many non-data center projects. As the engineered structural mesh wins those projects, can you help us think about who drives the decision there? Is it the owner, the engineer or the contractor? And are you increasingly seeing it designed from the start rather than substituted for rebar at the bid stage?

H.O. Waltz

In answer to your last question, that is no. We're not seeing projects begin to be designed with our material. We have to convert them all. And with respect to your previous 2 questions, I'd really rather not get into detail about how we identify these projects and where we're going with them.

Julio Romero

Got it. I guess maybe ask a different way, just help us kind of understand, to the extent that you can, how durable the demand might be on the non-data center project side?

H.O. Waltz

Well, so in the project-oriented sector of our business, we're looking at a lot of projects that are not data center related. We're also looking at a lot of data center projects. But I would tell you that as an early sign of what's happening in the market, we may be seeing a recovery in nonresidential markets that were woefully underwater during fiscal 2026. But it's not like we have a big backlog of business in our pocket that we can talk about. But before we get an order, we've got to see that the project's out there, and we are seeing that now.

Julio Romero

Understood. Last one for me before I pass it on is just on the CapEx of $30 million that caught my attention. And then you mentioned the $20 million committed to the -- for ESM capacity for engineered structural mesh capacity. How much does that add to your current capacity, to the extent that you could tell us, when do you expect it to be in service? And I think I know the answer to the second part of my question, but is that sized to any committed demand from your customers? Or is that kind of more line of sight that you currently have but not formalized?

H.O. Waltz

Julio, there is no committed demand from our customers for anything we produce. So all of our actions are based on our knowledge of the market and our expectations. Now I can tell you that we've committed to the $20 million -- and I can't tell you what we'll get out of that, except we wouldn't have made the commitment had we not expected to need the capacity. And in terms of volumes, it all depends on what goes across the equipment, that the nature of the product is that we can produce a huge number of tons across a piece of equipment or only a few, just depending on what the mix looks like. So we're very well cognizant of that. We're very well cognizant of the wide range of conversion costs that come with that fact. And we've substantially beefed up our internal resources to be able to understand those costs.

Operator

Your next question comes from the line of Tyson Bauer with KC Capital.

Tyson Bauer

You talked about 6 price increases since last December, one more coming in the coming weeks. When you do your cost accounting and you're looking through these price increases and what you need to do or want to do, when you're identifying recoverable costs versus nonrecoverable costs, what exactly is that looking like? And what's in those categories where you're looking at we can recover some of that wire rod, freight pass-through, those areas? But is there just this onslaught of increase in cost in general that has you bailing water as fast as you can, but you're just not catching up?

H.O. Waltz

Well, let me say first that I'm unaware of any cost that's not recoverable, that our expectation is we recover all increased costs. The easiest thing for us to look at is raw material costs because we know precisely what those costs are, and we see them coming when we receive a price increase letter from one of our suppliers. With every other cost that we're incurring that is escalating rapidly, we know that only when we incur the cost.

Nobody tells us that copper or cobalt or chemicals are going to go up in December. We know it when we place an order. So we try to stay on top of all of those elements of our conversion costs that are rising and to recover those as we move forward. But we don't know how to anticipate those, and we only react to them once they have hit our cost. So -- but we believe they're all recoverable.

Tyson Bauer

As long as the market allows you to...

H.O. Waltz

Well, I guess I would say that my expectation is that all our competitors are experiencing the same phenomenon that we are, and it is having the same impact on their financial performance as we see on ours. So I guess there is a leap of faith that has to be taken there. But the market will not let us effect increases that are not market-related. And so far, there's good evidence out there that we're all in the same boat.

Tyson Bauer

Okay. You talked about 2 areas of strength, the infrastructure and also data center is, kind of, the highlight area. As a percentage of your total sales, are you moving more toward large project activity versus smaller projects? Or how has that trended over the last 12 months?

H.O. Waltz

It depends on what we see out there that the project-related work that we're doing generally is characterized by much better repetition, and it is fundamentally different than our legacy business. But -- and we obviously want to rank order in terms of desirability, the projects that we see that may be available, but it's impossible to project what that's going to look like.

And in terms of how project-related work stacks up in terms of our total revenues to the extent that we're new in this business and we continue to build it, yes, it's growing as a percentage of the total, and we want it to continue growing. But it's not like we're forfeiting any of the legacy business because we want to replace it with project business. That's not happening. We want the project business to be incremental.

Tyson Bauer

Okay. So you have enough available capacity that it's just an add-on that helps your overall cost per unit, but you see it as purely incremental as going forward?

H.O. Waltz

It is purely incremental. And I would just -- maybe to help you understand why we're putting a lot of money into the business, customers expect quick delivery. If your lead time is 4 weeks or 6 weeks, then you're probably not setting yourself up for success in this business. You need to be able to deliver the product in 2 to 4 weeks. And if you can't do that, then you're out of the game. And we're not going to be out of the game.

Tyson Bauer

Given how fast costs have risen and when looking at these large projects, I'm guessing you're having to rebid as these delays occur with price increases or adjustments as you go through that process. Is that fairly standard that you're seeing if you have a delay or otherwise and all of a sudden wire rod's up $50 a ton or more in a month, you've got those escalators already factored in?

H.O. Waltz

No. I mean the way we handle it, and it is the same for our legacy business or any other business is that a price that we quote is good for a period of time. And if we don't ship the product in that period of time, then we talk about the price again.

Tyson Bauer

Okay. Are you seeing facility variability across your different regions based on demand activity? Obviously, certain areas are more favorable for onshoring facilities, data centers, other things that are going on. And does that make operational, where you put these orders and what facility is fulfilling them make that a little more difficult?

H.O. Waltz

Well, let me try to answer the question this way, saying that if we go back several years, our company took a couple of years and a lot of money. And we put our equipment -- and by the way, our equipment is specific by product line. It's not that one production line will serve all markets. That's just not the case. That's not the way it works. So we identified the markets that we serve out of each of our physical locations, and we put the equipment that is most hospitable to those markets in those locations, and we try to optimize both our inbound and outbound freight costs by getting as close as we could to our raw material suppliers.

Now as you fast forward to where we are today and looking at some of the project work, one of the unintended or, let's say, unanticipated benefits that we have is a nationwide footprint so that we don't have to ship product from North Carolina to Arizona or from any other remote location because we have production facilities that are located everywhere. So we're -- we can assign the work that we get in the marketplace to the location that is most logical to ship that product. And it's a huge benefit, and it's one that I would admit readily was a happenstance. We did not configure the company this way for that purpose, but it turns out to be a tremendous advantage for us.

Tyson Bauer

Okay. And last question for me. You talked about the possibility of seeing inventory build as we go through the first quarter or first half of fiscal '27 and those net working capital requirements. Does that impact at all the Board's decision or philosophy when they review whether or not a special dividend will be paid this year?

H.O. Waltz

I think we've already taken the working capital hit that is associated with being required to go offshore for substantial quantities of raw material. I wouldn't expect that you'd see any working capital build or any inventory build in 2027 that is not like what you've seen in any of our other seasonally weaker periods. There should be nothing in 2027 that's extraordinary.

Tyson Bauer

Got that. And regarding the special dividend philosophy, you feel, given your outlook and where you're at, that that's still something you expect to continue?

H.O. Waltz

I would tell you that I expect to be in the position to do whatever we want to do.

Operator

There are no further questions at this time. I will now turn the call back to H. Woltz for closing remarks.

H.O. Waltz

Okay. We appreciate your interest in Insteel. We thank you for your time today and encourage you to follow up with us if you have questions going forward. With that, we'll conclude the call and look forward to talking to you next quarter. Thank you.

Operator

This concludes today's call. Thank you for attending. You may now disconnect.