Insteel attempts to temper performance with new lines.

• Author: Gibson, Dale
• Position: Insteel Industries Inc.

Insteel Industries Inc. (III-NYSE) is as old school as they get. The Mount Airy-based company started in the gritty businesses of concrete and steel wire - heavy industry that's light on margins. Now the company is trying to reinvent itself. It's tried that before. Because of problems the first time around, its revenues and stock are encased in the concrete it once made. Sales have grown 1.4% the last three years, and the stock, after peaking at $12.50 in 1993, has trailed off to below $8.

Reinvention Round 1 began in 1989, when Insteel partnered with an Austrian company to build concrete building panels. The product was decent, but Insteel had problems training contractors to install it. The joint venture lost more than $9 million before Insteel sold it to management in 1997. This year it deep-sixed another poor performer it got into in 1989, its agricultural-products division, which it sold to Dallas-based Keystone Consolidated Corp.

Now for Round 2. Chairman Howard Woltz Jr. and his son, H.O. Woltz III, CEO since 1991, have spent more than $75 million since 1993 on plants and equipment, mainly to add four lines. "It can't happen fast enough," analyst Gregg Lucas of Interstate/Johnson Lane Inc. says, "but they're starting off with a company that's fundamentally sound."

Revenues have inched from $243 million in fiscal 1993 to $262 million in fiscal 1997, which ended in September. The company lost $341,000 last year, and things got worse the first half of this year, when it lost $1.7 million because of start-up costs and slow demand for its new lines. Disappointing second-quarter earnings - a loss instead of the small gain Lucas expected - caused the stock to dip.

But turnaround potential is what makes Insteel appealing to bargain shoppers. The stock "has been totally undiscovered by the investing public," says Scott Satterwhite, manager of the Artisan Small Cap Value Fund. In April, he picked it as one of three little-known but low-risk investments. He thinks it will post big gains the next two years.

The elder Woltz started out with a Mount Airy concrete plant in 1953 and added concrete-reinforcing wire in 1974. The company went public in 1985. Three years later, Woltz sold the concrete division. Insteel, which employs about 1,100 at eight plants from Delaware to Texas, now has three core lines: industrial wire, bulk nails and welded steel mesh. But those mature markets have scant potential. Transportation and raw-product costs leave slim...