Caestarstone just released the company’s financial statements for the third quarter of 2018, revealing that the period and the entire year has virtually fallen flat. However, Caesarstone is now looking to the future and expecting higher than average revenue, especially in the U.S. where Chinese quartz has been hit by antidumping duties.
Caesarstone’s revenue for the third quarter of 2018 was $147.7 million, which is a slide of 4.5 percent compared to last year. Using a constant currency scale, revenue was down by 1.9 percent, but remained stable in the U.S. with increases in Canada and Europe. Slower growth remained in Australia, Israel and the Rest of the World.
Gross margin also fell from 32.1 percent to 29.6 percent from the previous year, but this was expected because of the foreign exchange, increased complexity of products and “other manufacturing challenges,” logistics inefficiency and high raw materials costs. However, many of these factors were partially offset by the stellar manufacturing performance at the U.S. facility.
Along with revenue, operating expenses also fell from $38.7 million to $29.7 million, which is 20.3 percent of revenue.
Total operating income for the third quarter was $14 million, providing a margin of 9.5 percent. In the same quarter last year, operating income was only $11 million with a margin of 7.1 percent.
The dividend for stockholders in the third quarter was $0.15 per share.
“Our third quarter and year-to-date results do not reflect the significant potential of Caesarstone’s global market leading position and innovative product offering,” commented Yuval Dagim, CEO of Caesarstone. “We are taking steps to create a more seamless global operating model and bring the right talent to our organization at all levels. We are working to enhance our go-to-market approach by streamlining processes, time to market and decision-making processes. These factors, along with our deeper emphasis on health, safety and discipline, are critical to the ongoing evolution of our Company’s culture. Moving into 2019, we expect to better capitalize on market opportunities as we implement a steady stream of best practices and refine our strategy.”
“We delivered better than expected third quarter gross margin and Adjusted EBITDA despite lower than expected revenue. Third quarter revenues were mainly impacted by currency headwinds and challenging market conditions, which we expect to continue into the fourth quarter,” added Ophir Yakovian, CFO of Caesarstone. “While we are encouraged by the long-term benefit of recent preliminary tariffs on U.S. imports of quartz countertops from China, we are cautious on the near-term impact of the tariff given a surge in 2018 pre-buy activity that may keep U.S. inventory levels temporarily elevated, along with the undetermined effect on supply outside the U.S. Therefore, we are moderating our expectations for the full year 2018 and focusing on a range of improvements to better position our Company for success in 2019.”
Outlook
Caesarstone expects 2018 revenue to fall in the range of $572 million to $578 million and states that this is because of an adverse foreign exchange market, soft market conditions and a more competitive environment.
Although the antidumping duties on Chinese quartz just began, Caesarstone expects a sizable long-term benefit for the company.
“We are encouraged by the long-term benefit of recent tariffs on U.S. imports of quartz countertops from China,” Yakovian said. “We anticipate a positive impact on our U.S. results in coming years.”
“In the near term, we are cautious, given there has been a surge in 2018 pre-buy activity ahead of the tariff,” Yakovian added. “That pre-buy will likely keep U.S. inventory levels elevated for the near term. Beyond that, we are watching closely to assess the collateral impact to International markets as Chinese producers seek to ship their product to other developed markets.”