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Troubles Continue for Caesarstone

Posted on 07 November 2016 by CRadmin2

Caesarstone stock plummeted by as much as 20.8 percent on November 2, 2016, following the release of the company’s third-quarter earnings report. While overall revenue for the Israel-based quartz manufacturer rose to record levels, the company was held back by poor performance in the U.S. market and fell short of expectations by market analysts.

Overall Growth Falls Short of Expectations

The financial results for the third quarter of 2016, ending September 30, showed that overall revenue increased by 5.5 percent to $144.3 million, which is a new company record. Performance was strongest in the Australian and Canadian markets with growth of 21.8 percent and 13.0 percent, respectively.

Israel and the Rest of the World also showed increases at 6.4 percent and 14.8 percent, respectively, but the U.S. market declined by 5.4 percent while Europe sales fell by 1.2 percent.

While net income in the third quarter increased by 12.8 percent to $22.3 million, or $0.70 per share, these figures did not meet the expectation of analysts, which was set at $152.8 million in sales, or $0.77 per share.

In addition, Caesarstone executives are now predicting full-year revenue in the range of $524 million to $534 million, which falls short of the $553 million expected by market analysts.

Other highlights of the third-quarter report include the following:

  • Business in the U.S. has remained flat for the past nine months.
  • Gross margin rose by 1 percent, from 40 percent of sales last year to 41 percent.
  • Operating expenses increased.
  • Overall profitability grew from 18 percent to 20 percent.

New Investors Stuck With Losses

Even though Caesarstone acquired several new U.S. investors, the trades could not stop the losses experienced by the company on November 2. Migdal Insurance & Financial Holdings Ltd. reportedly purchased 550,000 shares valued at more than $19.1 million while Rice Hall James & Associates LLC purchased more than $9.1 million in shares and Tocqueville Asset Management L.P. X acquired more than $6.9 million in shares.

On November 1, the day before the third-quarter financials were released, Caesarstone stock closed at $34.85, and the next day it opened on the NASDAQ at only $27.60. After the release of the third-quarter earnings report, the stock fell by 20.8 percent but made a slight comeback to end the day at $29.60.

As of closing on Friday, November 4, Caesarstone stood at $27.80.

Caesarstone Warned About Non-Compliance

On October 27, just days before the recent plummet of Caesarstone stock, the company was issued a warning stating that it was not in compliance with NASDAQ’s independent director requirement, which was precipitated by the resignation of Moshe Ronen from the board.

Caesarstone was told that this requirement must be met by October 18, 2017, or its next annual shareholder meeting, whichever comes first. The next annual meeting is scheduled for April 17. A special meeting has been announced for December 6 to elect new nominees for the board of directors, and once these nominees are approved, it is believed that the NASDAQ requirement will be satisfied.

Move Along, Nothing to See Here

The company attempted to dissuade criticism by highlighting overall growth in the third quarter of 5.5 percent to $144.3 million, a new record for Caesarstone, and the acting chair deflected poor earnings by highlighting steps aimed at accelerating growth in the U.S. market.

“The company achieved record performance, and many of our regions continue to demonstrate substantial strength,” said Yonathan Melamed, acting chair of Caesarstone. “We are investing in expanding our marketing and sales capability in [the U.S.] and are making other strategic and operational changes that we believe will improve the business and generate growth.”

Yair Averbuch, CFO of Caesarstone expanded on Melamed’s statement concerning the investments that have been made to expand the company’s capabilities in the U.S. “Over the past several months, we have appointed new executive management, head people and improved processes to our sales team…and we are implementing a revised and more focused go-to-market strategy,” said Averbuch. “While there is some time required before these actions impact revenue, we believe we are taking the right steps to enhance growth.”

Looking Ahead for Investors

Market analysts now predict that Caesarstone’s full-year sales will halt at $529 million, down from the $557 million that was expected last quarter, and the adjusted profit margin will most likely be 24 percent rather than 25 percent.

Analysts have downgraded Caesarstone stock to “hold,” and investors have been warned to prepare for lower net profits as spending for marketing and sales support in the U.S. increases. The results of these investments are anyone’s guess as earlier investments were unable to spur growth in the third quarter. Growth in the U.S. is seen as crucial to the long-term profitability of Caesarstone.

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