MP MENASHE, Israel--(BUSINESS WIRE)--Aug 8, 2018--Caesarstone Ltd. (NASDAQ:CSTE), a global leading developer and manufacturer of high quality engineered quartz surfaces, today reported financial results for its second quarter ended June 30, 2018.

Yair Averbuch, Interim Chief Executive Officer, commented, “Our second quarter results show considerable operational improvement compared to our performance in the first quarter of 2018, highlighted by a significant increase in gross margin. At the same time, we recognize the need to better capitalize on the strong market opportunity for quartz, mainly in North America, and to continue improving our operations. In the second half of 2018, we are taking steps to leverage our global platform, powerful brand, leading products and financial strength to generate stronger returns. While manufacturing challenges in Israel, raw material cost inflation and currency exchange rates are likely to remain headwinds, we are improving our manufacturing operations and our U.S. sales and distribution capabilities to position the company for additional improvement opportunities in 2019.”

Revenue in the second quarter of 2018 was $149.2 million, essentially flat compared to $148.9 million in the same period in the prior year. On a constant currency basis, second quarter 2018 revenue decreased by 1.5% year-over-year, with sales improvement in Canada, Europe and Rest of the World offsetting softer performance in the U.S. and Israel.

Gross margin in the second quarter was 32.4% compared to 34.9% in the same period in the prior year. The decrease in margin primarily reflects increased product complexity and other manufacturing challenges in Israel along with inventory and logistics inefficiencies and higher raw material costs. These factors were partly offset by a significant improvement in manufacturing performance at our U.S. manufacturing facility. On a sequential basis, gross margin increased from the first quarter of 2018, mainly due to higher sales volumes and higher average selling prices, improvements in our manufacturing in Israel and the U.S., and reduced inefficiencies related to inventory and logistics.

Operating expenses in the second quarter were $35.1 million, or 23.5% of revenue, compared to $32.6 million, or 21.9% of revenue, in the same quarter last year. Excluding legal settlements and loss contingencies, operating expenses increased to 21.7% of revenue, compared to 20.9% in the prior year second quarter mainly due to higher marketing and sales expenses in addition to non-recurring expenses of approximately $1.2 million, mainly related to the relocation of the Company’s U.S. headquarter.

Operating income in the second quarter was $13.3 million, a margin of 8.9%, compared to $19.3 million, a margin of 13.0%, in the second quarter of 2017.

Adjusted EBITDA, which excludes expenses for share-based compensation, legal settlements and loss contingencies and for non-recurring items, was $24.6 million in the second quarter of 2018, representing a margin of 16.5%. This compares to adjusted EBITDA of $29.6 million in the prior year’s second quarter, representing a margin of 19.9%. This year-over-year margin comparison primarily reflects the lower gross margin described above.

Finance expenses in the second quarter were $0.5 million compared to $1.4 million during the same period in the prior year. The change primarily reflects the favorable impact of currency fluctuations on certain financial instruments.

The Company reported net income attributable to controlling interest for the second quarter of 2018 of $11.0 million compared to income of $14.5 million in the same quarter in the prior year. Diluted net income per share for the second quarter was $0.32 compared to $0.42 in the prior year's second quarter. Adjusted diluted net income per share for the second quarter was $0.43 on 34.4 million shares compared to $0.49 on 34.6 million shares in prior year second quarter.

The Company's balance sheet as of June 30, 2018 remained strong, including cash, cash equivalents and short-term bank deposits of $104.6 million.

Dividend

In accordance with the Company's dividend policy initiated in February 2018, the Company declared a dividend of $0.15 per share to be paid on September 12, 2018 to shareholders of record as of August 22, 2018. The dividend payment is subject to withholding tax of 20%.

Guidance

The Company reiterates its full year 2018 adjusted EBITDA outlook, which is expected to be in the range of $74 million to $82 million. Given current currency exchange rates, the Company expects an adverse currency exchange impact of approximately $10 million for the year and therefore now anticipates 2018 revenue to be at the low end to mid-point of the previously announced range of $590 million to $610 million.

Conference Call Details

The company will host a conference call today at 8:30 a.m. ET to discuss the results, followed by a question and answer session for the investment community. A live webcast of the call can be accessed at ir.caesarstone.com. To access the call, dial toll-free 1-877-407-4018 or +1-201-689-8471 (international). The toll-free Israeli number is 1 80 940 6247. Upon dialing in, please request to join the Caesarstone Second Quarter Earnings Call.

To listen to a telephonic replay of the conference call, dial toll-free 1-844-512-2921 or +1-412-317-6671 (international) and enter pass code 13681791. The replay will be available beginning at 11:30 a.m. ET on Wednesday, August 8, 2018 and will last through 11:59 p.m. ET on Wednesday, August 15, 2018.

About Caesarstone

Caesarstone designs, develops and manufactures high quality engineered quartz surfaces, which are used in both residential and commercial buildings as countertops, vanities, wall cladding, floors and other interior surfaces. The wide variety of colors, styles, designs and textures of Caesarstone® products, along with Caesarstone's inherent characteristics such as hardness, non-porous, scratch and stain resistance and durability, provide consumers with excellent surfaces for their internal spaces which are highly competitive to granite, manufactured solid surfaces and laminate, as well as to other engineered quartz surfaces. Caesarstone's four collections of products — Classico, Supernatural, Metropolitan and Concetto — are available in over 50 countries around the world. For more information about the Company, please visit our website www.caesarstone.com. (CSTE-E)

Non-GAAP Financial Measures

The non-GAAP measures presented by the Company should be considered in addition to, and not as a substitute for, comparable GAAP measures. A reconciliation of GAAP net income attributable to controlling interest to adjusted net income attributable to controlling interest and net income to Adjusted EBITDA are provided in the schedules within this release. The Company provides these non-GAAP financial measures because it believes that they present a better measure of the Company's core business and management uses the non-GAAP measures internally to evaluate the Company's ongoing performance. Accordingly, the Company believes that they are useful to investors in enhancing an understanding of the Company's operating performance.

Forward-Looking Statements

Information provided in this press release may contain statements relating to current expectations, estimates, forecasts and projections about future events that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally relate to the Company's plans, objectives and expectations for future operations, including its projected results of operations and the expected timing of expanding its manufacturing facilities. These forward-looking statements are based upon management's current estimates and projections of future results or trends. Actual results may differ materially from those projected as a result of certain risks and uncertainties. These factors include, but are not limited to: the strength of the home renovation and construction sectors; economic conditions within any of our key existing markets; actions by our competitors; changes in raw material prices, particularly polymer resins and pigments; fluctuations in currency exchange rates; the success of our expansion efforts in the United States; the outcome of silicosis claims and other claims; unpredictability of seasonal fluctuations in revenues; delays in manufacturing and other factors discussed under the heading "Risk Factors" in our most recent annual report on Form 20-F and other documents filed with the Securities and Exchange Commission. These forward-looking statements are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

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