Caesarstone Reports Third Quarter 2018 Results
MP MENASHE, Israel--(BUSINESS WIRE)--Nov 7, 2018--Caesarstone Ltd. (NASDAQ:CSTE), a leading global developer and manufacturer of high quality engineered quartz surfaces, today reported financial results for its third quarter ended September 30, 2018.
Yuval Dagim, Chief Executive Officer, commented, “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. 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.”
Ophir Yakovian, Chief Financial Officer, added, “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. 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.”
Revenue in the third quarter of 2018 was $147.7 million, down 4.5% compared to $154.7 million in the same period in the prior year. On a constant currency basis, third quarter revenue decreased by 1.9% year-over-year with stable performance in the U.S. and sales improvement in Canada and Europe more than offset by softer performance in Israel, Australia and Rest of the World.
Gross margin in the third quarter was 29.6% compared to 32.1% in the same period in the prior year. The decrease in margin was expected and primarily reflects foreign exchange headwinds, 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 the Company’s U.S. manufacturing facility.
Operating expenses in the third quarter were $29.7 million, or 20.1% of revenue, compared to $38.7 million, or 25.0% of revenue, in the same quarter last year. Excluding legal settlements and loss contingencies, operating expenses decreased to 20.3% of revenue, compared to 21.3% in the prior year third quarter mainly due to lower marketing and sales expenses.
Operating income in the third quarter was $14.0 million, a margin of 9.5%, compared to $11.0 million, a margin of 7.1%, in the same quarter last year.
Adjusted EBITDA, which excludes expenses for share-based compensation, legal settlements and loss contingencies and for non-recurring items, was $21.6 million in the third quarter of 2018, representing a margin of 14.6%. This compares to adjusted EBITDA of $25.6 million in the prior year’s third quarter, representing a margin of 16.5%. This year-over-year margin comparison primarily reflects the lower gross margin partly offset by lower operating expenses, as described above.
Finance expenses in the third quarter were $1.6 million, essentially flat compared to the same period in the prior year.
The Company reported net income attributable to controlling interest for the third quarter of 2018 of $10.5 million compared to income of $6.9 million in the same quarter in the prior year. Diluted net income per share for the third quarter was $0.31 compared to $0.19 in the prior year’s third quarter. Adjusted diluted net income per share for the third quarter was $0.31 on 34.5 million shares compared to $0.37 on 34.5 million shares in prior year third quarter.
The Company’s balance sheet as of September 30, 2018 remained strong, including cash, cash equivalents and short-term bank deposits of $85.3 million.
The Company declared a dividend of $0.15 per share for the third quarter of 2018 to be paid on December 12, 2018 to shareholders of record as of November 21, 2018. The dividend payment is subject to withholding tax of 20%.
The Company now expects 2018 revenue to be in the range of $572 million to $578 million, primarily attributable to adverse currency exchange impacts, softer than anticipated market conditions and a more competitive environment in the second half of 2018. Based on the revised revenue outlook, the Company now expects adjusted EBITDA in 2018 to be at the low end of its previously provided range of $74 million to $82 million, with moderated revenue expectations partly offset by cost-saving actions.
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 1-800-263-0877 or +1-646-828-8143 (international). The toll-free Israeli number is 1 80 921 2883. Upon dialing in, please request to join the Caesarstone Third 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 3980796. The replay will be available beginning at 11:30 a.m. ET on Wednesday, November 7, 2018 and will last through 11:59 p.m. ET on Wednesday, November 14, 2018.
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.
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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CONTACT: Investor Relations
Rodny Nacier, +1 (646) 277-1237
KEYWORD: UNITED STATES NORTH AMERICA NEW YORK MIDDLE EAST ISRAEL
INDUSTRY KEYWORD: MANUFACTURING OTHER MANUFACTURING ARCHITECTURE INTERIOR DESIGN PROFESSIONAL SERVICES BANKING FINANCE CONSTRUCTION & PROPERTY COMMERCIAL BUILDING & REAL ESTATE RESIDENTIAL BUILDING & REAL ESTATE
SOURCE: Caesarstone Ltd.
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PUB: 11/07/2018 06:30 AM/DISC: 11/07/2018 06:30 AM