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Caesarstone Reports 2019 Third Quarter Financial Results

November 6, 2019

MP MENASHE, Israel--(BUSINESS WIRE)--Nov 6, 2019--

Caesarstone Ltd. (NASDAQ: CSTE), a leading developer and manufacturer of high-quality engineered quartz surfaces, today reported financial results for its third quarter ended September 30, 2019.

Yuval Dagim, Chief Executive Officer, commented, “Our third quarter 2019 results reflect the progress we are making in our focused efforts to execute the various facets of our Global Growth Acceleration Plan, contributing to year-over-year improvement in our margins. I am encouraged by the results of the implementation of our new strategy in the U.S., resulting in 8% core growth. While many of our markets outside the U.S. continue to experience intense competition from Chinese-based manufacturers, I am confident in the steps we are taking to improve our performance and enhance our position. We will continue to implement our strategy in order to better leverage our strong brand, reignite growth, increase efficiencies and streamline processes. Moving into 2020 and beyond, our strategic initiatives along with our strong balance sheet leave us well situated to generate additional value for our shareholders.”

Ophir Yakovian, Chief Financial Officer, added, “We are pleased with the improvement in gross margin and Adjusted EBITDA in a challenging environment. The execution of our Global Growth Acceleration Plan allowed us to generate additional efficiencies throughout our organization. While we expect our ongoing initiatives to favorably impact results and our core U.S. business to remain strong, the competitive environment in most of the other regions is likely to persist in the coming quarters. That said, we remain confident that the steps we are taking through our Global Growth Acceleration Plan will contribute towards our efforts to drive improved operating performance in the long-term.”

Third Quarter 2019 Results

Revenue in the third quarter of 2019 was $142.8 million compared to $147.7 million in the prior year quarter. On a constant currency basis, third quarter revenue was lower by 1.5% year-over-year. Sales improvement in the Company’s core business in the U.S. and the continued strong momentum in the U.K. was more than offset by softer performance in Australia and Canada as well as weaker results in Ikea U.S. and in other regions.

Gross margin in the third quarter was 29.8% compared to 29.6% in the prior year quarter. Adjusted gross margin in the third quarter was 29.9% compared to 29.7% in the prior year quarter. The modest improvement in adjusted gross margin mainly reflects lower raw material costs and more favorable regional mix, partly offset by increased manufacturing unit costs due to lower fixed cost absorption resulting from lower capacity utilization, lower average selling price and foreign exchange headwinds.

Operating expenses in the third quarter were $29.7 million, or 20.8% of revenue, compared to $29.7 million, or 20.1% of revenue in the prior year quarter. Excluding legal settlements and loss contingencies, operating expenses decreased to 19.5% of revenue, compared to 20.3% in the prior year quarter mainly due to lower marketing and sales expenses combined with lower general and administrative expenses.

Operating income in the third quarter was $12.9 million compared to $14.0 million in the prior year quarter.

Adjusted EBITDA, which excludes expenses for share-based compensation, legal settlements and loss contingencies and for non-recurring items, was $22.5 million in the third quarter, representing a margin of 15.8%. This compares to adjusted EBITDA of $21.6 million, representing a margin of 14.6%, in the prior year quarter. This year-over-year margin improvement primarily reflects higher gross margin and lower operating expenses as a percentage of revenue, excluding legal settlements and loss contingencies.

Finance expenses in the third quarter were $4.1 million compared to finance expenses of $1.6 million in the prior year quarter. The difference was primarily a result of the adverse impact of foreign currencies exchange rates mainly related to the revaluation of the lease liabilities in accordance with the new lease accounting standard.

Net income attributable to controlling interest for the third quarter was $7.1 million, compared to net income of $10.5 million in the prior year quarter. Diluted net income per share for the third quarter was $0.21, compared to diluted net income per share of $0.31 in the prior year quarter. Adjusted diluted net income per share for the third quarter was $0.29 on 34.6 million shares, compared to $0.31 on 34.5 million shares in the prior year quarter.

Balance Sheet

The Company’s balance sheet as of September 30, 2019 remained strong, including cash, cash equivalents and short-term bank deposits of $116.8 million with no financial debts to banks.

Dividend

The Company’s dividend policy provides for a quarterly cash dividend in the range of $0.10 to $0.15 per share up to the lesser of 50% of reported net income attributable to controlling interest (i) on a quarterly basis or (ii) on a year-to-date basis, subject in each case to approval by its board of directors.

In order to reflect 2019 year-to-date net income attributable to controlling interest, the board of directors declared a special cash dividend of $0.15 per share for the third quarter of 2019, representing an increase from the dividend of $0.10 per share that would have been paid according to the Company’s dividend policy. The dividend will be paid on December 10, 2019 to shareholders of record as of November 20, 2019. The dividend payment is subject to withholding tax of 20%.

Global Growth Acceleration Plan

In May 2019, the Company began executing its Global Growth Acceleration Plan. The plan is designed to improve operational inefficiencies and reignite growth through a variety of projects and a better alignment of resources. To date, the Company has commenced the execution of 90% out of 30 identified projects focusing on expanding its selling efforts in key markets, improving production and supply chain efficiency, enhancing its innovative portfolio of premier product offerings, streamlining core processes and implement a digital transformation within the Company. Beyond currently identified opportunities, the Company will continue to pursue additional avenues to drive efficiencies and to accelerate growth through its multi-year Global Growth Acceleration Plan.

Outlook

For the full year 2019, the Company now expects to be at the low end of its previously announced outlook for revenue in the range of $550 million to $565 million, and adjusted EBITDA in the range of $72 million to $80 million. For the fourth quarter, the Company anticipates a higher Adjusted EBITDA margin year-over-year, mainly attributable to operational efficiencies and cost controls despite a continuation of market pressures on revenue primarily outside the U.S. and less favorable currency exchange rates.

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 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 13695291. The replay will be available beginning at 11:30 a.m. ET on Wednesday, November 6, 2019 and will last through 11:59 p.m. ET on Wednesday, November 13, 2019.

About Caesarstone

Caesarstone is a concept and lifestyle-driven company with a customer-centered approach to designing, developing, and producing high-end engineered quartz surfaces used in residential and commercial buildings. Caesarstone® products offer superior aesthetic appeal and perfected functionality through a distinct variety of colors, styles, textures, and finishes used in countertops, vanities, wall cladding, floors, and other interior surfaces. Marked by their inherent longevity characteristics such as non-porousness, scratch and stain resistance, and durability, the company’s product umbrella offers a highly desirable alternative to other surfaces. Strong commitment to service has fostered growing customer loyalty in over 40 countries where the four distinct Caesarstone product collections are available: Classico, Supernatural, Metropolitan and Concetto. For more information please visit our website: www.caesarstone.com.

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. Reconciliations of GAAP gross profit to adjusted gross profit, 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 to 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 relate to the Company’s plans, objectives and expectations for future operations, including expectations of the results of its business optimization initiative and its projected results of operations. 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 ability of the company to realign aspects of its business based on the business optimization initiative, the strength of the home renovation and construction sectors; intense competitive pressures; the outcome of silicosis and other bodily injury claims; regulatory requirements relating to hazards associated with exposure to silica dust; manufacturing of existing products and managing required changes in production; economic conditions within any of our key existing markets changes in raw material prices; fluctuations in currency exchange rates; the success of our expansion efforts in the United States; 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.

Caesarstone Ltd. and its subsidiaries

Condensed consolidated balance sheets

As of

U.S. dollars in thousands

September 30, 2019

 

December 31, 2018

(Unaudited)

 

(Audited)

ASSETS
 
CURRENT ASSETS:
 
Cash and cash equivalents and short-term bank deposits

$

116,836

 

$

93,562

 

Trade receivables, net

 

87,067

 

 

72,555

 

Other accounts receivable and prepaid expenses

 

34,338

 

 

25,495

 

Inventories

 

123,638

 

 

158,492

 

 
Total current assets

 

361,879

 

 

350,104

 

 
LONG-TERM ASSETS:
 
Severance pay fund

 

3,402

 

 

3,591

 

Other long-term receivables

 

5,327

 

 

5,435

 

Deferred tax assets, net

 

7,511

 

 

6,372

 

Long-term deposits and prepaid expenses

 

2,918

 

 

2,799

 

Right of use assets

 

73,969

 

 

-

 

Property, plant and equipment, net

 

204,553

 

 

213,338

 

Goodwill

 

34,650

 

 

35,283

 

 
Total long-term assets

 

332,330

 

 

266,818

 

 
Total assets

$

694,209

 

$

616,922

 

 
LIABILITIES AND EQUITY
 
CURRENT LIABILITIES:
 
Short-term bank credit

$

-

 

$

7,567

 

Trade payables

 

44,408

 

 

55,787

 

Related party and other loan

 

2,195

 

 

2,908

 

Short term legal settlements and loss contingencies

 

19,382

 

 

13,146

 

Accrued expenses and other liabilities

 

41,926

 

 

31,873

 

 
Total current liabilities

 

107,911

 

 

111,281

 

 
LONG-TERM LIABILITIES:
 
Long-term loan and financing leaseback from a related party

 

8,024

 

 

7,089

 

Legal settlements and loss contingencies long-term

 

24,408

 

 

26,089

 

Long-term lease liabilities

 

65,962

 

 

-

 

Accrued severance pay

 

4,423

 

 

4,695

 

Long-term warranty provision

 

1,376

 

 

1,267

 

 
Total long-term liabilities

 

104,193

 

 

39,140

 

 
 
EQUITY:
 
Ordinary shares

 

371

 

 

371

 

Treasury shares - at cost

 

(39,430

)

 

(39,430

)

Additional paid-in capital

 

156,446

 

 

153,593

 

Capital fund related to non-controlling interest

 

(5,587

)

 

(5,587

)

Accumulated other comprehensive loss

 

(3,563

)

 

(3,177

)

Retained earnings

 

373,868

 

 

360,731

 

 
Total equity

 

482,105

 

 

466,501

 

 
Total liabilities and equity

$

694,209

 

$

616,922

 

 

Caesarstone Ltd. and its subsidiaries

Condensed consolidated statements of income

 

 

 

 

Three months ended

September 30,

 

Nine months ended

September 30,

U.S. dollars in thousands (except per share data)

 

 

 

2019

 

2018

 

2019

 

2018

 

 

 

(Unaudited)

 

(Unaudited)

 
Revenues

$

142,839

$

147,689

 

$

412,107

$

432,990

 

Cost of revenues

 

100,215

 

103,918

 

 

298,451

 

306,646

 

 
Gross profit

 

42,624

 

43,771

 

 

113,656

 

126,344

 

 
Operating expenses:
Research and development

 

962

 

863

 

 

3,184

 

2,504

 

Marketing and selling

 

17,419

 

18,584

 

 

50,072

 

57,193

 

General and administrative

 

9,451

 

10,466

 

 

31,056

 

32,914

 

Legal settlements and loss contingencies, net

 

1,853

 

(172

)

 

5,158

 

5,001

 

 
Total operating expenses

 

29,685

 

29,741

 

 

89,470

 

97,612

 

 
Operating income

 

12,939

 

14,030

 

 

24,186

 

28,732

 

Finance expenses, net

 

4,053

 

1,551

 

 

6,200

 

1,542

 

 
Income before taxes on income

 

8,886

 

12,479

 

 

17,986

 

27,190

 

Taxes on income

 

1,758

 

1,892

 

 

4,849

 

4,106

 
Net income

$

7,128

$

10,587

 

$

13,137

$

23,084

 
Net income attributable to non-controlling interest

 

-

 

(51

)

 

-

 

(45

)

Net income attributable to controlling interest

$

7,128

$

10,536

 

$

13,137

$

23,039

 

Basic net income per ordinary share (*)

$

0.21

$

0.31

 

$

0.38

$

0.67

Diluted net income per ordinary share (*)

$

0.21

$

0.31

 

$

0.38

$

0.67

Weighted average number of ordinary shares used in computing basic income per ordinary share

34,390,244

 

 

34,362,673

 

 

 

34,379,402

 

 

34,355,838

 

Weighted average number of ordinary shares used in computing diluted income per ordinary share

 

34,442,592

 

34,394,808

 

 

34,438,797

 

34,397,572

 

(*) The numerator for the calculation of net income per share for the three and nine months ended September 30, 2018 has been increased by approximately $0.1 million and $0.1 million, respectively, to reflect the adjustment to redemption value associated with the redeemable non-controlling interest.

Caesarstone Ltd. and its subsidiaries

Selected Condensed consolidated statements of cash flows

Nine months ended

September 30,

U.S. dollars in thousands

2019

 

2018

(Unaudited)

Cash flows from operating activities:
 
Net income

$

13,137

 

$

23,084

 

Adjustments required to reconcile net income to net cash provided by operating activities:
Depreciation and amortization

 

21,617

 

 

21,538

 

Share-based compensation expense

 

2,852

 

 

933

 

Accrued severance pay, net

 

(78

)

 

(475

)

Changes in deferred tax, net

 

(1,359

)

 

(3,061

)

Capital loss

 

342

 

 

73

 

Legal settlemnets and loss contingencies, net

 

5,158

 

 

5,001

 

Increase in trade receivables

 

(14,930

)

 

(7,855

)

Increase in other accounts receivable and prepaid expenses

 

(7,787

)

 

(8,930

)

Decrerase (increase) in inventories

 

33,466

 

 

(29,227

)

Decrease in trade payables

 

(9,292

)

 

(16,234

)

Increase in warranty provision

 

97

 

 

212

 

Changes in right of use assets

 

(73,969

)

 

-

 

Changes in lease liabilities

 

77,318

 

 

-

 

Increase (decrease) in accrued expenses and other liabilities including related party

 

1,202

 

 

(6,571

)

 
Net cash provided by (used in) operating activities

 

47,774

 

 

(21,512

)

 
 
Cash flows from investing activities:
 
Purchase of property, plant and equipment

 

(15,770

)

 

(13,702

)

Proceeds from sale of property, plant and equipment

 

52

 

 

6

 

Increase in long term deposits

 

(200

)

 

(224

)

 
Net cash used in investing activities

 

(15,918

)

 

(13,920

)

 
 
Cash flows from financing activities:
 
Dividend paid

 

-

 

 

(15,114

)

Dividend paid by subsidiary to non-controlling interest

 

-

 

 

(559

)

Changes in short-term bank credit and loans, net

 

(7,771

)

 

(1,219

)

Repayment of a financing leaseback related to Bar-Lev transaction

 

(891

)

 

(877

)

 
Net cash used in financing activities

 

(8,662

)

 

(17,769

)

 
 
Effect of exchange rate differences on cash and cash equivalents

 

80

 

 

(215

)

 
Incresase (decrease) in cash and cash equivalents and short-term bank deposits

 

23,274

 

 

(53,416

)

Cash and cash equivalents and short-term bank deposits at beginning of the period

 

93,562

 

 

138,707

 

 
Cash and cash equivalents and short-term bank deposits at end of the period

$

116,836

 

$

85,291

 

 
Non - cash investing:
Changes in trade payables balances related to purchase of fixed assets

 

(2,463

)

 

(31

)

 

Caesarstone Ltd. and its subsidiaries

Three months ended

September 30,

 

Nine months ended

September 30,

U.S. dollars in thousands

2019

 

2018

 

2019

 

2018

(Unaudited)

 

(Unaudited)

Reconciliation of Gross profit to Adjusted Gross profit:
Gross profit

$

42,624

$

43,771

$

113,656

 

$

126,344

Share-based compensation expense (a)

 

136

$

61

 

274

 

$

78

Non-recurring import related income

 

-

 

-

 

(1,501

)

 

-

Other non-recurring items (b)

 

-

 

-

 

1,367

 

 

-

Adjusted Gross profit (Non-GAAP)

$

42,760

$

43,832

$

113,796

 

$

126,422

(a)Share-based compensation includes expenses related to stock options and restricted stock units granted to employees and directors of the Company.
(b)Nine months ended September 30, 2019 figures include one time amortization of machinnery equipment with no future alternative use.

Caesarstone Ltd. and its subsidiaries

Three months ended

September 30,

 

Nine months ended

September 30,

U.S. dollars in thousands

2019

 

2018

 

2019

 

2018

(Unaudited)

 

(Unaudited)

Reconciliation of Net Income to Adjusted EBITDA:
Net income

$

7,128

$

10,587

 

$

13,137

 

$

23,084

Finance expenses, net

 

4,053

 

1,551

 

 

6,200

 

 

1,542

Taxes on income

 

1,758

 

1,892

 

 

4,849

 

 

4,106

Depreciation and amortization (*)

 

6,755

 

7,156

 

 

21,617

 

 

21,538

Legal settlements and loss contingencies, net (a)

 

1,853

 

(172

)

 

5,158

 

 

5,001

Share-based compensation expense (b)

 

968

 

541

 

 

2,852

 

 

933

Non-recurring import related income

 

-

 

-

 

 

(1,501

)

 

-

Other non-recurring items (c)

 

-

 

-

 

 

993

 

 

1,157

 
Adjusted EBITDA (Non-GAAP)

$

22,515

$

21,555

 

$

53,305

 

$

57,361

(a)Consists of legal settlements expenses and loss contingencies, net, related to product liability claims and other adjustments to on-going legal claims, including related legal fees.
(b)Share-based compensation includes expenses related to stock options and restricted stock units granted to employees and directors of the Company.
(c)Relates to non-recurring expenses related to North American region establishment, one time charge related to reduction in headcount, and in 2018 also relocation expenses of Caesarstone USA headquarters (Company's subsidiary).
(*)Nine months ended September 30, 2019 figures include one time amortization of machinnery equipment with no future alternative use.

Caesarstone Ltd. and its subsidiaries

Three months ended

September 30,

 

Nine months ended

September 30,

U.S. dollars in thousands (except per share data)

2019

 

2018

 

2019

 

2018

(Unaudited)

 

(Unaudited)

Reconciliation of net income attributable to controlling interest to adjusted net income attributable to controlling interest:
Net income attributable to controlling interest

$

7,128

$

10,536

 

$

13,137

 

$

23,039

Legal settlements and loss contingencies, net (a)

 

1,853

 

(172

)

 

5,158

 

 

5,001

Share-based compensation expense (b)

 

968

 

541

 

 

2,852

 

 

933

Non cash revaluation of lease liabilities (c)

 

1,123

 

-

 

 

3,349

 

 

-

Non-recurring import related income

 

-

 

-

 

 

(1,501

)

 

-

Other non-recurring items (d)

 

-

 

-

 

 

2,193

 

 

1,157

Total adjustments

 

3,944

 

369

 

 

12,051

 

 

7,091

Less tax on non-tax adjustments (e)

 

1,063

 

59

 

 

3,249

 

 

1,071

Total adjustments after tax

 

2,881

 

310

 

 

8,802

 

 

6,020

 
Adjusted net income attributable to controlling interest (Non-GAAP)

$

10,009

$

10,846

 

$

21,939

 

$

29,059

Adjusted diluted EPS (f)

$

0.29

$

0.31

 

$

0.64

 

$

0.84

(a)

Consists of legal settlements expenses and loss contingencies, net, related to product liability claims and other adjustments to on-going legal claims, including related legal fees.

(b)

Share-based compensation includes expenses related to stock options and restricted stock units granted to employees and directors of the Company.

(c)

Exchange rate diffrences deriving from revaluation of lease contracts in accoradance with FASB ASC 842.

(d)

Relates to non-recurring expenses related to North American region establishment, one time charge related to reduction in headcount, one time amortization of machinnery equipment with no future alternative use, and in 2018 also relocation expenses of Caesarstone USA headquarters (Company's subsidiary).

(e)

Tax adjustments for the three and nine months ended September 30, 2019 and 2018, based on the effective tax rates for these periods.

(f)

In calculating adjusted diluted (Non-GAAP) EPS, the diluted weighted average number of shares outstanding excludes the effects of share-based compensation expense in accordance with FASB ASC 718.

Caesarstone Ltd. and its subsidiaries

Geographic breakdown of revenues by region

Three months ended

September 30,

 

Nine months ended

September 30,

U.S. dollars in thousands

2019

 

2018

 

2019

 

2018

(Unaudited)

 

(Unaudited)

 
USA (*)

$

64,805

$

61,933

$

185,812

$

179,041

Australia (incl. New Zealand)

 

28,642

 

33,968

 

82,150

 

97,603

Canada (*)

 

21,881

 

25,140

 

65,400

 

75,844

Israel

 

10,683

 

9,709

 

30,190

 

30,625

Europe

 

10,149

 

9,170

 

28,936

 

25,735

Rest of World

 

6,679

 

7,769

 

19,619

 

24,142

$

142,839

$

147,689

$

412,107

$

432,990

(*) Total revenues for the three and nine months ended September 30, 2019 and 2018 in the North American region were $86,686 and $251,212, and $87,073 and $254,885 respectively.

View source version on businesswire.com:https://www.businesswire.com/news/home/20191106005091/en/

CONTACT: Public Relations:

Caesarstone - Maya Lustig

Maya.Lustig@caesarstone.com

+ 972 54 677 8100Investor Relations:

ICR, Inc. - Rodny Nacier

CSTE@icrinc.com

+1 646 277-1237

KEYWORD: UNITED STATES NORTH AMERICA ISRAEL MIDDLE EAST NEW YORK

INDUSTRY KEYWORD: LUXURY COMMERCIAL BUILDING & REAL ESTATE CONSTRUCTION & PROPERTY SPECIALTY INTERIOR DESIGN OTHER NATURAL RESOURCES MINING/MINERALS RETAIL NATURAL RESOURCES RESIDENTIAL BUILDING & REAL ESTATE

SOURCE: Caesarstone Ltd.

Copyright Business Wire 2019.

PUB: 11/06/2019 07:00 AM/DISC: 11/06/2019 07:01 AM

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