Caesarstone: Changes are Working

MP MENASHE, Israel – Caesarstone sees its strategy changes as paying dividends … literally.

Company CEO Raanan Zilberman told Wall Street analysts on Feb. 7 that the Israeli quartz-surface manufacturer will pay a special 29¢-per-share dividend to stockholders next month. The company also plans to offer a regular 10¢ to 15¢ quarterly dividend, contingent on financial performance, in the future.

The distribution comes as the company reported worldwide revenue growth of 9.2% last year, fueled mainly by U.S. and Canada sales. Net income declined, however, due to increases in sales costs and the loss of a supplier arbitration case in Israel.

Zilberman noted the company recorded $588 million in sales last year; 41% of that business came from the United States, where overall sales grew 10% from 2016. Canada sales grew 14% in 2017 and accounted for 16% of Caesarstone’s total revenues.

The company’s net income of $27.5 million for 2017, however, represented an almost 64% drop from 2016. Caesarstone noted that some of the decline came from increased spending on U.S. marketing and sales, along with a change to direct distribution of product early in the United Kingdom early last year.

The largest one-time effect on Caesarstone 2017 profits, however, came with an approximately $11.3 arbitration judgement for Kibbutz Kfar Giladi in Israel over a contract for quartz aggregate. (The kibbutz intitially sought much-higher damages and is appealing for $3.7 million more than the award.) The case hinged on a claimed termination of contract by Caesarstone under certain terms, including quartz quality.

The proceedings gained notoriety in Israel when Forbes Israel alleged last November that Kfar Giladi gained information surreptitiously from a Caesarstone employee using agents of Black Cube, a service formed by former members of the intelligence unit of the Israeli Defense Forces. (Black Cube itself came under international scrutiny late last year for reportedly spying on actress Rose McGowan and gathering other information on behalf of disgraced movie producer Harvey Weinstein.)

On production issues, Zilberman noted that output continues to improve at the company’s U.S. plant in Richmond Hill, Ga., following management and throughput changes last fall. However, Caesarstone then had to address slowing production in Israel as the company focused on making more-complex surfaces with its own plant and outsourcing less-production-intense surfaces.

“I can say that we definitely rocked the boat,” Zilberman told industry analysts. “We hired an external company to work with the team on Kaizen (management) events. We are putting a lot of effort. We are changing the incentive system in the plants.

“We are focusing on a daily base on the issues, but it’s those kinds of things that you don’t solve overnight.”

Zilberman also noted the outsourcing of “commodities” surfaces is “not a major thing; the majority of what we do, we do on our production line and with our full control.”