Caesarstone Cuts Losses in 2Q 2024
MP MENACHE, Israel – Caesarstone Ltd.’s rolling restructuring may be producing improved finances, but the surfacing producer’s second-quarter results also reveal even more challenges.
The company reported second-quarter worldwide revenue of $119.4 million, down 16.3% when compared to the same time last year. In the United States – Caesarstone’s largest market – totaled $59.8 million, or 13.8% behind second-quarter 2022.
However, the company’s gross margin came in at 22.9% this April-June, compared to 8.3% for the same period last year. Caesarstone’s net cash position on June 30 totaled $97.7 million, up from $83.5 million at the end of last year.
“Our improved gross margin in the second quarter compared to last year demonstrates the positive impact of our strategic restructuring actions” said Yos Shiran, Caesarstone CEO. “Our efforts to optimize our production footprint and strengthen relationships with our manufacturing partners are yielding tangible benefits.
“We continue to make progress on our strategic transformation, focusing on cost efficiencies, strengthening our sales and marketing efforts, and investing in R&D and innovation.”
Much of the positive news for 2024 came with Caesarstone’s closure last spring of one of its production facilities in Israel. Caesarstone also shuttered its U.S. factory in Richmond Hill, Ga., early this year as the company adds more third-party manufacturers to supply surfaces
In a conference call on Aug. 7 with Wall Street financial analysts, Shiran noted that the closures will save the company approximately $20 million this year and $30 million in 2025 as outside companies produce branded products.
“We are now sourcing over 60% of our production from our global network of manufacturing partners, driving margin improvements and allowing us to better align production to demand,” Shiran noted.
Caesarstone also has a sale pending of 69 undeveloped acres for approximately $10 million at the Richmond Hill site, but is still looking to find a return on the 51 acres developed for the quartz-surface plant.
The company upped its backing of Lioli Ceramica, the India-based company producing its branded porcelain products, by buying out one partner and increasing its ownership stake to 81%.
“Porcelain is a very important part of our growth plans. And our plant in India is a good plant, and we believe we can get a lot out of it,” Shiran said. “So far, we haven’t seen a lot, but we believe with the initiatives that we are taking during this year, and also continue next year, we will start to see –profits from this site and sales.”
Shiran noted that the company overall is facing challenges from global economics, including a slowdown in residential and renovation construction, Caesarstone, however, also faces several other challenges in the coming months.
Company CFO Nahum Trost noted that sea-freight cots will add “roughly $3 million to $4 million per quarter” to expenses through the end of the year.
Caesarstone also faced another shipping problem earlier this year when Turkey stopped the export of goods to Israel due to the conflict in Gaza. Trost said the action increased costs at the company’s remaining Israeli production facilities, specifically for quartz and polyester.
“While we have successfully acquired alternative sources for imports, the economic terms are less favorable,” he added.
Trost said the added costs would lead to a “mid-single-digit million-dollar” loss in the company’s final 2024 adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization, mainly due to increased costs in shipping and materials.
Trost also addressed legal challenges faced by Caesarstone in silicosis-related legal actions.
“As of June 30, 2024, we are named as co-defendants among other manufacturers, distributors and fabricators in 43 individual lawsuits filed by fabricators or their employees,” Trost said. “Plaintiffs allege they contracted illnesses, including silicosis, during the cutting and polishing of our products.”
(Trost spoke early on Aug. 7, noting one case was close to a verdict. Hours later, a California jury awarded a fabrication worker $50-million-plus in damages due to silicosis, with Caesarstone tentatively responsible for 15%.)
“Such a verdict on its own would not have a material adverse impact on our financial position or results of operation,” he said. “The remaining 42 outstanding claims are at an early stage. While we plan to vigorously defend all these claims, we are unable to provide an estimate of their potential exposure, if any, at this time.”
