Caesarstone: Positioning for 2024
MP MENASHE, Israel – With a tumultuous 2023 behind it, Caesarstone is planning on a better 2024 – if not right away.
Some impact from last year will linger through the beginning of 2024, company officials noted recently, but there’s also good cash flow and the prospects of major savings in corporate spending for the next two years for the surfaces producer.
The cash and savings, however, come from a major restructuring plan that included the closing of two factories, reduction of an overstuffed product inventory, and increased outsourcing of manufacturing to private-label suppliers.
““In 2023, we implemented a new strategic plan and initiated significant restructuring actions which allowed us to achieve our primary financial objective for 2023, to generate positive cash flow from operations and end the year with a solid net cash position,” said Yos Shiran, company CEO, in announcing year-end financial results on Feb. 21.
“We continue to position Caesarstone’s production footprint advantageously around the world and our teams have executed well to generate meaningful cost savings from our global restructuring actions.”
Caesarstone reported revenue of $562.2 million for 2023, down from $690.8 million in 2022. Operating expenses also declined to $180 million last year, compared to $221.9 million the year before.
The revenue decline came “mainly due to lower volume, driven by challenging market conditions across our global footprint,” noted Nahum Trost, Caesarstone CFO, in a conference call with Wall Street financial analysts on Feb. 21.
The $271.6 million in revenues last year from the United States – where Caesarstone gets roughly half its worldwide sales – showed a 20.6% decrease from 2022. Company officials noted problems with high interest rates impacting remodeling/renovation sales, although revenues on commercial work and from big-box stores showed strength.
Australia, Caesarstone’s second=largest market, only saw an 8.7% decline from the previous year with 2023’s $106.2 million in revenue. Company officials remained optimistic about the Australian market, despite the company’s health officials mandating a stop to using engineered stone by July 1 this year.
“We have been proactive in our approach to supply our Australian market with alternative materials that will comply with the new regulations,” Shiran told the financial analysts. “By the end of the second quarter of 2024, we will have a full collection of alternative products, which we believe will allow us to retain our position in the Australian market.”
“From July, we don’t know now exactly what will be the reaction in the market. What we are seeing is a very positive sign for the products that we introduced. And we will have to wait and see. There are still things that needs to be cleared by the Australian government.”
Trost added that the Australian decision to ban engineered stone would “cause a temporary air pocket in sales as we introduce alternative materials that comply with the regulations during the first half of 2024.”
Caesarstone also enters 2024 with an emphasis on outside-the=company manufacturing.
“We are now sourcing over 40% of our products from production business partners,” Shiran said. :We expect that percentage to trend up further as we move through 2024.”
The move to private-label production comes after Caesarstone shuttered one of its plants in Israel and the U.S. factory in Richmond Hill, Ga.. Shiran noted that the closings enabled the company to reduce its global workforce by approximately 14%, with annual costs savings of approximately $20 million this year and $30 million next year.
Caesarstone also bolstered its cash flow, raising its net cash position from $28.2 million at the end of 2022 to $83.5 million at the end of last year. Cash flow from operations totaled $66.5 million last year, Trost said, mainly driven by inventory reductions.
“We still have room for improvement in inventory days,” Trost added. “We reduced inventory days from the beginning of the year that — it was around 170 days — to 120 days at the end of 2023.”
Conversely, however, selling off the excess inventory from the U.S. plant won’t result in major cuts with expenses. Trost noted that the Richmond Hill excess inventory reflects material targeted to be sold at higher prices.
“In 2024, we will digest and eat the more expensive inventory that came from Richmond Hill, especially in the first half of 2024,” he said. “The savings coming from Richmond Hill will be reflected in full only in 2025.”
Caesarstone Ltd. (NASDAQ: CSTE) offers premium surfaces, including engineered stene and porcelain panel worldwide.
