Caesarstone Posts $46.9M Operating Loss in 2Q ‘23

MP MENASHE, Israel – Weaker U.S. revenues and several one-time write-offs led to a significant second-quarter loss for Caesarstone Ltd.

The surfaces producer declared a $46.9 million operating loss for the second quarter as the company dealt with a softer remodeling/renovation market and took several major financial housecleaning measures.

Caesarstone also took steps in the second quarter to improve its cash position as it continues restructuring company operations.

“We are on track to generate a full year of positive cash flow from operations, and we expect to significantly improve our profitability as the year progresses,” said company CEO Yos Shiran. “We will continue to execute our strategy to create a more agile, innovative, and profitable company as we work to grow our revenues and deliver solid returns for our shareholders in the future.

The $143.6 million in Caesarstone’s worldwide company revenues during the second quarter is 20.3% behind the same period last year. The company’s largest market, the United States, brought in $69.4 million, a 25.4% year-on-year decrease, with Canada’s $20.4 million showing a 19.4% drop.

Nahun Trost, Caesarstone CFO, cited two factors in this year’s weaker second quarter.

“One is the impact of the challenging prior year comparisons during which we realized a number of price increases in a period of strong market activity,” Trost told Wall Street analysts during the company’s earnings call on Aug. 9. “The other factor is the impact of the residential sales activity which slowed down commencing in the second half of 2022. The result of that slowdown is now more pronounced in our results.

“Therefore, second quarter revenues were impacted by softer global market conditions and the competitive landscape of our products. Market pressure was more severe in the residential renovation and remodeling channels in North America and with destocking activity at many third-party distributors.”

However, Trost added that, in the United States, “higher sales with big-box (retailer) customers and better performance in our commercial business were positive for the quarter.”

For the first half of 2023, company worldwide revenues of $294.3 million trail the same time last year by 16.1%. The U.S. portion of 2023 first-half revenues, at $145.4 million, lags behind last year by 18.4%.

The majority of this year’s second-quarter operating loss came with a collection of one-time charge-offs and short-term changes. The largest segment came with the closing in May of the Sdot-Yam, Israel, quartz-surface factory with $23.6 million in associated costs. Most of that involved write-offs of long-term property leases.

Caesarstone also incurred higher temporary costs in formulating a new materials mix to reduce silica content for surfaces heading to Australia.

“We anticipate change in the regulation in Australia, and we had to change the combination of the raw materials of the product,” Shiran said. “And this is a very expensive process to transform all the Australian collection.

“We don’t know yet what will be the Australian decision; so, in a way, it is something we are doing to our best estimation. We have decided to take this step and incur the costs but be in a better position for future development in Australia.”

Caesarstone also took another major step during the second quarter to reduce product inventory, which totaled $232.2 million at the end of last year. The company, which sliced inventory to $211.1 million in this year’s first quarter, cut stockpile value by a further 18% to just less than $173 millon.

Company officials noted that Caesarstone wrote off some inventory value and also slowed production of some surfaces.

“We are suffering for a long period of time because of the high inventories level,” Shiran said. “These were produced during last year with very high cost of raw-material prices and shipping prices.”

Trost added that inventories “came down nicely during the first half of the year, from the starting point of almost 180s days to the current level of 120 days. We expect to continue and reduce the days of inventory as the year progresses.”

Even with the large operating loss, Caesarstone managed to increase cash flow and improve its cash position from $28.2 million at the end of last year to $49 million in June. Trost added the company paid down lines of credit from Israeli banks and ended the second quarter with full credit-line availability.

Shiran said that Caesarstone will continue to improve its financial position with its restructuring plan, which includes investment in sales and marketing, along with shifting “an increasing mix of production to our strategic network of third-party manufacturers in the Far East.”

Shiran added that, “separately, in our core course products, we are investing significantly in our R&D efforts to create an exciting array of innovative collections in the second half of 2023, to be launched next year.

“Looking ahead, we are on track to improve the financial position including our cash flow, and we expect to significantly improve our profitability in Q3 and Q4 gradually.”