Caesarstone Revenues Up in 2Q 2016

By Emerson Schwartzkopf

It was last call for Yos Shiran – at least with Wall Street stock analysts – and he offered a mostly upbeat serving last Wednesday of news on Caesarstone Ltd.’s second quarter.

Yos ShiranThe company’s outgoing CEO reported record revenue for the Israeli quartz-surfaces manufacturer, with worldwide receipts of $142.3 in April-June this year million showing a 11.6% increase from the same time in 2015. Adjusted earnings hit $39.8 million in this year’s second quarter, up from $33.5 million in last year’s second quarter.

“We are pleased to have delivered a strong quarter. Our good performance in major markets around the world reflects both the strength of our brand and our consistent execution,” Shiran said. “We have a devoted team that works hard and we believe that we will bear fruits going forward.”

Shiran, who’ll leave Caesarstone later this month, also announced that the company will continue its U.S. partnership with furniture retailer IKEA through the end of 2017 … even as he noted less-than-inspiring performance in the first half of this year. Sales with the big-box chain in 2016 actually declined from 2015, although he declined to offer specific data on the IKEA part of the business.

Shiran said that promotional efforts by the chain in the United States are slow to ramp up (something he’s said in previous earnings reports) but should increase by year’s end.

“We believe our IKEA business would accelerate for the second half of the year and will support higher growth rates in this region in comparison to the first half,” Shiran said. “We need to be a little bit patient and it will start to grow again compared to last year, of course, and then further.

We see a healthy pipeline but getting stronger, and we see IKEA coming back; and, now with the extension for additional year, we see this as a positive trend and we believe that it would be a good business for both IKEA and Caesarstone.”

Shiran said that a similar extension with IKEA Canada is anticipated to be completed soon.

The dull performance with IKEA took a toll on Caesarstone’s U.S. performance. Company sales of $59.9 million in 2Q 2016 showed improvement from the same time last year, but the 5% growth trailed behind the company’s worldwide average. Shiran predicted improvement in this year’s second-half from the company’s reorganized U.S. executive team and additions in the sales force.

In Canada, by comparison, Caesarstone recorded $24.3 million in revenue in 2Q 2016, a growth of 26.8% from last year, including growth in sales with IKEA’s Canadian stores, Shiran said. Australia, another top market for Caesarstone, came in with similar double-digit results.

“Of course, with the market growth, the competition is growing as well, but it’s not new to us and we are also competing in Canada, in Australia and Israel, everywhere, so we’re used to competition,” Shiran said. “We grew very fast (in the United States), almost four times in the last few years and we need to adjust the organization to the new scale and to make it ready for future growth.

“So, it’s a bit more complicated than Canada and Australia. In addition to that, in Canada and Australia, we are number one in terms of brand and size and it’s not the case in the States. Of course we’re striving to get there, but we still need to work hard for that.”

Shiran’s description of Caesarstone’s U.S. manufacturing plant in Richmond Hill, Ga., indicated that it’s still an improving work-in-progress, given its production costs.

“It was definitely negatively significant in Q4 last year and Q1 (this year), and I am happy to say that in Q2, we managed to control it better and we expect it to get better gradually with the time and with the people gaining more experiences and more control over the processes,” Shiran said. “We’ve succeeded to establish control over spending and process in the plant. And we’re slowly ramping it up as demand accelerates and focus on further improvement quality-wise.”

“There is huge potential. So far, we just see the negative impact, but I am confident that the positive impact will also arrive in the future.”

Shiran’s last day as Caesarstone CEO is Aug. 21. Company Chairman Yonathan Melamed will act as interim CEO; Shiran noted the board anticipates having a new CEO appointed by the end of September.

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