Caesarstone Sets Record, Still Disappoints Street
By Emerson Schwartzkopf
In the world of finance, setting a record sometimes isn’t enough, as Caesarstone (NASDAQ:CSTE) experienced today in announcing second-quarter 2015 financial performace.
The quartz-surface manufacturer pushed its revenue worldwide to a new three-month high of $127.5 million, beating last year’s April-June totals by 9.9%.
Wall Street expectations of a larger total of $134 million, however, translated into a massive one-day dip in the company’s stock price, going from $71.02 at Tuesday’s pre-announcement close to $52.57 when the market closed today — a slide of 26%.
What happened? It’s not Caesarstone’s business progress this year, which continued at a growing clip; instead, it’s more likely an unintended consequence of a strategic financial decision made three years ago. Back in July 2012, the Israeli company decided to change its functional currency from its native currency of new sheckel to U.S. dollars, making financial analysis easier.
This year’s strong U.S. dollar came back to hammer Caesarstone’s tally sheets worldwide. The currency difference didn’t affect U.S. revenues, of course, with $57.1 million in 2Q 2015 revenue offering a 19.2% year-to-year gain. Worldwide, however, the 9.9% revenue gain would’ve grown to 20.2% if revised on a constant-currency basis.
Canada, which Caesarstone CEO Yosef Shiran noted as the company’s fastest growing market of the quarter, posted a 24.4% gain from 2Q 2014 with $19.1 million in total revenue. With a constant-currency adjustment, that growth rate zooms up to 40.3%. In other international markets, the company reported 2Q revenues lower in currrent U.S. dollars but higher in in a constant-currentcy basis.
The company noted that sales in the United States, its top market, could’ve been better, and that things will change in the rest of 2015
“The United States still remains our largest market,” Shiran told market analysts in a conference call today. “We are confident the marketing potential remains very strong.
“The second quarter was very strong and also represented healthy growth, but we expected it to be a bit higher. We expect a second-half growth rate that will be stronger than what we saw in the second quarter.”
Shiran noted a few contributing factors for U.S. sales performance being less robust than expected. The overall market saw large gains in multi-family construction, which Shiran noted as “a segment that is price-sensitive and not a game that we are playing.” U.S. revenue growth rates in 2015 also pale in terms of last year’s acceleration as the company rolled out the Supernatural product line and strengthened its sales relationship with IKEA home centers.
Caesarstone’s U.S. market will get a new product boost this fall. Shiran noted the Statuario Novo color now available in Australia and Canada will be introduced stateside “around October.”
Shiran also reported that the first production line at Caesarstone’s Richmond Hill, Ga., manufacturing plant is on line, and the second line should be running this December.
Market analysts also noted Caesarstone’s jump in worldwide inventories during the past six months, from $80.2 million at the end of last December to $99.7 million on June 30 this year.
“We’re trying to not increase inventory now,” Shiran said. “We now have excess (manufacturing) capacity to allow us to plan inventory in better way, and to operate closer to the demand … and also allow us to produce the right mix of products in a better way.”
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