Caesarstone: Going Big for 2017

By Emerson Schwartzkopf

MP MENASHE, Israel – Caesarstone Ltd. plans to expand its U.S. operations and market reach in 2017 with an eye to big customers and one big new partner: Lowe’s.

The addition of the North American Big Box chain in its sales channel came as company officials presented financial data last week to Wall Street analysts in a conference call.

“We are very pleased to add Lowe’s Home Improvement as a new partner with our new Transform by Caesarstone,” said Interim CEO Yonathan Melamed. “We expect this business to gradually ramp over the course of the year and to contribute more significantly thereafter.”

Tranform, introduced in the United States at the KBIS event in Orlando last month, is a 1.3cm overlay quartz surface designed for countertop retrofits. Caesarstone officials noted that selling through the hardware giant won’t yield huge gains in 2017, however.

“We really need to build the infrastructure for this execution,” said Yair Averbuch, Caesarstone CFO. “We need to do a lot of preparation of marketing material across the whole chain, and be ready for a nice launch and execution. So I am not sure that this year is the story; I hope that it will be the story in year thereafter.”

Melamed said that overall U.S. sales of the company’s slabs last year improved near the end of the fourth quarter, and “we are pleased to begin 2017 with a better momentum in the United States, where we remain highly focused on reacceleration growth.”

Fourth-quarter 2016 sales of $55.8 million in the United States actually represented a 2.2% decline from the previous year, although Averbuch noted that “this was better than we had expected when we reported our third-quarter results.”

For all of 2016, Caesarstone recorded U.S. revenue of $226.6 million, down a nominal 0.3% from 2015. Averbuch noted the core business improved slightly, but it was offset by lower sales with retail partner IKEA. (According to a Caesarstone executive at KBIS, Transform won’t be offered through IKEA stores.)

The United States remains Caesarstone’s largest market, contributing 42% of the company’s $538.5 million in worldwide revenues last year. Other strong markets offset the slight U.S. dip, as 2016 total revenues increased 7.8% from 2015.

In its financial report last week, the company also issued guidance – its prediction for future performance – of total revenues in the $580-million to $595-million range for this year, putting it on par with 2016 results.

Some of this, Averbuch said, comes from price increases in polyester – the binding material that holds quartz surfaces together – as well as its evolving U.S. sales effort.

“With regards to marketing and sales, we are investing substantially in sales and marketing, mainly in the U.S. which is consistent with our marketing expansion strategy,” Averbuch said. “With regards to the channel mix, we are going in big boxes. We are going to grow in the commercial builder segment as well. And the growth in big boxes segment require the fabrication and installation component service.

“This, we believe, is a major competitive advantage that we have but it clearly is a lower gross margin.”

Caesarstone also anticipates more production from its Richmond Hill, Ga., plant, where “we did a lot of fundamental change, which intentionally slowed us down” in last year’s fourth quarter, Averbuch said.”

However, he also noted Caesarstone is expanding shifts at the U.S. plant to scale up production, along with dedicated onsite support from its main manufacturing facility in Israel.

“If I can judge by our performance over the last two weeks, I would say I am encouraged,” Averbuch noted. “our revenue growth for the next year is dependent upon a significant throughput improvement in Richmond-Hill as well as improve the quality rates and improved cost efficiency. So we are looking at a significant ramp-up in 2017 in Richmond-Hill relative to 2016.

“It still is not going to be similar to the Israeli plant in performance. This will take more than 2017. But I believe that as the time go by, Richmond-Hill will relatively increase the performance because Israel is kind of 100% utilization.”