August 3, 2016

Caesarstone Reports Record Quarter Results

  • Second quarter Revenue grew 11.6% to a new record of $142.3 million; up 13.4% on a Constant Currency Basis
  • Second Quarter diluted EPS grew by 12.3% to $0.73
  • Reiterates Full-Year Guidance for Revenue and Adjusted EBITDA

MP MENASHE, Israel--(BUSINESS WIRE)-- Caesarstone Ltd. (NASDAQ:CSTE), a manufacturer of high quality engineered quartz surfaces, today reported financial results for its second quarter ended June 30, 2016.

Revenue in the second quarter of 2016 increased by 11.6% to a new record of $142.3 million compared to $127.5 million in the same quarter of the prior year. On a constant currency basis, second quarter revenue growth was 13.4%. Growth in revenue was driven primarily by continued increases in Canada and Australia sales, which were up 26.8% and 24.1%, respectively. On a constant currency basis, Canada and Australia revenue grew by 33.1% and 29.5%, respectively. Growth in the United States was 5.0% in the second quarter.

Yosef Shiran, Chief Executive Officer, commented, "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. In the U.S., we have worked hard and implemented various changes to deepen our capabilities and to support the execution of our go to market strategy. We expect to leverage our global strength to achieve our full-year plan while we successfully position our US business for accelerated growth in 2017 and beyond."

Gross margin in the second quarter was 42.1% compared to 41.3% in the same period in the prior year. The increase was predominantly driven by favorable product mix, economies of scale and, to a lesser extent, lower raw material costs and lower manufacturing costs in Israel. The increase was partially offset by inefficiencies related to the U.S. manufacturing facility and negative exchange rate fluctuations.

Operating expenses in the second quarter were $28.7 million, or 20.2% of revenues. This compares to the prior year second quarter level of $24.3 million, or 19.1% of revenues. The increase in expenses was primarily due to increased marketing and sales capabilities, particularly in the United States, as well as legal settlements and loss contingency expenses that were not incurred in the prior year's second quarter.

Operating income in the second quarter was $31.3 million, a margin of 22.0%, compared to $28.3 million, an operating margin of 22.2%, in the second quarter of 2015.

Adjusted EBITDA, which excludes share-based compensation and legal settlements and loss contingencies expenses, reached a record of $39.8 million in the second quarter of 2016, a margin of 27.9%. This compares to adjusted EBITDA of $33.5 million in the prior year's second quarter, a margin of 26.3%. This year-over-year margin improvement reflects the improved gross margin mentioned above.

Finance expense in the second quarter was $1.4 million compared to $0.4 million during the same period in the prior year. The change was primarily due to $0.5 million net losses related to currency exchange rates fluctuations in the second quarter of 2016 compared with net gains of $0.4 million in the second quarter of 2015.

The Company reported net income attributable to controlling interest for the second quarter of 2016 of $25.4 million compared to $22.9 million in the same quarter in the prior year. Adjusted diluted net income per share for the second quarter was $0.73 on 34.9 million shares as compared to last year's second quarter result of $0.65 on 35.5 million shares. This growth mainly reflects operating improvements with a minor beneficial impact of the Company's share repurchases over the first half of 2016. The Company repurchased 494,776 shares in the second quarter for a total of $18.0 million.

The Company's balance sheet as of June 30, 2016 included cash, cash equivalents and short-term bank deposits of $55.7 million.

Guidance

The Company today reiterated its full-year 2016 guidance for revenue of $550 million to $565 million and for full-year adjusted EBITDA of $138 million to $145 million.

CEO Update

The Company expects that a new CEO will be appointed by the end of September 2016. As the Company published on May 23, 2016, Yos Shiran's last day in office is August 21, 2016. The Company's Chairman of the Board, Yonathan Melamed, will act as an interim CEO for the period before a new CEO is in office.

Conference Call Details

Yosef Shiran, the Company's Chief Executive Officer, and Yair Averbuch, the Company's Chief Financial Officer, will host a conference call today, August 3, 2016, at 8:30 a.m. ET to discuss the results of the second quarter ended June 30, 2016, followed by a question and answer session for the investment community. A live webcast of the call can be accessed at ir.caesarstone.com. To access the call, dial toll-free 1-888-481-2877 or +1-719-325-2315 (international). The toll-free Israeli number is 1 80 924 5906. The pass code is 487277.

To listen to a telephonic replay of the conference call, dial toll-free 1-877-870-5176 or +1-858-384-5517 (international) and enter pass code 487277. The replay will be available beginning at 11:30 a.m. ET on Wednesday, August 3, 2016 and will last through 11:59 p.m. ET August 17, 2016.

About Caesarstone

Caesarstone manufactures high quality engineered quartz surfaces, which are used in both residential and commercial buildings as countertops, vanities, wall cladding, floors and other interior surfaces. The wide variety of colors, styles, designs and textures of Caesarstone® products, along with Caesarstone's inherent characteristics such as hardness, non-porous, scratch and stain resistance and durability, provide consumers with excellent surfaces for their internal spaces which are highly competitive to granite, manufactured solid surfaces and laminate, as well as to other engineered quartz surfaces. Caesarstone's four collections of products — Classico, Supernatural, Motivo, and Concetto — are available in over 50 countries around the world. For more information about the Company, please visit our website www.caesarstone.com. (CSTE-E)

Non-GAAP Financial Measures

The non-GAAP measures presented by the Company should be considered in addition to, and not as a substitute for, comparable GAAP measures. A reconciliation of GAAP net income attributable to controlling interest to adjusted net income attributable to controlling interest and net income to Adjusted EBITDA are provided in the schedules within this release. The Company provides these non-GAAP financial measures because it believes that they present a better measure of the Company's core business and management uses the non-GAAP measures internally to evaluate the Company's ongoing performance. Accordingly, the Company believes that they are useful to investors in enhancing an understanding of the Company's operating performance.

Forward-Looking Statements

Information provided in this press release may contain statements relating to current expectations, estimates, forecasts and projections about future events that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally relate to the Company's plans, objectives and expectations for future operations, including its projected results of operations and the expected timing of expanding its manufacturing facilities. These forward-looking statements are based upon management's current estimates and projections of future results or trends. Actual results may differ materially from those projected as a result of certain risks and uncertainties. These factors include, but are not limited to: the strength of the home renovation and construction sectors; economic conditions within any of our key existing markets; actions by our competitors; changes in raw material prices, particularly polymer resins and pigments; fluctuations in currency exchange rates; the success of our expansion efforts in the United States; the outcome of silicosis claims and the claim by our former quartz processor; unpredictability of seasonal fluctuations in revenues; delays in manufacturing if our suppliers are unable to supply raw materials; and other factors discussed under the heading "Risk Factors" in our most recent annual report on Form 20-F and other documents filed with the Securities and Exchange Commission. These forward-looking statements are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

Caesarstone Sdot-Yam Ltd. and its subsidiaries
Condensed consolidated balance sheets
     
As of
U.S. dollars in thousands

  June 30, 2016  

December 31, 2015
(Unaudited) (Audited)
ASSETS
 
CURRENT ASSETS:
Cash and cash equivalents and short-term bank deposits $ 55,684 $ 62,807
Trade receivables, net 72,550 59,185
Other accounts receivable and prepaid expenses 37,302 32,230
Inventories   103,854     95,479  
 
Total current assets   269,390     249,701  
 
LONG-TERM ASSETS:
Severance pay fund 3,342 3,296
Other receivables long-term   8,623     8,603  
 
Total long-term assets   11,965     11,899  
 
PROPERTY, PLANT AND EQUIPMENT, NET   223,136     225,438  
 
OTHER ASSETS   5,707     6,883  
 
GOODWILL   36,196     35,821  
 
Total assets $ 546,394   $ 529,742  
 
LIABILITIES AND EQUITY
 
CURRENT LIABILITIES:
 
Short-term bank credit $ 6,123 $ 3,241
Trade payables 45,128 46,382
Related party and other loan 3,240 3,251
Accrued expenses and other liabilities   30,113     27,986  
 
Total current liabilities   84,604     80,860  
 
LONG-TERM LIABILITIES:
 
Long-term loan and financing leaseback from a related party 8,337 8,472
Legal settlements and loss contingencies long-term 12,481 11,190
Accrued severance pay 4,286 4,309
Long-term warranty provision 922 934
Deferred tax liabilities, net 14,314 14,767
Share-based payment   22     148  
 
Total long-term liabilities   40,361     39,820  
 
REDEEMABLE NON-CONTROLLING INTEREST   10,694     8,841  
 
 
EQUITY:
Ordinary shares 370 370
Treasury shares - at cost (29,768 ) -
Additional paid-in capital 144,583 142,765
Accumulated other comprehensive loss (612 ) (1,892 )
Retained earnings   296,162     258,978  
 
Total equity   410,735     400,221  
 
Total liabilities and equity $ 546,394   $ 529,742  
 
 
Caesarstone Sdot-Yam Ltd. and its subsidiaries
Condensed consolidated statements of income
    Three months ended   Six months ended
June 30,   June 30,
U.S. dollars in thousands (except per share data) 2016   2015 2016   2015
(Unaudited) (Unaudited) (Unaudited)

(Unaudited)

 
Revenues $ 142,348 $ 127,527 $ 259,262 $ 235,338
Cost of revenues   82,374     74,921     156,670     137,418  
 
Gross profit   59,974     52,606     102,592     97,920  
 
Operating expenses:
Research and development 825 721 1,649 1,429
Marketing and selling 16,834 14,796 33,808 30,358
General and administrative 10,029 8,809 19,881 17,108
Legal settlements and loss contingencies, net   1,000     -     1,733     -  
 
Total operating expenses   28,688     24,326     57,071     48,895  
 
Operating income 31,286 28,280 45,521 49,025
Finance expenses, net   1,442     399     1,198     2,292  
 
Income before taxes on income 29,844 27,881 44,323 46,733
Taxes on income   3,560     4,616     5,930     7,087  
 
Net income $ 26,284   $ 23,265   $ 38,393   $ 39,646  
 
Net income attributable to non-controlling interest   (875 )   (376 )   (1,209 )   (397 )
Net income attributable to controlling interest $ 25,409   $ 22,889   $ 37,184   $ 39,249  
Basic net income per ordinary share $ 0.73   $ 0.65   $ 1.06   $ 1.11  
Diluted net income per ordinary share $ 0.73   $ 0.65   $ 1.06   $ 1.11  
Weighted average number of ordinary shares used in computing basic income per ordinary share   34,811,600     35,271,094     35,012,141     35,209,290  
Weighted average number of ordinary shares used in computing diluted income per ordinary share   34,901,415     35,462,407     35,120,375     35,463,806  
 
 
Caesarstone Sdot-Yam Ltd. and its subsidiaries
Selected Condensed consolidated statements of cash flows (Unaudited)
     
Six months ended June 30,
U.S. dollars in thousands 2016 2015
 

Cash flows from operating activities:

 
Net income $ 38,393 $ 39,646
Adjustments required to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 13,969 9,598
Share-based compensation expense 1,547 (137 )
Accrued severance pay, net (77 ) 172
Changes in deferred tax, net (6,927 ) (889 )
Capital loss 8 -

Legal settlements and loss contingencies, net

1,733 -
Increase in trade receivables (12,404 ) (14,560 )
Decrease (increase) in other accounts receivable and prepaid expenses 943 (2,850 )
Increase in inventories (6,052 ) (19,564 )
Increase (decrease) in trade payables (960 ) 9,366
Decrease in warranty provision (93 ) (138 )
Increase in accrued expenses and other liabilities including related party 2,552 2,260
   
Net cash provided by operating activities   32,632     22,904  
 
 

Cash flows from investing activities:

 
Purchase of property, plant and equipment (10,812 ) (46,553 )
Proceeds from sale of property, plant and equipment 21 -
Decrease in long term deposits 19 25
   
Net cash used in investing activities (*)   (10,772 )   (46,528 )
 
 

Cash flows from financing activities:

 
Changes in short-term bank credit and loans, net 2,395 8,256
Repayment of a financing leaseback related to Bar-Lev transaction (548 ) (450 )
Purchase of treasury shares at cost (29,768 ) -
   
Net cash provided by (used in) financing activities   (27,921 )   7,806  
 
 
Effect of exchange rate differences on cash and cash equivalents (1,062 ) (843 )
   
Decrease in cash and cash equivalents and short-term bank deposits (7,123 ) (16,661 )
Cash and cash equivalents and short-term bank deposits at beginning of the period   62,807     54,327  
 
Cash and cash equivalents and short-term bank deposits at end of the period $ 55,684   $ 37,666  
 

Non - cash investing:

Changes in trade payables balances related to purchase of fixed assets (437 ) 2,573
 
(*) Cash used in investing activities does not include changes in bank deposits as such balance is included in the "cash and cash equivalents and short term bank deposits" line at the beginning and end of the period.
 
 
Caesarstone Sdot-Yam Ltd. and its subsidiaries (Unaudited)
       

Three months ended June 30,

Six months ended June 30,

U.S. dollars in thousands 2016 2015 2016 2015
 
Reconciliation of Net Income to Adjusted EBITDA:
Net income $ 26,284 $ 23,265 $ 38,393 $ 39,646
Finance expenses, net 1,442 399 1,198 2,292
Taxes on income 3,560 4,616 5,930 7,087
Depreciation and amortization 7,064 4,917 13,969 9,598

Legal settlements and loss contingencies, net (a)

1,000 - 1,733 -
Share-based compensation expense (b)   417   314   1,547   401
Adjusted EBITDA (Non-GAAP) $ 39,767 $ 33,511 $ 62,770 $ 59,024
(a)  

Consists of legal settlements expenses and loss contingencies, net, related to individual silicosis claims.

(b)

Share-based compensation includes expenses related to stock options and restricted stock units granted to employees of the Company. In addition, includes expenses for phantom awards granted and related payroll expenses as a result of exercises.

 

 
Caesarstone Sdot-Yam Ltd. and its subsidiaries (Unaudited)
       

Three months ended June 30,

Six months ended June 30,

U.S. dollars in thousands 2016 2015 2016 2015
 
Reconciliation of net income attributable to controlling interest to adjusted net income attributable to controlling interest:
Net income attributable to controlling interest $ 25,409 $ 22,889 $ 37,184 $ 39,249

Legal settlements and loss contingencies, net (a)

1,000 - 1,733 -
Share-based compensation expense (b) 417 314 1,546 401
Tax adjustment (c)   (1,158 )   -   (1,158 )   -
Total adjustments 259 314 2,121 401
Less tax on non-tax adjustments (d)   220     49   524     61
Total adjustments after tax   39     265   1,597     340
 
Adjusted net income attributable to controlling interest (Non-GAAP) $ 25,448   $ 23,154 $ 38,781   $ 39,589
Adjusted diluted EPS (e) $ 0.73   $ 0.65 $ 1.10   $ 1.12
 
(a)   Consists of legal settlements expenses and loss contingencies, net, related to individual silicosis claims.
(b)

Share-based compensation includes expenses related to stock options and restricted stock units granted to employees of the Company. In addition, includes expenses for phantom awards granted and the related payroll expenses as a result of exercises.

(c) Tax adjustment as a result of tax settlement with the Israeli tax authorities.
(d)

Tax adjustments for the three and six months ended June 30, 2016 and 2015 were based on the effective tax rates for these periods, respectively.

(e)

In calculating adjusted diluted (Non-GAAP) EPS, the diluted weighted average number of shares outstanding excludes the effects of share-based compensation expense in accordance with FASB ASC 718.

 
 
Caesarstone Sdot-Yam Ltd. and its subsidiaries
Geographic breakdown of revenues by region (Unaudited)
           
Three months ended June 30,   Six months ended June 30,
U.S. dollars in thousands 2016 2015 2016 2015
 
 
USA $ 59,942 $ 57,093 $ 109,254 $ 105,108
Australia 33,485 26,975 59,211 50,345
Canada 24,251 19,128 41,901 33,056
Israel 11,130 9,572 21,413 19,422
Europe 6,860 6,750 13,422 11,402
Rest of World   6,680   8,009   14,061   16,005
$ 142,348 $ 127,527 $ 259,262 $ 235,338

Investor Relations
ICR, Inc.
James Palczynski, +1 (203) 682-8229
Partner

Source: Caesarstone Ltd.

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