Caesarstone: Slow Start, Firm Finish for 2019?
By Emerson Schwartzkopf
Caesarstone Ltd. expects a good year in 2019 – although not at the start.
Yuval DagimOfficials with the Israeli manufacturer of quartz surfaces remained upbeat about this year as they offered mixed results for 2018 to Wall Street analysts earlier this month.
Caesarstone ended last year with $575.9 million in revenue worldwide, showing a 2% decline from 2017. The company attributed the nominal downturn to declines in sales related to its IKEA partnership and weaker sales in Israel and Australia/New Zealand.
U.S. revenues for Caesarstone last year totaled $239.2 million, down 2.5% from the previous year. Canada remained a bright spot, with its $99.6 million in 2018 revenues beating 2017 by 1.9%
Caesarstone CEO Yuval Dagim, who joined the company in mid-2018, said the company is making changes to address challenges in organization and production with its 2019 operating plan.
“While we’re realizing that most of the improvements will take time and investment to mature, we see a few near-term solutions,” he said in a conference call Feb. 6 with U.S. financial analysts.
He cited the combination of U.S. and Canadian operations under a new North American region, headed up by former Caesarstone Canada chief Ken Williams.
“The main goal of this step is to better position us to capture additional market share in the U.S. and increase our stability in coming years,” Dagim said. “This is especially important now given the recently implemented tariff on US imports of quartz countertops from China.
“Once our North American realignment is integrated and working well, we expect to better execute our objectives in the region.”
Caesarstone CFO Ophir Yakovian added that the company acquired the 45% ownership in its Canadian operations held by Canadian Quartz Holdings for approximately $20 million in December. Caesarstone and Canadian Quartz operated as a joint venture when Caesarstone entered the Canadian market in 2010.
“The purchase provided significant flexibility to more efficiently integrate our wholly owned Canadian operation with our existing U.S. operations,” Yakovian said. “In addition, the purchase provided an attractive value to the company, simplifies our financial reporting, and eliminates future minority distributions.”
Dagim also noted changes in the company’s overall management, including new vice presidents for supply chain, production and human resources, along with a new plant manager for its Richmond Hill, Ga., quartz-surface factory.
Dagim also expressed confidence in the company’s production facilities in Israel and the United States.
“I’m quite happy with the improvements we see in operations from quarter-to-quarter,” he said. “We see no shortage of capacity for the next two or three years.”
Dagim emphasized a company-wide focus on premium products, especially with manufacturing.
“We are increasingly dedicating our product resources to high-end products in order to better maximize our opportunities as a premium quartz-countertop leader,” he said.
Both Dagim and Yakovian noted that the huge shipments of Chinese quartz surfaces to the United States last year will make for a slow start to 2019.
“We expect the first quarter will be challenge in year-over-year comparsison,” Yakovian said. “As we move through the year, we expect toshow improvement in key metrics.
“In the United States, we expect stronger revenue growth in the second half of 2019 as we expect inventory levels to return to normal following the previously discussed 2018 tariffs related to pre-buy activities. Furthermore, we anticipate that the enhancement in North America will start yielding results in the second half of 2019.”
The company’s 2019 guidance – its prediction of overall results – showed a conservative streak, with worldwide revenue between $580 million-$600 million, and adjusted EBITIDA (earnings before interest, tax, depreciation and amortization) at $72 million-$80 million.
Last year, the company’s 2018 guidance started at $612 million to $632 million, and adjusted EBITDA to be in the range of $102 million to $110 million, but declined during the year. The initial higher numbers came in February 2018 from former CEO Raanan Zlberman, who abruptly resigned in March.
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