Caesarstone Hits Rocky First Quarter ‘18
MP MENASHE, Israel – The good news from last year didn’t continue for Caesarstone Ltd., as the quartz-surface producer saw a drop in operating income for 2018’s first quarter and an accompanying slide last week in its common-stock price.
And, in a call with Wall Street analysts, Caesarstone also revealed the head of its U.S. operations – the biggest sector of its sales worldwide – no longer worked for the company.
First-quarter revenues for the company this year differed little from the same time last year, with the $136.1 million dropping less than $400,000 from January-March 2017. Operating income for the first three months this year, however, totaled only $1.4 million – a huge drop from the $15.1 million of 1Q 2017.
“We experienced a disappointing first quarter,” said interim CEO Yair Averbuch in a conference call on May 9 with U.S. financial analysts.
The biggest contributing factor to lower first-quarter margins came with lower production at Caesarstone’s facilities in Israel, said company CFO Ophir Yakovian. While other factors affected margin, such as higher raw materials, the other big reason for the drop came from what Yakovan called “charges related to inventory and logistical inefficiencies, primarily related to U.S. distribution activity.”
Referring to the charges, Yakovian added that, “the majority of which, we do not expect will continue for the remainder of the year.”
Averbuch said U.S. 1Q 2018 of $56.8 million were down 2.2% from last year’s first quarter.
“Although these results were below our expectation,” Averbuch told the financial analysts, “we are confident in our ability to capture growth in this market as we re-align our execution and progress with our business plan.”
One top executive who won’t be implementing that strategy Dan Clifford, as Averbuch said the company “parted ways” with its former president of Caesarstone USA. The company’s chief commercial officer, Israel Sandler, will head up U.S. operations in the interim while Caesarstone seeks a replacement.
“We are looking for somebody with some specific industry experience, ideally with a very strong marketing and sales capabilities and background,” Averbuch said. “We want somebody who can roll up his sleeves and move in quite a big organization with a lot of complexities, and drive it to do strong execution.”
Clifford joined Caesarstone in January 2015 to head up its Canadian operations. He became president at Caesarstone USA in February 2016.
Clifford’s departure is the second major change in Caesarstone’s management in eight weeks. In late March, CEO Ranaan Silberman suddenly left the company, and former CFO Averbuch took the job temporarily as Caesarstone looked for a replacement.
Caesarstone also reduced its full-year 2018 guidance, or financial projections, to reflect 1Q 2018’s data. The company now expects full-year 2018 revenues between $590 million to $610 million, down 3.5% from original estimates. Full-year 2018 adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) in the range of $74 million to $82 million, down more than 25% from targets set only three months ago.
Averbuch also noted that the company, unlike three months ago, wouldn’t be paying a dividend to common stockholders during the second quarter this year.
“We believe that once we see a better performance in terms of the result, we will resume the distribution of dividends hopefully in the next quarter,” Averbuch said.
The first-quarter financial news led to Caesarstone’s stock (NASDAQ: CSTE) taking a beating last week, dropping from $18.45 at the close of May 8 trading to a low of $12.50 when trading opened on May 11. After that, the stock began trending upward, closing at $13.75 on May 15.
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