News Column

Caesarstone Reports Second Quarter 2014 Results

August 6, 2014

  • Second Quarter Revenue Up 30.4% to a Record of $116.1 million
  • Reports diluted EPS of $0.51 and Adjusted diluted EPS of $0.58
  • Raises Full Year Guidance for Sales and Adjusted EBITDA

    MP MENASHE, Israel--(BUSINESS WIRE)-- Caesarstone Sdot-Yam Ltd. (NASDAQ:CSTE), a manufacturer of high quality engineered quartz surfaces, today reported financial results for its second quarter ended June 30, 2014.

    Revenues in the second quarter of 2014 increased by 30.4% to $116.1 million compared to $89.0 million in the same quarter of the prior year. This was a record for any quarter. On a constant currency basis, second quarter revenue growth was 32.3% compared to the same period last year. Growth in revenues was primarily driven by continued increases in the United States, which grew 55.0% to $47.9 million, as well as contributions from Australia, Canada and other regions.

    Yosef Shiran, Chief Executive Officer, commented, “This was a strong quarter with significant growth. Market demand for our products is robust and the Caesarstone brand continues to be a market leader, known for quality and innovative design. We are operating well, controlling our costs and growing our capacity to meet the demand for our products.”

    Gross margin in the second quarter was 41.0% compared to 49.8% in the same period of the prior year. The Company noted that the second quarter this year includes $0.8 million of non-recurring cost related to an adjustment of provision for taxable employee fringe benefits and the second quarter last year included $3.5 million of credit related to a change in the value of inventory. Excluding the above-mentioned one-time items, a gross margin decline of 4.2 percentage points year-over-year was driven primarily by the effects of foreign exchange fluctuations, strong growth from IKEA which includes a significant portion of lower-margin fabrication and installation revenue and, to a lesser extent, raw material price increases.

    Operating expenses in the second quarter were $24.1 million, or 20.7% of revenues. This compares to the prior year's second quarter level of $22.1 million, or 24.8% of revenues. This 4.1 percentage point improvement reflects the scale-related benefit of increased revenues.

    Operating income in the second quarter was up 5.9% to $23.6 million compared to $22.2 million in the second quarter of 2013.

    Adjusted EBITDA, which excludes the non-recurring items as well as share-based compensation and the excess cost of acquired inventory, increased by 23.3% to $30.4 million in the second quarter, a margin of 26.2%. This compares to adjusted EBITDA of $24.6 million, a margin of 27.7% in the second quarter of the prior year.

    Finance expenses in the second quarter were $1.4 million compared to finance income of $0.4 million during the same period in the prior year. The increase was predominantly due to the impact of foreign exchange fluctuations.

    The Company reported net income attributable to controlling interest for the second quarter of 2014 of $18.2 million compared to $19.7 million in the same quarter in the prior year.

    Diluted net income per share for the second quarter was $0.51 on 35.4 million shares compared to $0.56 per diluted share on 35.1 million shares in the prior year's second quarter. On an adjusted basis, net income in the second quarter was $20.7 million, or $0.58 per diluted share compared to $18.6 million, or $0.53 per diluted share in the same quarter of the prior year.

    The Company's balance sheet as of June 30, 2014 remained solid with cash and short-term bank deposits of $80.3 million.

    The Company also provided an update with respect to its planned capacity expansion projects. The Company continues to benefit from expanded production in its Bar Lev facility. It also remains on schedule for its Richmond Hill, Georgia manufacturing plant to be operational in the second quarter of 2015 with a second line to become operational in the fourth quarter of 2015. The Company has decided to increase its investment in its US facility to approximately $115 million, compared to its earlier estimate of approximately $100 million, mostly to accommodate improvements in operations, including upgraded machinery for higher manufacturing capacity. In addition to this investment, the Company intends to start initial steps towards establishing its second building in Richmond Hill to accommodate additional manufacturing capacity in the future as needed to satisfy potential demand.

    Guidance Increase

    Following a strong second quarter and to reflect an improvement in both inventory and manufacturing throughput, the Company today increased its revenue guidance for the full year of 2014 to a new range of $435 to $445 million as compared to its prior range of $420 million to $430 million.

    The Company also increased its expected range of adjusted EBITDA for the full year to $112 million to $117 million as compared to its prior expected range of $108 million to $113 million.

    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 6, 2013, at 8:30 a.m. ET to discuss the results of the second quarter ended June 30, 2014, 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 1-877-857-6163 or +1-719-325-4870 (international). Israeli participants can dial in at 1-80-925-8243. The pass code is 7003915.

    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 7003915. The replay will be available beginning at 11:30 a.m. ET on August 6, 2014 and will last through 11:59 PM ETAugust 20, 2014.

    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, Supremo, Motivo and Concetto — are available in over 40 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; fluctuations in currency exchange rates; the timing of expanding our manufacturing capabilities; the outcome of silicosis claims; changes in raw material prices; unpredictability of seasonal fluctuations in revenues; the outcome of the claim by our former quartz processor; delays in manufacturing if our suppliers are unable to supply raw materials; and other factors discussed under the heading "Risk Factors" in our Form 20-F for the year ended December 31, 2013 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

    Consolidated balance sheets

     
    As of
    U.S. dollars in thousands

    June 30,

    2014

       

    December 31,

    2013

    (Unaudited)
    ASSETS
     
    CURRENT ASSETS:
    Cash and cash equivalents $ 33,272 $ 22,248
    Short-term bank deposits 47,000 70,000
    Trade receivables, Net 62,424 52,304
    Other accounts receivable and prepaid expenses 30,400 22,853
    Inventories   72,945   57,867
     
    Total current assets   246,041   225,272
     
    LONG-TERM ASSETS:
    Severance pay fund 4,230 3,973
    Long-term deposits and prepayments   807   1,603
     
    Total long-term assets   5,037   5,576
     
    PROPERTY, PLANT AND EQUIPMENT, NET   115,694   93,634
     
    OTHER ASSETS   11,748   13,372
     
    GOODWILL   40,712   39,702
     
    Total assets $ 419,232 $ 377,556
     
    LIABILITIES AND EQUITY
     
    CURRENT LIABILITIES:
     
    Short-term bank credit $ 4,774 $ 5,454
    Short-term loans from related parties 3,031 1,194
    Trade payables 57,121 50,624
    Account payables to related parties 1,802 1,408
    Accrued expenses and other liabilities   22,005   20,890
     
    Total current liabilities   88,733   79,570
     
    LONG-TERM LIABILITIES:
     
    Long-term loan and financing leaseback from a related party 10,348 12,342
    Accrued severance pay 4,815 4,472
    Other long-term liabilities 1,023 1,704
    Deferred tax liabilities, net 5,745 6,245
    Share based payment   588   -
     
    Total long-term liabilities   22,519   24,763
     
    REDEEMABLE NON-CONTROLLING INTEREST   8,381   7,624
     
    COMMITMENTS AND CONTINGENT LIABILITIES
     
    EQUITY:
    Ordinary shares 366 364
    Additional paid-in capital 139,636 138,757
    Accumulated other comprehensive income 5,323 3,680
    Retained earnings   154,274   122,798
     
    Total equity   299,599   265,599
     
    Total liabilities and equity $ 419,232 $ 377,556
           
     

    Caesarstone Sdot-Yam Ltd. and its subsidiaries

    Consolidated statements of income (Unaudited)



    Three months ended June 30,

     



    Six months ended June 30,

     

     
    U.S. dollars in thousands (except per share data)2014   20132014   2013
     
     
    Revenues $ 116,064 $ 88,977 $ 210,478 $ 165,421
    Cost of revenues   68,442     44,657     123,669     86,884  
     
    Gross profit   47,622     44,320     86,809     78,537  
     
    Operating expenses:
    Research and development, net 710 553 1,313 1,026
    Marketing and selling 13,848 12,996 27,567 25,470
    General and administrative   9,507     8,529     17,105     16,728  
     
    Total operating expenses   24,065     22,078     45,985     43,224  
     
    Operating income 23,557 22,242 40,824 35,313
    Finance expenses (income), net   1,420     (404 )   2,985     (215 )
     
    Income before taxes on income 22,137 22,646 37,839 35,528
    Taxes on income   3,361     2,481     5,590     4,653  
     
    Net income $ 18,776   $ 20,165   $ 32,249   $ 30,875  
     
    Net income attributable to non-controlling interest   (570 )   (447 )   (773 )   (639 )
    Net income attributable to controlling interest $ 18,206   $ 19,718   $ 31,476   $ 30,236  
    Basic net income per ordinary share $ 0.52   $ 0.57   $ 0.90   $ 0.87  
    Diluted net income per ordinary share $ 0.51   $ 0.56   $ 0.89   $ 0.86  

    Weighted average number of ordinary shares used in

    computing basic income per ordinary share

      34,917,556     34,600,249     34,863,203     34,596,889  

    Weighted average number of ordinary shares used in

    computing diluted income per ordinary share

      35,408,872     35,139,901     35,401,917     35,061,710  
     
     

    Caesarstone Sdot-Yam Ltd. and its subsidiaries

    Condensed Consolidated statements of cash flows on a Non GAAP Basis (Unaudited)

       
    Six months ended

    June 30,

    U.S. dollars in thousands2014     2013
     

    Cash flows from operating activities:

     
    Net income $ 32,249 $ 30,875
    Adjustments required to reconcile net income to net cash provided by operating activities:
    Depreciation and amortization 8,544 7,297
    Share-based compensation expense 1,419 1,500
    Accrued severance pay, net 86 75
    Changes in deferred tax, net (2,223 ) 240
    Capital gains (2 ) (16 )
    Foreign currency translation gains - (132 )
    Increase in trade receivables (10,120 ) (7,223 )
    Increase in other accounts receivable and prepaid expenses (5,824 ) (7,563 )
    Increase in inventories (15,078 ) (2,750 )
    Increase (decrease) in trade payables 1,364 (2,705 )
    Increase (decrease) in warranty provision (603 ) 76
    Increase in accrued expenses and other liabilities including related parties 1,913 3,877
       
    Net cash provided by operating activities   11,725     23,551  
     

    Cash flows from investing activities:

     
    Purchase of property, plant and equipment (23,816 ) (10,275 )
    Decrease (increase) in long term deposits and prepaid expenses 796 (319 )
       
    Net cash used in investing activities   (23,020 )   (10,594 )
     

    Cash flows from financing activities:

     
    Repayment of long-term loans - (5,297 )
    Short-term bank credit and loans, net (680 ) 1,001
    Repayment of a financing leaseback related to Bar-Lev transaction (597 ) (566 )
       
    Net cash used in financing activities   (1,277 )   (4,862 )
     
    Effect of exchange rate differences on cash and cash equivalents 596 (1,270 )
       
    Increase (decrease) in cash and cash equivalents and Short term bank deposits (11,976 ) 6,825
    Cash and cash equivalents Short term bank deposits at beginning of the period  

    92,248

        72,733  
     
    Cash and cash equivalents and Short term bank deposits at end of the period $

    80,272

      $ 79,558  
     

    Non - cash investing:

    Purchase of fixed assets with credit from suppliers 5,133 8,246
     
     
    Caesarstone Sdot-Yam Ltd. and its subsidiaries (Unaudited)
               

    Three months ended

    June 30,

    Six months ended

    June 30,

    U.S. dollars in thousands2014201320142013
     
    Reconciliation of Net Income to Adjusted EBITDA:
    Net income $ 18,776 $ 20,165 $ 32,249 $ 30,875
    Finance expenses (income), net 1,420 (404 ) 2,985 (215 )
    Taxes on income 3,361 2,481 5,590 4,653
    Depreciation and amortization 4,299 3,684 8,544 7,297
    Excess cost of acquired inventory (a) 108 72 108 142
    Share-based compensation expense (b) 801 611 1,419 1,500
    Inventory - change of estimate (c) - (3,458 ) - (3,458 )
    Follow-on offering expenses (d) 657 1,470 657 1,470
    Provision for employees fringe benefits (e)   939   -     939   -  
    Adjusted EBITDA $ 30,361 $ 24,621   $ 52,491 $ 42,264  
     
    (a)

    Consists of charges to cost of goods sold for the difference between the higher carrying cost of the inventory of two of the Company's subsidiaries- Caesarstone USA's inventory at the time of its acquisition and inventory that was purchased from its distributor and Caesarstone Australia Pty Limited's inventory that was purchased from its distributor, and the standard cost of the Company's inventory- which adversely impacts the Company's gross margins until such inventory is sold. The majority of the inventory acquired from Caesarstone USA was sold in 2011, and the majority of the inventory acquired from the Australian distributor was sold in 2012.

    (b) In 2013, share-based compensation consists of expenses related to the stock options granted to employees of the Company.

    In 2014, share-based compensation consists primarily of expenses related to the stock options granted to employees of the Company, as well as expenses related to share-based rights granted during the period.

    (c) Relates to a change in estimate for the value of inventory following the implementation of the Company's new ERP system in April 2013.
    (d)

    In 2013, consists of direct expenses related to a follow-on offering that closed in April 2013, including a bonus paid by the Company' former shareholder, Tene, to certain of its employees that under US GAAP the Company is required to expense against paid-in capital.

    In 2014, consists of direct expenses related to a follow-on offering that closed in June 2014.
    (e)

    Relates to an adjustment of provision for taxable employee fringe benefits as a result of a settlement with the Israel Tax Authority and with the National Insurance Intitute of Israel.

     

     
     

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

           

    Three months ended June 30,

    Six months ended June 30,

    U.S. dollars in thousands2014   20132014   2013
     

    Reconciliation of net income attributable to

    controlling interest to adjusted net income

    attributable to controlling interest:

    Net income attributable to controlling interest $ 18,206 $ 19,718 $ 31,476 $ 30,236
    Excess cost of acquired inventory (a) 108 72 108 142
    Share-based compensation expense (b) 801 611 1,419 1,500
    Inventory - change of estimate (c) - (3,458 ) - (3,458 )
    Follow-on offering expenses (d) 657 1,470 657 1,470
    Provision for employees fringe benefits (e) 939 - 939 -
    Tax adjustment (f)   342   -     342   -  
    Total adjustments 2,847 (1,305 ) 3,465 (346 )
    Less tax on non-tax adjustments (g)   345   (207 )   433   (45 )
    Total adjustments after tax 2,502 (1,098 ) 3,032 (301 )
     
    Adjusted net income attributable to controlling interest $ 20,708 $ 18,620   $ 34,508 $ 29,935  
    Adjusted diluted EPS $ 0.58 $ 0.53   $ 0.97 $ 0.85  
    (a)  

    Consists of charges to cost of goods sold for the difference between the higher carrying cost of the inventory of two of the Company's subsidiaries- Caesarstone USA's inventory at the time of its acquisition and inventory that was purchased from its distributor and Caesarstone Australia Pty Limited's inventory that was purchased from its distributor, and the standard cost of the Company's inventory- which adversely impacts the Company's gross margins until such inventory is sold. The majority of the inventory acquired from Caesarstone USA was sold in 2011, and the majority of the inventory acquired from the Australian distributor was sold in 2012.

    (b) In 2013, share-based compensation consists of expenses related to the stock options granted to employees of the Company.

    In 2014, share-based compensation consists primarily of expenses related to the stock options granted to employees of the Company, as well as expenses related to share-based rights granted during the period.

    (c) Relates to a change in estimate for the value of inventory following the implementation of the Company's new ERP system in April 2013.
    (d)

    In 2013, consists of direct expenses related to a follow on-offering that closed in April 2013, including a bonus paid by the Company' former shareholder, Tene, to certain of its employees that under US GAAP the Company is required to expense against paid-in capital.

    In 2014, consists of direct expenses related to a follow on offering that closed in June 2014.
    (e)

    Relates to an adjustment of provision for taxable employee fringe benefits as a result of a settlement with the Israel Tax Authority and with the National Insurance Intitute of Israel.

    (f) Tax adjustment as a result of tax settlement with the Israeli tax authorities.
    (g)

    The tax adjustments for the three and six months ended June 30, 2014 and 2013 were based on the effective tax rate (excluding adjustments to the tax line item) for these periods, respectively.

     
     

    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 thousands2014   20132014   2013
     
     
    USA 47,894 30,890 85,520 54,596
    Australia 27,443 23,612 48,762 42,995
    Canada 15,381 13,129 27,118 23,844
    Israel 9,923 9,978 21,184 20,531
    Europe 7,280 4,497 11,978 10,389
    Rest of World   8,143   6,871   15,916   13,066
    $ 116,064 $ 88,977 $ 210,478 $ 165,421
     





    Investor Relations:

    James Palczynski

    Partner

    ICR, Inc.

    +1 203-682-8229




    Source: Caesarstone Sdot-Yam Ltd.


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