Caesarstone reports 2019 third quarter financial results
Mp menashe, israel--(business wire)--caesarstone ltd. (nasdaq: cste), a leading developer and manufacturer of high-quality engineered quartz surfaces, today reported financial results for its third quarter ended september 30, 2019. yuval dagim, chief executive officer, commented, “our third quarter 2019 results reflect the progress we are making in our focused efforts to execute the various facets of our global growth acceleration plan, contributing to year-over-year improvement in our margins. i am encouraged by the results of the implementation of our new strategy in the u.s., resulting in 8% core growth. while many of our markets outside the u.s. continue to experience intense competition from chinese-based manufacturers, i am confident in the steps we are taking to improve our performance and enhance our position. we will continue to implement our strategy in order to better leverage our strong brand, reignite growth, increase efficiencies and streamline processes. moving into 2020 and beyond, our strategic initiatives along with our strong balance sheet leave us well situated to generate additional value for our shareholders.” ophir yakovian, chief financial officer, added, “we are pleased with the improvement in gross margin and adjusted ebitda in a challenging environment. the execution of our global growth acceleration plan allowed us to generate additional efficiencies throughout our organization. while we expect our ongoing initiatives to favorably impact results and our core u.s. business to remain strong, the competitive environment in most of the other regions is likely to persist in the coming quarters. that said, we remain confident that the steps we are taking through our global growth acceleration plan will contribute towards our efforts to drive improved operating performance in the long-term.” third quarter 2019 results revenue in the third quarter of 2019 was $142.8 million compared to $147.7 million in the prior year quarter. on a constant currency basis, third quarter revenue was lower by 1.5% year-over-year. sales improvement in the company’s core business in the u.s. and the continued strong momentum in the u.k. was more than offset by softer performance in australia and canada as well as weaker results in ikea u.s. and in other regions. gross margin in the third quarter was 29.8% compared to 29.6% in the prior year quarter. adjusted gross margin in the third quarter was 29.9% compared to 29.7% in the prior year quarter. the modest improvement in adjusted gross margin mainly reflects lower raw material costs and more favorable regional mix, partly offset by increased manufacturing unit costs due to lower fixed cost absorption resulting from lower capacity utilization, lower average selling price and foreign exchange headwinds. operating expenses in the third quarter were $29.7 million, or 20.8% of revenue, compared to $29.7 million, or 20.1% of revenue in the prior year quarter. excluding legal settlements and loss contingencies, operating expenses decreased to 19.5% of revenue, compared to 20.3% in the prior year quarter mainly due to lower marketing and sales expenses combined with lower general and administrative expenses. operating income in the third quarter was $12.9 million compared to $14.0 million in the prior year quarter. adjusted ebitda, which excludes expenses for share-based compensation, legal settlements and loss contingencies and for non-recurring items, was $22.5 million in the third quarter, representing a margin of 15.8%. this compares to adjusted ebitda of $21.6 million, representing a margin of 14.6%, in the prior year quarter. this year-over-year margin improvement primarily reflects higher gross margin and lower operating expenses as a percentage of revenue, excluding legal settlements and loss contingencies. finance expenses in the third quarter were $4.1 million compared to finance expenses of $1.6 million in the prior year quarter. the difference was primarily a result of the adverse impact of foreign currencies exchange rates mainly related to the revaluation of the lease liabilities in accordance with the new lease accounting standard. net income attributable to controlling interest for the third quarter was $7.1 million, compared to net income of $10.5 million in the prior year quarter. diluted net income per share for the third quarter was $0.21, compared to diluted net income per share of $0.31 in the prior year quarter. adjusted diluted net income per share for the third quarter was $0.29 on 34.6 million shares, compared to $0.31 on 34.5 million shares in the prior year quarter. balance sheet the company's balance sheet as of september 30, 2019 remained strong, including cash, cash equivalents and short-term bank deposits of $116.8 million with no financial debts to banks. dividend the company’s dividend policy provides for a quarterly cash dividend in the range of $0.10 to $0.15 per share up to the lesser of 50% of reported net income attributable to controlling interest (i) on a quarterly basis or (ii) on a year-to-date basis, subject in each case to approval by its board of directors. in order to reflect 2019 year-to-date net income attributable to controlling interest, the board of directors declared a special cash dividend of $0.15 per share for the third quarter of 2019, representing an increase from the dividend of $0.10 per share that would have been paid according to the company’s dividend policy. the dividend will be paid on december 10, 2019 to shareholders of record as of november 20, 2019. the dividend payment is subject to withholding tax of 20%. global growth acceleration plan in may 2019, the company began executing its global growth acceleration plan. the plan is designed to improve operational inefficiencies and reignite growth through a variety of projects and a better alignment of resources. to date, the company has commenced the execution of 90% out of 30 identified projects focusing on expanding its selling efforts in key markets, improving production and supply chain efficiency, enhancing its innovative portfolio of premier product offerings, streamlining core processes and implement a digital transformation within the company. beyond currently identified opportunities, the company will continue to pursue additional avenues to drive efficiencies and to accelerate growth through its multi-year global growth acceleration plan. outlook for the full year 2019, the company now expects to be at the low end of its previously announced outlook for revenue in the range of $550 million to $565 million, and adjusted ebitda in the range of $72 million to $80 million. for the fourth quarter, the company anticipates a higher adjusted ebitda margin year-over-year, mainly attributable to operational efficiencies and cost controls despite a continuation of market pressures on revenue primarily outside the u.s. and less favorable currency exchange rates. conference call details the company will host a conference call today at 8:30 a.m. et to discuss the results, 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 1-877-407-4018 or +1-201-689-8471 (international). the toll-free israeli number is 1 80 940 6247. upon dialing in, please request to join the caesarstone third quarter earnings call. to listen to a telephonic replay of the conference call, dial toll-free 1-844-512-2921 or +1-412-317-6671 (international) and enter pass code 13695291. the replay will be available beginning at 11:30 a.m. et on wednesday, november 6, 2019 and will last through 11:59 p.m. et on wednesday, november 13, 2019. about caesarstone caesarstone is a concept and lifestyle-driven company with a customer-centered approach to designing, developing, and producing high-end engineered quartz surfaces used in residential and commercial buildings. caesarstone® products offer superior aesthetic appeal and perfected functionality through a distinct variety of colors, styles, textures, and finishes used in countertops, vanities, wall cladding, floors, and other interior surfaces. marked by their inherent longevity characteristics such as non-porousness, scratch and stain resistance, and durability, the company’s product umbrella offers a highly desirable alternative to other surfaces. strong commitment to service has fostered growing customer loyalty in over 40 countries where the four distinct caesarstone product collections are available: classico, supernatural, metropolitan and concetto. for more information please visit our website: www.caesarstone.com. 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. reconciliations of gaap gross profit to adjusted gross profit, 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 to 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 relate to the company's plans, objectives and expectations for future operations, including expectations of the results of its business optimization initiative and its projected results of operations. 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 ability of the company to realign aspects of its business based on the business optimization initiative, the strength of the home renovation and construction sectors; intense competitive pressures; the outcome of silicosis and other bodily injury claims; regulatory requirements relating to hazards associated with exposure to silica dust; manufacturing of existing products and managing required changes in production; economic conditions within any of our key existing markets changes in raw material prices; fluctuations in currency exchange rates; the success of our expansion efforts in the united states; unpredictability of seasonal fluctuations in revenues; delays in manufacturing 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 ltd. and its subsidiaries condensed consolidated balance sheets as of september 30, 2019 december 31, 2018 (unaudited) (audited) $ 116,836 $ 93,562 87,067 72,555 34,338 25,495 123,638 158,492 361,879 350,104 3,402 3,591 5,327 5,435 7,511 6,372 2,918 2,799 73,969 - 204,553 213,338 34,650 35,283 332,330 266,818 $ 694,209 $ 616,922 $ - $ 7,567 44,408 55,787 2,195 2,908 19,382 13,146 41,926 31,873 107,911 111,281 8,024 7,089 24,408 26,089 65,962 - 4,423 4,695 1,376 1,267 104,193 39,140 371 371 (39,430 ) (39,430 ) 156,446 153,593 (5,587 ) (5,587 ) (3,563 ) (3,177 ) 373,868 360,731 482,105 466,501 $ 694,209 $ 616,922 caesarstone ltd. and its subsidiaries condensed consolidated statements of income three months ended september 30, nine months ended september 30, 2019 2018 2019 2018 (unaudited) (unaudited) $ 142,839 $ 147,689 $ 412,107 $ 432,990 100,215 103,918 298,451 306,646 42,624 43,771 113,656 126,344 962 863 3,184 2,504 17,419 18,584 50,072 57,193 9,451 10,466 31,056 32,914 1,853 (172 ) 5,158 5,001 29,685 29,741 89,470 97,612 12,939 14,030 24,186 28,732 4,053 1,551 6,200 1,542 8,886 12,479 17,986 27,190 1,758 1,892 4,849 4,106 $ 7,128 $ 10,587 $ 13,137 $ 23,084 - (51 ) - (45 ) $ 7,128 $ 10,536 $ 13,137 $ 23,039 $ 0.21 $ 0.31 $ 0.38 $ 0.67 $ 0.21 $ 0.31 $ 0.38 $ 0.67 34,390,244 34,362,673 34,379,402 34,355,838 34,442,592 34,394,808 34,438,797 34,397,572 caesarstone ltd. and its subsidiaries selected condensed consolidated statements of cash flows nine months ended september 30, 2019 2018 (unaudited) $ 13,137 $ 23,084 21,617 21,538 2,852 933 (78 ) (475 ) (1,359 ) (3,061 ) 342 73 5,158 5,001 (14,930 ) (7,855 ) (7,787 ) (8,930 ) 33,466 (29,227 ) (9,292 ) (16,234 ) 97 212 (73,969 ) - 77,318 - 1,202 (6,571 ) 47,774 (21,512 ) (15,770 ) (13,702 ) 52 6 (200 ) (224 ) (15,918 ) (13,920 ) - (15,114 ) - (559 ) (7,771 ) (1,219 ) (891 ) (877 ) (8,662 ) (17,769 ) 80 (215 ) 23,274 (53,416 ) 93,562 138,707 $ 116,836 $ 85,291 (2,463 ) (31 ) caesarstone ltd. and its subsidiaries three months ended september 30, nine months ended september 30, 2019 2018 2019 2018 (unaudited) (unaudited) $ 42,624 $ 43,771 $ 113,656 $ 126,344 136 $ 61 274 $ 78 - - (1,501 ) - - - 1,367 - $ 42,760 $ 43,832 $ 113,796 $ 126,422 caesarstone ltd. and its subsidiaries three months ended september 30, nine months ended september 30, 2019 2018 2019 2018 (unaudited) (unaudited) $ 7,128 $ 10,587 $ 13,137 $ 23,084 4,053 1,551 6,200 1,542 1,758 1,892 4,849 4,106 6,755 7,156 21,617 21,538 1,853 (172 ) 5,158 5,001 968 541 2,852 933 - - (1,501 ) - - - 993 1,157 $ 22,515 $ 21,555 $ 53,305 $ 57,361 caesarstone ltd. and its subsidiaries three months ended september 30, nine months ended september 30, 2019 2018 2019 2018 (unaudited) (unaudited) $ 7,128 $ 10,536 $ 13,137 $ 23,039 1,853 (172 ) 5,158 5,001 968 541 2,852 933 1,123 - 3,349 - - - (1,501 ) - - - 2,193 1,157 3,944 369 12,051 7,091 1,063 59 3,249 1,071 2,881 310 8,802 6,020 $ 10,009 $ 10,846 $ 21,939 $ 29,059 $ 0.29 $ 0.31 $ 0.64 $ 0.84 (a) (b) (c) (d) (e) (f) caesarstone ltd. and its subsidiaries geographic breakdown of revenues by region three months ended september 30, nine months ended september 30, 2019 2018 2019 2018 (unaudited) (unaudited) $ 64,805 $ 61,933 $ 185,812 $ 179,041 28,642 33,968 82,150 97,603 21,881 25,140 65,400 75,844 10,683 9,709 30,190 30,625 10,149 9,170 28,936 25,735 6,679 7,769 19,619 24,142 $ 142,839 $ 147,689 $ 412,107 $ 432,990 (*) total revenues for the three and nine months ended september 30, 2019 and 2018 in the north american region were $86,686 and $251,212, and $87,073 and $254,885 respectively.
