Caesarstone Reports Second Quarter 2022 Financial Results
August 03, 2022 at 07:00 AM EDT
– Record Second Quarter Revenue up 10.3% to $180.3 Million; up 13.7% on a Constant Currency Basis –
– Net Income attributable to Controlling Interest of $11.1 Million, or $0.32 Per Share –
– Adjusted EPS of $0.20 –
– Adjusted EBITDA of $17.1 Million –
– In July 2022, Acquired a Leading Distributor in Sweden, Establishing First Direct Go-To-Market Presence in E.U. –
– Declares Dividend of $0.25 per share –
– Reiterates Full Year 2022 Outlook –
Caesarstone Ltd. (NASDAQ: CSTE), a leading developer and manufacturer of high-quality engineered surfaces, today reported financial results for its second quarter ended June 30, 2022.
Yuval Dagim, Caesarstone’s Chief Executive Officer commented, “We were happy to produce second quarter results that were in-line with our expectations as we demonstrated further progress against our multi-pronged growth strategy. We achieved our 6th consecutive quarter of double-digit year-over-year revenue growth, including nearly 20% growth in the U.S. while also implementing successful pricing actions that helped us continue to mitigate increasing costs of raw materials and shipping and improve our margins on a sequential basis. Our best-in-class product offerings, successful integration of our acquired businesses, and targeted efforts to enhance customer experience through the expansion of our digital platforms are all driving fundamental improvements across our business. Moving into the second half of 2022, we are introducing new product families across our regions and will evaluate additional pricing actions as needed. In line with our strategic plan, we are also enhancing our go-to-market strategy in Europe through the acquisition of a leading distributor in Sweden with annual revenues of ~$4 million, which we acquired in July 2022. With an estimated 60% to 70% of our business in our key markets tied to the historically resilient repair and remodel end market, I am confident that we have the right plan in place to deliver on our strategic objectives while navigating through a complex global environment. In doing so, we will continue to leverage our world-class brand, innovative go-to-market initiatives, and multi-material product offerings to drive additional value for our shareholders.”
Second Quarter 2022 Results
Revenue in the second quarter of 2022 grew 10.3% to a second quarter record of $180.3 million compared to $163.5 million in the prior year quarter. On a constant currency basis, second quarter revenue was higher by 13.7% year-over-year. Revenue growth was primarily driven by higher pricing across the majority of our global footprint particularly in North America.
Gross margin in the second quarter of 2022 was 26.4% compared to 28.0% in the prior year quarter. Adjusted gross margin in the second quarter was 26.4% compared to 28.1% in the prior year quarter. The year-over-year reduction in gross margin mainly reflects higher shipping and raw material price increases and unfavorable foreign exchange rate fluctuations, which were partially offset by favorable product mix and selling price increases.
Operating expenses in the second quarter of 2022 were $41.2 million, or 22.8% of revenue, compared to $40.6 million, or 24.8% of revenue in the prior year quarter mainly due to lower expense for legal settlements. Excluding legal settlements and loss contingencies, adjusted operating expenses were 22.1% of revenue, compared to 22.3% in the prior year quarter, mainly due to higher revenues.
Operating income in the second quarter of 2022 was $6.4 million compared to $5.2 million in the prior year quarter. The year-over-year increase mainly reflects higher gross profit and lower legal settlements and loss contingencies.
Adjusted EBITDA in the second quarter of 2022, which excludes expenses for non-cash share-based compensation, legal settlements and loss contingencies and for non-recurring items, was $17.1 million, representing a margin of 9.5%. This compared to adjusted EBITDA of $18.8 million, representing a margin of 11.5%, in the prior year quarter. The year-over-year decrease primarily reflects the lower gross margin.
Finance income in the second quarter of 2022 was $6.4 million compared to finance expense of $3.1 million in the prior year quarter. The difference was primarily a result of favorable foreign currency exchange rate fluctuations.
Net income attributable to controlling interest for the second quarter of 2022 was $11.1 million compared to $1.7 million in the prior year quarter. Net income per share for the second quarter was $0.32 compared to net income per share of $0.05 in the prior year quarter. Adjusted diluted net income per share for the second quarter was $0.20 on 34.6 million shares, compared to adjusted diluted net income per share of $0.21 in the prior year quarter on 34.5 million shares.
Balance Sheet & Liquidity
As of June 30, 2022, the Company’s balance sheet remained strong, including cash, cash equivalents and short-term bank deposits and short and long-term marketable securities of $62.2 million and total debt to financial institutions of $18.0 million.
The Company’s dividend policy provides for a quarterly cash dividend of up to 50% of reported net income on a year-to-date basis, less any amount already paid as dividend for the respective period (the “calculated dividend”), subject in each case to approval by the Company’s board of directors. No dividend is paid if it would be less than $0.10 per share. In accordance with the Company’s dividend policy, the board of directors declared a cash dividend of $0.25 per share for the three months ended June 30, 2022. The dividend will be paid on September 7, 2022 to shareholders of record as of August 17, 2022. The dividend payment is subject to withholding tax of ~20.5%.
The Company reiterates its expectation for 2022 revenue to be in the range of $710 million to $725 million, implying approximately 11% growth over 2021 at the midpoint, driven by volume and price improvements in its markets. Additionally, the Company reaffirms its expectation for Adjusted EBITDA as a percentage of sales to be similar compared to 2021, primarily attributable to higher sales and selling prices that are anticipated to offset increased costs in connection with raw material inputs, particularly polyester, and shipping.
Webcast and Conference Call Details
The Company will host a live webcast and conference call today at 8:30 a.m. ET to discuss the results, followed by a question and answer session for the investment community. The live webcast of the call can be accessed at ir.caesarstone.com. For those unable to access the webcast, the conference call will be accessible by dialing 1-877-451-6152 (domestic) or 1-201-389-0879, (international). The toll-free Israeli number is 1 80 940 6247. Upon dialing in, please request to join the Caesarstone Second Quarter Earnings Call.
To listen to a telephonic replay of the conference call, dial toll-free 1-844-512-2921 (domestic) or +1-412-317-6671 (international) and enter pass code 13730170. The replay will be available beginning at 11:30 a.m. ET on Wednesday, August 3, 2022 and will last through 11:59 p.m. ET on Wednesday, August 10, 2022.
Caesarstone is a concept and lifestyle-driven company with a customer-centered approach to designing, developing, and producing high-end engineered stone countertops, used in residential and commercial buildings. Our products offer superior aesthetic appeal and perfected functionality through a distinct variety of colors, styles, textures, and finishes used in diverse countertop applications, marked by inherent longevity. Strong commitment to service has fostered growing customer loyalty in over 50 countries where the Caesarstone product collections are available: Classico, Supernatural, Metropolitan and Outdoor. 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 (loss) to adjusted net income (loss) and net income (loss) to adjusted EBITDA are provided in the schedules to this release. To calculate revenues growth rates that exclude the impact of changes in foreign currency exchange rates, the Company converts actual reported results from local currency to U.S. dollars using constant foreign currency exchange rates in the current and comparable period. 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.
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" within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as “goals," “intend,” “seek,” “anticipate,” “believe,” “could,” “continue,” “expect,” “estimate,” “may,” “plan,” “outlook,” “future” and “project” and other similar expressions that predict, project or indicate future events or trends or that are not statements of historical matters. Such forward looking statements include statements regarding the Company’s sustainability goals and plans, intentions, expectations, assumptions, goals and beliefs regarding the Company’s business and sustainability vision. These forward-looking statements also may relate to the Company's plans, objectives and expectations for future operations, including estimations relating to the impact of the COVID-19 pandemic and mitigation measures in connection thereto, and expectations of the results of the Company’s business optimization initiatives. 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, both known or unknown. These factors include, but are not limited to: the impact of the COVID-19 pandemic on end-consumers, the effects of global economy and geo-politics on the Company’s business and operations; managing constraints in the global supply chain, raw material shortages, increased prices and effects of challenges in global shipping and transportation; Company’s ability to pass all or some of these increases to its customers; the strength of the home renovation and construction sectors; intense competitive pressures; disruptions to our information technology systems globally, including by deliberate cyber-attacks; the degree of the Company’s ability to develop, produce and deliver high quality and safe products; fluctuations in currency exchange rates against the U.S. Dollar; Company’s ability to raise funds to finance our current and future capital needs; Company’s ability to build-out and expand into certain markets and successfully integrate our acquisitions; the Company’s ability to effective manage its relationship with key suppliers; the outcome of silicosis and other bodily injury claims; regulatory requirements relating to hazards associated with our operations and products; efficiently manufacturing our products and managing changes in production and supply chain; economic conditions within any of our key existing markets; the success of our expansion efforts in the United States; the extent of the Company’s ability to meet its ESG goals and targets, management of GHG and other emissions; the impacts of conditions in Israel, such as negative economic, labor or geopolitical events; the unpredictability of seasonal fluctuations in revenues; disturbances to the Company’s operations or the operations of its suppliers, distributors, customers or other third parties and other factors, risks and uncertainties discussed under the sections "Risk Factors" and “Special Note Regarding Forward-Looking Statements and Risk Factor Summary” in our most recent annual report on Form 20-F filed with the Securities and Exchange Commission (the “SEC”) on March 15, 2022, and in other documents filed by Caesarstone with the SEC, which are available free of charge at www.sec.gov. 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.