Caesarstone Reports Fourth Quarter and Full Year 2014 Results

Caesarstone Reports Fourth Quarter and Full Year 2014 Results
  • Q4 Revenue Up 17.4% to $113.6 million
  • Q4 Net Income Attributable to Controlling Interest Up 20.1%; Diluted EPS of $0.58
  • FY14 Revenue Up 25.5% to $447.4 million
  • FY14 Net Income Attributable to Controlling Interest Up 23.8%; Diluted EPS of $2.22
  • Company Issues FY15 Guidance, Expects Continued Growth
MP MENASHE, Israel--(BUSINESS WIRE)-- Caesarstone Sdot-Yam Ltd. (NASDAQ:CSTE), a manufacturer of high quality engineered quartz surfaces sold under its premium brand, today reported financial results for its fourth quarter and fiscal year ended December 31, 2014.
Revenues in the fourth quarter of 2014 increased by 17.4% to $113.6 million compared to $96.8 million in the prior year. On a constant currency basis, fourth quarter revenue growth was 22.7% year-over-year. Growth was primarily driven by ongoing strong demand in the United States, the Company's largest market, which rose 43.1% compared to the same period in the prior year.
Yosef Shiran, Chief Executive Officer, commented, "We are pleased to report another strong quarter and full year record for both sales and earnings. We are excited by the continuing global opportunity to build our brand and grow our business, supported by the commencement of our new US-based manufacturing operations. We will seek to reinforce our leadership position, serve increasing global demand, and continue to create value for our customers, our partners and our shareholders."
Gross margin in the fourth quarter was 43.0%, unchanged compared to the prior year period. Significant favorable mix associated with our differentiated product and benefits of scale was offset by negative exchange rate fluctuations, strong growth from IKEA, which includes lower-margin fabrication and installation revenues, and, to a lesser extent, higher quartz prices.
Operating expenses in the fourth quarter were $25.9 million, or 22.8% of revenues. This compares to the prior year fourth quarter's level of $21.8 million, or 22.5% of revenues. Operating leverage was offset by increased general and administrative expenses. The Company noted that in addition to other items, it began to incur, in the fourth quarter, general and administrative expenses associated with building organizational infrastructure in anticipation of commencing manufacturing at its new facility in the United States.
Operating income in the fourth quarter was $23.0 million, an increase of 16.3% compared to $19.8 million in the fourth quarter of 2013.
Adjusted EBITDA, which excludes share-based compensation expense, the excess cost of acquired inventory and other nonrecurring costs, increased by 16.1% to $28.1 million in the fourth quarter, a margin of 24.7%. This compares to adjusted EBITDA of $24.2 million, a margin of 25.0% in the fourth quarter of the prior year.
Finance income in the fourth quarter was $0.9 million compared to finance expense of $0.4 million during the same period in the prior year. The change was predominantly related to the impact of foreign exchange rate fluctuations.
The Company reported net income attributable to controlling interest for the fourth quarter of $20.4 million, compared to $17.0 million in the same quarter in the prior year. Diluted earnings per share for the fourth quarter were $0.58 on 35.44 million shares, compared to $0.48 on 35.39 million shares in the prior year. On an adjusted basis, diluted earnings per share in the fourth quarter were $0.59 compared to $0.49 in the prior year.
Construction of the Company's U.S. manufacturing facility in Richmond Hill, Georgia remains on time, and the Company continues to expect its sixth and seventh lines to begin production in the second quarter and fourth quarter of 2015, respectively. The Company noted that start-up costs associated with the first and second lines in its U.S. facility are expected to be incurred principally in the first and third quarters whereas revenues from these lines are expected to be generated in subsequent quarters in each case.
Full-Year Results
Revenues for the full year of 2014 grew by 25.5% to a record level of $447.4 million as compared to $356.6 million in 2013. On a constant currency basis, growth was 28.4% year over year. Revenue grew in all regions except Israel, led by the United States, which grew by 50.4% and remains the Company's largest market.
Full-year gross margin was 42.4%, a decrease of 310 basis points compared to the prior-year. The Company noted that this year's margin includes $0.8 million of non-recurring cost related to an adjustment of provision for taxable employee fringe benefits and the prior year included $3.5 million of credit related to a change in the value of inventory. Excluding these items, a gross margin decline of 190 basis 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, higher quartz prices.
Operating expenses in 2014 were 21.1% of revenue compared to 24.2% in the prior year, reflecting the benefits of scale and increased volume.
The operating income margin in 2014 was 21.2%, in line with the prior year at 21.3%. Excluding the items mentioned above, operating margin increased 110 basis points, reflecting strong operating expense leverage.
Adjusted EBITDA in 2014 increased by 27.1% to $116.6 million, a margin of 26.1%, compared to $91.7 million, a margin of 25.7%, in fiscal 2013.
Adjusted net income attributable to controlling interest for the full year of 2014 increased by 29.0% to $82.5 million, compared to the fiscal 2013 level of $64.0 million. Adjusted diluted earnings per share were $2.33 in 2014, compared to $1.82 in the prior year.
The Company's balance sheet as of December 31, 2014 remained solid with cash and bank deposits of $54.3 million, after total capital expenditures of $86.4 million during 2014 and a $0.57 per ordinary share dividend paid during the fourth quarter. This compares to $92.2 million as of December 31, 2013.
The Company today issued guidance for the full-year of 2015. Taking into consideration, among other items, current exchange rates and the temporary inefficiencies associated with opening its new U.S. manufacturing facility, it expects its 2015 revenues to be in the range of $515 million to $525 million, and adjusted EBITDA to be in the range of $123 million to $129 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, February 11, 2015, at 8:30 a.m. ET to discuss the results of the fourth quarter and fiscal year ended December 31, 2014, followed by a question and answer session for the investment community. A live webcast of the call can be accessed at To access the call, dial toll-free 1-888-417-8465 or +1-719-457-2727 (international). Israeli participants can dial in at 1-80-924-5906. The pass code is 6022869. 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 6022869. The replay will be available beginning at 11:30 a.m. ET on February 11, 2015 and will last through 11:59 PM EST February 25, 2015.​
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 50 countries around the world. For more information about the Company, please visit our website (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 risk factors and uncertainties 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; changes in raw material prices, including quartz, particularly polymer resins and pigments; fluctuations in currency exchange rates; unpredictability of seasonal fluctuations in revenues; the outcome of silicosis claims and the claim by our former quartz processor; fluctuations in currency exchange rates; delays in manufacturing if our suppliers are unable to supply raw materials; and other factors discussed under the heading "Risk Factors" in the final prospectus for our initial public offering 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.