A slowdown in the U.S. market took a bite out of quartz surface manufacturer Caesarstone's (CSTE 5.38%) business momentum this quarter. The company today posted sales results that were below expectations. But profits came in surprisingly high as net income jumped by 25%.
Here's a big-picture look at how the results held up against Wall Street's targets:
| Metric | Expected* | Actual |
|---|---|---|
| Revenue | $134 million | $128 million |
| Profit | $0.62 per share | $0.65 per share |
*Expected is the average forecast of the three analysts who cover the stock. Source: Yahoo! Finance and Caesarstone's financial filing.
A Caesarstone countertop. Source: Caesarstone.
Sales and profit growth
As usual, Caesarstone's U.S. market led the way for revenue growth. Sales improved by 19% here, which helped push global sales up by 10% for the quarter. "We continue to benefit from the strong Caesarstone brand supported by our powerful global marketing strategy, innovative and inspiring designs, and excellent quality," said CEO Yosef Shiran.
Still, that 19% U.S. gain represents a significant slowdown from last quarter's 28% bounce. And management sees the relative weakness continuing for at least the next few quarters: Executives dialed back their 2015 sales outlook on the basis of "slightly lower than expected U.S. growth," according to the press release.
The good news is that Caesarstone logged two impressive efficiency wins this quarter. Gross profit margin inched higher, rising to 41.3%, and operating expenses fell from 21% of sales to 19%. As a result, operating income rose at twice the pace that revenue did, translating into an improvement of 2 percentage points in its net profit margin to 18% of sales.
Caesarstone is already benefiting from the reduced costs associated with its new U.S. manufacturing plant. The first of two production lines at the Georgia plant is running now, and the second line should open by the end of the year. Investors can expect further improvement in profitability as more production shifts to the U.S.
Table by Caesarstone. Source: Caesarstone.
2015 outlook
That improving financial efficiency gave management confidence to reiterate its full-year profit outlook today. Caesarstone expects to book adjusted earnings of $129 million in 2015, for a 10% improvement over last year's result. That reaffirmed guidance comes with a downgraded sales outlook, though, as the U.S. market isn't growing as quickly as management had hoped.
But executives are optimistic that there is plenty of demand growth ahead for Caesarstone's engineered surfaces in markets around the world. "Each of our major markets is healthy, even with the headwinds from currency exchange rates, and continues to present significant opportunities. We look forward to capturing those opportunities to continue driving long-term growth and value for our shareholders," Shiran said.
