Quartz surfaces manufacturer Caesarstone (NASDAQ:CSTE) on Wednesday morning posted mixed fourth-quarter earnings results. Sales and profit growth were right in line with the company's targets, but they fell just below Wall Street's expectations. Caesarstone also issued a soft 2015 outlook that could send the stock lower in trading today. Shares fell 6% immediately following the release.
Solid fourth-quarter results
In the quarter that just closed, huge gains in the U.S. market outweighed sales dips in other parts of the world. Caesarstone booked 43% higher revenue in the United States on increasing demand for its quartz countertops, vanities, and flooring. That was a slight slowdown from the prior quarter's 48% boost.
However, sales fell in the relatively smaller markets of Europe and Israel. Overall, revenue climbed 17% to $114 million; Wall Street was looking for $117 million. Caesarstone ended 2014 with annual sales up 26% to $447 million, on the high end of management's upgraded guidance issued in early November.
Fourth-quarter profit was $0.58 per share, again just below analysts' target. Caesarstone's profitability held steady at 43% of sales compared to the year ago period. But there were a few moving pieces behind that flat result. On the plus side, the company sold more high-margin products in the quarter. However, those gains were offset by currency fluctuations, by growth in its low-profit IKEA business, and by increasing quartz prices.
Expenses ticked higher, up to 23% of sales. The main culprit was spending on infrastructure for the company's first U.S. manufacturing plant. Management said the Richmond Hill, Ga., facility is on track to launch one of its two production lines in the first quarter of 2015, with the second line starting later in the year. Ramp-up costs should pinch results in the first and third quarters of this year, the company warned. But the payoff in terms of lower production and transportation costs will come later.
For the year ahead, management projected $520 million in revenue at the midpoint of guidance, representing 16% growth over 2014. Yes, that suggests a major slowdown from last year's 26% sales boost. But foreign currency changes will drag on 2015's results, as will the ramp up of Caesarstone's new plant. Despite those short-term challenges, management is optimistic the company has a long runway for growth ahead. CEO Yosef Shiran said in a press release, "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."
Even with the manufacturing spending, management expects overall profitability to grow in 2015: Adjusted earnings should improve to $125 million, or 7% higher year over year.