CSTE - Caesarstone Ltd.

[tooskinneejs]

Caesarstone is an Israeli company that manufactures engineered quartz counter tops.  They are premium-priced compared to natural stone such as marble and granite.  45% of sales are in the U.S., 22% in Australia, 14% in Canada, 8% in Israel, and the remaining 11% in other countries.  Caesarstone sells to fabricators who in turn sell to contractors, builders, consumers, etc.  Counter tops are manufactured at 2 plants in Israel and 1 in the U.S.

 

Revenue has grown from $260 million in 2011 to $500 million in 2015.  Net income grew from $29 million to $79 million.  Net margins increased from 11% to 15%.  The Company anticipates full year 2016 revenue in the range of $524 million to $534 million. 

 

At December 31, 2015, total debt was about $15 million and shareholders' equity was $400 million.  Return on capital has averaged about 16% over the last 5 years.

 

Operating cash flow has been in the $75 to $85 million range in each of the years in the three year period ending December 31, 2015.  Capital expenditures have included the expansion of manufacturing capacity. In 2015, 2014, and 2013, capital expenditures were $76.5 million, $86.4 million, and $27.4 million, respectively.  For the nine months ended 9/30/16, capex dropped to $17 million.

 

The company is the defendant in many lawsuits related to silicosis, which is injury to the lungs from crushed quartz dust.  They have accrued about $15 million for such claims.

 

The company is currently valued at $990 million, or about $29 per share.  The 52 week range is $26 to $43.  Here is a link to their financial statements.

 

https://www.sec.gov/cgi-bin/browse-edgar?CIK=cste&owner=exclude&action=getcompany

 

Would love to hear your feedback on this company.  Full year 2016 results are expected to be announced on February 8th.

[atbed]

Check out the Spruce Point short presentation if you haven't already

 

When researching their products here in the USA, I also found cabinet retailers to be a helpful gauge of sentiment. I just don't think CSTE products are anything special. The feedback I got was that they are better than products on the low end, but its just another medium to high end brand. LT, competition from Chinese imports worry me.

 

That said, I like the quartz growth story. IMO the segment continues to take share. But I have a hard time seeing Caesarstone gaining share in the segment, even with their investments in sales & marketing. I believe they have to invest in price.

 

While I have it on my watchlist, I am in desperate need of a sales driver to hang my hat on because I just don't see a competitive advantage.