Earnings call transcript: Caesarstone Q2 2025 reveals earnings miss, stock dips

Caesarstone Ltd (CSTE) reported its second-quarter 2025 earnings, revealing a larger-than-expected loss and significant revenue decline. The company posted an adjusted diluted net loss per share of $0.33, missing the forecast of $0.17. Revenue fell to $101.1 million, down from $119.4 million the previous year, and below the expected $109.8 million. Following the earnings release, the stock dropped 6.78% in pre-market trading, closing at $1.65. It later fell further to $1.5, marking a 71% decline year-to-date and trading near its 52-week low of $1.48. InvestingPro analysis shows the stock has significantly underperformed, with a concerning 67% decline over the past year. InvestingPro subscribers have access to 15+ additional insights about CSTE’s valuation and financial health.

Key Takeaways

• EPS missed forecasts by $0.16, reflecting ongoing profitability challenges.
• Revenue declined by 15.6% year-over-year, missing expectations.
• Stock price fell 6.78% in pre-market and declined further post-market.
• Company continues cost optimization, achieving $55 million in savings since 2022.
• Expanding product innovation with a focus on porcelain development.

Company Performance

Caesarstone faced a challenging quarter as it continues to navigate a difficult market environment. Revenue decreased significantly across most regions, with notable declines in the US and Australia. Despite these challenges, the company is pushing forward with its strategic transformation, focusing on cost optimization and product innovation to regain profitability.

Financial Highlights

• Revenue: $101.1 million, down from $119.4 million YoY
• Earnings per share: -$0.33, compared to -$0.14 in the previous year
• Gross Margin: 19.6%, down from 22.9%
• Adjusted EBITDA: Loss of $6.4 million, compared to a loss of $0.1 million last year
• Cash Position: $75.6 million, Net Cash: $72.4 million, Total Debt: $3.2 million. According to InvestingPro data, the company maintains a healthy current ratio of 2.17, indicating strong short-term liquidity. However, the company is quickly burning through cash, with negative free cash flow of $23.16 million in the last twelve months. Discover comprehensive financial analysis in CSTE’s Pro Research Report, part of InvestingPro’s coverage of 1,400+ US stocks.

Earnings vs. Forecast

Caesarstone’s earnings per share fell short of expectations by $0.16, and revenue missed forecasts by $8.7 million. The EPS surprise was -94.12%, highlighting the company’s struggle to meet financial targets amid declining sales and margin pressures.

Market Reaction

The stock reacted negatively to the earnings miss, dropping 6.78% in pre-market trading. It further declined to $1.5, close to its 52-week low of $1.48. This movement reflects investor concerns about the company’s financial trajectory and ability to achieve its strategic goals.

Outlook & Guidance

Looking ahead, Caesarstone expects to face ongoing tariff impacts on US products, with potential increases of 15-25%. The company is evaluating pricing actions to protect margins and is confident in achieving higher profitability as volumes improve. It plans to continue strategic transformation initiatives and expand its product offerings. InvestingPro’s Financial Health Score indicates WEAK overall health, with particularly low scores in profitability and price momentum. Based on InvestingPro’s Fair Value analysis, the stock appears to be trading below its intrinsic value, though significant risks remain.

Executive Commentary

CEO Yoshiran emphasized the company’s commitment to aligning its cost structure with market conditions, stating, "We are taking decisive actions to align our cost structure and improve profitability." CFO Nahum Trost highlighted the company’s financial resilience, noting, "Our balance sheet provides us with the financial flexibility to navigate near-term headwinds."

Risks and Challenges

• Continued revenue decline in key markets such as the US and Australia
• Pressure on gross margins due to lower production levels and competitive pricing
• Potential adverse effects from regional conflicts, particularly in Israel
• Tariff impacts on US products could further strain profitability
• The need for ongoing expense control and strategic transformation

Q&A

During the earnings call, analysts questioned the impact of silica cases on US demand, which the company stated has shown no evidence of affecting sales. Concerns were also raised about the gross margin decline, attributed to lower production levels and regional conflicts. The company reiterated its commitment to strict expense control and strategic initiatives.

Full transcript - Caesarstone Ltd (CSTE) Q2 2025:

Conference Operator: Greetings, and welcome to Caesarstone Second Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brad Cray of ICR.

Thank you. You may begin.

Brad Cray, IR Representative, ICR: Thank you, operator, and good morning to everyone on the line. I am joined by Yoshiran, Caesarstone’s Chief Executive Officer and Navum Trost, Caesarstone’s Chief Financial Officer. Certain statements in today’s conference call and responses to various questions may constitute forward looking statements. We caution you that such statements reflect only the company’s current expectations and that actual events or results may differ materially. For more information, please refer to the risk factors contained in the company’s most recent annual report on Form 20 F and subsequent filings with the SEC.

In addition, on this call, company will make reference to certain non GAAP financial measures, including adjusted net loss income, adjusted net loss income per share, adjusted gross profit, adjusted EBITDA, and constant currency. The reconciliation of these non GAAP measures to the most directly comparable GAAP measures can be found in the company’s second quarter twenty twenty five earnings release, which is posted on the company’s Investor Relations website. On today’s call, Joss will discuss our business activity and Nuhoom will then cover additional details regarding financial results before we open the call for questions. Thank you and I would now like to turn the call over to Yoss. Please go ahead.

Yoshiran (Joss), Chief Executive Officer, Caesarstone: Thank you, Brad and good morning everyone. Thank you for joining us to discuss our second quarter twenty twenty five results. Our second quarter results reflect persistent softness, mainly in repair and remodel activity across the industry. We are taking decisive actions to align our cost structure and improve profitability. To that point, during the quarter, we initiated incremental cost reductions that are expected to bring an additional $10,000,000 of annualized savings commencing in the 2025.

This adds to the approximately $10,000,000 in incremental cost savings we are already on track to realize in 2025 compared to 2024. Combined, this brings our total annualized cost savings since initiating our transformation to over $55,000,000 compared to 2022. These measures add to the benefits we are attaining from our improved production footprint. We have shifted over 70% of our production to our global manufacturing network, which provides us with enhanced operational flexibility. We continue to expand our production partnerships to further reinforce our competitiveness.

Regarding our porcelain business, we are accelerating product development and expanding our porcelain portfolio to capture growing market opportunities in this attractive product category. In Australia, we continue to make solid progress with our zero crystalline silica products, ensuring our compliance with regulatory requirements, while strengthening our competitive position. During the quarter, we completed development and launch of the full zero crystalline silica collection. In our other markets and in Australia, we expect to launch additional innovative products during the remainder of the year as well as for the next year. As we move forward, we remain focused on investing in our strategic transformation initiatives to better position Caesarstone to scale efficiently.

The structural improvements we’ve made, including cost reductions and operational enhancements, position us well to achieve higher levels of profitability as volumes improve. I’ll now turn the call over to Nahum to review our financial results in more detail.

Nahum Trost, Chief Financial Officer, Caesarstone: Thank you, Joss, and good morning, everyone. Looking at our second quarter results, global revenue was $101,100,000 compared to $119,400,000 in the prior year quarter. On a constant currency basis, second quarter revenue was down 15.6% year over year due to lower volumes resulting from continued global economic headwinds affecting activity across all channels in addition to competitive pressures. In The U. S, sales declined by 17% to $49,600,000 mainly reflecting softer market conditions in the residential channel, including business through strong suppliers, as well as challenges in the commercial segment.

Our business with Lowe’s remained the bright spot, increasing in double digit percentages compared to the 2024. Australia sales were down 18.2% on a constant currency basis, reflecting the continued shifts in that region following the government’s silica ban that became effective on 07/01/2024, combined with slower demand due to high interest rate and fewer new home completions. Canada sales decreased by 12.5% on a constant currency basis with softer performance in our core business mainly due to market conditions, partially offset by higher levels of big box activity. EMEA sales remained relatively stable, increasing by 0.7% on a constant currency basis. This reflects solid performance across both our direct and indirect channels, driven by stronger volumes and favorable order timing.

Our expanded direct presence in Germany also contributed positively to the EMEA results. Israel sales declined by 21.6% on a constant currency basis, mainly given the impact of the regional conflicts during the quarter. Looking at our second quarter P and L performance. Gross margin was 19.6% compared to 22.9% in the prior year quarter. Adjusted gross margin was 19.7% compared to 23.8% in the prior year quarter.

The difference in gross margin was mainly driven by lower volumes and production, which resulted in lower fixed cost absorption and unfavorable product mix. These factors were partially offset by the ongoing benefits from our improved production footprint and continued cost optimization initiative. Operating expenses in the second quarter were $32,500,000 or 32.1% of revenue compared to $36,600,000 or 30.6% of revenue in the prior year quarter. Excluding legal settlements and loss contingencies and restructuring and impairment expenses, operating expenses were 30.1% of revenue compared to 28.2% in the prior year quarter. The increase as a percentage of revenue primarily reflects the impact of lower revenues against our relatively fixed cost base.

Though we have made progress in absolute cost reduction and continue to closely monitor controllable expenses. Adjusted EBITDA in the second quarter was a loss of 6,400,000 compared to a loss of $100,000 in the prior year quarter. The year over year decline in adjusted EBITDA primarily reflects lower revenues and gross margins. Adjusted diluted net loss per share for the second quarter was $0.33 on 34,700,000 shares compared to adjusted diluted net loss per share of $0.14 in the prior year quarter on 35,000,000 shares. Now turning to our cash flow and balance sheet.

We ended the quarter with a solid financial position. As of 06/30/2025, our balance sheet included total cash of $75,600,000 and total debt to financial institutions of $3,200,000 Our net cash position was $72,400,000 as of 06/30/2025. We continue to see the benefits of subleasing the majority of available land and building at our Zodiac facility and reiterate our expectation to generate cash savings of approximately $3,000,000 during 2025. With regard to our Richmond Hill site, we have granted the potential buyer the right to acquire the site at the price approximating its book value. The potential buyer has commenced the due diligence.

Now I’d like to update you on a few matters. Regarding the multitude of U. S. Tariffs announced since April, we continue to actively assess the potential impact. As of August 1, based on our mix of sources, we estimate the tariff impact in the range of 15% to 25% on products sold in The US.

The US represents approximately half of our total revenues. Based on our current inventory levels, we expect the impact of these tariffs to be more pronounced as we move through the year. We are evaluating pricing actions in The U. S. To balance market competitiveness with margin protection.

Regarding bodily injury claims, as of 06/30/2025, we were subject to lawsuits involving four twenty three injured persons alleging injuries associated with exposure to respirable crystalline silica dust. These cases are spread across Israel, Australia, The United States. We have recorded a provision of $44,900,000 representing our assessment of probable and estimable exposure. With insurance receivable for silicosis related claims totaling to $25,600,000 During the quarter, one U. S.

Silicosis claim was litigated and the jury found in favor of the defendants, including Caesarstone. We are encouraged by this outcome, pending post trial motions and potential appeal. So for accounting purposes, we estimate the loss for 25 of the remaining U. S. Cases is only reasonably possible with a range between 500,000.0 to $13,000,000 per claim.

The other claims are at an early stage in which the amount of the possible loss cannot be reasonably estimated this time, given the preliminary stages, complexity of the claims, and the uncertainty as to our liability, and the scope of the insurance coverage. In addition, California state courts are now acting to coordinate between certain aspects of the silicosis cases in the state and are awaiting the appointment of the coordination judge. So this process could change the timing of the future litigation. Looking ahead, we are confident that the structural improvements we have made to our business model will enable us to achieve higher levels of profitability on current sales levels. We remain focused on disciplined execution of our transformation strategy with the additional cost reduction measures we’re initiating during the quarter expected to contribute to further improvement in our cost structure.

Our balance sheet provides us with the financial flexibility to navigate near term headwinds, while continuing to invest in our strategic priorities. We believe these investments, combined with our enhanced operational framework, position us well to capitalize on accretive opportunities as we move forward. With that, we are now ready to open the call for questions.

Conference Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2.

At this time, we will pause momentarily to assemble our roster. The first question comes from Ruben Garner with Benchmark. Please go ahead.

Ruben Garner, Analyst, Benchmark: Thank you. Good morning, everyone.

Nahum Trost, Chief Financial Officer, Caesarstone: Hi. Good morning.

Yoshiran (Joss), Chief Executive Officer, Caesarstone: Good morning.

Nahum Trost, Chief Financial Officer, Caesarstone: So

Ruben Garner, Analyst, Benchmark: just wanna start with question on the revenue in The US. Any signs that the silica cases in Australia are impacting demand in The States? I know it’s a softer market. It’s just tough to see, you know, other industries that are related not kind of seeing the level of declines. Is there something specific about the category or your products or your markets that’s leading to more pressure than others?

Yoshiran (Joss), Chief Executive Officer, Caesarstone: No. Hi, Ruben. It’s Joss. No. I don’t think there is a connection between the Australian cases to The US.

We have enough cases in The US today. And anyway, I don’t think that it’s there’s any any impact on on demand. We are suffering because of other reasons, but not because of this reason.

Ruben Garner, Analyst, Benchmark: Okay. And then on the gross margin line, can you talk about, you know, it looks like there was a little bit, you know, maybe the top line was comparable to a little bit up Q1 to Q2, but the gross margin fell 150 basis points. That was a little surprising. Can you talk about what changed quarter over quarter there? What cost pressures incremental cost pressures did you see on the cost of goods front?

Nahum Trost, Chief Financial Officer, Caesarstone: Yes, Ruben, it’s Nachim. Hi. So the small decline compared to Q1 relates partially to the production levels that we had in our Herbalev plant here in Israel, partially also as a result of the conflict that we experienced here during June, the production levels in our plant here in Barlev were lower, which resulted in lower fixed cost absorption, which impacted negatively the overall gross margin. In addition to that, we are adjusting prices to remain competitive in the market, so this also impacted the second quarter gross margin.

Ruben Garner, Analyst, Benchmark: How much were prices of the 15 or 16% revenue decline, how much was priced year over year versus volume?

Nahum Trost, Chief Financial Officer, Caesarstone: Year over year prices were 6.5%, six fifty basis points. So this was one major impact compared to last year. Other impact, as I said, was the lower production utilization, two fifty basis points. On the positive side, our improved production source mix, we reached to a 70% level, improved gross margin by four fifty basis points and also lower inventory charges improved the gross margin compared to last year by three twenty basis points. So those were the main items.

Ruben Garner, Analyst, Benchmark: Okay, and then you implemented some cost saving actions. The second quarter SG and A came in really low. I mean, it already start happening there in Q2? Or was that from previous actions? And we could see SG and A move lower sequentially through the year as some of the actions you’ve had to take hold?

Nahum Trost, Chief Financial Officer, Caesarstone: I think you’re right. It’s a combination between actions that we took in previous quarters plus a very tight control over those expenses that are within our control. And we have been doing that in recent quarters and we continue to plan and we continue to do that also in future quarters to closely monitor those expenses. So it’s a combination, we still did not see the impact of the incremental $10,000,000 of savings. Those actions that we took will impact Q3 and Q4 and down the road.

Ruben Garner, Analyst, Benchmark: Great. That’s it for me, guys. Thank you so much, and good luck going forward.

Nahum Trost, Chief Financial Officer, Caesarstone: Thank you.

Conference Operator: Thank you. This concludes our question and answer session. I would like to turn the conference back to Yoshiran for any closing remarks.

Nahum Trost, Chief Financial Officer, Caesarstone: Thank you for your attention this morning. We look forward to updating you on our progress also next quarter. Thanks a lot.

Conference Operator: Thank you. The conference now has concluded. Thank you for attending today’s presentation. You may now disconnect.

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