Caesarstone Ltd. (CSTE) Q3 2026 Earnings Call Transcript

And welcome to the Cesar Stone Third Quarter 2026 Earnings Conference Call. 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.

Thank you, Operator, and good morning to everyone on the line. I am joined by Yost Sheran, Caesars Stone's Chief Executive Officer, and Nahum Tross, Caesars Stone'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, the 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 third quarter 2026 earnings release, which is posted on the company's Investor Relations website. On today's call, Yoss will discuss our business activity, and Nahum will then cover additional details regarding financial results. Thank you, and I would like to now turn the call over to Yoss. Please go ahead.

Thank you, Brad, and good morning, everyone. The third quarter marked an important milestone in our efforts to restore Caesarstone's profitability, with meaningful progress in our underlying business as reflected in our results. We achieved near-break-even adjusted EBITDA, an improvement of nearly $8 million compared to the third quarter of last year. For the fourth consecutive quarter, we expanded gross margin year-over-year to 25%, an increase of 800 basis points, and on an adjusted basis, gross margin was close to 27%. These results show that the structural changes we have implemented across our business are delivering benefits. With all of our Quartz products now produced by our global production partners, Caesarstone has a lower cost base, a more flexible operating model,

and a stronger foundation for sustainable profitability.

Global revenues were $96.3 million, similar to the second quarter,

and 7.2% lower than last year in constant currency,

mainly reflecting soft demand and competitive pressure in the U.S. In the U.S., we are working closely with our key customers to strengthen our position, and our big box channel grew year over year, led by IKEA. In Canada and EMEA, our revenues were stable and close to last year's levels on a constant currency basis.

Australia grew for the fifth consecutive quarter,

as our zero silica icon collection has supported regaining our leading position in this important market. We continue to invest in the Caesarstone brand, in product innovation, and in our porcelain offering, which remain our long-term growth drivers. Market conditions remain challenging, and our team is executing with discipline, serving our customers well and keeping our costs lean. Our goal is to build on this progress and reach positive, adjusted EBITDA on a sustained basis. And we will keep taking the actions needed to get there. Separately, we strongly disagree with the recent jury verdict in California and will consider our available post-trial remedies as we evaluate its impact on our business. In the meantime, we will continue to focus on serving our customers around the world. I will now turn the call over to Nahum.

Thank you, Jos, and good morning, everyone. Looking at our third quarter results, global revenue was $96.3 million compared to $102.1 million in the prior year quarter.

On a constant currency basis,

revenue decreased approximately 7.2% year-over-year, mainly reflecting competitive pressures and continued soft global demand, particularly in the U.S. This was partially offset by continued growth in Australia. Breaking down our regional performance, U.S. revenue was approximately $38.8 million, compared to $46.7 million in the prior year quarter, a decrease of 16.9%. The decline was mainly due to lower quotes volumes in our core business. Demand remained soft in commercial projects, including new development, and in sales through storm suppliers. Big-box revenue improved year over year, driven by strong performance with IKEA. Canada revenue decreased 0.7% on a constant currency basis, compared to the prior year quarter. Growth in our IKEA business in Canada helped offset lower revenue in our core business. The core decline reflects lower housing completions and a slow market. In Australia, revenue was $22.4 million, compared to $18.5 million in the prior year quarter, an increase of 12.2% on a constant currency basis.

Australia has now grown year-over-year for five consecutive quarters.

Our Zero Silica Icon products continue to support this recovery. Although overall demand in Australia remains soft. EMEA revenue increased 0.8% on a constant currency basis, mainly reflecting the timing of shipments and our continued investment in the region. In Israel, revenue decreased 24.9% on a constant currency basis, mainly reflecting slow market conditions and the timing of the Jewish holidays. Looking at our third quarter P&L performance, gross margin was 25.4% compared to 17.3% in the prior year quarter, an improvement of 810 basis points, and up 140 basis points sequentially from 24% in the second quarter. Adjusted gross margin, which excludes residual costs related to our closed plants. was 26.9% compared to 17.3% in the prior year quarter. The improvement mainly reflects cost savings realized from closing our Bar-Lev facility and shifting production to our global production partners. Third quarter gross margin also included a refund of approximately $0.9 million on previously paid U.S. IEEPA tariffs. These benefits were partially offset by higher tariffs and freight costs. Operating expenses were $81.4 million, representing 84.6% of revenue, compared to $33.7 million, or 33% of revenue, in the prior year quarter. The increase in total operating expenses was driven by higher legal settlements and lost contingencies expenses. As previously disclosed, we and our subsidiaries, including Caesarstone USA Incorporated, are defendants in a number of cases alleging injuries related to exposure to silica particles while fabricating our products. On October 26th, a California jury rendered a verdict in one such case and apportioned 69% of default to Caesarstone. or approximately $46.8 million if assessed without modification. We strongly disagree with the jury's verdict and will consider our available post-trial remedies. The verdict has created significant uncertainty regarding the company's financial condition. For more information on this matter and other legal updates, please refer to our earnings release issued today. Excluding legal settlements and loss contingencies, impairment and restructuring, operating expenses improved to 28.8% of revenue from 29.1% in the prior year quarter. Adjusted EBITDA in the third quarter of 2026 was roughly break-even, at a loss of $0.1 million, compared to a loss of $7.9 million in the prior year quarter, and a loss of $1 million in the second quarter of 2026. The year-over-year improvement was driven mainly by the higher gross margin and the savings delivered by our cost reduction initiatives. Finance income was $1.2 million, compared to finance expenses of $1.8 million in the prior year quarter, primarily due to changes in foreign currency exchange rates. Net loss attributable to controlling interest was $56.1 million, or $1.62 per share, compared to $18.1 million, or $0.52 per share, in the prior year quarter. Adjusted diluted net loss per share was $0.05 on 35 million shares, compared to $0.40 on 34.6 million shares in the third quarter of 2025. Turning to our cash position and balance sheet. As of September 30, 2026, our net cash position was $50.7 million, with no debt to financial institutions. Compared to $51.8 million as of June 30th, 2026.

Now, let me provide an update on several items.

Our restructuring actions continue to deliver higher savings, and this is reflected in our third quarter gross margin. Inventory produced at Barlev represented a small portion of our third quarter revenue, and we expect to sell the vast majority of the remaining Barlev inventory held by our subsidiaries by the end of the year. Once fully implemented, the bar-left closure is still expected to deliver approximately $22 million in annualized cash savings, with potential for additional savings if we sublease space under the non-cancellable long-term lease for the facility. Together with our earlier actions, we expect total annualized savings to exceed $100 million by 2027, measured against full year 2023. Turning to the U.S. tariff environment, most of the products we bring into the U.S. remain subject to broad-based import tariffs at an average rate of approximately 15%. The U.S. accounted for approximately 40% of our third-quarter revenues, served by our global production network. The Quartz-specific tariff rate quota took effect on August 15th for a four-year period. In the first year, the industry quota is approximately 13 million square meters, assessed on a quarterly basis.

Imports within the quota carry an additional 25% tariff. And imports above the quota carry an additional 50% tariff.

Over the following three years, the tariff rates gradually decline and the quota gradually increases. We estimate the annualized impact of these additional tariffs, which apply on top of existing tariffs, at between $10 million and $15 million. We implemented price increases in the U.S. in September to help offset this impact. We are also reviewing additional sourcing and supply chain changes to reduce the impact of these tariffs. Thank you for joining us this morning. We appreciate your support and look forward to update you next quarter.

Thank you. The conference has now concluded. Thank you for attending today's call.

You may now disconnect.

Thank you.