MP MENASHE, Israel - Problems in production at Caesarstone's quartz-surface plants in Israel and the United States led to lower margins - and management changes - in this year's third quarter.
While the company recorded record worldwide revenues of $154.7 million in July through September, gross profits totaled $49.7 million … a nearly 15 drop from the same time last year.
Company CEO Raanan Zilberman, in a Nov. 1 conference call with Wall Street analysts, cited "challenges related to our manufacturing performances" for the decline.
And, as a result, new management personnel are in place at Caesarstone's two plants in Israel and its facility in Richmond Hills, Ga.
Zilberman noted that reduced manufacturing occurred at all three plants due to the company's shift in product mix to premium and brand-exclusive differentiated products. The change brought longer production-cycle times and longer setup times, which slowed product throughput and, as a result, product margins.
At the U.S. plant, Zilberman said, production problems were compounded by a week's downtime due to Hurricane Irma in September.
Changes last month included plenty of new personnel on both sides of the Atlantic.
"I have already placed a new leadership team in Richmond Hill," Zilberman said, "including a new plant manager, a new operation manager and few new department managers and a team of technical and manufacturing experts, all coming from Israel."
The Israeli facilities received two new plant managers, with Caesarstone rotating them and a new production manager, along with a series of improved processes for better time management. Zilberman also said a new global-operations vice president will be appointed.
And, to meet product demand, Zilberman said that Caesarstone will use some OEM production for basic products "under our strict specifications and our robust quality-assurance process."
The production changes tended to overshadow Caesarstone's generally positive sales in this year third quarter. in the United States, the $61.9 million in revenue showed a 6 hike from last year. Canada's $25.6 million in July-September noted a 14.2 gain from 2016.
The company felt the bite of other expenses in the third quarter. CFO Yair Averbuch also noted higher materials costs, related mainly to polyester prices.
The overall production and cost issues also caused Averbuch to turn the dial down slightly on Caesarstone's 2017 performance estimates. The revenue target went from a high of $595 million to $590 million, with the lower-range figure of $580 million staying the same. Earnings before interest, tax, depreciation and amortization (EBITDA), however, went from an initial range of $119 million to $126 million down to $100 million to $105 million.