Q2 2020 Caesarstone Ltd Earnings Call
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Right.
Thank you Brad Grey you may begin.
Thank you operator, and good morning, everyone.
I'm joined by evolved the game Caesarstones Chief Executive Officer.
And no fear you Cobian Caesarstones 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 the 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.
Form 20-F.
Subsequent filings what does he see.
In addition on this call the company will make reference to certain non-GAAP financial measures.
Including adjusted net income.
Adjusted net income loss per share.
Adjusted gross profit.
Adjusted EBITDA.
In 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 2020, <unk> earnings release, which is posted on the company's Investor Relations website.
Thank you and I would now like to turn the call over to you.
Please go ahead.
Thank you Brad and good morning, everyone.
I'm incredibly proud of our entire team for their commitment to excellence and consistent improvement during the second quarter.
I think so loved the earnings calling me we've continued to work hard to manage so the fall, reaching im talked of Colby. Thank Jim to protect the health and will be equal falling please great partners and customers.
Well I listened to safety remains a top priority.
She's just some team is focused on operational performance and financial strength.
These dynamic environment.
By being adopted.
We were able to quickie rightsize, our resources and continue to safely deliver our premium content offerings.
Several global footprint.
Well ducting <unk> strong financial position either <unk>.
We have taken steps to improve working capital and maintain our liquidity.
As we look back to those decisive actions.
We believe we have sold so effectively mitigated the impact of various economic limitations and showed that I placed guidelines that were beyond the public unfolds.
We were encouraged to see sequential demand improvements in June.
<unk> business is the open and consumer adapt to the new essentially since the reality.
This led to second quarter results that were better than expectations at the onset of the pandemic.
Our full global regions.
We could do to focus uncontrollable factors, such as managing cost Pacific I was strong capital position and flexible capacity as needed to appropriately addressed the man.
Why do we work to maximize the market opportunity into the into the recovery.
We also keeping a sharp focus on executing many structural business enhancements as part of all global growth acceleration plan.
Even as we reduced capex as part of the integration to the situation will still I look at the resources and executing against the plan to prove up business over the long through the mail in areas of product innovation go to market capabilities technology and production processes.
We could do to investing in innovation.
And we're very excited to be that was strong pipeline of new models. We are launching this year and plan to introduce to the markets in the coming months.
In addition.
With winning celebrities outdoor collection to be rolled out last quarter has opened new markets for us.
We've been doing it to make sure the progress when improvements to our go to market approach, including greater use of technology to leverage I will do chill capabilities and these new environment.
As we move into the balance of two dozen 20.
Confident you know ability to continue improving couple of sequential revenue performance as the recovery takes hold.
We believe of strong financial resources talented with falls into solar PV investments position us to deliver.
When our long term approach to value creation.
And with that let me turn to go a little bit will feel we provide details on our results and outlook.
Thank you bought and good morning, everyone.
Before I begin I would like to remind you that a significant portion of our business is tied to residential repair and remodel.
Recent months the combination of shuttering plays guidelines, social dispensing practices and overall economic uncertainty of collectively pressured demand, resulting in significant pressure to both top and bottom line.
A positive note.
The box were much more pronounced in every lender or business momentum improves as we progressed into second quarter.
With that backdrop for.
For the second quarter of Twentytwenty, Nobody revenues were not was $99 billion compared to $141.1 billion into second quarter last year.
On a constant currency basis second quarter revenue was lower by 28.5 per cent compared to the same period last year.
As you both mentioned diesel is better than already set expectations.
Onset of Shuddering place guidelines implemented across our global footprint.
Experienced the majority of the out versus your revenue impact <unk>, primarily in our Americas region.
However, since that time, we're encouraged to see improved business activity as more of our customers opened.
Business and the men began to return.
In July global sales decline in the high teens percent range year over year, reflecting an improving trend in says performance compared to the second quarter.
Talking about don't markets, we have seen various pandemic related impacts.
In the Americas Shuttering plays guidelines to be made in place.
Okay and June in many cases, but to have now been lifted across most of the U.S. in Canada.
The U.S. Ikea stores were closed for the majority of the second quarter, which not really had an unfavorable impact.
This was partially offset by increased activity compared to last year. The big books channel at home depots stores, where we have in new and expanding presence.
Canada performance also remains affected by soft housing and remotely markets combined with intense price competition, primarily from China.
India Epic region, we have seen various pandemic related impacts.
In Australia.
Relatively better performance than other countries due to the government's effective response in controlling the virus at the onset of the pandemic.
That said the soft market conditions that existed prior to that but that make coupled with more intense competition rested on favorable factors impacting the market.
In the EEMEA region, both our indirect and of course says were impacted by government locked down due to quote 19, although we have seen some improvement starting June.
He needs of at the corporate 19 impact on our business into second quarter has been relatively less severe I was very strong says in June drove mid single digit topline growth and the second quarter.
Looking at our second quarter piano performance.
Margin performance and bottom line results.
But better than our initial expectations at the onset of the pandemic, particularly driven by our swift actions to control costs.
Adjusted gross margin was 20.5 per cent compared to 27.3% in the prior year quarter.
The lower year over year, adjusted gross margin, mainly reflects north says volume and less favorable to regional and product mix.
As well as currency exchange headwinds that were partially offset by lower raw material prices.
Excluding legal settlements and loss contingencies operating expenses for the quarter benefited primarily from previous efforts of our global growth acceleration plan to improve efficiencies combined with tight cost control form our business continuity measures driving lower marketing it says expenses.
As well as lower general and administrative expenses.
Last quarter, we discuss some of the actions we have taken to improve our financial position given Corbin 90.
As part of that we limited capital expenditure and the Lady investment related to our global growth acceleration there.
I see men level normalized.
Backed by our strong balance sheet.
And talk celebrate our actions to improve our position by deploying more resources into our global golf acceleration thing.
We continue to evaluate all levels of production capacity than we'd expected demand.
To date, we are pleased with our ability to flex capacity, England to all inventory.
Each has helped us carefully manage our working capital.
Well the fed water, we expect the sequential improvement in volume to how favorable impact on gross margin.
The second.
Furthermore, last quarter, we took necessary actions to improve our cost structure, including moving portion of our workforce part time or reduce chief.
That's what else for like portion or employees and freezing hiring.
You have now begun to bring some employees back to full time.
We're also beginning to bring marketing and promotional spend budgets gradually back to more normal levels, particularly in areas where demand is returning although we continue to enact strict controls over non essential expenditures.
We believe we have a strong financial position of fleet and the flexibility required to support our global operations into the coming quarters.
Our prudent efforts to control costs <unk> working capital to improve our operational structure and manage production capacity have collectively allowed us to preserve substantial cost for the cash position one how does that the million dollar as of June Thirtyth Twentytwenty.
As we move forward, we are confident that distressed strength of our balance sheet will allow us to continuously executing against our plan to improve our business and market position.
With that.
Turn to called back to vote for closing comments.
Thank you will feel.
We remain committed to our strategy to accelerate our goals as a premium content to market leader.
As we look to the balance of doesn't 20, we're cautiously optimistic for the recovery to continue steadily strengthening demand environment.
We can do need to see promising market opportunities in North America as economies recover and we believe the underlying consumer interest.
<unk> strong 12, best in class cutting edge designs.
As we look to the coming quarters and use it had we remain confident you know ability to leverage our strings to become a better performing business and to generate fill the value for shareholders.
Look for would drop it did you feel don't know progress next quarter.
Thank you.
We're not ready to open the call for questions.
Thank you very much.
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One moment, please widely 44 questions.
The first question is from a line of Rueben Garner from Benchmark company. Please go ahead.
Thank you good morning, everybody.
Hi, urban so.
So maybe we can start with the demand that you're seeing here recently you mentioned a couple of times improvements you mentioned improvements in the month to month in June and then you gave a.
A global number in the month of July can you can you maybe.
Maybe narrowed down a little bit more what what are you seeing specifically in the Americas. The men are there other ariads or.
Maybe pressure that are offsetting some improvement in certain markets and what does that all translate to as far as expectations for demand overall in the third quarter.
Yes, sure they need to have been thinking that much of the question I.
I think I'd say, probably because talking today, maybe they are the overview.
We do see we do we are experiencing the markets being.
So the only opened the golden to the changes over the long downs in the shutdown in places like guidelines and market by market overall, we do see although <unk> revenues and volumes you may being improved four month to month.
As for July we have mentioned that there will still less beyond just dealing the in the high teens.
As we as we experienced in July, but we are seeing a gradually improving for make wants to go. So all in all the globally, we all experiencing an improvement full man it quarter to quarter, if things get if it comes to the into the U.S. business. It's a relatively similar similar situation.
Although some differences between the different markets in the U.S.
Okay, and then within the U.S. are there any particular.
Markets that that you're exposed to geographically that.
Maybe you were hurt more by the shutdown and if so.
Or is there a situation where you've got some pent up demand potentially as we move into 21. If there. If there is a vaccine or you know reopening of the economy, where maybe you have a more of the snap back than some other building products because you've been.
Impacted more.
[noise] I think that we are experiencing the and the change in volumes and demand. It goes into development. The development of the pandemic in there in the each of the regions, where though there's a second wave will work that's been running good L. you would the first wave I think okay, you do see greater impact.
In the in New York <unk> region than others, but I think it's also the time to maybe to mention Ikea that.
And well probably close most over there and the stores were closed most of the second quartile and just started to open in late June and July.
Okay and.
So.
How how would you how should we think about the your margin maybe decremental margins are it businesses continued to be down over the next couple of quarters. How do you think about decrementals in the back half of the year. It sounds like you've made a lot of moves to your to your cost structure can you just help us.
With the puts and takes there.
Indeed.
I think we entered the you know coping 19 environment.
In a relatively healthy position.
On the back of the actions, we do get its second half of last year, including some structural changes and streamline and simplify operations and taking a significant cost out of the business, including reducing inventory. So.
Yeah.
The way we entered the Covenant thing was the relatively healthy position and you can see named the amount of cash that we that we had at the end of it.
Fourth quarter last year and also the they ended the first quarter this year.
Having said that we a quick very quickly it took some math and decisions on the on the changing although business in quarter, two day to Lisa Cohn, new bottom and some of which was Oh.
Full humidity limiting our capital expenditure and making sure that we are investing only behind those essentially <unk> project.
I think on working capital, whether it's what we've said customers and I supply is.
And then nothing more than anything else and this is important also to live because it has impacted the they owe gross margin he's looking all day.
Being very flexible without plants and production and we did the expense of 2019, where we reduced inventory.
To do the 11, we wanted to be Hey, we are taking the same exercise. These units will obviously comes on the account all the overall gross margin and the plants I'm not what do you can.
You know the to preserve our distribution.
Got it and then.
It's hard for the baseball metaphor here, but what are the global growth acceleration plan you mentioned that a couple of times you know I know you started to see some progress before before that the virus or unfolded. It can you just.
You talk about what inning you are in in that ER that plan you know I know, it's tough to gauge your progress with with the closures everywhere, but you should we expect when when things are open back up that you you will well I guess it can you give us any update on where you are.
What inning, you are not in that plan and just provide us with with some updated thoughts.
Yeah that would mean.
Then the global both social plan.
It was announced a.
Late second quarter loves to you and I think its jose another another good to be able to fool entering dam the equivalent I've seen business environment, because we all would be a company. This these programs well. These plan, we say structural changes and they're working on old company culture, especially putting up in 15.
The top of ability so when we get into this but do you don't and lease pandemic at times when does the business. He is more focused on health and safety.
Hey, REIT structure, including the regional structure and walk you know culturally pulling it was a good bit to start weve and yet it wouldn't be come to that specific.
And programs all project seem to although the global both in social plans and we all had nothing to say if now when we see a beautiful beautiful improvements you know revenues to come back to those projects.
Yeah, that's oh, suppose that though will be improving over the growth or helping us due to growing up you know company.
Things as some growth engines, you know you know business and we sold them back we say with rock investment. So we can start to finish the ceiling. Starting next year. You know you know how good positioning for like with a bit of base to where it too.
Demonstrates our goal for next year and some of those project wouldn't be around the looking on the on the right I mean, they are for us, especially around maybe materials all geographic of spend so we are working to see what kind of opportunities. We are finding the markets at the moment.
Well I was looking on the on there and tools to get to have a greater engagement with a custom ism consumers.
We are launching new products I knew I I pulled out some some of which I will just some color, but also you called out new Newport. That's it can that can I am they'd be out of the house and now when people are more saying more with house and looking at the big killed and having good although I was obviously for the acquired clubs in the big killed.
As well and the gardens. These season, you and you initiative is so we will kind of touching the business in few areas and we all can we continue to invest behind those don't project that will be delivered growth in the in the short term and along with them.
Great and a one just final follow up for me on that same note. So I'm hearing what sounds like to be or some investment that you're going to continue to make even even with everything going on globally is it fair to say that you're you know that you're comfortable.
We're making those investments even though the topline is is clearly impacted by everything going on with the virus that maybe you are willing to take some near term pain, because you see the opportunity longer term today to grow the business.
Yeah, I think it's a it's a very fair statement.
Yeah, I think is it the way we have controlling cash only the company's also demonstrating.
You know all hands on approach and how close we all do it operated the business there and they do I I think it quite effective way, we finish share the second pool.
With that 100 million, Matt Dolan, even though they are you know cashier position and very similar to how we entered the they go but nothing environment. So I.
Good good control around these issue and we think we all think make what comfortable to look on a few opportunities that might be in dimmock and to see if we can.
Invest behind those.
Great. Thank you got so much him and best of luck are going forward and stay safe.
Thanks, very much woman.
Thank you.
Anyone who is just asked a question Chris.
On the touched on telephone.
You would like to remind participants that you may ask start and want to ask a question.
There are no further questions at this time.
I would like to turn the floor well what comes.
I wanted to talk infant CEO for closing comments, well what do you use.
Thank you the N. Thank you for your attention. This morning, we look forward to updating you on our progress next quarter.
Thank you.
Thank you very much.
Ladies and gentlemen, this concludes todays teleconference. You may disconnect your lines at this time.
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