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Caesarstone Gets Home Improvement Spending Lift

Posted
3/18/2014 2:40:00 PM
By: Investor's Business Daily
Referenced Stocks:CSTE;MHK;MAS;FBHS

The red carpet may be where Hollywood's glitterati make their grand entrance to the Oscars gala. But the chic Architectural Digest "Greenroom" lounge backstage is the hot spot where presenters and winners gather during the show.

The Israeli maker of quartz surfacesCaesarstone Sdot-Yam ( CSTE ) helped create the ambiance in this year's Greenroom at the Oscars, from which celebrities such as Anne Hathaway, Channing Tatum and Kevin Spacey posted selfies onTwitter ( TWTR ) as they watched the March 2 Academy Awards show. Caesarstone partnered with Hudson furniture to furnish the Greenroom, designed by architect David Rockwell, with a custom-made main bar. Caesarstone's other pieces included a buffet tabletop and minibar.

The company's fast-growing business reaches well beyond its work on the Oscars Greenroom, though.

Back At The Ranch House

Most of the quartz surfaces that Caesarstone makes are installed as countertops in residential kitchens. Other applications for its products include vanity tops, wall panels, back splashes and floor tiles.

Its collections of products -- Classico, Supremo, Motivo and Concetto -- are available in more than 40 countries. The company claims that it is the largest provider of quartz surfaces in Australia, Canada, Israel, France and South Africa, and it has "significant market share" in the U.S. and Singapore.

Business has been thriving for the company as it benefits from a nice uptick in remodeling spending in the U.S. -- where it has a strong position -- amid a recovering housing market.

Caesarstone has enjoyed double-digit profit growth since its market debut on March 2012.

In its most recent fourth quarter, earnings rose 53% to 49 cents a share. Sales climbed 27% to $96.8 million. Followers see Caesarstone keeping up its momentum. Analysts polled by Thomson Reuters expect 2014 earnings to rise 22% to $2.22 a share. They expect a 17% jump in 2015.

Revenue growth continued its acceleration into year-end 2013, principally driven by growth in the U.S., the company's largest region, said CEO Yosef Shiran in a statement announcing the results. U.S. sales surged 59.2% from a year earlier.

"We believe these results demonstrate the realization of our quartz penetration vision and our robust position in the U.S. market," Shiran said on the fourth-quarter conference call. "We continue to see a very large growth opportunity as the adoption rate for quartz is still low, relative to our other key markets. We set a solid base in 2013 and believe we will also benefit from improving housing starts and remodeling activity."

During the quarter, Caesarstone finished rolling out its quartz countertops at 38 Ikea stores in the U.S., which gave the company a nice lift in sales, Shiran said. Caesarstone has an agreement with Ikea U.S. to serve as its exclusive nonlaminate countertop vendor.

Shiran said both Ikea and Caesarstone "have been pleased to see a good reaction from consumers."

Though analysts see cold and rough weather in parts of the U.S. this winter having some effect on remodeling activity, they don't see it deterring big projects over the long run.

Big Improvements

Americans' spending on home remodeling showed no signs of slowing and appeared "likely to continue its strong trend through at least 2014," according to the Piper Jaffray home improvement survey by analyst Peter Keith that was released in November 2013.

"Our survey work and our conversations with retailers and suppliers associated with home improvement suggest there still is healthy consumer demand for remodeling projects, but for larger-ticket remodeling projects a lot of it is still the release of pent-up demand," Keith told IBD. "The strength in 2013 and continuing in 2014 is largely the release of pent-up discretionary remodeling projects put on hold during the recession."

Through his survey work Keith also found that the size of remodeling projects is on average continuing to go up.

"People may have started with painting, then moved to flooring and redoing the bathroom, and then moved onto redoing the kitchen," said Keith, who follows the home improvement industry, but not Caesarstone. "Moving onto bigger projects seems to be gaining momentum."

He says the outlook for larger-ticket remodeling, including kitchen revamps, looks very "healthy" for 2014.

However, "there appears to have been a pause in general remodeling activity for December through February, which seems to be weather driven," he said. "What's good about bigger-ticket remodeling projects is that homeowners won't cancel the project."

Keith says once homeowners decide to do a bigger-ticket project they just postpone it if the weather conditions are bad and wait until the conditions get better to start it.

Improvements in the economy and the jobs picture as well as income growth drive the strength in home remodeling, says Keith. And rises in net worth from stock market gains are supporting larger-ticket purchases.

Home price appreciation has given people more "confidence that they're not going to lose money on their remodeling investments," he said.

According to Jerry Hillard, production manager at Top Master, a wholesale fabricator of countertops in Kansas City, Kan., "business is pretty good."

Top Master works with kitchen and bath shops, home centers, remodelers, designers, architects and builders.

"We had a great 2013 and we're forecasting 2014 to be very strong as well," Hillard said. "I think things are up."

He says housing in the Midwest is doing well and new construction is coming back.

Sprucing Up And Staying

A lot of home dwellers are opting to stay in their homes and fix them up, he says. That includes baby boomers, who want to stay in their houses longer and are looking to upgrade their homes.

Caesarstone is also faring well overseas, particularly in Europe.

Europe sales in the fourth quarter grew by 51% to $6.6 million and by 44% on a constant currency basis. "This was driven by our ability to fully close on pent-up delivery backlog which was created in connection with the change of our ERP system," Shiran said on the latest quarter's conference call.

Caesarstone is a part of IBD's Building-Construction Products industry group, which is ranked No. 22 of 197 groups tracked and dominated byMohawk Industries ( MHK ),Masco ( MAS ) andFortune Brands Home & Security ( FBHS ). Caesarstone is 10th largest by market cap among the 37 companies.