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Holly LaFon
Holly LaFon
Articles (8090) 

Ron Baron Cuts Stake in Company With Declining Earnings

Baron Funds sells half its position in CaesarStone

August 10, 2017 | About:

Ron Baron (Trades, Portfolio)’s firm New York-based Baron Funds has chopped in half its position in CaesarStone Ltd. to 3.85% from 7.7%, according to GuruFocus Real Time Picks.

Baron made the sale on July 31, at a price around $35 per share, and filed the change on Aug. 10. He had held Israel-based CaesarStone Ltd. (NASDAQ:CSTE) stock for more than five years, seeing it climb to around $69 per share in 2015 and fall to his recent sale price. Overall, from an average estimated sell price of $28 and average buy price of $36, he made a total estimated gain since the second quarter of 2012 of 19%.

The quartz surfaces manufacturer has seen its stock price decline by more than a third in the past year, closing Wednesday at $28.90, and suffered a steep drop Aug. 1, the day before Baron sold. The weakness continued despite a change in CEO in September.

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David Kirshenbaum, a portfolio manager at Baron Funds, was looking for a recovery in the first quarter last year after the stock retreated when investors learned a new manufacturing facility failed to meet production targets on time.

“We remain positive on our investments in CaesarStone, as earnings growth continues to accelerate from successful new product launches and quartz market share gains vs. other countertop materials, such as granite and marble,” Kirshenbaum said in a note just over a year ago.

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CaesarStone’s earnings have been in decline since 2015, falling from $2.19 per diluted share in 2015 to $2.08 in 2016. For the trailing 12 months, EPS totals $1.75, with quarterly declines since June 2016, except for the most recent quarter.

For the recent June quarter, CaesarStone met record quarterly revenue, increased 4.6% to $148.9 million, primarily from sales growth in the U.S. and Canada. Net earnings declined to $14.9 million or 42 cents per share, from 25.4 million or 73 cents per diluted share in the prior-year quarter.

Gross margins at CaesarStone also slipped to 34.9% compared to 42.1% in the same period of 2016. The company attributed the contraction to increased prices for polyester, lower manufacturing due to a shift toward more sophisticated products and higher required costs at its U.S. plant, Richmond Hill.

CaesarStone maintained its guidance for full-year 2017 at $580 million to $595 million and guided for EBITDA in the lower end of its expected range of $119 million to $126 million.

See Ron Baron (Trades, Portfolio)’s portfolio here.


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