CSTE — Q2 2026 Financial Report Analysis

Caesarstone's second quarter of 2026 (three months to June 30) shows a company getting much cheaper to run while selling less. Revenue fell 4.5% to $96.6 million (down about 7.7% at constant currency, meaning with exchange-rate moves stripped out), dragged by a 14.1% drop in the U.S. and 17.4% in Canada. But gross margin rose to 24.0% from 19.6% a year earlier, mainly because the company closed its Bar-Lev plant in Israel and now buys more of its quartz slabs from outside production partners. The operating loss narrowed to $10.2 million from $12.6 million, and the net loss to $15.6 million ($0.45 per share) from $18.6 million ($0.54). The quarter's real news came after it ended: a new U.S. quota-plus-tariff on imported quartz from August 15 made management pull back on its promise of positive adjusted EBITDA in the third quarter.

At a glance

• Gross margin 24.0%, up 4.4 points. Each dollar of countertops sold now leaves more after production costs; cost of revenues fell 9.7% while revenue fell 4.5%.
• Adjusted EBITDA loss of $1.0 million, from $6.4 million. That is close to the break-even line the company was aiming to cross in Q3, before the new tariff.
• Cash of $51.8 million vs a $51.2 million silicosis legal provision. No bank debt, but the amount set aside for injury claims is about the same as the cash on hand.

Results

Gross margin is the share of revenue left after the direct cost of making the product. Operating margin is what remains after also paying for sales, administration and other running costs, before interest and tax; here it is negative because the company still lost money at that level. Adjusted EBITDA is the company's own measure of operating profit before depreciation, share-based pay, legal settlements, restructuring and other items it treats as non-recurring.

Where the margin came from

The company says the gross margin gain "mainly reflects the realization of cost savings associated with the Company's transition to its global network of production partners following the closure of its Bar-Lev facility." Depreciation fell to $1.6 million from $3.7 million in the quarter, consistent with fewer owned plants. Sequentially the trend is also up: Q1 2026 gross margin was 22.3%.

Part of the jump is not repeatable. The release says Q2 "also benefited from a refund received on account of previously paid U.S. IEEPA tariffs" (tariffs imposed under emergency-powers law that were later refunded). The amount is not disclosed, so we can't say how much of the 4.4-point gain it accounts for.

Below gross profit, sales and marketing spending fell 12.8% to $17.2 million, while general and administrative costs rose 6.6% to $10.1 million. Total operating expenses still rose to $33.4 million from $32.5 million because the charge for legal settlements and loss contingencies (money set aside for injury lawsuits) more than doubled to $4.8 million from $2.0 million. Excluding legal and restructuring items, operating expenses were 29.6% of revenue vs 30.1%.

Where sales went

North America is the problem: the Americas region fell 14.7% to $55.0 million, which the company attributes to "continued softness in global demand and competitive pressures, particularly in North America." The U.S. alone was 44% of quarterly revenue. Australia was the bright spot at +22.1%, but about half of that was currency: at constant exchange rates it grew 10.1%. EMEA (Europe, Middle East, Africa) fell 5.8%, or 9.8% at constant currency, so a weaker dollar flattered that figure as well. Israel grew 60.8% (32.4% at constant currency) but is only $5.1 million.

What the headline numbers hide

• Losses below the operating line are mostly currency, not cash. Finance expenses were $5.0 million, which the company says "result mainly from foreign currency exchange rate fluctuations." Of that, $4.2 million was a non-cash revaluation of lease liabilities (long-term rent obligations, many in Israeli shekels, that grow in dollar terms when the shekel strengthens). So the $15.6 million net loss overstates the cash damage, but the effect can swing either way in future quarters.
• GAAP vs adjusted gap is wide: $15.6 million net loss vs $3.4 million adjusted. The $12.2 million of after-tax add-backs are mainly legal settlements ($4.8 million), the lease FX revaluation ($4.2 million), residual costs of closed plants ($1.5 million), other restructuring-related items ($1.1 million) and share-based pay ($0.2 million). The legal charge is labeled non-recurring in the adjustment, but it has appeared every quarter: $8.6 million in the first half of 2026 and $5.4 million in the first half of 2025.
• Cash flow improved, mostly by selling down inventory. First-half operating cash flow was -$4.9 million against a net loss of $36.7 million, a big improvement on -$25.0 million a year earlier. But $17.7 million of that came from inventory falling to $76.3 million from $94.3 million at year-end, a 19% drop as production moved to partners. That is a one-time release; without it, operating cash outflow would have been about $22.6 million. Trade receivables were roughly flat ($48.7 million vs $48.3 million), so customers are not paying more slowly.
• Cash rose in Q2. Cash and short-term deposits were $51.8 million at June 30, up from $50.4 million at March 31 (after falling from $59.9 million at year-end). Capital spending in the first half was only $0.8 million vs $5.3 million.
• Shareholders' equity is shrinking fast. Total equity fell to $102.2 million from $139.2 million in six months, as losses (including a $5.8 million Q1 impairment of plant assets) eroded it.
• The silicosis claims are the largest balance-sheet risk. Caesarstone faces about 800 individuals alleging injury from crystalline silica dust (a lung disease risk for workers who cut and polish quartz slabs), about 600 in the U.S. It has a $51.2 million provision and $12.0 million of insurance receivables still in dispute with insurers. Most U.S. claims carry no provision because they are at an early stage. In Q2 it resolved four California claims and won a defense verdict in Colorado; earlier verdicts are under appeal. The company warns a negative change in its assessment "would have a material and adverse impact."
• Guidance moved backward. In May the Q1 release headline read "On Track to Deliver Positive Adjusted EBITDA in the Third Quarter of 2026." The Q2 release now says the company is "reassessing the timing of achieving positive Adjusted EBITDA."

Takeaway: The restructuring is working on cost: gross margin is up 4.4 points and adjusted EBITDA is almost at break-even even though sales fell. But the company can't yet show it can grow in North America, and with a new U.S. quartz tariff landing on 44% of its sales, the cost savings may now go to absorbing tariffs rather than reaching profit.

Outlook

Management gave no numerical guidance. The new U.S. measure, effective August 15, 2026 for four years, puts an extra 25% tariff on industry-wide quartz imports within an annual quota of about 13.0 million square meters (assessed quarterly) and 50% on imports above it, with rates easing and the quota growing over the following three years. Caesarstone says its U.S. market is served by its global production network (it has closed its own plants, including Richmond Hill), so the tariff applies to product it ships into the country. It says it will respond with "supply-chain, sourcing and pricing actions." Price increases would help margins but could worsen the volume losses already hitting North America.

Our read: Q3 2026 will be the first quarter with roughly six weeks of the new tariff. Three things to watch are whether gross margin holds above 22% without the one-off IEEPA refund, whether U.S. revenue declines steepen if the company raises prices, and whether cash stays above $50 million now that the inventory release is largely done. The legal provision relative to cash is the figure most likely to change the picture quickly in either direction. The release notes the full 2025 annual report on Form 20-F holds more detail on the legal proceedings; as a foreign private issuer, Caesarstone does not file a 10-Q, so this earnings release is the main quarterly disclosure.