The members of Kibbutz Yizre’el in northern Israel must certainly have pulled their hair out when they saw the share price of pool cleaning robot maker Maytronics (TASE: MTRN) plunge by nearly 30% in a day following the release of disappointing first quarter financials. The collapse of the share price wiped about NIS 1 billion from the company’s market cap, most of which was sustained by the kibbutz, which holds 56% of Maytronics.
Just two-and-a-half years ago, the value of the shares held by Kibbutz Yizre’el’s 300 members was more than NIS 5 billion. Since then, however, Maytronics’ share price has fallen by 74%, and the value of their holding is just NIS 1.3 billion, down by NIS 3.6 billion from the peak. This translates into a loss on paper of about NIS 13 million for each kibbutz member.
Still, this is a company that has created impressive value for the kibbutz in comparison with the NIS 180 million offer for their shares that the members rejected in 2012 from Maytronics’ US competitor Hayward. Even now, after the collapse of the share price, it has generated a return of hundreds of percentage points since that time. Along the way, the kibbutz has sold part of its holding to financial institutions for a total of NIS 230 million (in 2017 and 2020).
Those sales preceded the impressive rise in Maytronics’ share price in 2020-2021, when the Covid-19 pandemic led to a sharp rise in demand for private pool cleaning products, boosting the company’s results. In the past two years, however, the results have been in sharp decline, reflected in the fall in the share price from the peak it reached in November 2021 to its level of four years ago.
In the past couple of years, the company’s management has tried to broadcast optimism and to claim that the problems will be over at any moment and Maytronics will return to growth. In its 2023 financials, the company projected revenue growth of 4-8% in 2024, and claimed that after the large accumulation of stocks at its distributors that caused the hit to its 2023 results "the decline in stock levels… at the start of 2024 support a return to growth in the volume of sales of the robots for cleaning private pools."
Yesterday, however, when Maytronics, headed by Sharon Goldenberg, released its financials for the first quarter of 2024, investors were surprised to discover that nothing of the sort had happened. The company reported a steep drop in revenue and profit in comparison with the corresponding quarter of 2023, and, even more importantly, cut its guidance sharply. It now sees revenue in 2024 being between 2% below and 4% above the 2023 figure of NIS 1.9 billion.
For the first quarter, Maytronics reported a 13% decline in revenue to NIS 456 million, a 26% decline in gross profit to NIS 177 million, with the gross margin (as a percentage of sales) falling from 46% in the corresponding quarter to 38% in the current quarter. Operating profit fell 48% to NIS 60 million, and net profit fell 55% to NIS 39.7 million. In comparison with the first quarter of 2022, the fall in net profit is 65%. The company’s orders backlog also plummeted, by 48% in comparison with the end of the first quarter last year, to just NIS 192 million.
Stunned investors rushed to offload the stock, which, as mentioned, tumbled by nearly 30% today, bringing Maytronics’ market cap down to just NIS 2.3 billion, which compares with a peak of NIS 9.1 billion, destruction of value of NIS 6.8 billion. The previous CEO, Eyal Tryber, who led the company to peaks in profit and value, left the company in time, just before the deterioration. His successor, Sharon Goldenberg, who was the company’s CFO, has had to cope with the slide in both.
Maytronics develops and sells robots for cleaning private and public swimming pools and ancillary products (pool covers, devices for preventing drowning and so on). The company generates most of its revenue and profit in the first half of the year, in advance of the opening of pools in the summer months. Its customers (mostly distributors in North America, Europe, and Oceania) buy in January-July, so that the first quarter is traditionally its strongest.
The hit to the company’s results is mainly an outcome of the fact that it makes a luxury product that becomes less popular when inflation and high interest rates are hurting consumers. During the pandemic, when people were locked in their homes, its distributors built up high stocks, which remained with them when the pandemic receded, depressing the company’s sales.
98% of Maytronics’ sales are exports, and so it has hardly been affected by the Swords of Iron war, and even benefited slightly from a 3.1% depreciation of the shekel against the US dollar and the euro, which added NIS 12 million to its quarterly revenue figure.
Too soon to write the company off
Even after the slump, it’s not certain that we should be writing Maytronics off. The company is the largest manufacturer of pool cleaning products, and estimates that it holds a share of half of its market, with the two next largest competitors holding about 20% each. Translating Maytronics’ guidance into numbers, it expects revenue of NIS 1.85-1.96 billion this year.
In its annual report for 2023, Maytronics stated that it was aiming at NIS 3.2-3.6 billion revenue in 2028 and an operating profit margin of 14-18%. So while it probably won’t grow by much this year, for anyone who nevertheless chooses to believe the forecasts that the company presented only a couple of months ago, it is supposed to grow by 14% annually in the coming years.
Published by Globes, Israel business news - en.globes.co.il - on May 22, 2024.
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