The members of Kibbutz Yizre’el in northern Israel must have been extremely concerned when they witnessed the share price of pool cleaning robot maker Maytronics (TASE: MTRN) drop by nearly 30% in a single day after disappointing first quarter financial results were released. This sharp decline in share price resulted in approximately NIS 1 billion being wiped off the company’s market capitalization, most of which was owned by the kibbutz, holding 56% of Maytronics.
Just two-and-a-half years ago, the shares held by the 300 members of Kibbutz Yizre’el were valued at over NIS 5 billion. However, since then, Maytronics’ share price has plummeted by 74%, and the value of their holding now stands at just NIS 1.3 billion, a decrease of NIS 3.6 billion from its peak. This equates to a paper loss of around NIS 13 million for each kibbutz member.
Despite this, the company has still generated significant value for the kibbutz compared to the NIS 180 million offer for their shares that was rejected by the members in 2012 from Maytronics’ US competitor Hayward. Even after the share price collapse, Maytronics has delivered a return of several hundred percentage points since then. Along the way, the kibbutz has sold a portion of its holding to financial institutions for a total of NIS 230 million (in 2017 and 2020).
Prior to the impressive rise in Maytronics’ share price in 2020-2021, the company’s financial results had been declining, resulting in the fall of the share price from its peak in November 2021 to a level reminiscent of four years ago.
Over the past few years, the company’s management has attempted to convey optimism and assert that the issues would soon be resolved, leading to a resurgence in growth for Maytronics. In their 2023 financial report, the company forecasted revenue growth of 4-8% in 2024 and stated that following a significant accumulation of stocks at its distributors which impacted its 2023 results, “the decrease in stock levels at the beginning of 2024 supports a recovery in the sales volume of robots for cleaning private pools.”
However, when Maytronics, led by Sharon Goldenberg, released its first quarter 2024 financial results yesterday, investors were surprised to discover that no such recovery had occurred. The company reported a substantial decrease in revenue and profit compared to the same quarter in 2023 and significantly reduced its guidance. The revised forecast now anticipates revenue in 2024 to range from 2% below to 4% above the 2023 figure of NIS 1.9 billion.
For the first quarter, Maytronics disclosed a 13% reduction in revenue to NIS 456 million, a 26% decline in gross profit to NIS 177 million, and a decrease in the gross margin from 46% in the corresponding quarter to 38% in the current quarter. Operating profit decreased by 48% to NIS 60 million, and net profit fell by 55% to NIS 39.7 million. Compared to the first quarter of 2022, the decline in net profit was 65%. The company’s backlog of orders also dropped by 48% compared to the end of the first quarter last year, amounting to just NIS 192 million.
Investors, taken aback by the news, hurried to sell their stock, resulting in a nearly 30% decline today, lowering Maytronics’ market capitalization to only NIS 2.3 billion, down from a peak of NIS 9.1 billion, destroying NIS 6.8 billion in value. The former CEO, Eyal Tryber, who guided the company to peak profits and value, departed the company in time, just before the downturn. His successor, Sharon Goldenberg, who previously served as the company’s CFO, has had to manage the decline in both.
Maytronics specializes in developing and selling robots for cleaning private and public swimming pools, along with related products such as pool covers and drowning prevention devices. The company generates the majority of its revenue and profit in the first half of the year, leading up to the summer months when pools are opened. Its customers, primarily distributors in North America, Europe, and Oceania, make purchases from January to July, making the first quarter traditionally strong for the company.
The decline in the company’s results can be attributed to the luxury nature of its product, which becomes less popular during periods of high inflation and interest rates affecting consumers. During the pandemic, when individuals were confined to their homes, distributors accumulated high stock levels, which remained unsold as the pandemic subsided, impacting the company’s sales.
98% of Maytronics’ sales are exports, shielding it from the effects of the Swords of Iron war, and even benefiting slightly from a 3.1% devaluation of the shekel against the US dollar and the euro, adding NIS 12 million to its quarterly revenue.
It may be premature to dismiss the company
Despite the setback, it may be premature to write off Maytronics entirely. As the largest manufacturer of pool cleaning products, the company estimates it holds approximately half of the market share, with the next two largest competitors each holding around 20%. Based on Maytronics’ projections, it anticipates revenue of NIS 1.85-1.96 billion this year.
In its 2023 annual report, Maytronics outlined its goal of achieving revenue of NIS 3.2-3.6 billion in 2028 and an operating profit margin of 14-18%. While growth may be limited this year, for those who choose to have faith in the company’s forecasts presented just a few months ago, it is expected to grow by 14% annually in the years ahead.
Published by Globes, Israel business news – en.globes.co.il – on May 22, 2024.
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