North America's Profit Collapse: How Did a NIS 451 Million Segment End Up Almost Flat on Profit?

What This Follow-up Is Isolating

The main article argued that Kafrit's 2025 still held up on volume, but margin pressure had already started to bite. This follow-up isolates the place where that gap became most extreme: the North America segment.

This is not a side business. North America ended 2025 with NIS 450.8 million of external revenue, 34.9% of group sales, but only NIS 1.4 million of segment profit. In other words, the group's largest revenue segment contributed just 1.6% of the total segment profit pool. Once that is paired with just 47% utilization, versus 55% in Israel, 73% in Europe, and 76% in Asia, the core problem becomes hard to miss.

The thesis here is simple: North America did not lose the revenue line, it lost the economics of the revenue line. Sales stayed broadly intact, but they no longer covered the cost base of a large regional manufacturing platform well enough. And once management explicitly says that the recession in U.S. construction hit the North America segment especially hard, the picture comes together: weak end markets, too much capacity for the demand level, and profitability that was compressed almost to zero.

Revenue Barely Moved, but the Segment's Economics Broke

The first number to focus on is not profit by itself, but the gap between profit and revenue. North America segment revenue fell by only 1.6% in 2025, from NIS 462.8 million to NIS 455.6 million. That is a real decline, but not the kind of decline that should almost erase profit. In practice, segment profit collapsed by 92.1%, from NIS 17.9 million to NIS 1.4 million, and the segment margin fell from 3.88% to 0.31%.

This does not read like an ordinary demand setback. It reads like a platform that remained too large, too complex, and too expensive for the level of throughput it actually absorbed. If revenue had collapsed outright, this could be framed as a classic trough year. But when revenue barely moves and profit evaporates, the problem sits deeper: pricing, mix, capacity, and fixed-cost absorption.

That table shows why this cannot stay buried inside the consolidated read. Kafrit's biggest revenue segment became, by a wide margin, its weakest profitability segment in 2025. As long as that remains true, the group can keep reporting large sales, but earnings quality will depend too heavily on Europe and Asia.

There is also a direct read-through to the group's profit ceiling. Total segment profit reached NIS 87.2 million. North America, with roughly one third of the revenue base, contributed only NIS 1.4 million of that. This is not a small segment gap. It says that the group's largest regional platform generated almost no operating value in 2025.

47% Utilization in the Largest Platform Is a Red Flag

This is where the analysis moves from the top line into the segment's industrial structure. North America has the largest potential production capacity in the group, 52.9 thousand tons, equal to 30.5% of the group's total capacity. But only 47% of that capacity was actually utilized. That is the lowest utilization rate in the group, well below Europe and Asia.

That matters because North America is not a single plant having a bad year. The segment includes four manufacturing companies in the U.S. and Canada: POLYFIL USA, KAFRIT NA, ABSA RESIN CAN, and BADGER COLOR Concentrates. This is a full regional platform, not a small outpost. When that platform operates at less than half utilization, a meaningful part of the fixed-cost base simply does not get absorbed properly.

The segment note also shows how thin the margin became. Depreciation and amortization in North America reached NIS 18.6 million, more than 13 times segment profit. That does not automatically mean the segment was loss-making in cash terms, but it does show how little accounting profit was left once the asset base and amortization burden had been absorbed.

The geographic asset view makes the picture heavier still. The U.S. and Canada together hold NIS 281.2 million of non-current assets, 43.9% of the group's geographic non-current asset base. So the region with the weakest utilization and near-zero profitability is also the region carrying a very heavy asset layer. That is the point where market weakness becomes a return-on-capital problem, not just a sales problem.

Costs did not shrink with utilization. Headcount in North America rose to 319 from 305 even as segment revenue edged down. Most of the increase was not in operations, which moved only from 260 to 262 employees, but around the operating core: sales rose from 25 to 32, administration from 20 to 25, and lab and R&D from 55 to 64.

So even before talking about raw-material pricing or FX, the segment entered 2025 with a platform that did not get lighter. In simple terms, each North America employee was supported by roughly NIS 1.43 million of segment revenue in 2025, versus about NIS 1.52 million in 2024. That roughly 6% decline in revenue per employee is another sign that the platform was no longer operating at the same economic efficiency.

Why North America Was Hit So Hard

To understand why the squeeze concentrated here, the segment's product exposure has to be connected to the demand backdrop. Kafrit says North America has meaningful sales in packaging color concentrates and construction-market compounds. It then says explicitly that the recession in U.S. construction had an especially strong impact on the North America segment.

That is a meaningful link. When U.S. residential and commercial construction weaken, demand is hit in pipes, cables, flame-retardant polymers, and related industrial products. At the same time, Kafrit describes weakness in consumer products and food packaging, inventory reductions, and polymer oversupply that pressured the whole value chain. In North America, those pressures collided inside the segment that also carries the highest capacity base and direct construction exposure.

Tariff uncertainty added a second layer. Kafrit says the U.S. tariff program had a moderating effect on demand during the second half of the year. Even if some Canada-to-U.S. sales benefit from the CUSMA framework, the broader effect is still a more cautious market, customers placing orders more carefully, and a backdrop where it is harder to hold price or protect margin.

There is another interesting analytical clue here. Revenue by customer location in the U.S. and Canada fell together to NIS 293.3 million in 2025 from NIS 432.3 million in 2024, a decline of roughly 32%. At the same time, North America segment revenue was almost flat. That suggests, rather than proves, that the North America production platform maintained volume through sales outside its home market or through a different customer mix, but that this was not enough to protect profitability. In other words, the issue is not only how much the segment sold, but at what economics, into which markets, and under what level of cost absorption it sold.

That is the difference between revenue and earnings quality. Volume can be preserved through commercial flexibility, through mix shifts, or through broader geographic reach. Margin is much harder to preserve that way when utilization is low and home-market demand is weak.

What Has to Change Next

For North America to become a profit engine again rather than just a revenue engine, several things have to happen together:

• Utilization has to rise materially from 47%. As long as more than half the capacity base remains underused, clean profitability will stay difficult.
• U.S. end markets, especially construction and industrial demand, need to stabilize.
• The segment has to show that more than NIS 450 million of revenue can once again translate into a meaningful segment profit, not a symbolic one.
• The cost base around sales, administration, and development has to be supported either by a better mix or by tighter cost discipline.

The counter-thesis is clear, and it is intelligent: 2025 may simply have been a cyclical trough year shaped by a recession in U.S. construction and tariff-related uncertainty, and even a modest demand recovery could restore profit quickly because the operating leverage is still there. But as of year-end 2025, that is not what the numbers show. The numbers show a large platform that remained too heavy for the demand it actually absorbed.

Conclusion

North America is not just another weak segment inside Kafrit. It is the group's largest revenue segment, which means that when it ends up almost flat on profit, it sets a ceiling on the whole 2025 earnings story. NIS 450.8 million of external revenue and NIS 1.4 million of segment profit is not a small deviation. It is evidence that the regional platform is too large for the current demand base, or for the current demand base at the economics on which it is being served.

Looking ahead, the key question is not whether North America can keep selling. It already showed that it can defend revenue. The real question is whether it can return to absorbing costs, lifting utilization, and improving mix so that a segment representing one third of the group once again produces profit that matches its scale. Until that happens, North America's weakness remains the sharpest test of Kafrit's margin story.