Plasson in the First Quarter: Margin Recovery Depends on Raw-Material Pass-Through

In the first quarter, Plasson gave the first real proof that the margin erosion seen in 2025 was not necessarily structural damage to its pipe-fittings core: revenue grew, gross margin improved, and operating profit rose much faster than sales. The quarter is not clean, because part of the improvement relied on raw materials consumed at lower prices, while the purchase prices of plastic raw materials had already risen 38.8% in shekel terms from the start of the year by the time the financial statements were approved. Cash flow also moved back into positive territory after a weak comparable quarter, but after cash CAPEX, lease principal repayment and interest, no real surplus was left. The current read is therefore cautiously positive: Plasson opened 2026 well, mainly because pipe fittings recovered and foreign demand remained strong, but the next quarters will determine whether the company can pass higher raw-material costs to customers without losing the margin improvement. What a quick reading may miss is that the quarter answers part of the 2025 open checklist, while creating a more immediate pricing-power question.

Company Context

Plasson is a global industrial and distribution company that mainly sells pipe fittings and animal-related products. Its economics are not just those of a plastics manufacturer. The group tries to give customers fast availability, a broad product range and local market access through overseas marketing and distribution companies. That matters because this advantage requires inventory, logistics investment, customer credit and high currency exposure.

The business map for the quarter is relatively clear: pipe fittings are the larger and more profitable segment, animal products are the faster but more margin-volatile growth engine, and the other activities keep shrinking after the sale of the bathroom and kitchen business. More than 82% of sales usually come from outside Israel, and in the first quarter foreign sales reached about 87.6% of consolidated revenue. That means almost every operational improvement has to pass through three filters: exchange rates, raw materials and working capital.

The prior annual analysis framed the main question as whether the 2025 growth was high-quality enough after core-margin erosion and heavier logistics investment. The first quarter provides a partial answer: the pipe-fittings core recovered, quarterly CAPEX returned to a more reasonable pace, and inventory declined both against year-end 2025 and against the comparable quarter. Still, animal products grew faster than total sales but at a lower gross margin, and raw materials had already moved against the company after quarter-end.

Pipe-Fittings Margins Recovered, Animal Products Paid Part of the Price

The simple number for the quarter is 6.7% revenue growth to NIS 481.0 million. The more important number is what sat behind it: exchange-rate erosion reduced shekel-reported sales by about NIS 29.7 million, so the underlying business pace was stronger than the accounting headline. Foreign sales rose 13.7%, while sales in Israel fell 25.5%, making this mainly a quarter of external demand rather than domestic recovery.

The segment disclosure shows a more important quality shift than consolidated growth. Pipe-fittings revenue grew 9.2%, but its gross profit grew 18.2%, lifting the segment gross margin to about 46.3%. That is a particularly useful signal after 2025, when pipe-fittings margins were the core weakness. By contrast, animal-product revenue grew 23.0%, but gross profit rose only 10.1%, and gross margin fell to about 31.8%. The fastest growth was not the most profitable growth.

This distinction matters because the company does not allocate selling, administrative and finance expenses by segment. It is still impossible to know how much operating profit each segment truly generates. What is visible is that pipe fittings produced the positive signal missing at the end of 2025, while animal products still need to prove that sales growth is not coming at the expense of margin.

Operating Profit Was Stronger Than Net Profit

Operating profit rose 25.0% to NIS 55.6 million, and operating margin rose to 11.6% of sales from 9.9% in the comparable quarter. This was a relatively clean operating improvement: gross profit rose 9.0%, while selling, marketing, general and administrative expenses remained almost stable relative to the company’s size. Quarterly EBITDA of NIS 80.2 million was higher than in the first and fourth quarters of 2025, though still below the second and third quarters of that year.

The bottom line looks less strong because tax again became a meaningful burden. Net profit was NIS 44.1 million, up only 5.1%, while pre-tax profit rose 25.2%. The tax rate reached 26.7% of pre-tax profit, compared with 12.7% in the comparable quarter, mainly because the comparable quarter included NIS 9.3 million of deferred tax income while the current quarter included NIS 1.2 million of deferred tax expense. A reader looking only at net profit misses much of the operating improvement, but a reader looking only at operating profit may miss the more important question: whether the improvement can hold once raw-material inflation moves through inventory.

Finance helped slightly, but it did not change the story. Net finance expenses fell to NIS 4.7 million from NIS 5.6 million, mainly because interest expenses were lower. The securities portfolio generated a loss of about NIS 1.0 million, compared with a gain of NIS 1.6 million in the comparable quarter. In this quarter, finance mainly reinforces the conclusion that the improvement came from the operating business rather than from financial investments.

Cash Flow Improved, But Free Surplus Did Not Yet Appear

One question left open after 2025 was how much cash really remains after inventory, CAPEX, leases and dividends. In the first quarter, operating cash flow turned positive at NIS 27.8 million, compared with a NIS 4.2 million cash outflow in the comparable quarter. Working capital helped as well: inventory fell to NIS 611.6 million, or about 6.2 months of sales, compared with NIS 639.5 million and about 6.9 months in the comparable quarter. Customer credit days declined to about 68 days from 78 days a year earlier.

Still, this was not a quarter in which the business generated a wide cash surplus. For an all-in cash-flexibility view after actual cash uses, operating cash flow of NIS 27.8 million needs to be measured against NIS 14.9 million of cash CAPEX, NIS 19.7 million of lease principal repayment and NIS 5.1 million of interest paid, before purchases and sales of securities and before credit movements. On that basis, the first quarter still left a negative gap of about NIS 11.9 million.

This is a clear improvement from the 2025 cash picture, partly because no dividend was paid in the quarter and cash CAPEX was close to the depreciation and amortization pace excluding IFRS 16. But the conclusion does not fully reverse: Plasson remains a company that generates profit and operating cash flow, while much of that cash is absorbed by a service model built on inventory, leases, investment and a global distribution network. As long as that is the model, dividends and investment need to be supported by sustained operational improvement, not by one strong quarter.

Raw Materials Will Decide Whether the Improvement Holds

The sharpest point in the quarter is not in the sales line, but in the gap between what was consumed during the quarter and what was being purchased afterward. The cost of plastic raw materials consumed in the first quarter was 10.7% lower on average than in the comparable quarter, and consumed metals costs were 8.1% lower. That helped margins.

But by the approval date of the financial statements, purchase prices of plastic raw materials had already risen 38.8% in shekel terms from the start of the year, and purchase prices of metals had risen 5.2%. The company is cutting costs and updating prices, but it also names the constraint: market competition makes customer price increases harder. The first quarter is therefore not only proof of recovery. It is also a risky comparison base for the second quarter and beyond.

Currency remains a two-sided issue: shekel appreciation reduced quarterly sales by NIS 29.7 million, but a large part of the company’s expenses, including raw materials and wages at foreign subsidiaries, is also denominated in foreign currencies. The practical question is therefore not only whether the shekel strengthens, but in which regions and products the company can preserve price against cost.

The first quarter improves the read on Plasson: the 2025 erosion in pipe fittings does not currently look like structural damage, and the company restored operating profitability despite a currency headwind. That makes the quarter more meaningful than a routine earnings recap, but not strong enough to close all the 2025 questions. Over the next two to four quarters, pipe-fittings margins need to remain high after higher raw-material costs move through inventory, animal products need to return to more profitable growth, and operating cash flow needs to cover CAPEX, leases and interest more convincingly. The positive read would weaken if cost pass-through proves difficult, inventory rises again, or gross margin erodes while sales continue to grow.