Spuntech in the First Quarter: Volume Rose, but Margin and Cash Still Depend on Tariff Refunds

Spuntech did not open 2026 with proof of recovery, even though volume and utilization moved in the right direction. Revenue fell to NIS 146.1 million because the stronger shekel cut NIS 21.1 million from sales and offset 10.4% volume growth. Gross profit declined to NIS 15.3 million, the operating loss reached NIS 2.7 million, and the two issues that were supposed to ease more quickly, FX and tariffs, are still weighing on margins. The important change is not in the profit line, but in two interim items: a potential tariff refund claim of $6 million to $7.5 million, of which management expects $1 million to $1.3 million would be returned to customers, and continued investment in the U.S. warehouse, already at $7.3 million out of an expected $8 million. Both can help, but neither is proof of recurring profitability: the refund has not been recognized as an asset, and the warehouse still has to show operating savings. Operating cash flow returned to positive territory, but after capex, interest, leases, and debt repayments, cash fell by NIS 5.0 million. The next quarters are therefore not only a demand test. They are a test of price pass-through, tariff refund collection, and cash generation after the U.S. investment is completed.

Company Overview

Spuntech produces nonwoven fabrics used as raw material in the wet wipes industry. This is an export-oriented industrial company, not an Israeli consumer story: about 95% of sales during the reporting period were outside Israel, and most activity is measured in dollars and euros while the reporting currency is the shekel. That means a currency move can look like sales weakness even when physical volumes increase.

The business is built around two production centers, the U.S. and Israel. Its economics are industrial margin economics: utilization, raw material prices, freight, FX, tariffs, and pricing terms with customers. That is why the current quarter continues the question raised in the previous annual analysis: was 2025 a transition year hit by FX, tariffs, and the U.S. fire, or does the company still face low margins even as demand returns?

The stock traded near the report date at a market cap of about NIS 179 million. That makes the potential tariff refund range especially material, but also dangerous to read too quickly. An amount that has not been recognized as an asset, depends on a process with U.S. customs, and is partly expected to be returned to customers is not the same as operating profit that repeats every quarter.

Volume Rose, but Margin Did Not Confirm It

The superficial first-quarter headline is a 7.5% revenue decline and a NIS 3.8 million net loss, almost unchanged from the parallel quarter. That is not the useful way to read the company. The more important number is that volume sold increased by 10.4%, while revenue declined because of currency. The average dollar rate fell from NIS 3.6128 in the parallel quarter to NIS 3.1217 in the current quarter, a 13.6% gap. The direct negative effect on sales was NIS 21.1 million.

The gross profit bridge is sharper. Gross profit fell to NIS 15.3 million from NIS 17.3 million, and the gross margin stayed around only 10.5%. The company attributes a NIS 8.4 million gross profit hit to currency, a NIS 3.8 million inventory value erosion, a NIS 4.6 million erosion in gross margin, and a NIS 1.6 million hit from the tariff on exports from Israel to the U.S. Higher volume and utilization rising from 81.9% to 84.4% prevented a weaker quarter.

The segment split shows where the pressure moved. In the U.S., the segment loss was almost unchanged despite lower external sales. In Israel, however, the segment moved from a NIS 3.9 million profit to a NIS 0.8 million loss, even though segment revenue including intersegment sales increased. That signals that the pressure is not only demand. It is the economics of currency, tariffs, inventory cost, and price terms.

A NIS 2.3 million bad debt provision added another layer of pressure. After the quarter ended, the company learned that an Israeli customer had asked the court for a stay of proceedings and appointment of an arrangement manager. The customer owed about NIS 5.9 million before VAT, of which about NIS 2.5 million was insured. This does not change the whole credit profile of the company, but it is a reminder that sales growth in an industrial company is not only a volume question. Customer quality, credit insurance, and collection determine how quickly a sale becomes cash.

Tariff Refunds and War Turn 2026 Into a Bridge Year

The unusual item in the report is the tariff refund claim. After the U.S. Supreme Court ruling in February 2026 and the creation of a tariff refund system, the company estimates its entitlement for exports from Israel to the U.S. and raw material imports into its U.S. plant at $6 million to $7.5 million. If the money is received, management expects to return $1 million to $1.3 million to customers. Before tax and timing, the amount that may remain with the company could be large enough to change a quarter or two, but not enough by itself to change the quality of the business.

The important point is what did not happen. The company did not include any income or asset for the refund in the first quarter. That makes the potential refund an off-statement balance-sheet option, not proven earnings. If received, it can improve cash and strengthen the argument that part of the 2025 and early 2026 pressure was external. If delayed or received only partly, the next quarters will depend more heavily on recurring margin improvement.

At the same time, the war against Iran and Hezbollah adds new pressure that was not part of the normal annual story. The closure of the Strait of Hormuz, according to the company, led to a 10% to 30% rise in most raw material prices compared with the fourth quarter of 2025. The company declared force majeure and is working to update selling prices. That turns 2026 into a clear bridge year: it is not enough to see higher physical volume. Investors need to see whether price updates pass through to customers without breaking volume.

This is also the strongest counterpoint. One can argue that the company has already shown demand: volume rose, utilization rose, and external pressure points such as FX and tariffs can reverse. That is a reasonable argument. But the current quarter still does not prove that demand comes with enough pricing power. As long as volume growth only offsets part of FX, tariffs, and a customer provision, the operating improvement remains incomplete.

Cash, the Warehouse, and Debt Set the Next Proof Point

Operating cash flow was NIS 9.4 million, compared with an NIS 8.0 million outflow in the parallel quarter. That is a real improvement, but once again it leans on working capital: inventory reduction added NIS 8.4 million and suppliers added NIS 9.2 million, while customers consumed NIS 13.7 million. The better frame is all-in cash flexibility after actual cash uses, not only the operating cash flow line.

The U.S. warehouse is the clearest example of the gap between a strategic move and economic proof. Management expects construction to end in the second quarter of 2026 at a total investment of about $8 million, and has already invested $7.3 million. The move can reduce logistics dependence and improve raw material and finished goods availability in the U.S., but in the current quarter it is still a use of cash. The proof will arrive only if the investment later appears as lower costs, better availability, or margin improvement.

The debt position does not look tight, which matters precisely because the company is in an operating loss. It meets its covenants: consolidated financial credit to consolidated operating surplus was 3.10 versus a requirement below 5, equity to assets was 46.5% versus a requirement above 20%, and at the subsidiary, net total debt to EBITDA was 0.97 versus a 4.5 ceiling. The other side is that 97% of financial liabilities carry variable interest, and each 1% change in variable rates affects cash interest expense by about NIS 1.2 million a year. Debt is not choking the company, but it also leaves little room to ignore profitability.

The first quarter does not settle the debate around Spuntech, it narrows it. On the positive side, volume and utilization improved, operating cash flow returned to positive territory, tariff refunds could bring a material amount of cash, and the U.S. warehouse is close to completion. On the negative side, margins have not recovered, Israel moved into a segment loss, the customer provision highlights credit risk, and all-in cash flexibility after capex and debt remains limited. The next quarters need to show three things: price updates after raw material inflation actually passing through to customers, tariff refunds being received without creating an illusion of recurring profitability, and the U.S. warehouse starting to help operations rather than only absorb cash.