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Raven Industries Inc. Message Board

  • skiplarson98 skiplarson98 May 22, 2009 10:58 AM Flag

    Annual meeting reviewing 2009, projecting 2010

    Well, that's a bummer. Apparently lost the best half of my long post as my connection timed out and I had to go through the sign in process and all that. Anyway, I began by speculating that analysts may have been absent yesterday and perhaps the annual meeting has been redesigned to be more of a communication device for the managers and shareholders. I liked the part I lost a lot and the second half not so much, but you can read that second half over on another topic and I'll try to get some of the flavor of what I started out discussing tomorrow or the next day when I'm on my home connection again.

    I always get too mushy toward the end of my rants, after great starts. Best, L.

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    • After the opening, overview of Raven and it's place in the economy, Moquist normally delves into the operations, problems, strategies, etc of each division. He started out with Applied Technology.
      I think the main theme this year is simplicity and reliability. Ron made a bit of fun with himself as the inept user of automobile navigation systems which have far more features than he can figure out and use. I've never had or played with one, so don't know much about them or their use. And TV remotes which I have used a few times in motel rooms and I have to agree that I've never even looked at many of the buttons on those things. He jokingly complained that he could not get a navigator without a woman's voice, and if he wanted that he would have brought his wife along for the trip. Of course, the reason that is done is that men can hear a female voice in confusing situations much easier than they can a man's. I'm not quite sure how this whole theme will work out as I'm used to thinking of how QCOM just keeps adding features to their chips as the line sizes decrease-then let Verizon, Vodafone, T, and other tell the phone manufacturers which ones they want activated. Maybe Raven will buy very complex chips but for use in a tractor cab, you would probably want to minimize the number of places dirt might get in or heat might damage a unit rather than putting many unused switches on the console.

      The International section now has 19 people and a new office was just opened in the Ukraine even though there is little money available. The only sector of the market which is healthy there is agriculture. I think there may have been another recently opened office in a third world country which I missed in my notes.

      Ron thought ag markets in general were still in pretty healthy shape with a few problems for livestock producers. I checked with my rancher friend who stopped planting crops 2 years ago and went to grass everywhere and cows. He thinks livestock is doing just fine, so I don't know where Ron is getting his information or what he's thinking of.

      • 2 Replies to skiplarson98
      • As has been common lately, Ron mentioned wireless as being one of the particularly important developing parts of our business, mentioned in cab access to the internet and reporting back to the computer at home with software to incorporate new learning in the field into data sets at the home computer for incorporation into future field input and output designs. He said that Raven's strategy is to provide data storage for minimizing inputs and maximizing outputs of the farm comparing that with some other competitors who concentrate on optimizing more limited parts of the production cycle. Really, I suspect that is where Raven was as a flow controls company, but that it is seeking to broaden it's product line to include all aspects of precision agriculture. And that requires communications between tractors, sprayers, harvesters and the home computer or computing cloud.
        Thus AT is different from the other 2 divisions with an open ended and huge market defined. ES as a contract manufacturer might change a process or get an incremental change in customer or line size, as might EF, but not whole new sales channels or product lines. Aerostar might have a bit more in common with AT in that respect.
        So we are expecting new wireless products, new geographical markets, new distribution lines, and incrementally improved steerage and flow controls products, and database software (including maritime port navigation) out of AT. It seems like a huge area for a small division to be mucking around in.
        Ron specifically said that AT would have a good year, but that it would not be great like last year. Dan, in the question/anwswer laid out various ways AT would manage to grow in the coming year though I don't recall any real good incremental items in the first half. I probably missed something, but my overall impression was that AT would have sales just slightly short of last years $103mm and op income down a bit more than that. Lot's of R&D projects (in fact Ron pointed out that they had more development work going on than they had in the previous more robust years), but nothing very significant ready to pop in the next couple of quarters that I noticed. No, my notes indicate that he said "well short of the great earnings last year" but I always remember that Moquist tends to underpromise and overdeliver. Engineered films next. Best, L.

      • When Ron described the John Deere deal, he carefully said that it included a limited number of products which JD had not taken the trouble to design in house. Then he said this was not an easy decision for Raven and that the various distributors (I think he mentioned 3 of which I caught CaseNH and AGCO) were not all that happy to have them form the agreement with JD. Then the same description with more detail that he did on the conference call, telling us that he had been involved with developing the chemical sprayer distributor line successfully when he'd first been hired 30 years earlier, but that they had never penetrated or used the tractor distribution network for their products effectively. He used a term other than tractor and I can't quite get it right since I thought CNH had been selling most of the line right along, but I suppose there is a specialized network for chemicals, fertilizers and sprayers which especially contract sprayers use and Raven in well represented there, but not so well in the JD, CNH, IH (if they still exist), etc stores I see all over ag country with huge pieces of equipment all around their yards. I'd guess Raven has developed and sells valves and variable rate valves (a much more complicated design than just an off-on solenoid I'd guess) and plastic nozzles for sprayers on planes and land based applicators. Boom controls would continue to fit with that distribution system, but the new steering and navigation systems being designed by Raven do not fit that or the name "Flow Controls", so we need to encourage a different sales route.

    • Speaking of margins, at the annual meeting Mr. Moquist put up a slide showing op income for the 4 operations over the past three years. Though I don't have the chart available to me right now, I made my own version for the past 4 years. His point was that if one had looked at op profit for the 4 units in FY07, one might well have concluded that AT and Aerostar were losing sales and profits and were weak sisters to Films and Electronics. In fact, someone on this board began suggesting that Aerostar be sold back then. Looking at the FY 09 results, the two weakest divisions are now the most promising and contribute the most. As you know, I follow operating earnings pretty closely, but even I was surprised to see that Aerostar contributed $4.2mm in 09, and AT $33.9mm when just 2 years previously the two of them contributed $10.7mm vs $33.4mm for the other two divisions. Moquist's point, of course, is that conglomeration of disparate businesses has been working for Raven whether it does for others or not.
      I was going to start a new post, but maybe can add one more positive thought. I always have more difficulty coming up with the corporate overhead figure as well as Income tax which I put on my own spread sheets. They are not in the PR's issued at earnings time so I have to dig up the SEC filings to get them. Though Moquist did not mention them, they are amazingly stable over the last 5 years during which I've kept track. In FY06 they hit a low of $1.4mm in two quarters but got up to $1.9mm in the first quarter. The next 3 years get up as high as $2.2mm in two quarters and $2.1mm in 3 more. But Q12010 is back at $1.9mm. I guess the best way to show the growth there would be to list full fiscal years for 06 I have $6.3mm, for 07 $7.0mm, for 08 $7.8mm and for 09 $8.5mm. Q1 of 10 is $1.9mm. If I had more time I'd like to compare some of my other companies on that line (if I believed their numbers like I do Raven's), but generally I suspect this is pretty good performance. Just taking those figures relative to total sales I get in temporal succession: 3.1% 3.2%, 3.2% and 3.0%.
      Not bad. Best, L.

    • I guess you are agreeing with me regarding the recovery. It surely looks like the market anticipates one, doesn't it? I have read some more and I'm almost positive that Moquist is talking about the second half of calender 10 as time for a possible (hoped for) bottoming. He is thinking and stating that primarily for manufacturers in the US, so there might be other sectors acting differently, but I see it much as you do. At least as far as Raven goes, I don't see much in the way of recovery for at least a year and find the current run up in the stock price enigmatic. In fact, I'm thinking perhaps it would be wise to reduce my holdings some. The division which can surprise at any time is Applied Technology, of course. I think the other 3 are fairly predictable and likely to contribute relatively little to operating income. But AT's contribution is already more than half the total, and just a small increase in any one of several different projects or markets could make a significant difference. Moquist pointed out that AT had a very large decrease in sales in the first quarter--much more than he would have predicted, and particularly April was weak. He carefully speculated that they had not lost market share but that the whole ag market was pulling back--he qualified that as a guess rather than anything he knew for sure. To review, revenues in the division dropped from 34.8mm to 29.4mm while op income dropped from $13.5mm to $9.6mm. That $9.6mm contribution is still more than the $6.4mm of the other three divisions, but is clearly the place where we are vulnerable to either upside or downside.
      cont'd

    • Wow, thanks for lengthy report.

      As for the dividends. I thought last years was an excessive increase because it would impair flexibiility for the upcoming difficulties. I'm glad they saw fit to continue the streak this year.

      I don't understand how economists are claiming there will be a second half recovery. There's still a fair bit of poison in the system, auto industry problems, and I can't help but to think California is going to continue to have difficulties in the near future.

    • After Mr Everist took care of the voting and formalities, he introduced Ron Moquist as the main feature of the annual meeting. Ron set the tone of the meeting by pointing out the change in strategy and need for cost cutting. He noted the Tom Iacarella was serving a worthwhile function by being conservative and pointed in a joking way to a previous CFO who was notoriously cheap. Apparently the rolls and fruit on the table might have been fresher in some more robust times, but back when, this CFO would make it clear to employees who were attending the annual meeting, that the (day old) donuts and coffee were for shareholders and not for them. Thus there were always 8 donuts left over from the dozen put out. Ron also held in his hand an annual report which he'd dug out from 1959 which showed some thousands of dollars of profit and was printed on a single sheet of paper less than 8 1/2 X 11. Incidentally, for new people, I believe Raven has earned a profit in every year but one over the 53 years of it's existence. At any rate, Ron pointed out that the current annual report wins awards regularly for a company of Raven's size and is printed on high quality paper.

      I would like to point out that the essential quality of the Raven report is not in new layouts or changed format--in fact I can easily compare reports over the 12 years or so for which I have them and the numbers and features are all the same as they were during the last years Christiansen was CEO. But the report is extremely useful in introducing the heads of 4 divisions and in bringing forth the philosophical focus of the CEO with each division head writing about how the focus for the next year has been implemented. Thus I get to know the division heads whom I consider extremely important to a small company like Raven, and Ron gets to set the priorities of the company through that exercise.

      From that section on, Tom Iacarella just competantly sees to it the numbers are filled in exactly have they have been in the past with minor variations such as the decision to account for internal sales specifically last year or new accounting standards board rules which must be complied with.

      I asked Mr Moquist about the cover of this years' report which I found fascinating and without attribution in the report. Perhaps someone at the company even painted it? Turns out he saw it someplace--kind of looks like the cover of some money magazine where they spend a lot on cover art, doesn't it? Maybe that is what it was, but Ron apparently picked it out as the stimulating picture which could mean any number of things to different people. He declined to interpret it's meaning to him.
      Cont'd

      • 2 Replies to skiplarson98
      • continued;
        I was pleased this morning to discover that Yahoo already has the newest earnings for Raven in place. Either Yahoo or Raven or both are doing a quicker update than I've seen in the past for all companies. I almost never rely upon the EPS numbers listed on Yahoo because they seem to be so badly out of date most often. My suspicion is that someone from Raven goosed them rather than that Yahoo improved it's reviewing time, but I don't know that. Maybe just good luck, but as I've said before, when a company is run cleanly and carefully, good luck seems to follow them. And it is easy for someone at Yahoo to update the numbers for Raven since there are no special situations or excuses which might or might not be accurately reflected in the numbers. Raven and Iacarella use the numbers as they are meant to be used--a communication device which accurately and validly reflects reality for all readers.

        If you've not been to an annual meeting, I'll give you a little bit of the orientation which Moquist always sets up. He put a slide up on the screen which showed the growth in EPS over a number of years, reminded everyone that he and David Christiansen had been saying Raven expected to increase earnings by 15% annually and sales by 12% annually over the long term. Early on in Moquist's 9 years as president and/or CEO, the returns had been far above that averaging nearly 30% I believe. But the last three years have seen earnings grow 11%, 10% and 5% (I wrote down 5% but checking the numbers I get 8% so probably mistake in my note taking). To me, and to Moquist that is reasonable given the economy. Some of the early high returns were mostly due to lucky breaks, but most was due to intelligently taking advantage of situations which presented themselves such as disaster film.
        As much as I've written, I'm sure Yahoo will make me split it up--and I'm not sure I know how to split it 3 or 4 times, so I'll try to continue in another post.

    • Ron talked about how now is the time to be hiring and teaching new managers. (Oh, maybe he'll become a professor next--a very honorable profession and one he'd be good at I think). And Matt Burkhart's hiring is illustrative. This is about the third meeting with Moquist when he has mentioned wireless as part of the business. Clearly the acquisition of that Texas company was a step in the direction, but I've been concerned about the sophistication of Raven employees in wireless, comparing them with those 10,000 or so engineers which Qualcomm has in buildings mostly around San Diego. Well, I got a chance to buttonhole Matt who was standing around looking like a guy who was supposed to be buttonholed;
      I commented that it I was impressed with such a young guy with only a year at Raven being given such a responsible position--he must have a heck of a history. He said he had an MBA and then had spent, I think it was 5 years with responsibility for 5 states at Johnson Controls. Now, I know Johnson Controls fairly well as they regularly got our best electricians and straightened out some of the electronic messes I'd get myself into, so I am impressed by that. And I suspect he is part of the effort to put wireless and controls solidly in Raven's back pocket. I don't know what Matt's undergraduate degree was in, but I would guess some sort of technical field like electronic engineer. He would need that to have an important role at Johnson Controls with all the skilled technicians they have running around.

      • 2 Replies to skiplarson98
      • I suppose Dan also has some technical schooling as he has been given responsibility for Information technology as well as having both AT and ES reporting to him now--at least I think that's what I am hearing his new role being described as: 3 parts, applied technology division, electronics systems, and IT which would be the new effort Moquist has been listing in his talks the last couple of years--data collection and dissemination. At the annual meeting he described the farmers with internet access in the cab of their tractor--now that's not hard to imagine any more with Qualcomm, et al providing wireless connections all over the globe. But to incorporate the internet connections into Raven's consoles, I suspect they would need a license from QCOM--no maybe they'd just be buying the chips from QCOM or one of the other providers. Or maybe they are thinking the farmer would be buying access from Verizon or T, and our equipment would be separate without a direct tie to the internet.

        I don't know how it will all lay out, but I can clearly see the need for some people who understand many facets of portable communications--and Burkhart is probably a guy with some of the skills required. I hope he was impressed with the kind of company he has joined yesterday.

        As a friend and I discussed the various management changes and how individuals might feel about them, he described a period when he was an engineer in training and a mentor apparently kept telling him that the "half life of an engineer is 7 years." What an interesting idea and one I'd never considered. Heck, I was an engineer for 4 quarters myself. Tom Iacarella is a proficient and good CFO for one of the best companies around. Matt will have huge responsiblities at a company which is at least a step up from Johnson controls (in my opinion).

        Every year Moquist compares Raven's results with the top 100 companies in Minnesota. A few years ago he mentioned that Raven exceeded all but one in 3 measures of efficient capital useage--GGG or Graco (which is where he had worked before coming to Raven). This year he compared and again Raven exceeded all others in all three measures except one (I think it was probably one company and one of the three measures, but not sure of that) Mossaic (spelling and name may be incorrect, but they make fertilizer). That is amazing. Of course different companies show up well in different years, but Raven compares well almost every year.
        Best, L.

      • I suppose Dan also has some technical schooling as he has been given responsibility for Information technology as well as having both AT and ES reporting to him now--at least I think that's what I am hearing his new role being described as: 3 parts, applied technology division, electronics systems, and IT which would be the new effort Moquist has been listing in his talks the last couple of years--data collection and dissemination. At the annual meeting he described the farmers with internet access in the cab of their tractor--now that's not hard to imagine any more with Qualcomm, et al providing wireless connections all over the globe. But to incorporate the internet connections into Raven's consoles, I suspect they would need a license from QCOM--no maybe they'd just be buying the chips from QCOM or one of the other providers. Or maybe they are thinking the farmer would be buying access from Verizon or T, and our equipment would be separate without a direct tie to the internet.

        I don't know how it will all lay out, but I can clearly see the need for some people who understand many facets of portable communications--and Burkhart is probably a guy with some of the skills required. I hope he was impressed with the kind of company he has joined yesterday.

        As a friend and I discussed the various management changes and how individuals might feel about them, he described a period when he was an engineer in training and a mentor apparently kept telling him that the "half life of an engineer is 7 years." What an interesting idea and one I'd never considered. Heck, I was an engineer for 4 quarters myself. Tom Iacarella is a proficient and good CFO for one of the best companies around. Matt will have huge responsiblities at a company which is at least a step up from Johnson controls (in my opinion).

        Every year Moquist compares Raven's results with the top 100 companies in Minnesota. A few years ago he mentioned that Raven exceeded all but one in 3 measures of efficient capital useage--GGG or Graco (which is where he had worked before coming to Raven). This year he compared and again Raven exceeded all others in all three measures except one (I think it was probably one company and one of the three measures, but not sure of that) Mossaic (spelling and name may be incorrect, but they make fertilizer). That is amazing. Of course different companies show up well in different years, but Raven compares well almost every year.
        Best, L.

    • You guys (that's the collective form for a thousand or so shareholders) are nuts! You were told this won't be a record year, so you bid the price of Raven up to 20 times what it is likely to earn anyway! Just remember that if you are a first time buyer, it doesn't feel so good to buy at $30 and then sit on shares at $20. The people who bought at $40 are not so comfortable now, though they'd be a heck of a lot less comfortable with most other purchases they might have made 2 years ago.

      Me, I'm hoping to buy at $20 again. Seems to me earnings are likely to be less than $1.70 this year (down 8% or so in the first quarter alone), and that in a period of excess capacity manufacturers are apt to have difficulty making much money. Moquist said he is hoping for a long and slow recovery beginning in the 2nd half of 2010. That's over a year from now. Meanwhile we are apt to see EPS which are weaker than last year.

      Oh, I suppose Raven's board announced a small dividend increase and I have not seen it yet. So, compared to all the other companies out there which are in danger of collapsing completely, you are all excited about this one. I don't know--seems to me Raven is safe because it has good managers who will be prudent, but that's not enough to justify a PE of 15. Maybe I'll be wrong.

      Best, L.

      • 2 Replies to skiplarson98
      • Thanks from me also for sharing your thoughts. I only sold a small part of my Raven and will probably buy it back at a later date. Maybe 25 or so would be a more reasonable price. As far as the economy in general, it looks like the market is saying the worst is behind us. As discussed, there are still many problems in our economy that still need to be fixed. I am from the camp that says we need to actually produce some products in the US in order for us to grow, and we seem to move every thing we can offshore. That is one thing that attracts me to Raven.

      • So maybe Moquist was saying he expected a turnaround in the second half of fiscal 2010 meaning June of this year. I don't think so, but it kind of sounds like that from the press release with his comments about this quarter being toughest. It is a nice increase and 23 years of increases is impressive. I agree with the collective "you guys" opinion that this is a great company and deserves a premium. Just not that big a premium. Or maybe I just want to buy too cheaply. We'll see. Meanwhile the press release:
        "SIOUX FALLS, S.D., May 21 /PRNewswire-FirstCall/ -- Raven Industries, Inc. (Nasdaq: RAVN - News) announced today that its board of directors approved an 8% percent increase in the company's regular quarterly cash dividend to $0.14 per share. The dividend is payable July 15, 2009, to shareholders of record on June 25, 2009. This is the company's 23rd consecutive annual cash dividend increase.

        "Raven's cash position and cash flows from operations are very strong," said Ronald Moquist, president and chief executive officer. "We believe measures taken to generate cash allow us to increase our dividend payout ratio. Although earnings were down in our first quarter and we expect our second quarter to be the most difficult of the year, we are confident that this increased dividend level is sustainable."

        About Raven Industries, Inc.

        Raven is an industrial manufacturer that provides electronic precision-agriculture products, reinforced plastic sheeting, electronics manufacturing services and specialty aerostats and sewn products to niche markets...."

 
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