I wish someone would have tried to explore the position of the old electronic systems division with David Bair gone. I wonder who sees to it that customers of the plants in Sioux Falls and St Louis are treated well and developed. Much more intersegment sales this year which would be some of the electronic systems for AT or perhaps some EFilms for Aerostar. It sounded like most of the Aerostar drop in sales came from $9.8mm fewer aerostat sales. And that number would be about the drop from Q4 sales at Aerostar and 75% of ES which would have been about $30mm last year Q4.
I heard the emphasis on solving great challenges which Dan emphasized as the organization's purpose a couple of times including in the prepared closing remarks. I'm not on board with it yet as it sounds awfully fuzzy, but I'll probably come to like it sometime in the future as I understand it better.
I was very pleased with having my guess as to sales of films into the energy markets become weaker turn out to be correct. Of course, I'd rather have been wrong for the sake of the earnings. The systems to retrieve and recycle waste seems like an obviously necessary part of running an efficient extruding plant and I'm surprised they can get up to 15mm pounds of additional product out of it--about 20% of total production? That much went to the landfill in the past? Ouch. Or perhaps up to 15mm pounds just means the capacity of the process would be a lesser percent of current production but could adapt to much higher output. That's probably it.
I thought Dan was off his day for the first half of the call, but sounded much more competent toward the end. Oh, and I was surprised to hear Tom read the precall warning blurb. In the past a woman from HR did that as I recall. It's really a waste of time and resources as far as I'm concerned and might be of some value so he can find out whether he's going to speak or squeak. Necessary, of course--but silly.
My initial question about what used to be Electronic Systems sort of demonstrates my own discomfort with the existing corporate structure. I used to feel we had two very different but equal large divisions, a smaller but very stable and well run electronics manufacturing division and a wild card contracting division in Aerostar. With the growth of Applied Technology, and withering (well, that's pretty rough sounding)--weakness in growth of engineered films, and poor results from Aerostar which includes the electronics business now (electronics used to be stable if lower margin), the whole structure seems more unbalanced to me.
I have wondered why David Bair left. He was not old enough to retire, so I suspect he was recruited away. And from the way his departure was handled, I sort of guess his departure was not long expected. I am concerned about increased compensation and option packages and know that any compensation committee must maintain a balancing act. Absolute compensation is not nearly as important in an organization as is relative compensation. Relative to other companies is also important, but I believe Ron managed to keep pride in Raven high enough that it was not a big factor for most of his vice presidents. I don't really think Bair expected to be CEO, but he may not have been given as much respect as he felt he deserved after Dan became CEO. He is the one VP I never shook hands with, but I'm quite sure I would have admired him had I done so because I certainly admired his plants. Lots of intelli in every printed circuit board.
Anyway, the fact is that I'm not nearly as comfortable with all the new hires as I was with the managers I came to know a few years ago. Probably just a matter of not knowing them yet. And so I'd better get to the annual meeting this year. It's my fault because they have certainly made themselves available to us at the meeting the last few years. There's another reason to show up for the meeting if possible.
The buildings themselves feel sort of monolithic and inaccessible to me. You cannot see a whole lot of the works in the one story building adjacent to the downtown headquarters but there are always, night and day, weekday and weekends, at least a few cars parked in the lots nearby and doors open or smokers outside. They had to be smart to produce some moderately routine boards for a company like General Dynamics which could swallow them in a single bite. And Bair must have been pretty darned talented to keep 8 or 9 such customers always satisfied and desiring to keep Raven as their supplier. Moquist always made it sound like they were doing their customers a service which could be obtained nowhere else as competently. He did not have to defend that division the way he did Aerostar because it just always kept producing and doing at least moderately well.
The building in St Louis is much smaller, but other than the dining room, has no windows to the exterior. A couple of little used loading docks from what I saw but 30 or 40 cars with people in cleanroom apparel show up every day do produce wireless bed controls and other needed electronic designs which plane manufacturers, aerostat radar devices, or other quite sophisticated users incorporate within their products. No failures can be tolerated. Every soldered joint must be correct. Or at least a higher percentage than the competitors can achieve on a consistent basis.
That takes sophistication and skill from the managers as well as the floor workers. Just designing the work flow for short duration runs has to be intricate. I wish I knew more about that division, but I'll bet is was a mighty interesting operation.
Again I come back to the excellence of performance required of all Raven divisions. The balloon operation in Sulphur Springs, TX has to make virtually no mistakes and catch any which are made before a balloon is sent up for as many days as possible before some failure brings it down.
Now here is something I believe sounded good from Rykhus. Remember when he was asked about buying plastics extruding companies outside the US by Andrea, he sort of fumbled and then said that it was possible but that it was perhaps 4th on the list of criteria which they considered in M&A. That was a fairly easy answer and I wrote it off as fluff. But later on he tried to correct a misimpression he might have given on the topic, and then still later another question was asked about M&A and he was able to articulately list the first two priorities as far as making acquisition (1. expansion of technology for existing divisions 2.) geographical reach within existing markets. 3.) ? 4.) buying into new markets). He also specified a 20% internal rate of return which he called quite high. Despite my MBA, I cannot really incorporate IRR into my thinking very well, and should probably read up on that metric. But I was glad he had that kind of figure at the top of his head. And that he could name the various criteria in an articulate manner--like he talks with others about the strategy on a regular basis.
We have known for some time that Dan is less afraid of making a mistake with M&A than Ron was. I suspect that might be youth. Or maybe I'm just more in tune with the caution Ron showed as I've seen too many grandiose plans turn sour. Cautious bolt ons is the safest way to do M&A and I hope Ron was able to train Dan in caution at least. The purchaser can never know as much as the seller about the business he is buying.
As usual, I have much more to say than the Yahoo format thinks I should say. They now apparently just refuse to let you type any more letters than the maximum they permit and that is a better arrangement than in the past when they let me write to my hearts content and then made me split the messages up into several parts.
This morning when I saw the PR release I was just a tad disappointed and felt the share price would be weak today. So a bit of strength came as a pleasant surprise and I was almost ready to sell some $30 calls for $2.00 but thought it wise to listen to the call before doing so. I had not expected to sell calls on such a low strike until this morning.
And I did find the call to be a bit reassuring. Mostly in tone rather than facts. I'm not real comfortable with the Vista business as it sounds like a engineering firm more than a manufacturing outfit like Raven. Again, it's just my bias. Trying to leverage brains has never worked for me because they are too apt to jump ship. Factories tend to stay in place and can be continually improved. But AT seems to have managed to incorporate more engineering into their product with great success and Dan and Matt were both involved with that. And Mr West is still there and talented IMO. So the hopes from Vista which Dan seems to express confidently may be more reliable than I feel. Lumpy Tom and Dan said. That's kind of expected by me. But then Aerostar has always been lumpy, so they are in the right place. With enough lumps we might get a pretty good average return.
I suppose I'm a bit more optimistic after the call even though Dan confirmed my earlier opinion that Q1 would not meet last year's results. Might present some more chances to buy stock cheap. So if I succeed in selling $30 calls for August and then there is an uptick in the EPS presented in August, I should come out
ahead with the calls expiring worthless or at least becoming cheap to buy back. Unless everyone else figu