Raven Misses Q1 Earnings Ests

Zacks

Raven Industries Inc.’s (RAVN) shares fell 1.4% on reporting a 21% year-over-year decline in its first-quarter fiscal 2014 (ended Apr 301, 2014) earnings to 30 cents per share. The earnings also fell short of the Zacks Consensus Estimate of 34 cents. Continued softness in the North American agriculture market and order delays in new contracts that affected the Aerostar segment led to the year-over-year decline.

Operational Update

Sales dipped 1% year over year to $102.5 million, in line with the Zacks Consensus Estimate. Improved revenues in the Engineered Films segment were offset by the decline in revenues in the Applied Technology and Aerostar segments.

Cost of sales rose 3% year over year to $70.7 million. Gross profit declined 9% to $31.8 million from $34.9 million in the year-ago quarter. Gross margin contracted 270 basis points to 31% from the year-ago quarter.

Selling, general and administrative expenses increased 5% year over year to $10.3 million. Operating income plunged 21% year over year to $16.5 million with operating margin declining 410 basis points (bps) to 16.1%.

Segment Performance

Applied Technology: Sales for the segment went down 10% year over year to $46.3 million due to weakness in the North American precision agriculture market. Furthermore, approximately 38% of the decline was attributed to the anticipated decline of non-strategic legacy customers from Raven’s former Electronic Systems Division. Operating income also dipped 17% to $15.8 million from $19.1 million in the prior-year quarter.

Engineered Films: The segment reported sales of $42.2 million, improving 22% year over year. Increased sales of barrier films for specific agriculture applications drove the improvement despite the overall slowness in the broader agriculture equipment market. Energy, construction and industrial film sales also increased year over year. Operating income increased 23% year over year to $5.9 million.

Aerostar: Sales decreased 19% year over year to $17.7 million affected by timing issues and planned declines in contract manufacturing. The segment reported break-even results compared with the operating income of $1.8 million in the prior-year quarter.

However, within Aerostar, Vista Research reported strong sales in the quarter. Vista's Smart Sensing Radar Systems delivered a 29% quarterly revenue increase. Vista Research has been selected by Raytheon Co. (RTN) as a preferred radar solution for future U.S. and export opportunities. Additionally, Vista's systems are being utilized by the U.S. Navy and are included in the initial budget submitted to the Congress this year.

Cash Position

Raven Industries ended the first quarter of fiscal 2015 with cash and cash equivalents of $63.6 million compared with $53 million at the end of fiscal 2014. Cash flow from operating activities for the quarter was $18 million against $14.9 million in the prior-year quarter.

Acquisition

In May, 2014, the Applied Technology division acquired Middenmeer, the Netherlands–based SBG Innovatie BV and its affiliate, Navtronics BVBA. SBG designs and manufactures advanced GPS steering systems for a variety of agricultural applications. The acquisition broadens Raven's guided steering system product line by incorporating high-accuracy implement steering applications, and improves distribution to Western and Eastern Europe as well as the former Soviet states.

Outlook

For second-quarter fiscal 2015, Raven expects solid growth in Engineered Films revenues from high-value agriculture, with incremental improvements in the energy, construction and industrial film markets as well. Higher original equipment manufacturers (:OEM) deliveries will drive improvement in Applied Technology. However, ongoing contract manufacturing declines and uncertain agricultural aftermarkets will be a deterring factor. Profits are predicted to be higher year over year in the second quarter.

Overall in fiscal 2015, management anticipates Engineered Films to continue its growth momentum while continued agricultural uncertainty in North America will affect Applied Technology’s performance. Aerostar is expected to deliver mixed results. Aerostat contracts will materialize in the second and third quarters, and balloon shipments to Google Inc. (GOOG) under Project Loom will ramp up to planned levels later this year.

South Dakota-based Raven is an industrial manufacturer offering a variety of products for agricultural, industrial, construction and aerospace markets. The company operates through three business segments, namely, Engineered Films, Electronic Systems, Applied Technology and Aerostar.

Raven currently carries a Zacks Rank #3 (Hold). A better-ranked diversified-operations stock worth considering is CLARCOR Inc. (CLC), with a Zacks Rank #1 (Strong Buy).

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