Raven (RAVN) Up 2.4% Since Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Raven Industries, Inc. RAVN. Shares have added about 2.4 % in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Raven Beats Q3 Earnings Estimates on Higher Revenues
Raven reported solid third-quarter fiscal 2018 results, with net income of $12 million or 33 cents per share compared with $5.7 million or 16 cents per share in the year-ago quarter. The two-fold increase in earnings was primarily driven by solid top-line growth. The reported earnings beat the Zacks Consensus Estimate by 12 cents.
Operational Update
Quarterly revenues increased 39.7% year over year to $101.3 million, with improvement in each of the three segments and exceeded the Zacks Consensus Estimate of $85 million. Gross profit increased 68% year over year to $33.3 million, while gross margin improved to 32.9% from 27.4%.
Operating income more than doubled to $17.8 million from $7.4 million in the year-earlier quarter for respective margins of 17.6% and 10.2%, driven by strong operating leverage on higher sales volume.
Segmental Performance
Applied Technology: Sales from this segment improved marginally to $25.3 million, driven by weaker end-market conditions and challenging year-over-year comparisons for new products.
Operating income for the segment was $5.4 million, reflecting a decrease of 16.5% from the prior-year quarter, owing to higher expenses and investments. Operating margin decreased to 21.2% from 25.5%.
Engineered Films: The segment reported sales of $65.1 million, reflecting an increase of 68.9% year over year with strong performances across all markets.
Operating income improved 140.1% to $17.1 million due to higher sales volumes and strong operating leverage. Segment operating margin expanded 780 bps to 26.3%, driven by improved capacity utilization, favorable product mix and continued spending discipline.
Aerostar: Sales in the segment were $11.1 million, increasing 23.3% year over year, driven by growth in stratospheric balloon platform.
The segment reported operating income of $1.4 million against operating loss of $1.4 million in the year-ago quarter. The turnaround was driven by stringent cost-reduction activities, while maintaining focus on strategic R&D efforts.
Project Atlas
During the quarter, Raven launched a company-wide initiative, Project Atlas, in order to replace the existing enterprise resource planning platform. This strategic long-term investment is aimed at improving operating efficiencies, enabling faster integration of future acquisitions, automating a significant portion of internal controls and enhancing the enterprise’s execution of its long-term growth strategy. The project is expected to take approximately three years to complete and cost between $8 and $10 million. The company recorded $0.3 million as costs related to this project during the third quarter of fiscal 2018 and intends to register approximately $1 million per quarter in fiscal 2019.
Financial Update
Raven ended the quarter with cash and cash equivalents of $36.9 million compared with $46.3 million in the prior-year quarter. Cash flow from operations was $30.8 million for the first nine months of fiscal 2018 compared with $38.7 million in the year-ago period.
Moving Forward
Raven expects to exceed prior-year sales and adjusted operating income in fiscal 2018. The company continues to invest for the intermediate and long term. The company is increasing its investment in research and development activities to continue its new product momentum, and keeps looking for additional strategic acquisitions.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last month as none of them issued any earnings estimate revisions.
Raven Industries, Inc. Price and Consensus
Raven Industries, Inc. Price and Consensus | Raven Industries, Inc. Quote
VGM Scores
Currently, Raven's stock has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregte VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for growth and momentum investors.
Outlook
The Zacks Consensus Estimate for the current quarter moved up over the last 30 days. The stock has a Zacks Rank #2 (Buy). We expect above average returns from the stock in the next few months.
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