Raven Matches Zacks Estimates

Raven Industries Inc. (RAVN - Analyst Report) delivered earnings of 63 cents per share in its fiscal third quarter 2012 ended July 31, 2011, at par with the Zacks Consensus Estimate but declining 3% from the 65 cents earned in the year-ago quarter.

Operational Update

Sales increased 8.7% y/y to $93 million, at par with the Zacks Consensus Estimate. The outperformance was driven by 36% sales growth at Applied Technology and 17% at Engineered Films. However, revenues at Electronic Systems and Aerostar were a partial offset.

Cost of sales increased 8% year over year to $66 million in the quarter under review. Selling, general and administrative expenses increased 45% year over year to $7.9 million. Operating income declined 6% year over year to $16.9 million in the quarter.

Segmental Performance

Applied Technology: The segment delivered record sales and profit in the quarter under review. Sales surged 36% year over year to $32.5 million in the quarter. Operating income was $10.7 million, an increase of 45% year over year. The performance was driven by continued demand for the company's precision agriculture solutions. International sales also remained strong during the quarter.

Engineered Films: The segment posted the all-time high quarterly sales delivering a 17% year-over-year increase to gross $34.9 million in the reported quarter. However, operating income declined 19.5% year over year to $5.6 million due to delays in ramping up new capacity.

Aerostar: Sales decreased 34% year over year to $10.5 million in the quarter. Operating income of the segment dropped 50% over the prior year period to $1.8 million. 

During the quarter, sales of parachutes led the top-line improvement.

Electronic Systems: The segment reported a 3% year over year decline in sales grossing $17.3 million in the quarter. Operating income of $2.3 billion remained flat year over year.

Financial Position

Raven Industries ended the quarter with cash and cash equivalents including short-term investments of $44.2 million, lower than $47 million at the end of the second quarter 2012.  Cash provided by operating activities during the first nine months of 2012 improved to $44.2 million from $30 million in the year ago period.

Our Take

Raven’s two largest divisions - Applied Technology and Applied Technology are experiencing strong sales momentum, driven by Raven’s aggressive investment programs related to new products and capacity expansion. The company continues to make significant investment over the past few years in building its international sales which will boost its revenues.

Further, Raven’s debt-free balance sheet and solid cash flow characteristics provide the scope to fund future growth and increase dividends. The quantitative Zacks #3 Rank (short term Neutral rating) for Raven Industries indicates no clear directional pressure on the stock over the near term.

South Dakota-based Raven Industries Inc. is an industrial manufacturer providing a variety of products for the agricultural, industrial, construction and military/aerospace markets. The company operates through four business segments: Engineered Films, Electronic Systems, Applied Technology and Aerostar. Graco Inc (GGG - Snapshot Report) and Spartech Corp. (SEH - Snapshot Report) are the two close competitors of Raven.

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