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Raven Industries Inc. (RAVN - Analyst Report) reported first quarter results ended April 30, 2012, delivering earnings of $1.04 per share, increasing 21% from the 86 cents earned in the year-ago quarter. Results reflected strong performance in Applied Technology and Engineered Films segments. Earnings per share comfortably surpassed the Zacks Consensus Estimate of 89 cents per share.

Operational Update

Sales increased 16% year over year to $117.9 million, beating the Zacks Consensus Estimate of $112 million. The outperformance was attributable to the double-digit sales growth in Applied Technology and Engineered Films segments.

Cost of sales increased 12% year over year to $77 million in the reported quarter. Selling, general and administrative expenses increased 30% year over year to $9.3 million. Operating income increased 21% year over year to $28.4 million in the quarter.

Segmental Performance

Applied Technology: Sales surged 29% year over year to $50.5 million in the reported quarter in this segment. Operating income also soared 39% to $20.9 million from $15.1 million. The performance was attributable to the strength in domestic agricultural market. International sales also saw a strong growth during the quarter.

Engineered Films: The segment reported record sales of $41 million, increasing 37% year over year. Operating income saw a whopping 122% increase year-over-year to a record $9.2 million. The solid performance was driven by strength in the energy and agricultural markets, and deliveries of geomembrane films for environmental protection, that increased demand in the first quarter. Margins benefited from an attractive cost/price spread for raw materials, improved operating efficiencies and plant utilization, reduced scrap and favorable product mix.

Aerostar: Sales decreased 29% year over year to $10.8 million in the quarter. The segment reported an operating loss of $1.16 million compared to an operating income of $4.06 million in the prior year quarter. A difficult federal spending environment was responsible for the decrease in sales and operating income. .

Electronic Systems: Sales dipped 2% year over year to $19.1 million in the quarter. Operating income however increased 8% to $3.7 million.

Financial Position

Raven Industries ended the quarter with cash and cash equivalents, including short-term investments of $43.5 million, up from the $25.8 million at the end of January 31, 2012 and $42.6 million as of April 30, 2011. Cash flow from operating activities during the quarter improved to $28.2 million from $11.0 million in the year ago quarter.

Our Take

Raven will benefit from the current strength in the agriculture market. However, quarter-to-quarter variability for aerostat orders will remain leading to significant fluctuations in the Aerostar Division. The company continues with its strategy of investing significantly in the research and development, thereby, helping to maintain the strong financial results. 

In addition, Raven has ample scope to fund future growth and increase dividends with the support from debt-free balance sheet and solid cash flow. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on 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. are the peers of Raven.

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