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Analyst Blog

Raven Industries Inc. (RAVN) reported fourth quarter 2013 earnings of 30 cents per share, flat year over but ahead of the Zacks Consensus Estimate of 25 cents per share.

Operational Update
 
Sales decreased 7% year over year to $89 million, falling short of the Zacks Consensus Estimate of $93 million. Higher sales in the Applied Technology Division was offset by declines in the remaining two segments- Engineered Films and Aerostar.
 
Cost of sales decreased 8% year over year to $63 million. Selling, general and administrative expenses decreased 2% year over year to $8.5 million. Operating income decreased 7% year over year to $15.5 million in the quarter.
 
Segment Performance
 
Applied Technology: Sales for the segment increased 18% year over year to $38 million. The segment benefited from Raven’s continued investment in new products, international expansion and strong demand for its precision agricultural solutions. Operating income increased 40% to $12.3 million from $8.8 million in the prior-year quarter, attributed to higher sales.
 
Engineered Films: The segment reported sales of $30.8 million, down 14% year over year. Operating income declined 33% to $4.4 million. Weak energy markets offset improved agricultural sales and strong demand for geomembrane films.
 
Aerostar: Sales plunged 22% year over year to $23.3 million, due to lower aerostat sales as well as lower electronics manufacturing services revenues. The segment reported an operating profit of $2.8 million, down 48% from the prior-year quarter.
 
Fiscal 2013 Performance
 
Raven reported record 2013 earnings of $1.44 per share, up 4% annually and beating the Zacks Consensus Estimate of $1.39 per share. Sales increased 6% year over year to a record $406 million, falling short of the Zacks Consensus Estimate of $409 million. Higher sales in the Applied Technology Division and Engineered Films was offset by decline at Aerostar.
 
Financial Position
 
Raven Industries ended fiscal 2013 with cash and cash equivalents, including short-term investments, of $49.3 million compared with $25.8 million as of the end of fiscal 2012. Cash flow from operating activities during fiscal 2013 improved to $76.4 million from $43.8 million in the prior year.
 
Our Take
 
Raven’s Engineered Films segment continues to benefit from strong demand for geo membrane films. Demand for geo membrane films, meant for environmental protection, is on the rise as customers are keen on protecting water and other environmental resources for a sustainable future. This will provide a boost to Raven Industries’ revenues moving ahead. 
 
Vista Research, which Raven acquired in January 2012, has high growth potential and continues to boost revenues of the Aerostar segment. Moreover, Raven is also focusing on increasing the customer base of Vista both in the domestic and international markets.
 
Raven continues with its strategy of investing significantly in research and development, thereby, helping it to maintain strong financial results. In addition, Raven has ample scope to fund future growth and increase dividends with the support of debt-free balance sheet and solid cash flow. 
 
However, the near-term results of the Aerostar segment will be affected by the lack of aerostat orders. Revenues at the Engineered Films segment will remain affected due to continued energy market weakness.
 
Margins in the Applied Technology segment will also be under pressure due to Raven’s increased investments in new initiatives and the resultant increase in research and development and selling, general and administrative expenses.
 
South Dakota-based Raven Industries Inc. is an industrial manufacturer providing a variety of products for the agricultural, industrial, construction and military/aerospace markets. Raven operates through four business segments: Engineered Films, Electronic Systems, Applied Technology and Aerostar. 
 
Raven currently holds a short-term Zacks Rank #5 (Strong Sell). Among the other stocks in the same industry, Crane Co. (CR - Snapshot Report) , Macquarie Infrastructure Company LLC (MIC - Snapshot Report) and Tyco International Ltd. (TYC - Analyst Report) hold a Zacks Rank #2 (Buy) and are favorable options for investors.

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