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Raven (RAVN) Q3 Earnings Up Y/Y on Higher Sales, Lower Taxes

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Raven Industries, Inc. (RAVN - Free Report) reported impressive results for the third quarter of fiscal 2018 (ended Oct 31, 2018).

The company’s earnings per share in the reported quarter were 36 cents, reflecting year-over-year growth of 9.1%. Results include expenses of 2 cents per share related to the Project Atlas.

The bottom line benefitted from sales growth and lower effective tax rate of 18.7% (down 14 percentage points from the year-ago tally).

Applied Technology & Aerostar Drive Revenues

Net sales in the quarter increased 3.4% year over year to $104.8 million. Excluding $1.5 million sales from hurricane recovery films, the company’s revenues in the quarter were $103.3 million, reflecting year-over-year growth of 11.2%.

The company reports net sales under three segments — Applied Technology, Engineered Films and Aerostar. The segmental information is briefly discussed below:

Revenues from the Applied Technology segment were $29.7 million, increasing 17.5% year over year. Results improved on the back of new products sales — primarily that of RS1 — and rise in market shares.

On a geographical basis, the segment’s sales grew 18.4% year over year domestically while expanded 14% internationally.

Revenues from the Engineered Films segment totaled $58.2 million, decreasing 10.6% from the year-ago tally. Excluding $1.5-million sales from the hurricane recovery film, the segment’s revenues in the quarter were $56.7 million.

The year-over-year decline was due to roughly 15% decline in volumes on account of lower hurricane recovery film sales.

Revenues from the Aerostar segment grew 53.4% year over year to $17 million on the back of higher deliveries of aerostat contracts (including the U.S. Department of Defense contract that yielded sales of $2 million) and stratospheric balloon sales.

Margins Weak on Higher Costs & Expenses

In the reported quarter, Raven’s cost of sales increased 6.1% year over year to $72.2 million. It represented 68.9% of sales compared with 67.1% in the year-ago quarter. Gross margin decreased 180 basis points (bps) year over year to 31.1%.

Research and development expenses in the quarter grew 58.7% year over year to $6.5 million. It represented 9% of the quarter’s net sales versus 4% in the year-ago quarter. Also, selling, general and administrative expenses increased 10% year over year to $12.6 million. As a percentage of sales, it represented 12% versus 11.3% in the year-ago quarter.

Earnings before interest, taxes, depreciation and amortization (EBITDA) were $18 million, down 16.7% year over year. EBITDA margin in the reported quarter was 17.2% versus 21.3% in the year-ago quarter.

Operating income in the quarter decreased 23.7% year over year to $13.6 million primarily due to an 82.1% year-over-year fall in hurricane recovery film sales. Operating margin declined 460 basis points to 13%.

Balance Sheet and Cash Flow

Exiting third-quarter fiscal 2018, Raven had cash and cash equivalents of $68.7 million, up 5% from $65.4 million at the end of the last reported quarter (ended Jul 31, 2018).

In the nine months of fiscal 2018, the company generated net cash of $52.3 million from operating activities, increasing 69.6% year over year. Capital expenditure totaled $10.4 million, up 48.8% from the year-ago tally. During the period, the company paid dividends totaling $14 million while refrained from repurchasing shares.

Outlook

Applied Technology is actively working in establishing strong foothold in the Latin American region by fiscal 2020 (ending January 2021). It also aims at providing superior customer service to both local players (especially original equipment manufacturers) and large enterprise firms.

Engineered Films anticipates gaining from growth investments (Project Atlas and geomembrane installation project among others) as well as from healthy demand in markets served (especially industrial). However, sales of hurricane recovery film are predicted to decline further (on a year-over-year basis) in the fourth quarter of fiscal 2018 (ending January 2019).

Aerostat’s sales in the fourth quarter are predicted to be lower than each of the first three quarters of fiscal 2018. This is mainly dependent on the timing of contracts (mainly that of government’s) and deliveries done in previous quarters. Continued sales growth is anticipated in the long term. Additionally, the company believes that revenues generated from $36.2-million radar contract are likely to be recorded in the next five fiscal years.

Raven Industries, Inc. Price, Consensus and EPS Surprise
 

Raven Industries, Inc. Price, Consensus and EPS Surprise | Raven Industries, Inc. Quote

Zacks Rank & Stocks to Consider

With a market capitalization of approximately $1.4 billion, Raven currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry are HC2 Holdings, Inc. (HCHC - Free Report) , Crane Co. (CR - Free Report) and ITT Inc. (ITT - Free Report) . While HC2 Holdings sports a Zacks Rank #1 (Strong Buy), Crane and ITT carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, bottom-line estimates on the stocks improved for the current year. Further, earnings surprise for the last reported quarter was a positive 111.90% for HC2 Holdings, 11.72% for Crane and 3.80% for ITT.

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