Raven Industries Inc. (RAVN) reported third-quarter fiscal 2014 (ended Oct 31, 2013) earnings of 34 cents per share, up 13% year over year. The earnings surpassed the Zacks Consensus Estimate of 30 cents.
Operational Update
Sales increased 8% year over year to $105 million, beating the Zacks Consensus Estimate of $101 million. The growth was driven by improved revenues in the Engineered Films and Applied Technology segment, partly offset by decreased revenues in the Aerostar segment due to U.S. government disruptions.
Cost of sales rose 8% year over year to $73 million. Gross profit increased 8% to $31.9 million from $29.5 million in the year-ago quarter. However, gross margin remained flat at 30.4% from the year-ago quarter.
Selling, general and administrative expenses edged up 1.5% year over year to $9.85 million. Operating income grew 10.7% year over year to $18 million with operating margin expanding 50 basis points (bps) to 17.3%.
Segment Performance
Applied Technology: Sales for the segment went up 11% year over year to $43.8 million led by rise in after-market demand for precision agriculture products. Operating income also rose 23% to $15 million from $12 million in the prior-year quarter.
Engineered Films: The segment reported sales of $40 million, improving 21% year over year. Barrier films for agriculture led the strong growth, specifically sales of fumigation and silage films. Besides, the addition of new extrusion capacity earlier in the year was a key factor to meet demand for high-tech films. Operating income hiked 11% year over year to $5.2 million.
Aerostar: Sales declined 8% year over year to $24 million due to reduced contract manufacturing demand, partially offset by strong sales in Vista Research and lighter-than-air products. Segment operating income fell 29% year over year to $2.7 million.
Financial Position
Raven Industries ended the quarter with cash and cash equivalents of $48.6 million compared with $48 million at the end of the year-ago comparable period. Cash flow from operating activities for the nine-month period ended Oct 31, 2013 was $37 million against $58 million in the prior-year comparable period.
Our Take
Raven will benefit from investments in technology, capacity and market expansions. Raven’s commitment to innovation, service and quality will drive growth. In addition, its acquisition of Vista Research will aid sales of the Aerostar segment, primarily driven by deliveries under existing contracts for Vista's Smart Sensing Radar Systems.
Raven’s Applied Technology division will grow with robust original equipment manufacturer demand, new product launches and international expansion. In the past four months, the segment introduced Viper 4, SmarTrax MD and Multi-Hybrid OmniRow.
Going forward, Raven will benefit from Google’s new project for balloon-powered Internet access, Project Loon. The project will use Raven’s Aerostar-designed and developed high-tech balloons. While the program is still in its early stages, a successful trial took place in June involving 30 balloons providing Internet connectivity to an area covering nearly 10,000 square kilometers. Raven anticipates modest revenues from the project in the remainder of fiscal 2014, with further expectations of significant revenue growth in the first half of fiscal 2015.
The Aerostar segment will continue to face risks from government and sluggish demand. Raven is working to compensate government uncertainty by expanding proprietary technology revenues including advanced radar systems, high-altitude research balloons and aerostats to international markets.
South Dakota-based Raven, is an industrial manufacturer offering a variety of products for the agricultural, industrial, construction and aerospace markets. Raven operates through four business segments, namely Engineered Films, Electronic Systems, Applied Technology and Aerostar.
Raven currently carries a Zacks Rank #3 (Hold). Among other stocks in the same industry, Hutchison Whampoa Limited (HUWHY) and ITT Corporation (ITT) are favorably placed with a Zacks Rank #2 (Buy).
Another one of Raven’s peers– 3M Company (MMM) – reported third-quarter 2013 net income of $1,230 million or $1.78 per share compared with $1,161 million or $1.65 a share in the year-earlier quarter, driven by higher sales across its businesses. The reported earnings beat the Zacks Consensus Estimate of $1.76.
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