Raven Falls Short of Estimates - Analyst Blog

Raven Industries Inc. ( RAVN ) reported third quarter 2013 earnings of 30 cents per share, down 3% from 31 cents in the year-ago quarter and missed the Zacks Consensus Estimate of 34 cents per share.

Operational Update

Sales increased 4% year over year to $97 million, falling short of the Zacks Consensus Estimate of $102 million. The year-over-year increase in sales was attributable to growth in the Applied Technology Division and contribution from Vista Research in the Aerostar Division.

Cost of sales increased 2% year over year to $67 million. Selling, general and administrative expenses increased 23% year over year to $9.7 million. Operating income decreased 3% year over year to $16.4 million in the quarter.

Segment Performance

Applied Technology: Sales for the segment increased 11% year over year to $39 million. The segment benefited from the company's continued investment in new products as well as international expansion. Operating income increased 6% to $12.3 million from $11.5 million.

Engineered Films: The segment reported sales of $33.3 million, down 5% year over year. Operating income declined 15% to $4.7 million. A decline in energy and agricultural sales offset improved demand for construction films.

Aerostar: Sales increased 9% year over year to $26 million, primarily driven by the addition of Vista Research revenues (acquired in January 2012). The segment reported an operating profit of $3.8 million, up 20% from the prior-year quarter.

Financial Position

Raven Industries ended the quarter with cash and cash equivalents, including short-term investments, of $48 million compared with $44.1 million as of the second quarter. Cash flow from operating activities during the first nine months of fiscal 2013 improved to $58 million from $37.7 million in the prior year comparable period.

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. Vista Research has recently signed a new $6 million contract with the U.S. government to support and further explore the applications of its radar technology. Moreover, the company is also focusing on increasing the customer base of Vista both in the domestic and international markets.

Raven will benefit from the current strength in the agriculture market. The company 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.

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 ) and Spartech Corp. ( SEH ) are peers of Raven. The company currently retains a Zacks #4 Rank (short-term Sell rating).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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