Raven Industries Earnings: Is the Worst Over?

Raven Industries has had a rough year, missing its earnings expectations by an average of 12.2% over the last five quarters. This article examines Raven Industries' latest quarterly results to see if the worst is over for this dividend growth champion and if it is time for investors to climb on board the gravy train to profit and prosperity.

Aug 21, 2014 at 1:24PM

This article originally appeared as part of ongoing coverage in our premium Motley Fool Rule Hidden Gems service...we hope you enjoy this complimentary peek!

Over the past year Raven Industries (NASDAQ:RAVN) has struggled as major weakness in two of its three business segments drove down sales and earnings. Unfortunately, the latest quarterly results show this weakness continuing and the stock is down 9.3% as a result.

Second-quarter results
Raven reported second-quarter sales of $94.5 million, up 1% from the same quarter of 2013 but 5% below what analysts expected. Earnings declined by 7.2% and missed expectations by 19%. Sales were flat over the last six months, but earnings have declined by 15.7%.

The news wasn't all bad, with sales of proprietary products rising 10%. In addition, Engineered Films posting a 14% revenue gain and 22% increased operating income due to stronger pricing and improved margins. Once more the problem was the Aerostar and Applied Technology segments, which continue to show weakness as management attempts to shift the company away from slow-growth contract manufacturing and toward proprietary technology, which is the company's traditional strength. 

According to Raven President and CEO Daniel Rykhus, "As we exit the low-growth contract manufacturing business, in the short term, Aerostar and Applied Technology revenues are affected. In the second quarter, this planned runoff resulted in revenue decreases of approximately $5.5 million for Aerostar and $1.6 million for Applied Technology. " 

During the quarter Raven Industries acquired Dutch GPS steering systems provider, SBG, for $5 million in cash and $2.5 million in potential earn outs over the coming decade. Unfortunately, SBG's 2013 sales were only $6 million and management doesn't foresee those revenues being able to offset what Mr. Rykhus calls "eroding grower sentiment" and "subdued demand for precision agricultural equipment."

Ongoing challenges 
The latest quarter's weakness mirrored the first quarter, when Raven Industries missed earnings expectations by 6% as earnings declined 21% on the back of a 1% revenue decline compared to year over year results. That quarter's weakness was caused by a 19% decline in the Aerostar segment due to delivery timing issues and planned decreases in defense spending.  Applied Technology, which builds GPS and computer guided control systems for farm equipment, also struggled due to continued weakness in the agricultural prices, as seen in the below chart. 

US Producer Price Index: Farm Products: Corn Chart
US Producer Price Index: Farm Products: Corn data by YCharts.

Third quarter guidance
Management's guidance for the third quarter included continued strong sales from Engineered Films and continued weakness from Aerostar due to deferred Aerostat (surveillance balloons) and radar deliveries. Management warned of a double-digit percentage decline in company wide net income for the third quarter, with modest earnings growth returning in the final quarter of the year -- though not enough to post full-year earnings growth. 

What to watch for in the future
Investors and potential investors should keep an eye on three things.

The first is how Raven's struggling Aerostar and Applied Technology divisions perform over the next few quarters. Increased deliveries to Google's Project Loon should help ameliorate weakness in the third quarter and help the company's Vista Research subdivision sustain its recent strength. Raytheon has chosen Vista Research as its preferred radar solutions provider for future projects, and a good deal of Raven's future success is riding on this relationship bearing fruit.  

Raven Industries recent received an $8.4 million contract from the U.S. Army for maintenance and operation of Persistent Ground Surveillance Systems that is expected to be completed by the end of the year. More contract wins like that would greatly help Raven with the second of my three key factors: dividend growth.

Raven Industries hasn't raised its dividend for five quarters, and the company is in danger of losing its dividend champion status (which requires consecutive annual dividend increases on a trailing 12-month basis). Losing this status would remove Raven Industries from consideration by many dividend-growth investors.

Finally, investors should monitor how well management can execute on growing Engineered Films, which is its second-largest and fastest-growing segment. This segment has the benefit of being driven by three major megatrends: America's continued shale oil and gas boom, long-term growth in global food demand due to population growth, and increasing spending on environmental clean up efforts. The growth of Engineered Films is key to Raven Industries achieving analysts' projected 10-year annual earnings growth of 15% and dividend growth of 13.4%.  

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

 

Adam Galas has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers