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Raven Industries Offers a Deceptively Strong Quarter

By Steve Symington – Nov 28, 2018 at 7:36PM

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An expected decline in engineered film sales was more than offset by the industrial conglomerate's other segments this quarter. Here's what investors need to know.

Raven Industries (RAVN) announced fiscal third-quarter 2019 results on Wednesday after the market closed, marking its second-straight quarterly beat with modest top-line growth despite an unusually tough comparable performance for the company's engineered films segment.

Let's dig deeper to see exactly what drove the mini-industrial conglomerate as it started the second half and what investors should be watching in the coming quarters.

Aerial view of a fish hatchery with rectangular pools lined by Raven Industries' engineered films.

IMAGE SOURCE: RAVEN INDUSTRIES.

Raven Industries results: The raw numbers

Metric

Fiscal Q3 2019*

Fiscal Q3 2018

Year-Over-Year Growth

Revenue

$104.83 million

$101.35 million

3.4%

Net income

$13.06 million

$12 million

8.8%

Earnings per diluted share

$0.36

$0.33

9.1%

DATA SOURCE: RAVEN INDUSTRIES. *FOR THE QUARTER ENDED 31, 2018.

What happened with Raven Industries this quarter?

  • Consolidated revenue would have increased 11% had it not been for the impact of abnormally high sales of hurricane recovery film in the same year-ago period.
  • Even then -- keeping in mind that Raven doesn't provide specific quarterly guidance -- these results compare favorably to consensus estimates, which predicted earnings of $0.33 per share on revenue of $104.6 million.
  • Applied technology segment sales climbed 17.5% year over year, driven by both market-share gains from core product platforms and sales of new products, including the innovative RS1 steering platform. Segment operating income grew more than 44%, to $7.7 million, thanks largely to higher sales and resulting operating leverage.
  • Engineered films segment revenue declined 10.6%, to $58.2 million, due to an expected decline in hurricane recovery film sales -- to $1.5 million from $8.4 million in the same year-ago period. Segment operating income declined 46%, to $9.2 million.
  • Aerostar segment revenue climbed 53.4%, to $17 million, driven by higher stratospheric balloon sales from several completed flight campaigns and deliverables to new U.S. government customers, as well as fulfilling its aerostat contract with the U.S. Department of Defense. Segment operating income nearly tripled, to $3.8 million.
  • Aerostar also was awarded a new five-year, $36 million radar-systems contract this quarter, "positioning this strategic product line for strong future growth."

What management had to say

Raven Industries CEO Dan Rykhus called it a "strong" quarterly performance, crediting applied technology and Aerostar for their relative strength and offsetting a "temporary step back in performance for Engineered Films."

Rykhus added:

We are very pleased with both our third quarter and year-to-date financial performance. We have made tremendous progress in a number of strategic areas, while continuing to invest for long-term growth. Our business model and strategic plans are strong and give us confidence in our future."

Looking forward

Again, Raven Industries doesn't provide specific forward guidance. But Rykhus elaborated that applied technology will continue to focus on both new-product development and strategic-acquisition opportunities, while Aerostar remains nicely positioned for future growth with its large new radar-systems contract. Meanwhile, Rykhus noted the engineered films group has nearly completed a new capacity-expansion project "to capitalize on new opportunities within the industrial and geomembrane markets."

In the end, while Raven's top- and bottom-line growth may not drop any jaws this quarter given its difficult comparables, there was nothing not to like about the company's performance from an investor's perspective.

Steve Symington has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Raven Industries, Inc.
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