Raven Industries Falls Short in a Noisy Quarter

Raven Industries (RAVN) announced fiscal fourth-quarter 2019 results on Wednesday after the market closed, detailing an expected decline in revenue given divestments and unusually high hurricane recovery film sales a year ago, the close of a strategic acquisition, and an early look at its goals for the coming year.

Unfortunately, the mini-industrial conglomerate also fell short on the bottom line relative to Wall Street's expectations, leaving shares down around 9.5% on Thursday as of this writing. Let's take a closer look, then, at how Raven Industries ended the year.

IMAGE SOURCE: RAVEN INDUSTRIES.

Raven Industries results: The raw numbers

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

What happened with Raven Industries this quarter?

• Similar to last quarter's results, consolidated revenue would have climbed 5% year over year had it not been for abnormally high hurricane recovery film sales in last year's fiscal fourth quarter.
• Raven Industries does not provide specific quarterly guidance, but these results were well below analysts' consensus estimates for earnings of $0.24 per share on roughly the same revenue.
• Applied Technology segment sales fell 4.1% year over year to $29.2 million, driven by lower demand from a slower spraying season for agricultural retailers. Segment operating income climbed 13.1% to $6.6 million, thanks to a combination of solid expense management and one-time legal costs last year.
• Engineered Films segment revenue declined 11% to $49.5 million, but it would have climbed 14.1% excluding the decline in hurricane recovery sales. Segment operating income fell 45.8% to $6.5 million.
• Aerostar segment revenue fell 4.3% to $9.4 million, driven by the divestiture of its client private business earlier this fiscal year. The segment's operating loss was $2.3 million this quarter, compared to a narrow $43,000 operating loss in the same year-ago period, due to the timing of contract payments.
• On January 2, 2019, Raven closed on its acquisition of AgSync, Inc, a leader in the precision agriculture technology industry. The move strengthens the company's Slingshot platform under its Applied Technology division. 

What management had to say

Raven Industries CEO Dan Rykhus stated:

We are very pleased with how all three divisions executed according to their long-term strategic plan in fiscal 2019. The Company achieved strong financial results, including record sales in fiscal 2019, while investing for long-term growth. Each division accomplished this in ways that are unique to their specific market position and strategy.

Rykhus elaborated that the Applied Technology division managed to grow sales and operating profit "despite operating in the fifth year of a lackluster market." Meanwhile, Engineered Films recently began commissioning a new manufacturing line to increase capacity in response to growing demand from the industrial and geomembrane markets. And finally, Aerostar achieved double-digit percent revenue growth, almost doubled its operating income last year, and will hone its focus on winning new contracts going forward.

Check out the latest earnings call transcript for Raven Industries.

Looking forward

Here again, Raven Industries does not provide specific financial guidance. But Rykhus did note that the company has "access to additional funding for strategic acquisitions," and it maintains its long-term goal of generating annual earnings growth of 10%.

In the end, Raven's earnings shortfall notwithstanding, I see nothing in this quarter's report that should deter any patient, long-term shareholders from owning Raven Industries stock. To the contrary, the company remains nicely positioned to capitalize on each of the industries it serves. And I suspect the stock will follow suit in time as the company continues to execute toward those ends.