Raven Industries (NASDAQ:RAVN) just posted another weaker-than-expected quarter in challenging market conditions. But with shares down a modest 2% in Thursday's trading as of this writing, the stock market seems to be offering the mini-industrial conglomerate a pass.

For its second quarter ended July 31, 2015, Raven Industries' revenue fell 28.5% year over year, to $67.5 million. Excluding sales from contract manufacturing -- a low-growth business the company began the process of exiting late last year -- quarterly net sales fell a slightly more modest 25.3% year over year, to $66 million.

That translated to a 39.9% decrease in operating income, to $6.4 million, and a 45.5% decline in net income, to $4.2 million. Net income per diluted share simultaneously declined 47.6% year over year, to $0.11, despite the positive contribution of Raven's decision to repurchase 550,000 shares so far this year for roughly $11 million.

On a more encouraging note, cash flow from operations climbed to $14.4 million, up from $12.9 million in the same year-ago period, thanks to what Raven describes as "more favorable working capital developments." Capital expenditures fell $2.1 million year over year, to $2.3 million during the quarter, and Raven continues to expect full-year CapEx to be between $13 million and $15 million. 

"Market conditions in Engineered Films and Applied Technology continued to remain challenging in the second quarter," explained Raven CEO Dan Rykhus. "Although we were cautiously optimistic for improved end-market conditions later in the year for both divisions, this is unlikely to occur based on what we are seeing in the marketplace today."

On Engineered Films
Raven's Engineered Films segment saw sales decrease 15.4 % year over year, to $35.8 million, driven by declines in energy market demand, with oil prices and drilling activity near multi-year lows. Consequently, energy-related revenue fell roughly 75% year over year, or roughly consistent with last quarter's decline over the same period.

Meanwhile, Raven's late-2014 acquisition of Integra Plastics drove year-over-year gains in the segment's remaining markets. That translated to a 7.8% decline in Engineered Systems' operating income, to $5.4 million. For that, Raven can thank a combination of cost controls implemented in the first quarter, the positive contribution of Integra, and favorable raw material costs, which, in turn, drove a sequential 130-basis-point increase in operating margin. 

Based on current visibility, Rykhus thinks any improvement in the energy market will likely be delayed until next year, "with a strong rebound probably a few years out."

On Applied Technology
Meanwhile, Raven's Applied Technology division suffered a 43.7% year-over-year decline in net sales, to $20.4 million, hurt by continued lower end-market demand for its precision control systems for large farm equipment. Specifically, sales to OEMs dropped 50%, while revenue from aftermarket clients dropped 35%. Applied tech operating income simultaneously plunged by more than half, to $4 million, as solid progress in restructuring and cost initiatives weren't enough to offset seasonally lower sales.

Rykhus suggested that the Applied Technology market was little changed from fiscal Q1, as an early increase in corn prices during the quarter turned out to be short-lived. "Unfortunately," Rykhus cautioned, "it will take time for the market to return to a more balanced and stable demand profile where growth in precision agriculture markets can resume."

On Aerostar
Next, Raven's Aerostar segment revenue dropped 41.2% year over year, to $11.3 million -- though excluding contract manufacturing, Aerostar sales would have fallen "just" 14.3%, to $9.8 million. Similar to Engineered Films' performance, Aerostar operating income dropped a less severe 18.8%, to $1.3 million, with operating margin up 310 basis points compared to this time one year ago, thanks to higher aerostat sales and the reduction in the less-profitable contract-manufacturing business.

According to Rykhus, there were no big surprises here, save a key DoD contract win in June for two aerostat systems, and continued enhancements to Raven's balloon capabilities for Google's Project Loon moonshot initiative. And while Vista radar sales fell on a year-over-year basis, Raven is content with the Vista team's program pipeline, and continues to see great long-term growth potential there.

A murky picture
Raven declined to provide specific financial guidance, citing the "unlikely" scenario that its core Engineered Films and Applied Technology divisions will see improved end-market conditions by the end of the year. Even so, Rykhus insisted, "While these conditions are expected to persist longer than we previously anticipated, we are steadfast in our focus on protecting our core business and creating sustainable long-term growth and we are prepared for the challenge."

With that in mind -- and with shares of Raven Industries already down around 27% so far in 2015 -- it's no surprise the market isn't reacting more violently to Raven's miss. As long as Raven Industries can remain focused on managing costs with a long-term recovery in mind, patient investors should ultimately be able to look forward to a stronger business emerging when market conditions finally turn for the better.