Raven Industries (NASDAQ:RAVN) just reported another challenging quarter, highlighted by continued headwinds at all three divisions and a surprising net loss. Before we dig deeper, though, let's take look at the mini-industrial conglomerate's headline figures.

Raven Industries results: The raw numbers


Fiscal Q3 2016 Actuals

Fiscal Q3 2015 Actuals

Growth (YOY)


$67.6 million

$91.3 million


GAAP net income

($1.6 million)

$6.8 million


GAAP earnings per diluted share




Data source: Raven Industries. 

What happened with Raven Industries this quarter?

  • Revenue excluding sales from contract manufacturing -- a low-growth business Raven began the process of exiting late last year -- declined 21.3% to $67 million.
  • Operating loss of $2.7 million, primarily due to a pre-tax non-cash goodwill impairment charge of $7.4 million as the "timing and likelihood of completing certain international pursuits became less certain" for Raven's Aerostar subsidiary Vista Research. Vista also incurred a pre-contract cost write-off of $2.9 million, and an earn-out liability reduction benefit of $1.5 million. Collectively, these items reduced net income by $0.17 per share.
  • Adjusted net income -- which primarily means excluding these one-time items -- was $0.13 per diluted share, in line with Raven's expectations.
  • Engineered films and applied technology both continue to battle the negative effects of declining oil prices and agricultural market headwinds.
  • At engineered films:
    • Revenue fell 10.5% year over year, as lower oil prices and drilling activity contributed to a decline in energy market demand. Energy-related sales fell roughly 80% year over year, consistent with previous quarters' results. Other markets within engineered films saw sales rise 18% year over year, thanks to a combination of strong organic growth in agriculture and Raven's acquisition of Integra Plastics in late 2014.
    • Operating income rose 12% to $6.1 million, helped by Integra and lower raw material costs.
    • Raven completed manufacturing expansion of a new production line with the aim of targeting industrial segment growth opportunities starting next fiscal year.
  • At applied technology:
    • Revenue declined 35.6% to $21.3 million. Excluding contract manufacturing, revenue fell 32.5%.
    • Sales to OEM and aftermarket clients fell 41% and 26%, respectively.
    • Operating income fell 48.8% to $3.3 million, hurt mostly by lower OEM sales. 
    • Hawkeye sprayer control product line "taking off nicely with strong OEM interest and aftermarket investment."
    • Just after fiscal Q3 ended, Raven signed a new multiyear supply agreement with CNH Industrial.
  • At Aerostar:
    • Revenue declined 50.9% to $9.5 million. Excluding contract manufacturing, revenue declined 28.9% to $8.8 million, hurt by lower Vista Research sales.
    • Stratospheric balloon sales (including those for Google's Project Loon) were flat from the same year-ago period.
    • Aerostar sales rose $1.6 million year over year.
    • Operating loss of $8.4 million, compared to operating income of $3 million in the same period last year. Excluding one-time charges, adjusted operating income declined 84% year over year to $0.5 million.
    • Restructured Vista Research to reduce its cost structure in line with lower expectations.
  • Cost controls reduced corporate sales, general, and administrative expenses by $1.1 million from the same year-ago period.
  • Raven repurchased 1.1 million shares for $18.5 million, or $17.59 per share.

What management had to say 
Raven CEO Dan Rykhus stated:

This year has proven to be a most challenging year, with all three divisions now experiencing significant declines. Although we believe the worst will be behind us once we begin our next fiscal year, market conditions in engineered films and applied technology are not likely to improve significantly for the foreseeable future. In addition, the setback Aerostar realized this quarter pushes out for some time the development of sizable new business pursuits for Aerostar.

Looking forward 
Much like last quarter, Raven Industries opted not to provide specific financial guidance for the current quarter or the remainder of the year. But Rykhus did admit Raven's fiscal fourth quarter will be "quite challenging," and the company does not expect market conditions to improve in the near future.

Even so, Raven will continue carefully managing expenses in the meantime as it focuses on the future. And driven by a combination of new product lines at engineered films, Hawkeye at applied technology, and expected strength from stratospheric balloons at Aerostar, Rykhus stated the company believes it will return to sustained revenue and earnings growth in fiscal 2017 even in the face of continued market headwinds.

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