Raven Industries (RAVN) Surpasses Q1 Earnings Estimates

Raven Industries Inc.’s (NASDAQ:RAVN) first-quarter fiscal 2017 (ended Apr 30, 2016) earnings per share of 15 cents outpaced the Zacks Consensus Estimate of 6 cents by a wide 150% and soared 15% from 13 cents earned in the year-ago quarter. The bottom line improved as the repurchase actions taken last year resulted in favorable tax developments and lower outstanding shares.

Operational Update

Sales declined 3% year over year to $68.4 million in the quarter. A decline in Applied Technology and Engineered Films sales offset growth at the Aerostar segment.

Cost of sales decreased 2.5% to $48.7 million. Gross profit decreased 3% to $19.7 million from $20.4 million in the year-ago quarter. Gross margin contracted 20 basis points (bps) year over year to 28.8%. Selling, general and administrative expenses declined 20% to $7.7 million in the quarter from $9.6 million in the year-ago quarter thanks to the company’s cost reduction efforts and restructuring initiatives.

Operating income increased 5% to $7.6 million with operating margin expanding 80 bps to 11.1%. Operating expenses declined due to strict expense control and restructuring initiatives.

Segment Performance

Applied Technology: Sales declined 3% year over year to $31.5 million. Sales to aftermarket grew 5.7%, while sales to original equipment manufacturers dropped approximately 12%. International sales were up 26.3% while domestic sales tanked 13.8%. Operating income dipped 0.5% to $8.7 million from the prior-year quarter. A lower sales volume was offset by the benefits of ongoing expense control and restructuring initiatives. Operating margin expanded 60 bps to 27.6% driven by lower manufacturing and selling expenses.

Engineered Films: The segment reported sales of $29.1 million, down 7% year over year. Lower sales at the Energy and Geomembrane markets offset strength in both the Construction and Industrial markets. Operating declined 13% to $3.9 million due to lower production volumes, offset somewhat by lower operating expenses. Segment operating margin declined 100 bps to 13.3%.

Aerostar: Sales at the segment were $7.9 million, reflecting a 21% increase from $6.5 million in the prior-year quarter driven by growth in sales of stratospheric balloons, led by the Project Loon. The segment reported operating loss of $0.6 million, narrower than the year-ago quarter loss of $0.9 million. Benefits from restructuring actions taken in fourth-quarter fiscal 2016, along with improved sales volumes, led to the narrower operating loss.

Financial Update

Raven ended the quarter with cash and cash equivalents of $32.8 million, compared with $33.8 million at fiscal 2016 end. The company generated cash flow from operations of $11 million in the first quarter, compared with $9 million last year driven by higher net income and favorable working capital developments.

In the reported quarter, Raven repurchased nearly 380,000 shares at an average price of $14.93 per share for a total of $35 million. During the quarter, Raven’s board of directors authorized an additional $10 million for share repurchases, thus increasing the total amount authorized to $50 million. The remaining authorization at the end of the first quarter of fiscal 2017 was $15 million.

Outlook

The company expects the Applied Technology segment to benefit from steady market conditions, new product introductions continued OEM sales improvement throughout the rest of the year, both domestically and internationally. In the Engineered Films segment, the energy segment will continue to be a drag, albeit a less severe one. The company noted that sales at the segment have improved sequentially. On efforts to sell the capacity of its new production line in the Industrial and Geomembrane markets, and steady progress in Construction and Agriculture, the company expects meaningful progress during the year that will help returning the division to growth. Raven is also focused on turning the Aerostar segment back to profitability. This can be achieved by winning meaningful new business in the second half of the year. Moreover, the company remains optimistic on its pipeline of new business opportunities.

Meanwhile, Raven strives to cut costs, reduce inventory levels, and generate value engineering benefits. Given its first-quarter performance, Raven believes that it is on track to deliver consistently robust revenues and adjusted operating profit, with a potential opportunity to achieve modest growth.

South Dakota-based Raven is an industrial manufacturer offering a variety of products for agricultural, industrial, construction and aerospace markets. The company operates through three business segments – Engineered Films, Applied Technology and Aerostar.

Raven currently carries a Zacks Rank #3 (Hold). Better-ranked diversified-operations stocks include CLARCOR Inc. (NYSE:CLC) , Honeywell International Inc. (NYSE:HON) and Koninklijke KPN N.V. KKPNF. All these stocks carry a Zacks Rank #2 (Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

HONEYWELL INTL (HON): Free Stock Analysis Report

RAVEN INDS INC (RAVN): Free Stock Analysis Report

CLARCOR INC (CLC): Free Stock Analysis Report

KONIN KPN NV (KKPNF): Free Stock Analysis Report

Original post

Zacks Investment Research