Raven Industries Reports Q2 Results

The top-line trends Raven saw in the 2013 fiscal first quarter continued in the second quarter, with sales rising 13 percent to $101.7 million, from the previous year’s second-quarter record of $90.3 million. Revenue growth was driven by strength in the Engineered Films and Applied Technology Divisions along with the addition of Vista Research revenues in Aerostar.

Raven’s second-quarter net income was $11.5 million, or $0.32 per diluted share, versus fiscal 2012 second-quarter net income of $12.5 million, or $0.34 per diluted share. The 7 percent decrease stemmed from continued volatility in the company’s Aerostar Division. All earnings-per-share amounts have been adjusted to reflect a two-for-one stock split effective July 25, 2012.

For the six months, sales reached $219.6 million, a 14 percent increase from last year’s $191.9 million. First-half net income grew 9 percent to $30.6 million, or $0.84 per diluted share, from $28.2 million, or $0.77 per diluted share, in fiscal 2012.

“We continue to benefit from favorable market dynamics in agriculture and energy—and we’re leveraging these trends to drive revenue gains in our Engineered Films and Applied Technology Divisions,” said Daniel A. Rykhus, president and chief executive officer. “Sales in these divisions continued at a record pace in the second quarter. Even though a difficult federal spending environment persisted, negatively impacting Aerostar’s performance, we delivered a strong first

Strength Abroad Drives Applied Technology

Sales in the company’s Applied Technology Division grew 13 percent to $40.1 million, versus $35.4 million last year—a second-quarter record. Operating income was down 2 percent, to $12.9 million from $13.2 million. The bottom-line decrease was due to relatively higher sales of lower-margin products and higher investment in research, marketing and product development.

As previously disclosed, Raven realigned its Electronic Systems Division in the quarter. Approximately 75 percent of Electronic Systems’ sales went to Aerostar in the fiscal second quarter and the balance to Applied Technology. All sales and operating income amounts reflect the realignment.

Said Rykhus, “International sales remained strong in the second fiscal quarter, particularly in Brazil and Canada, and comprised 27 percent of the division’s revenues. As nations evolve their agricultural practices, they’re rapidly adopting Raven’s advanced guided steering systems that enhance farm yields and reduce operating costs. Domestically, we remain in a strong agricultural market, tempered by the ongoing drought conditions. Sales of guided steering systems, field computers and, in particular, application controls, reflect that strength.”

The company continues to cultivate and deepen relationships with key OEM partners—which expands market share and extends Raven’s technology to a broader range of manufacturers. During the second quarter, Raven introduced SmarTrax 6, the newest version of Applied Technology’s autosteering package. SmarTrax 6 continues to improve on line steering performance and simplifies calibration. Steering kits for SmarTrax 6 will work on more than 300 tractors and machine models.

Noted Rykhus, “We’re committed to further product development in fiscal 2013. We recently held the Raven Innovation Summit at the Innovation Campus near Baltic, SD—our recently expanded research center dedicated to precision agriculture. In addition to sharing our latest product advances with customers, we were able to get their feedback and input. This kind of information is invaluable as we work to develop next-generation products.”

Volatility Continues to Impact Aerostar Growth

Aerostar’s sales in the second quarter were $26.8 million versus $23.2 million in the previous year’s second quarter, a 15 percent gain. Most of the increase came from the addition of Vista Research revenues and an increase in Electronic Systems’ sales. Vista Research was acquired in January 2012. Aerostat sales declined $3.3 million, reducing overall second quarter profitability for this division. The division reported 32 percent lower operating income of $2.3 million, versus $3.4 million a year earlier.

“Our Aerostar Division has breakout potential, but it also is subject to significant variability due to federal spending. That’s what we saw in the first fiscal quarter, and again in the second, as lack of aerostat orders impacted potential top-line gains,” said Rykhus. “We continue to manage the short-term responsibly, carefully monitoring discretionary spending, staffing levels and R&D. At the same time we’re developing opportunities to add stability and mitigate volatility in the business, and ultimately drive longer-term growth.

“To that end, I’m pleased to report that we’ve had some recent success. At the end of the second quarter, Vista Research signed a $6 million contract with the US government to support and further explore applications of Vista’s radar technology. We’re also working with Vista on a number of other initiatives that would broaden our customer base. We see significant future potential with Vista, both here and overseas as we work to sell into new markets.”

Responsibly Managing the Short Term, Focused on Longer-term Opportunities

Said Rykhus, “We remain steadfast in our commitment: helping customers solve great challenges—hunger, safety, environmental protection and energy independence. As customer needs evolve and market dynamics vary, we embrace change, and have the flexibility to shift our operational focus and innovative drive to succeed as a business.

“Looking ahead, we continue to see positive trends in Applied Technology and, in particular, Engineered Films. For the near-term, Aerostar will continue to be impacted by order variability. We’re looking to mitigate that with new customer initiatives that will expand the use of persistent surveillance technologies to border and other non-military applications. Given the company’s year-to-date performance and challenging near-term outlook, reaching our long-term earnings growth target of 10-15 percent will be difficult in the current year, but not impossible. We continue to believe that we can reach our target longer term.”

Concluded Rykhus, “With mostly favorable market dynamics anticipated, we are focused on leveraging our market position, technology and differentiated products to build sales and income. Moreover, we’re continuing to invest for the long term, expanding both our base of fixed assets and portfolio of product lines.”

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