Raven Industries Inc. Keeps Improving

By Markets Fool.com

Improved profitability at Raven Industries' engineered films division helped drive solid Q2 results. Image source: Raven Industries.

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Raven Industries(NASDAQ: RAVN)announced better-than-expected fiscal second-quarter 2017 results Tuesday before the market opened, thanks to solid demand from new products and continued strength in international markets. The market responded by pushing shares of the mini-industrial conglomerate up 12.2% as of 3:30 p.m.

Let's dig deeper into how Raven Industries capped the first half of its fiscal year.

Raven Industries results: The raw numbers

Metric

Fiscal Q2 2017 Actuals

Fiscal Q2 2016 Actuals

Growth (YOY)

Revenue

$68.0 million

$67.5 million

0.8%

Net Income

$4.3 million

$4.2 million

2%

Earnings Per Diluted Share

$0.12

$0.11

9.1%

Data source: Raven Industries, Inc.

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What happened this quarter?

  • Operating income fell 0.4% year over year to $6.4 million.
  • Operating margin declined 10 basis points year over year to 9.4% of total sales, as strong improvements in profitability from both the applied technology and engineered films divisions were offset by the performance of Aerostar.
  • The company repurchased 100,000 shares for $2 million, or roughly $19.57 per share, bringing share repurchases so far this fiscal year to 2.1 million shares for $37 million, or an average cost of $17.75 per share. That left $13 million under Raven's current repurchase authorization.
  • In the engineered films division:
    • Revenue climbed 2.4% year over year, to $36.7 million, including a 9.4% increase in volume (measured in pounds sold), driven by higher sales into the construction and industrial markets. Average selling prices declined 6.4% due to lower resin costs.
    • Operating income grew 24.1% year over year to $6.7 million, driven by higher sales volumes and lower operating expenses. Operating margin climbed 320 basis points to 18.2%, helped by raw material efficiencies and better utilization of capacity.
  • In the applied technology division:
    • Revenue grew 13.2% year over year, to $23.1 million, marking the segment's first return to year-over-year growth since the third quarter of fiscal 2014.
    • Sales to aftermarket channel customers increased 13.5%
    • Sales to OEM clients grew 12.9%
    • Domestic revenue increased 14% year over year, and international revenue grew 11.1%.
    • Operating income grew 27.8% year over year to $5.2 million, driven by higher sales and lower manufacturing costs. Operating margin expanded 250 basis points year over year, to 22.3%.
  • In the Aerostar subsidiary:
    • Revenue declined 25.7% year over year to $8.4 million, driven primarily by timing of aerostat contracts with the U.S. government. Remaining markets were roughly flat as compared to the year-ago period.
    • Operating loss was $500,000, compared to operating income of $1.3 million in last year's fiscal Q2, driven by deferral of $1.4 million of pre-contract costs in last year's second quarter related to "certain international Vista Research pursuits." Recall these costs were written off in last year's fiscal Q3 given the uncertainty surrounding the likelihood of completing these pursuits.

What management had to say

Raven Industries CEO Dan Rykhus stated:

We are pleased with the improvement in financial performance in the first half of the year. Despite continued market weakness, we are making progress on a number of different fronts and we are in a much stronger position today than we were at the beginning of the year.Applied Technology andEngineered Filmsboth achieved growth in the second quarter and we continue to see favorable pipeline developments in Aerostar.

Looking forward

Raven Industries opted not to provide specific financial guidance, as per usual. But Rykhus did elaborate, "All things considered, on a consolidated basis, we expect to exceed prior year sales and adjusted operating income in fiscal year 2017."

For perspective, Raven's previous outlook calledfor roughly flat revenue and adjusted operating profit in fiscal 2017 compared to the prior year, "with potential opportunity to achieve modest growth in both."Now that Raven Industries is on track to exceed those goals after a strong quarter, it's no surprise to see the market so aggressively bidding the stock up today.

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Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Raven Industries. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.