Raven Industries Starts Its New Fiscal Year With a Win

By Steve Symington Markets Fool.com

Raven Industries(NASDAQ: RAVN)announced fiscal first-quarter 2018 results on Monday after the market closed, including strong growth across all segments, led by a nearly 50% increase from engineered films. Let's take a closer look both at what drove business at the mini-industrial conglomerate as it kicked off the new fiscal year, and at what investors can expect going forward.

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Raven Industries' fish hatchery liners. Image source: Raven Industries.

Raven Industries results: The raw numbers

Metric

Fiscal Q1 2018*

Fiscal Q1 2017

Year-Over-Year Growth

Revenue

$93.5 million

$68.4 million

36.7%

Net income

$12.3 million

$5.5 million

123.8%

Earnings per diluted share

$0.34

$0.15

126.7%

*For the quarter ended April 30, 2017. Data source: Raven Industries, Inc.

What happened this quarter?

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  • Engineered-films division revenue climbed 49.7% year over year, with a 46.2% increase in volume driven largely by higher geomembrane market sales -- though industrial and construction sales growth also remained strong. Segment operating income climbed 125% to $8.7 million, thanks to higher sales and operating leverage.
  • Applied-technology division revenue rose 28.7% year over year to $40.5 million, driven by new product sales, expanded relationships with original equipment manufacturers, and higher direct injection system sales. Segment operating income climbed 54.8% to $13.5 million.
  • Aerostar segment revenue also returned to growth,climbing 21.7% year over year to $9.6 million, thanks to higher sales to Google for Project Loon, the commencement of a new stratospheric-balloon contract, and research-balloon delivery timing. Segment operating income swung to $1.4 million from an operating loss of $0.2 million in last year's fiscal first quarter, driven by higher sales and cost reduction efforts.
  • Cash flow from operations declined 30.6% year over year to $7.7 million, primarily given higher net working capital requirements to support increased sales.
  • The quarter ended with cash and equivalents of $50.5 million, roughly flat from last quarter.

What management had to say

Raven CEO Dan Rykhus stated:

We are very pleased with our overall performance in the first quarter.Both applied technology and engineered filmsdrove significantly higher sales volume, resulting in operating leverage whichled to strong incremental margins. Aerostar also achieved an improved financial performance.

More specifically, Rykhus noted that the end-market conditions for applied technology "remain subdued,but stable" compared with last year, while the engineered-films business saw geomembrane market volume continue its acceleration from "market-bottom conditions reached last year." Meanwhile, Rykhus says, Aerostar's improved performance is indicative "of the strength of our technology and the growing interest in the stratospheric-balloon market."

Looking forward

Raven doesn't usually provide specific forward financial guidance. But management did state that the company will continue to invest with its intermediate and long-term growth stories in mind, including increased R&D investments and potential strategic acquisitions.

"While we expect year-over-year comparisons to get progressively more challenging through the end of the year," Rykhus noted, "we believe we are on track to deliver meaningful growth in revenues and operating profit in fiscal year 2018."

All things considered, this was a great performance from Raven Industries on the heels of its equally impressive fiscal fourth-quarter 2017 results in late March. With shares touching a fresh 52-week high on Monday ahead of this release, I suspect Raven Industries stock will have plenty of room to rise from here.

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Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Raven Industries. The Motley Fool has a disclosure policy.