Raven Industries Flies Against Short-Term Headwinds in Q1

Raven Industries (NASDAQ: RAVN) announced fiscal first-quarter 2020 results on Monday after the market closed, demonstrating a steep decline in both revenue and net income -- though the mini-industrial conglomerate's management was quick to assure investors this weakness should prove short-lived.

With shares up around 2% in Tuesday's trading as of this writing, let's batten down the hatches for a better idea of what held Raven Industries back this quarter and what we should be watching for the rest of the year.

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Raven Industries results: The raw numbers

Metric

Fiscal Q1 2020*

Fiscal Q1 2019

Change (YOY)

Revenue

$98.2 million

$111.1 million

(11.7%)

Net income

$13.2 million

$22.1 million

(40.3%)

Earnings per diluted share

$0.36

$0.61

(41%)

What happened with Raven Industries this quarter?

  • In keeping with trends we've seen for the past two quarters, Raven's top-line decline was exacerbated by abnormally strong hurricane recovery film sales in the same year-ago period. Excluding hurricane recovery film revenue, consolidated net sales would have fallen a more modest 4%.
  • Raven Industries doesn't provide quarterly guidance, but most analysts were modeling higher earnings of $0.44 per share on revenue of $106 million.
  • By segment: Engineered Films revenue declined 26.2% year over year to $44.3 million (but would have dropped 13.3% excluding hurricane recovery films). Segment operating income fell 51.8% to $6.4 million. Applied Technology sales grew 3.2% to $41.7 million, with flat sales given challenging weather conditions in the U.S. offset by strong growth in Latin America. Segment operating income declined 17% to $13.2 million, driven by higher R&D expenses and acquisition costs related to Raven's purchase of AgSync in January 2019. Aerostar segment revenue grew 11.8% to $12.2 million on higher stratospheric balloon and radar sales, with the latter driven by deliveries under Raven's previously announced five-year, $36 million radar contract with the U.S. Navy. Segment operating income declined $0.8 million to $2.0 million, driven by R&D investments in engineering services and flight operations capabilities.
  • Engineered Films revenue declined 26.2% year over year to $44.3 million (but would have dropped 13.3% excluding hurricane recovery films). Segment operating income fell 51.8% to $6.4 million.
  • Applied Technology sales grew 3.2% to $41.7 million, with flat sales given challenging weather conditions in the U.S. offset by strong growth in Latin America. Segment operating income declined 17% to $13.2 million, driven by higher R&D expenses and acquisition costs related to Raven's purchase of AgSync in January 2019.
  • Aerostar segment revenue grew 11.8% to $12.2 million on higher stratospheric balloon and radar sales, with the latter driven by deliveries under Raven's previously announced five-year, $36 million radar contract with the U.S. Navy. Segment operating income declined $0.8 million to $2.0 million, driven by R&D investments in engineering services and flight operations capabilities.

What management had to say

Raven Industries CEO Dan Rykhus elaborated:

Looking forward

To that end, investors should note the first quarter of last fiscal year was the only period in fiscal 2019 in which the company enjoyed abnormally high hurricane recovery sales. So this particular headwind should abate starting next quarter.

Meanwhile, Rykhus insists that Raven Industries' "long-term strategy remains sound," with the caveat that they may need to ramp up investments in each of their three operating segments to meet their longer-term goal for driving annual earnings growth of 10%.

"We are actively evaluating the best opportunities for this increased resource allocation in a way that builds on the success achieved in fiscal 2019, delivers strong results in fiscal 2020 and positions us well for the long term," Rykhus added.

All things considered, this certainly wasn't a perfect quarter. But it also wasn't as disappointing as Raven Industries' headline numbers seemed to indicate at first glance. With shares already down around 30% from last August's highs, it's no surprise to see the stock reflecting the market's tentative approval today.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.