Raven Industries Reports Fiscal 2013 Third-Quarter Results

For the third quarter, sales increased 4 percent to $97.0 million, from $93.3 million in the prior-year third quarter. Revenue growth resulted from strength in the Applied Technology Division along with the addition of Vista Research revenues in the Aerostar Division. Engineered Films sales declined slightly from record levels in the year-ago third quarter.

Raven’s third-quarter net income was $10.9 million, or $0.30 per diluted share, down 5 percent from year-earlier net income of $11.4 million, or $0.31 per diluted share. All earnings-per-share amounts have been adjusted to reflect a two-for-one stock split effective July 25, 2012.

For the nine months, sales reached $316.6 million, an 11-percent increase from last year’s $285.2 million. Net income grew 5 percent to $41.5 million, or $1.13 per diluted share, from $39.6 million, or $1.09 per diluted share, in fiscal 2012.

“There were encouraging developments within all of our divisions during the third quarter,” said Daniel A. Rykhus, president and chief executive officer. “Applied Technology sales benefited from our consistent investment in new products and international expansion. Within Aerostar, Vista Research revenues helped to moderate aerostat volatility. Engineered Films saw improved demand for construction films-and that helped offset a decline in energy sales. Our performance company-wide led to a 4 percent top-line gain.”

Sales in Applied Technology grew 12 percent to $39.5 million, versus $35.3 million last year. Operating income rose 6 percent, to $12.3 million, from $11.5 million. The bottom-line gain stemmed from relatively higher sales and was achieved despite ongoing investment in research, marketing and product development. Both the sales and operating income results were third-quarter records.

Said Rykhus, “We continue to see rising demand for our precision agricultural solutions-particularly Raven’s advanced guided steering systems that enhance farm yields and reduce operating costs. Emerging and established markets benefit from the precision and resulting cost savings we bring via technology, as well as the ability to maximize yields, which is significant in challenging conditions, including drought.

“International sales remained strong in the third fiscal quarter, particularly in Brazil, Canada and South Africa. Domestically, we saw strong OEM demand as we enhance our product capabilities. The drought in the US has created some uncertainty in the marketplace, but overall, any sluggishness has been substantially offset by higher commodity prices and strong farm income.”

During the third quarter, Raven introduced its Envizio Pro XL(TM) field computer. Based on the company’s popular Envizio Pro and Envizio Pro II field computers, the new device features a 10.4″ color touchscreen display. The Envizio Pro XL utilizes the same operating system as its predecessors, but the larger touchscreen enhances the user experience with products like Raven’s OmniRow advanced planter control system, or OmniSeed advanced air-seeder control system.

Noted Rykhus, “The Envizio Pro XL is just one example of our commitment to product development. Our new product initiatives are done in concert with our OEM and aftermarket channel partners-and this is part of what drives continued success in Applied Technology.”

Aerostar’s sales in the third quarter were $26.4 million versus $24.2 million in the previous year’s third quarter, a 9 percent gain. As previously disclosed, Raven realigned its Electronic Systems Division in the second quarter. Approximately 75 percent of Electronic Systems’ sales went to Aerostar in the fiscal third quarter and the balance to Applied Technology. All sales and operating income amounts reflect the realignment.

Most of Aerostar’s gain came from the addition of revenues from Vista Research, which was acquired in January 2012. Sales of high-altitude research balloons also increased. Aerostat sales of $1.4 million declined $700,000; electronics manufacturing services revenues were also lower. However, operating income rose 20 percent to $3.8 million from $3.2 million a year earlier.

Said Rykhus, “Despite a lack of aerostat sales in the third quarter, we were able to deliver year-over-year growth. This affirms our strategy of acquiring highly engineered products and businesses that occupy a unique market position-and Vista Research does just that. A leading provider of surveillance systems that enhance the effectiveness of radars using sophisticated signal processing algorithms, Vista’s smart sensing radar systems, or SSRS, are employed in a host of advanced detection and tracking applications, including wide-area surveillance for border patrol and the military.”

Commented Rykhus, “We continue to develop opportunities to add stability and mitigate volatility in our Aerostar business, and ultimately drive longer-term growth with breakout potential. That said, we continue to manage the business responsibly, carefully controlling discretionary spending, staffing levels and R&D.”

Recently, the company confirmed that the high-altitude research balloons used by Austrian Felix Baumgartner in his record-setting Red Bull Stratos mission, were manufactured by Raven’s Aerostar Division.

For the third quarter, Engineered Films posted sales of $33.3 million, compared to $34.9 million in the fiscal 2012 third quarter, a 5 percent reduction from last year’s record level. Operating income declined 15 percent to $4.7 million, from $5.6 million in the prior-year period.

Said Rykhus, “We continue to see solid performance from Engineered Films. While energy and agricultural sales declined during the quarter, deliveries of construction films were higher. Moreover, we continue to believe that geomembrane films will be a rising part of our market mix for this division, due to the critical need to protect water and other environmental resources.

“Within Engineered Films we maintained our gross profit percentage-even with lower sales-through improved operating efficiencies. While the pounds of film sold is up about 10 percent for the nine months, we do have extrusion capacity to further grow this business-which we intend to do through R&D investments in new growth opportunities as well as enhancements to our existing product line,” Rykhus noted.

At October 31, 2012, cash and investment balances were $48.1 million, up from $44.2 million a year ago. Increases in capital expenditures and the $12 million payment to acquire Vista Research, Inc., in the fourth quarter last year were offset by cash flows from operations. The company paid $3.8 million in dividends to shareholders ($0.105 per share) during the quarter. Accounts receivable increased to $55.5 million compared with $50.7 million at October 31, 2011. Inventories were $50.0 million, up from $49.9 million one year earlier. Average accounts receivable days outstanding increased year-over-year while inventory turns declined slightly. Nine-month operating cash flows increased to $58.0 million from $37.7 million in the prior year.

Said Rykhus, “For the fourth quarter, we continue to see positive trends in Applied Technology. For the near-term, Aerostar continues to be impacted by a lack of aerostat orders. Within Engineered Films, we anticipate a challenging environment and tough year-over-year comparison. Given the company’s year-to-date performance and a difficult fourth-quarter outlook, reaching our long-term earnings growth target of 10-15 percent is unlikely in the current year. However, we are pleased that we continue to expect a record year for sales and earnings, while managing the business to achieve our target longer term.”

Concluded Rykhus, “Helping customers solve great challenges-hunger, safety, environmental protection and energy independence-remains the driving force behind everything that we do. We’re continuing to invest in the company, expanding both our base of fixed assets and portfolio of product lines. Raven’s diversified business model enables us to weather near-term challenges, while continuing to grow and build for the future.”

A replay of the conference call will be available two hours after the call ends through 11:59 p.m. CT on Friday, November 30, 2012. To access the replay, dial 1-855-859-2056 and enter conference ID: 60394664. A replay also will remain available on the company’s website for 90 days following the call.

This news release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding the expectations, beliefs, intentions or strategies regarding the future. Without limiting the foregoing, the words “anticipates,” “believes,” “expects,” “intends,” “may,” “plans,” and similar expressions are intended to identify forward-looking statements. The company intends that all forward-looking statements be subject to the safe harbor provisions of the Private Securities Litigation Reform Act. Although management believes that the expectations reflected in forward-looking statements are based on reasonable assumptions, there is no assurance these assumptions are correct or that these expectations will be achieved. Assumptions involve important risks and uncertainties that could significantly affect results in the future. These risks and uncertainties include, but are not limited to, those relating to weather conditions and commodity prices, which could affect sales and profitability in some of the company’s primary markets, such as agriculture, construction and oil and gas drilling; or changes in competition, raw material availability, technology or relationships with the company’s largest customers-any of which could adversely affect any of the company’s product lines-as well as other risks described in the company’s 10-K under Item 1A. This list is not exhaustive, and the company does not have an obligation to revise any forward-looking statements to reflect events or circumstances after the date these statements are made.