Raven Industries Inc. (RAVN) reported net income of $7.4 million or 41 cents per share in the fourth quarter of its fiscal year, compared with $5.8 million or 32 cents a year earlier. With this, the company surpassed the Zacks Consensus Estimate of 35 cents.
For the full year, the company delivered EPS of $2.24, which was higher than $1.58 in the prior year and the Zacks Consensus Estimate of $2.18.
Raven’s good performance can be attributed to innovative products, including energy exploration, precision agriculture and military surveillance.
In the quarter, the company reported that total revenue increased 27% to $70.7 million, outperforming the Zacks Consensus Estimate of $61 million.
For the full year, the company reported total revenue of $314.7 million, up 32% from $237.8 million in the prior year and far ahead of the Zacks Consensus Estimate of $305 million.
Cost and Margins
Cost of sales increased to $51.7 million in the fourth quarter, compared with $40.4 million in the prior-year quarter. Though gross profits increased 23% to $19 million in the quarter from $15.4 million in the prior-year quarter, gross margins declined 100 basis points year over year to 27% in the reported quarter.
Raven also reported a 30% increase in selling, general and administrative expenses to $6.8 million in the reported quarter.
Raven’s operating income increased 18% to $10.2 million in the fourth quarter from $8.7 million in the year-ago quarter. However, the operating margin dropped 200 basis points year over year to 14%.
For the full year, the company’s cost of sales increased to $223.3 million from $169.9 million in the prior year. The gross profits increased 35% to $91.4 million from $67.8 million in the prior year. However, gross margins were flat at 29%.
The company also reported an increase in its selling, general and administrative expenses for the fiscal year to $24.1 million from $18.8 million in the prior-year.
Operating income for the full year increased substantially by 39% to $60.2 million from $43.2 million in the prior year, thereby expanding the operating margins by 100 basis points year over year to 19%.
Segment Review
Applied technology: The segment reported an increase of 29% in sales, amounting to $22.3 million in the quarter versus $17.3 million in the year-ago quarter. The company reported an increase in operating income to $5.9 million from $4.1 million in the year-earlier quarter.
For the full year, the segment reported an increase of 16% to $100.1 million in sales from $86.2 million in the prior-year. The operating income moved up 21% to $31.1 million in the fiscal year from $25.7 million in the prior-year.
The performance in the quarter was led by increased demand for core products, including field computers, guided steering and application controls, along with the new products and continuous international expansion.
Engineered Films: The segment’s sales increased 45% to $24.3 million in the reported quarter. The segment also reported an increase of 27% in operating income to $3.0 million in the fourth quarter from $2.4 million in the year-earlier quarter.
For fiscal 2010, the segment’s sales increased to $105.8 million from $63.9 million in the prior-year. Operating income increased to $19.6 million by a whopping 92% from $10.2 million in the prior-year.
The results improved due to continued strength in energy markets coupled with improved demand for construction, agriculture and geomembrane products. The company also upgraded its cast extruder line and added new capabilities with extra capacity.
Aerostar: The segment reported a 34% increase in sales to $11.9 million in the reported quarter from $8.9 million in the prior-year quarter. The segment’s operating income increased 10% to $2.3 million in the reported quarter from $2.1 million in the prior year quarter.
For fiscal 2010, the segment reported sales of $48.8 million versus $27.2 million in the prior year, representing an increase of 79%. Consequently, operating income also shot up 67% to $9.4 million from $5.6 million in the prior year. The segment posted strong results led by strong sales growth in aerostats and military parachutes.
Electronic systems: The segment’s sales were flat at $13.7 million in the reported quarter, with operating income declining 14% to $1.7 million from $1.9 million in the year-ago-quarter.
For the full year, the segment reported sales of $65.8 million, an increase of 4% from $63.5 million in the prior-year. Operating income increased 10% to $9.9 million in the fiscal year from $9.0 million in the prior year.
The lower profit in the segment was mainly due to a less favorable product mix. Though the segment is witnessing some supply chain issues, it is generating solid cash flows.
Financial Position
Cash and cash equivalents as of January 31, 2011 decreased to $38.6 million from $43.7 million as of January 31, 2010. Cash balance declined mainly due to the payment of a special dividend of $1.25 per share to the shareholders in September 2010.
Cash from operating activities amounted to $42.1 million during fiscal 2010 versus $47.6 million in fiscal 2009.The decline in cash flow was attributed to higher working capital requirements.
Outlook
Management expects the farm’s income to drive the company’s performance this year as well, with customers and farmers turning to Raven’s cost-effective products. The company plans to bring two new blown-film extruders online in fiscal 2011.
To acquire new business Raven is collaborating with key suppliers, research organizations and channel partners. Encouraged by the success of military parachutes in the aerostar segment, the company is now focusing on the high altitude research balloons. With uncertain economic environment, the company is more focused on its niche markets and profitable businesses. Apart from recruiting fresh talents, the company expects its capital expenditure to be twice the amount spent last year.
Competitors’ Performance
Graco Inc.(GGG) and Spartech Corp. (SEH) are close competitors of Raven. In comparison with Raven’s fourth quarter EPS of 41 cents. Graco and Spartech posted an EPS of 44 cents and a loss of $1.80 per share in the fourth quarter, respectively. This indicates that Raven performed well compared with Spartech but a threat is looming large from Graco.
GRACO INC (GGG): Free Stock Analysis Report
RAVEN INDS INC (RAVN): Free Stock Analysis Report
SPARTECH CORP (SEH): Free Stock Analysis Report
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