Raven Industries, Inc.
(RAVN) posted fiscal second quarter earnings of 34 cents per share, compared to the Zacks Consensus Estimate of 29 cents. Quarterly earnings were 11% lower than last year due to the impact of economic downturn on the company’s two largest divisions.

Quarterly sales declined 18% to $56.6 million from $69.3 million in the year-ago quarter due to lower sales at the Engineered Films and the Applied Technology segments.

The Engineered Films Division reported a 43% decline in sales to $15.0 million, reflecting continued weakness in two of its major end markets (construction and energy). The company is cutting down capital spending and focusing on cost controls until there is some improvement in orders.

In the Applied Technology Division, sales fell 18% to $18.6 million due to lower volumes driven by uncertain economic conditions. Despite cautious near-term outlook for farm equipment, Raven is pursuing opportunities to expand its market share in precision agriculture.

The company has entered into an agreement to distribute select products through Deere (DE) dealers, starting from August in the U.S., Canada and Australia. The company expects to realize the benefit from this agreement in fiscal 2011.

The Electronic Systems Division sales of $17.9 million were up 22% compared to the prior-year period primarily due to higher volume of aviation shipments, which account for 50% of the segment’s sales. However, airlines have delayed or pushed back orders to aircraft manufacturers due to weak passenger traffic and shipping volumes. This could hamper the segment’s deliveries in the second half of the year.

Quarterly sales in the Aerostar segment were up 5% at $5.5 million due to higher parachute shipments. With the MC-6 Special Forces parachute contract extending through January 2010, Raven has a strong current year backlog. The company is preparing to bid for future contracts to manufacture a new Army paratrooper parachute.

Of all four segments, we believe the Aerostar division is best-positioned to weather the recession. Engineered Films continues to be affected by low activity in the energy and construction markets, while the Applied Technology division is impacted by lower farm spending. Even the Electronic Systems division, which has posted growth in the reported quarter, could be affected by delay in orders by airlines.

With three out of four segments facing a bleak near-term outlook, we expect Raven’s sales to remain at distressed levels over the next few quarters.
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