Raven Industries Reports Fourth-Quarter And Fiscal 2014 Results

The following excerpt is from the company's SEC filing.

Sioux Falls, SD-March 12, 2014-Raven Industries, Inc. (NASDAQ: RAVN) today reported sales and earnings for its fourth quarter and fiscal year ended January 31, 2014.

For the fourth quarter, sales were $92.6 million, a 3 percent gain from $89.6 million in the prior-year fourth quarter. Sales rose in the Engineered Films and Aerostar divisions, growing 16 percent and 3 percent, respectively. This was partially offset by a 5 percent sales decline in the company’s Applied Technology division.

Raven’s fourth-quarter net income was $8.3 million, or $0.23 per diluted share, versus year-earlier net income of $ 11.1 million, or $0.30 per diluted share. The decrease was primarily due to higher raw material costs in Engineered Films, increased R&D investments for Aerostar and lower sales volume in Applied Technology.

For the 12 months, sales totaled $394.7 million, versus last year’s $406.2 million. Net income was $42.9 million, or $1.17 per diluted share, versus $52.5 million, or $1.44 per diluted share, in fiscal 2013.

“While not readily apparent from our financials, fiscal 2014 was a year of progress for Raven. We advanced our strategy and better positioned areas of the business where we intend to grow long term,” said Daniel A. Rykhus, Raven’s president and chief executive officer. “As a company, we’re moving to more proprietary product lines while intentionally reducing our lower-margin, low-growth contract manufacturing business. This had an impact on our performance during the year and reflects our ongoing adjustment to conditions and opportunities.

“Our vision is to be a leader in providing the world with more food and energy, protecting the environment and allowing people to live more safely by delivering diverse technology solutions-in short, we solve some of the world’s greatest challenges. This clear vision brings meaning to the work of the organization and ensures our focus on profitable opportunities with strong fundamentals.”

For the fiscal 2014 fourth quarter, sales in Engineered Films rose 16 percent to $35.6 million from $30.8 million a year ago. Operating income was $3.4 million, compared with $4.4 million in the year-earlier quarter.

Said Rykhus, “Sales of energy, construction and industrial films were higher in the fourth quarter of fiscal 2014 than in the comparable quarter last year. Barrier films for agriculture-fueled by sales of fumigation and silage films-also rose compared to the prior year’s fourth quarter. The addition of new extrusion capacity earlier in the year was a key factor in our ability to meet demand for these high-tech films.”

Operating income was constrained in the quarter due to markedly higher resin costs compared to a year ago, combined with persisting market conditions that have not allowed the company to pass through these higher expenses. While Raven cannot control resin prices, the company is developing and growing sales of higher-margin barrier films and has introduced pricing changes to improve margins at current run rates. At the same time the company is pursuing operating improvements including leveraging its new reclaim production line, to achieve additional cost savings.

For the fourth quarter, sales in Applied Technology were $36.4 million, versus $38.4 million last year. Operating income was $10.8 million, compared to $12.3 million in the prior-year period. Lower after-market demand in the United States and Canada led to the declines. This was partially offset by demand from OEM customers, rising performance in Brazil and solid contributions from new products.

Said Rykhus, “While we expect fluctuations quarter to quarter, the fourth-quarter drop-off in aftermarket orders was unanticipated. We had seen accelerating demand through October, but as the quarter progressed we did not see the normal level of follow-on orders from our aftermarket distribution.”

OEM demand continued to rise for certain products, including Raven’s advanced field computers, planter and seeder controls, boom controls and application controls. The company also remained focused on developing and deepening relationships with its more than 30 OEM partners-expanding market share and extending its innovative technology to a broader range of customers.

Said Rykhus, “Internationally, we saw sustained demand in Brazil both from an OEM and aftermarket perspective. Emerging agricultural markets abroad operate at different life cycle stages and, therefore, have different needs. Raven has the breadth of precision agriculture products to meet those needs. We continue to see opportunity abroad in markets that are less mature.”

For the 2014 fourth quarter, Aerostar reported sales of $23.9 million, up from $23.2 million in the year-earlier quarter, despite a $6 million decline in contract manufacturing revenues, which was expected. Aerostar’s planned growth strategy emphasizes proprietary products over contract manufacturing, as noted earlier. Strength in Vista Research and lighter-than-air products offset the reduced contract manufacturing deliveries.

Divisional operating income was $2.3 million, versus $2.8 million in fiscal 2013-as improved gross profits were offset by higher R&D investments to support Vista radar technology, as well as Project Loon with Google.

Within Aerostar, Vista Research’s strong sales continued in the fiscal fourth quarter. Vista’s Smart Sensing Radar Systems fueled a 45 percent quarterly revenue increase. As previously disclosed, Vista Research was selected by Raytheon as a preferred radar solution for future U.S. and export opportunities.

Raven continues its support of Google’s Project Loon-which strives to provide Internet access in remote and underdeveloped areas. Raven brings decades of experience in high altitude balloon engineering and manufacturing technologies to this program-including the latest breakthroughs in super pressure balloons. Project Loon has the potential to change millions of lives through improved medical care, access to

knowledge and enriched agriculture-all benefits of connecting people through the Internet. Raven anticipates modest revenues from this project through the fiscal 2015 first half, with the possibility of significant revenue growth later in fiscal 2015, subject to continuing success.

Said Rykhus, “Project Loon is one of three key growth drivers for Aerostar. We also made important headway in fiscal 2014 to establish the infrastructure and regulatory processes to sell our aerospace and situational awareness products overseas. In fiscal 2015, Aerostar is focusing on expanding our proprietary technology opportunities, including advanced radar systems, high altitude balloons and aerostats to international markets. We are excited about these opportunities.”

At January 31, 2014, Raven’s cash and investment balances were $53.2 million, up from $49.4 million a year ago. 12-month operating cash flows were $52.8 million, versus $76.5 million in the prior year. In fiscal 2014, the company paid $17.5 million in dividends to shareholders ($0.48 per share) and made capital expenditures totaling $30.7 million. Accounts receivable decreased to $54.6 million, compared with $56.3 million at January 31, 2013. Inventories were $54.9 million, up from $46.2 million one year earlier.

Said Rykhus, “The markets we have chosen in agriculture, situational awareness and natural resource protection will continue to provide profitable growth opportunities as we use technology to solve great challenges. We will also apply our core technology to adjacent opportunities that fit our purpose, as we have with the use of balloons for Internet connectivity.

“In fiscal 2015, our focus will be on: measurably growing revenues from our situational awareness and lighter-than-air product lines; driving Applied Technology through international market expansion, new products and broadening OEM relationships; and bringing high-value plastic film applications to each of our Engineered Films markets.”

For the fiscal 2015 first quarter, Raven expects to see solid growth in Engineered Films revenues from agriculture and higher OEM deliveries in Applied Technology, substantially offset by ongoing contract manufacturing declines and uncertain agricultural aftermarkets. The company expects profits to be flat to slightly down in the first quarter, followed by profit growth as the year progresses. For the 2015 fiscal year, management anticipates profit improvement over fiscal 2014 will be derived from renewed growth in Applied Technology, realization of Aerostar’s growth drivers and stronger operational performance in Engineered Films.

Concluded Rykhus, “Despite headwinds in fiscal 2014, we continued to deliver strong returns on sales, assets and equity-demonstrating the strength of Raven, even during challenging years. In fiscal 2015, we will leverage this strength to drive growth from the core businesses in all three of our operating divisions, and aggressively pursue closely adjacent opportunities.”

Raven will host a conference call today, Wednesday, March 12, 2014, at 9:00 a.m. Central Time to discuss fourth-quarter performance. Analysts and investors are invited to join the conference call by dialing: 1-866-393-0676. Alternatively, the live call can be accessed through the Investor Relations section of the company’s website at http://investors.ravenind.com/. Please log on to the website at least 15 minutes early to register on the Events & Presentations page, and download and install any necessary audio software.

A replay of the conference call will be available two hours after the call ends through 11:59 p.m. CT on Wednesday, March 19, 2014. To access the replay, dial 1-855-859-2056 and enter conference ID: 23737914. A replay also will be available on the company’s website.

Since 1956, Raven Industries has designed and manufactured high-quality, high-value technical products. Raven is publicly traded on NASDAQ (RAVN) and has earned an international reputation for innovation, product quality, high performance and unmatched service. With strengths in engineering, manufacturing, and technological innovation, Raven serves the precision agriculture, high performance specialty films, aerospace, and electronic manufacturing services markets. Visit www.RavenInd.com for more information.

 Three Months Ended January 31, Twelve Months Ended January 31, 2013 2012 Fav (Unfav)Change 2013 2012 Fav (Unfav)ChangeNet sales$92,638 $89,575 3 % $394,677 $406,175 (3)%Costs of goods sold66,875 62,676   275,323 278,502  Gross profit25,763 26,899 (4)% 119,354 127,673 (7)%            Research and development expenses4,393 2,905   16,576 13,367  Selling, general and administrative expenses9,010 8,513   38,784 36,614  Operating income12,360 15,481 (20)% 63,994 77,692 (18)%            Other (expense), net89 158   (371) (46)  Income before income taxes12,449 15,639 (20)% 63,623 77,646 (18)%            Income taxes4,171 4,537   20,721 25,091  Net income8,278 11,102 (25)% 42,902 52,555 (18)%            Net income (loss) attributable to the noncontrolling interest— 5   (1) 10              Net income attributable to Raven Industries, Inc.$8,278 $11,097 (25)% $42,903 $52,545 (18)%            Net income per common share:            basic$0.23 $0.31 (26)% $1.18 $1.45 (19)%diluted$0.23 $0.30 (23)% $1.17 $1.44 (19)%            Weighted average common shares:            basic36,487 36,381   36,447 36,345  diluted36,763 36,513   36,645 36,533                          

 January 31, January 31, 2014 2013ASSETS   Cash, cash equivalents and short-term investments$53,237 $49,353Accounts receivable, net54,643 56,303Inventories54,865 46,189Other current assets6,660 4,903Total current assets169,405 156,748    Property, plant and equipment, net98,076 81,238Other assets, net34,338 35,224 $301,819 $273,210    LIABILITIES AND SHAREHOLDERS' EQUITY   Accounts payable$12,324 $14,438Accrued and other liabilities17,495 18,623Total current liabilities29,819 33,061    Other liabilities20,538 18,702Shareholders' equity251,462 221,447 $301,819 $273,210

 Twelve Months Ended January 31, 2014 2013Cash flows from operating activities:   Net income$42,902 $52,555Adjustments to reconcile net income to net cash provided by operating activities:   Depreciation and amortization14,195 13,098Other operating activities, net(4,261) 10,803Net cash provided by operating activities52,836 76,456    Cash flows from investing activities:   Capital expenditures(30,701) (29,675)Other investing activities, net(914) (255)Net cash used in investing activities(31,615) (29,930)    Cash flows from financing activities:   Dividends paid(17,465) (15,244)Payment of acquistion-related contingent liabilities(353) (8,367)Other financing activities, net464 604Net cash used in financing activities(17,354) (23,007)    Effect of exchange rate changes on cash(233) (8)    Net increase in cash and cash equivalents3,634 23,511Cash and cash equivalents at beginning of period49,353 25,842Cash and cash equivalents at end of period52,987 49,353Short-term investments250 —Cash, cash equivalents and short-term investments$53,237 $49,353

The above information was disclosed in a filing to the SEC. To see this filing in its entirety, click here. Raven Industries next reports earnings on March 12, 2014.

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