Raven Industries Reports 2Q 2017 Results
OREANDA-NEWS. Raven Industries, Inc. today reported financial results for the second quarter that ended July 31, 2016.
- Strong sales from new product introductions and continued strength in international markets drove Applied Technology sales 13.2 percent higher year-over-year;
- Applied Technology successfully launched its next-generation rate control module with John Deere via a limited production release to select John Deere dealers in advance of a full release later this year;
- Applied Technology partnered with Case IH and New Holland to integrate Raven’s HawkeyeTM nozzle control system into their 2017 model year Patriot® and GuardianTM series sprayers;
- Applied Technology and Engineered Films both drove meaningful year-over-year improvement in profitability, expanding division profit margins 250 basis points and 320 basis points, respectively;
- Engineered Films sales grew 2.4 percent year-over-year, driven by 9.4 percent growth in pounds sold;
- Net working capital decreased nearly $13 million year-over-year, driven by actions to reduce inventory and improve days payable outstanding.
Second Quarter Results:
Net sales for the second quarter of fiscal 2017 were $68.0 million, up 0.8 percent versus the second quarter of fiscal 2016. Applied Technology and Engineered Films both achieved growth year-over-year in the second quarter, increasing sales 13.2 percent and 2.4 percent, respectively. Aerostar sales declined 25.7 percent versus the prior year.
Operating income for the second quarter of fiscal 2017 was $6.4 million, flat with the second quarter of fiscal 2016. Operating margin decreased 10 basis points year-over-year from 9.5 percent of net sales to 9.4 percent of net sales. The strong profit improvements in both Applied Technology and Engineered Films, which combined grew division profit $2.4 million year-over-year, were mostly offset by the performance of Aerostar. Aerostar’s performance was heavily influenced by the decline in aerostat sales year-over-year as well as the deferral of pre-contract costs in the second quarter of last year related to certain international Vista Research pursuits.
Net income for the second quarter of fiscal 2017 was $4.3 million, or $0.12 per diluted share, versus net income of $4.2 million, or $0.11 per diluted share, in last year's second quarter. The increase in earnings per share was driven primarily by share repurchase activities over the prior twelve months, which reduced weighted-average shares outstanding by 1.6 million shares versus the second quarter of last year.
Balance Sheet and Cash Flow:
At the end of the second quarter of fiscal 2017, cash and cash equivalents totaled $40.1 million, up $7.3 million versus the prior quarter. The increase in cash was largely due to free cash flow generation driven primarily by favorable net working capital developments.
Net working capital as a percentage of annualized net sales decreased nearly 500 basis points year-over-year, from 32.2 percent in the second quarter of last year to 27.3 percent in this year’s second quarter1. The decrease in net working capital percent was primarily the result of both lower inventory levels and an increase in payable balances as a result of an improvement in the timing of payments to suppliers.
Cash flow from operations was $14.5 million in the second quarter of fiscal year 2017 versus $14.7 million in the previous year’s second quarter. Continued reductions in net working capital sustained relatively strong cash flow in the second quarter of this year.
Capital expenditures were $1.4 million in this year’s second quarter, down $0.9 million versus the second quarter of fiscal 2016. For the first half of fiscal year 2017, capital expenditures were $2.2 million, down $5.2 million versus the first half of fiscal year 2016. The Company expects capital expenditures for fiscal year 2017 to be approximately $7 million.
During the second quarter of fiscal 2017, the Company repurchased approximately 100 thousand shares at an average price of $19.57 per share for a total of $2.0 million. Over the previous six quarters, the Company repurchased approximately 2.1 million shares at an average price of $17.75 per share for a total of $37.0 million. The Company’s remaining authorization at the end of the second quarter of fiscal 2017 was $13.0 million.
Applied Technology Division Second Quarter Results:
Net sales for Applied Technology in the second quarter of fiscal 2017 were $23.1 million, up 13.2 percent versus the second quarter of fiscal 2016. This marked the first year-over-year sales increase for the division since the third quarter of fiscal 2014. Sales to the Aftermarket and OEM channels increased 13.5 percent and 12.9 percent, respectively, versus the prior year. Geographically, domestic sales were up 14.0 percent year-over-year and international sales were up 11.1 percent year-over-year.
During the quarter Applied Technology expanded relationships with two strategic OEM partners in the United States. CNHi selected the division’s HawkeyeTM nozzle control technology for their 2017 model year Patriot® and GuardianTM series sprayers and John Deere adopted the division’s new rate control technology for their aftermarket channel.
Division operating income was $5.2 million, up 27.8 percent versus the second quarter of fiscal 2016. The increase in operating income was driven primarily by higher sales volume and lower manufacturing costs versus the previous year. Operating margin for the division increased by 250 basis points versus the prior year, from 19.8 percent to 22.3 percent, driven principally by lower manufacturing expenses.
Engineered Films Division Second Quarter Results:
Net sales for Engineered Films were $36.7 million, up 2.4 percent year-over-year. Volume, measured in pounds sold, increased 9.4 percent while average selling price declined 6.4 percent, in conjunction with lower resin costs year-over-year. The increase in sales was driven principally by higher sales into the Construction and Industrial markets. Sales into these two markets, in aggregate, increased $2.7 million versus the second quarter of last year. This increase was offset somewhat by volume declines in the remaining markets.
Operating income in the second quarter of fiscal 2017 was $6.7 million, up $1.3 million or 24.1 percent versus the second quarter of fiscal 2016. The year-over-year increase in operating income was driven principally by higher sales volumes and lower operating expenses. Division operating margin increased 320 basis points year-over-year, from 15.0 percent to 18.2 percent, driven by raw material efficiencies and improved capacity utilization.
Aerostar Division Second Quarter Results:
Net sales for Aerostar during the second quarter of fiscal 2017 were $8.4 million, down $2.9 million versus the second quarter of fiscal 2016 driven principally by the timing of aerostat contracts with the U.S. government. The remaining markets, in aggregate, were flat versus the prior year.
Operating loss in the second quarter of fiscal 2017 was $0.5 million versus operating income of $1.3 million in the second quarter of last year. This decline in operating income was heavily influenced by the significant reduction in aerostat sales year-over-year as well as the deferral of $1.4 million of pre-contract costs in the second quarter of last year related to certain international Vista Research pursuits. These costs were subsequently written off in the third quarter of last year as the timing and likelihood of completing these pursuits became less certain.
Fiscal 2017 Outlook:
“We are pleased with the improvement in financial performance in the first half of the year. Despite continued market weakness, we are making progress on a number of different fronts and we are in a much stronger position today than we were at the beginning of the year,” said Dan Rykhus, President and CEO. “Applied Technology and Engineered Films both achieved growth in the second quarter and we continue to see favorable pipeline developments in Aerostar. All things considered, on a consolidated basis, we expect to exceed prior year sales and adjusted operating income in fiscal year 2017,” concluded Rykhus.
The information presented in this earnings release regarding earnings before interest, taxes, depreciation, and amortization (EBITDA), do not conform to generally accepted accounting principles (GAAP) and should not be construed as an alternative to the reported results determined in accordance with GAAP. Management has included this non-GAAP information to assist in understanding the operating performance of the Company and its operating segments as well as the comparability of results. The non-GAAP information provided may not be consistent with the methodologies used by other companies. All non-GAAP information is reconciled with reported GAAP results in the tables below.