Raven rebounds with solid first quarter

By Jodi Schwan

A few weeks ago, the CEO of Raven Industries Inc. called together two dozen leaders in his company.

Dan Rykhus put a list of 10 distinct challenges in front of them that the Sioux Falls-based company had faced in the past four years.

“Some were external conditions. Some were choices we made internally,” he said. “Any one or two would have a huge impact on a business. And we had 10.”

The idea behind revisiting them was to gain corporate memory around them, Rykhus explained.

“So as we go forward, we don’t have to relearn them. If we don’t take the time and energy to embrace what we just learned, shame on us. We paid the tuition to learn these lessons. We better use the education from it.”

It likely was the right time to have the conversation.

Conditions are improving at Raven, which saw earnings drop in the past couple of years after years of setting records. The company was hit by softening in all of its core markets, including agriculture and energy, at the same time it was exiting contract manufacturing. Then the company identified deficiencies in the design and operating effectiveness of internal controls over financial reporting. That led to months of delayed earnings as Raven made revisions and fixed the issues.

The latest numbers told a better story.

Net income for the first quarter of fiscal 2018 was $12.3 million, or 34 cents per share, compared with $5.5 million, or 15 cents per share, one year ago.

Each of the three divisions reported improved net sales. Collectively, they increased more than 35 percent.

Dan Rykhus

“Over the last couple of years, we have endured many challenges, we made a lot of adjustments, what we feel were prudent adjustments,” Rykhus said in a call with analysts following the earnings release. “We have kept our overall strategy intact, and now we are starting to see returns on that.”

The company’s largest division, applied technology, increased operating income by almost 55 percent because of a combination of increased sales and improved operating leverage. The company has continued to develop products for the agriculture industry despite its downturn.

“We’re not trying to sell $300,000 or $400,000 pieces of equipment,” Rykhus said. “We’re trying to sell $20,000 control systems that make existing equipment more efficient. We have more opportunity in a tough market.”

Rykhus linked the division’s performance to its innovation and improved customer service.

“I don’t think corn prices will go up anytime soon,” he added. “We’re not counting on that as our strategy. We’re designing new products we believe we can take market share with, despite down market conditions.”

The company’s engineered films division increased its operating income in the first quarter by 125 percent. Raven recently bought a fabrication facility in Texas to expand its presence in the geomembrane market, which is growing after bottoming out last year. Raven’s industrial market also grew about 50 percent, in part because of a production line put in place 18 months ago, chief financial officer Steven Brazones said.

“Additionally, the division has continued to drive profitability improvements,” he said. “They are focused on expense discipline, value engineering and pricing discipline (and) are really having a positive impact on the financial performance of the division.”

Raven’s Aerostar division returned to profitability in the first quarter, with net sales increasing more than 20 percent.

“Sales to Google for Project Loon continued to grow, and the division successfully executed a new stratospheric contract — both positive indicators of the strength of our technology and the growing interest in the stratospheric balloon market,” Rykhus said.

Year-over-year comparisons likely will get more challenging in the coming months, he predicted, but the company is on track to deliver “meaningful growth in revenues and operating profit.”

The challenges of the past couple of years have reinforced his belief in Raven’s core business model, he added.

It starts with diversified markets and emphasizes continued research and development.

“We intentionally differentiate ourselves from our competitors on quality, service and innovation,” Rykhus said. “And we make long-term investments to separate ourselves from those competitors on quality. We introduce high-quality products, we deliver exceptional service — better we believe than our competitors — and we are focused on innovation as the long-term driver of our success.”

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Raven rebounds with solid first quarter

Conditions are improving at Raven, which saw earnings drop in the past couple of years after years of setting records.

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