SEH Spartech Corp.

Raven Industries Inc. (RAVN) reported first quarter results delivering an EPS of 86 cents versus 72 cents in the year-earlier quarter, outperforming the Zacks Estimate of 74 cents.

Total revenue increased 19% y/y to $101.5 million, striding ahead of the Zacks Estimate of $96 million.

The improvement was largely driven by the Applied technology and Aerostar segment which reported double-digit growth in sales.

Costs and Margins

Cost of sales increased to $68.6 million in the quarter from $57.9 million in the year-ago quarter. Gross profit increased to $32.9 million, up 21% year on year. Thus, gross margins improved 50 basis points y/y to 32.4%.

Selling, general and administrative expenses increased to $7.2 million from $5.5 million in the year-earlier quarter. Operating income of the company increased 21% y/y to $23.5 million in the quarter. Consequently, operating margin improved slightly by 30 basis points y/y to 23.2%.

Segmental Performance

Applied Technology: Segment reported sales of $39.1 million in the quarter up 19% year on year. Operating income of the segment improved 22% to $15.1 million up from $12.4 million in the prior-year quarter.

During the quarter, the company noticed a surge in international sales, particularly in South America and the former Soviet Republics.

Engineered Films: Net sales of the segment increased 17% to $30.1 million from $25.6 million in the year-ago quarter. Operating income of the segment remained at $4.1 million in the quarter.

Energy market sales improved across all the markets improving the performance of the segment.

Aerostar: Net sales increased to $15.1 million from $11.7 million in the year-earlier quarter. Operating income of the segment increased by a whopping 88% to $4.1 million from $2.2 million in the prior-year quarter.  

During the quarter, sales of parachutes and protective wear improved leading to the top-line improvement.

Electronic Systems: Net sales of the segment increased 20% y/y to $19.5 million in the quarter. However, operating income increased slightly to $3.4 million from $3.1 million in the year-ago quarter.

The growth in the segment was largely driven by sales of bed controls and avionics. The sales are likely to remain flat as the year progresses due  to the completion of certain avionics programs in the second half of the year.

Financial Position

Cash and cash equivalents including short-term investments amounted to $42.6 million as of April 30, 2011 decreased from $49.5 million as of April 30, 2010. Cash provided by operating activities improved to $11 million from $10.3 million in the prior-year quarter.

During the quarter, directors approved a 12.5% increase in regular quarterly dividend to 18 cents per share. This is the twenty-fifth consecutive annual cash dividend increase.

Outlook

According to management careful and strategic investment will continue to drive results and achieve sustainable growth in the long-term. The company is now targeting precision agriculture, engineered films and situational surveillance markets where there is ample scope of gaining market share with new products and higher production capacity.

The company is committed to achieving a 12% - 15% improvement in net income and double its investment in plant and equipment, reaching the $30 million range.

Competitors’ Performance

Graco Inc. (GGG) and Spartech Corp. (SEH) are close competitors of Raven. In comparison with Raven’s first quarter EPS of 86 cents. Graco posted an EPS of 61 cents while Spartech is yet to announce its first quarter results. This indicates that Raven performed well compared to Graco. Raven currently retains a Zacks #3 Rank (short-term Hold rating).

 
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