Raven Industries, developer and distributor of precision farming and other specialty equipment and systems, reported  net sales for the first quarter of fiscal 2020 were $98.2 million, down 11.7% vs. the first quarter of fiscal 2019. Both Applied Technology and Aerostar segments accomplished year-over-year sales growth, but the decline in net sales from Engineered Films drove the consolidated result. Raven’s agriculture activities are covered in its Applied Technology Division.

Operating income for the first quarter of fiscal 2020 was $15.1 million vs. operating income of $21.5 million in the first quarter of fiscal 2019, decreasing 29.8% year-over-year. The year-over-year decrease was primarily due to negative operating leverage as a result of lower sales volume. Sales volume was down significantly in Engineered Films. Increased investment in research and development activities in both Applied Technology and Aerostar to drive future growth also negatively impacted operating income vs. the prior year.

Net income for the first quarter of fiscal 2020 was $13.2 million vs. net income of $22.1 million in last year's first quarter. Included in the prior year's first quarter results on a pre-tax basis was an expense associated with a gift to South Dakota State University of $4.5 million and a non-operating gain on the sale of the company's ownership interest in Site-Specific Technologies  of $5.8 million.

Applied Technology Division

Net sales for Applied Technology in the first quarter of fiscal 2020 were $41.7 million, up 3.2% year-over-year. Geographically, international sales were up 11.3% year-over-year, driven primarily by strong growth in Latin America, particularly Brazil. Sales to this key agricultural region are growing as a result of investment in and establishment of the division's Latin America headquarters in Brazil in the first quarter of last year. On a domestic basis, sales were flat year-over-year as the division experienced declining demand due to the very challenging weather conditions. However, growth in new products resulted in market share gains in a down market.

Division operating income in the first quarter of fiscal 2020 was $13.2 million, down $2.7 million or 17% vs. the first quarter of fiscal 2019. Increased research and development investment, along with integration and acquisition expenses related to the acquisition of AgSync, drove the year-over-year decrease. In addition, first quarter operating income in the prior year benefited from favorable legal recoveries that did not repeat in the first quarter of this year.

Market Outlook — Applied Technology

The U.S. ag market is experiencing a very challenging start to the 2019 growing season. Wet, cool weather and abnormal flooding in North America have delayed and shortened the 2019 planting season. This has unfavorably impacted Applied Technology, as the division's core customers, ag retailers, were limited in the amount of field application activities that could be performed during the first quarter of fiscal 2020.

Due to these challenging field conditions, some ag retailers expect to experience double-digit declines in sales during calendar year 2019, and this will likely impact the amount they invest in new machines or technology upgrades in the aftermarket. We expect this to impact the planned number of new machine builds for some OEMs this year. While unfavorable, these circumstances are expected to be short term in nature, as the long term demand for precision farming technology is expected to grow considerably. Although the domestic ag market has started out slow in 2019, Applied Technology expects to build upon the revenue growth accomplished in the first quarter, as it remains focused on developing innovative and market-leading technology and expanding its international footprint.

  3 months ended April 30, 2019 3 months ended April 30, 2018 Change
Net sales $98,178 $111,129 (11.7)%
Cost of sales 63,112 71,131  
Gross profit 35,066 39,998 (12.3)%
Gross profit percentage 35.7% 36.0%  
Net income $13,210 $22,135 (40.3)%

Source: Raven Industries