On Dec 5, 2014, we issued an updated research report on Raven Industries Inc. (RAVN - Analyst Report). The company is poised to benefit in fiscal 2015 from its objectives as well as acquisitions. However, the North American agricultural equipment environment will remain sluggish in the near term and in turn hurt Raven’s growth.

Notably, Raven will benefit from its fiscal 2015 objectives, including considerable growth in revenues from situational awareness and lighter-than-air product lines, bringing high-value plastic film applications and selectively pursuing targeted Applied Technology opportunities through new products and broadening OEM (Original equipment manufacturer) relationships. Moreover, Raven continues to focus on implementation of cost control measures, international market expansion and product innovation in order to drive growth.

Going forward, Raven announced the acquisition of Integra Plastics in Nov 2014, in executing its rebalancing strategy. The move will help in the expansion of Raven's engineered film production capacity, broadening of its product offerings and enhancement of current converting capabilities. For the fourth quarter of fiscal 2015, Raven expects the Integra Plastics acquisition to be accretive to earnings per share and anticipates higher profit contributions from Engineered Films compared with the fourth quarter of last year.

Further, Raven’s focus on growth of the Aerostar division and expansion of its proprietary technology opportunities, including advanced radar systems, high-altitude balloons and aerostats to international markets, will aid growth. On the Google Project Loon front, Raven’s product continues to perform well, with consistent balloon endurance in the 75-day range. The company expects that the project will continue to build in the coming quarters. Overall lighter-than-air business grew 12% in the reported quarter compared with the year-ago quarter.

Raven’s Applied Technology division will benefit from the implementation of cost control measures. The company has initiated the exit of its non-strategic St. Louis, MO, contract manufacturing facility; the process is expected to take six-months. It has also reduced its international sales infrastructure and scaled back marketing initiatives along with lessening general manufacturing overhead. These targeted actions are expected to drive $7 million in annual savings. Further, in the third quarter, the segment’s acquisition  of SBG in May 2014 contributed $1 million in sales. Raven expects first full-year sales from SBG to be in the $6 million to $7 million range.

However, Raven reported a 47% year-over-year slump in earnings in the third quarter of fiscal 2015 due to weakness in the agriculture equipment market. Though right sizing of the Applied Technology division will aid growth, the segment will be facing persistent and significant headwinds in the North American agriculture market. The company believes that growth in the division will not be sufficient to offset the expected continued decline in sales and operating income.

In the Aerostar segment, sales were affected by planned decline in contract manufacturing in the third quarter. Raven expects contract manufacturing decline of $25 million again in fiscal 2015. Further, the U.S. government business volume remains challenging due to reduction in defense spending. In addition, there remain uncertainties regarding additional aerostat contracts in the balance of the year.

In addition, Raven missed its long-term goal of 10% sales and operating income growth in fiscal 2014. The company remains concerned that it will not be able to meet its long-term annual earnings growth goal of 10% to 15% in fiscal 2015. Raven’s longer-term investments in corporate infrastructure are winding down. The company expects capital expenditure to be less than $20 million in fiscal 2015.

Moreover, fluctuation in exchange rate, increased competition and volatile raw-material costs remain matters of concern for Raven.

Raven currently carries a Zacks Rank #3 (Hold).