Raven Industries, Inc.

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Raven Industries, Inc.

205 East Sixth Street
Sioux Falls, South Dakota 57117
Telephone: (605) 336-2750
Fax: (605) 335-0268
Web site: http://www.ravenind.com

Public Company
Employees: 1,463
Sales: $152.8 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: RAVN
NAIC: 314999 All Other Miscellaneous Textile Product Mills; 326199 All Other Plastics Products Manufacturing; 334514 Totalizing Fluid Meter and Counting Device Manufacturing; 334519 Other Measuring and Controlling Device Manufacturing

Raven Industries, Inc. is a diversified manufacturer of plastic, electronic, and special apparel products, which its sells to niche markets. Founded to make commercial and recreational balloons in 1956, the company quickly used its expertise in this area to produce an assortment of other products, ranging from massive plastic storage containers for use in agriculture and industry to ski pants. Its most profitable and steadily performing unit is its plastics division, which manufacturers polyethylene sheeting, high altitude balloons, and giant storage tanks. Ravens sewn products division makes outerwear (especially active sportswear), hot air balloons, and parade inflatables. Ravens third unit, its electronics division, constructs control systemssuch as ultrasonic soil-depth control devices and sprayer controlsfor agricultural and industrial customers. These high-tech devices regulate such precise tasks as determining how deeply seeds are planted in soil and how much fertilizer is applied to crops. Long a major supplier to defense contractors, Raven has been forced to adjust to leaner military budgets. Beginning in the mid-1990s, Raven has eliminated noncore operations and has striven to gain dominance in its niche markets. Raven operates several successful companies as subsidiaries, including Aerostar and Automatic Coil.

The Early Years

Raven Industries was launched in 1956 by a group of General Mills Inc. (GM) employees. Much of the impetus for founding Raven came from Ed Yost, a maverick thinker at GMs High Altitude Research Division. GM had received a contract from the U.S. Navy in the early 1950s to explore the new balloon technologies for defense and scientific purposes, and Yost took charge of the project. (While gas balloons were used sporadically at this time, they were expensive and could carry little weight.) In 1955 Yost successfully flew a tethered hot air balloon, much to the Navys pleasure.

After receiving a $47,000 grant from the Office of Naval Research in 1956, Yost founded Raven Industries to design, build, and launch hot air balloons. Yost and his investors opted to locate the company in Sioux Falls, South Dakota, because of the favorable wind conditions therewith relatively balanced spring and fall winds, balloons tended to ascend and descend straight up and down there, which made retrieving and tracking them an easier task. In addition to earning Yost the moniker father of hot air ballooning, Raven quickly won other classified contracts from the Navy.

Almost from its inception, Raven expanded beyond making balloons, applying the technologies it had mastered in that endeavor to new ventures. David Christensen, who joined the company in 1962, explained to Barrons how the seemingly disjointed directions in which Ravens early growth took the company were actually logical: The balloons were largely made of plastic, so the company got into plastics. It learned about electronics for the research instruments carried up in the air, so we [branched] into electronics. And then, when the balloon flight was over and the recordings had been made, the data had to be recovered by parachute. So the company got into sewn goods. To be sure that the company did not drift too far from its original mission, Yost formed Aerostar in 1960. That subdivision was devoted solely to producing balloons.

Even with all of its diversification, Raven continued to rely heavily on government contracts. During the late 1960s, for example, the company won a massive five-year $74 million contract to produce electronic equipmentespecially radios and modulesfor the armed forces. This arrangement accounted for a significant portion of the companys revenues during that period. In 1972 Christensen ascended to the positions of president and chief executive officer and guided the company as it continued to seek out new markets.

The Early 1980s

By 1983, Ravens sales had risen to $31 million. Although the United States was then mired in a recession, Ravens diversification protected it from the most turbulent vicissitudes of the period. The economic downturn certainly damaged the companys business of producing large plastic containers for agriculture and industry (People arent investing yet in large capital improvements, Christensen told the Dow Jones News Service on August 20, 1982, by way of explanation), but Ravens innovative ballutesa fabric material that was a cross between a balloon and a parachutewas in heavy demand from the military. (Ballutes could be used to drop ammunition from aircraft.) Raven also continued to develop electronic technology. By building on the control devices it had devised for balloons, Raven was able to launch several successful products that controlled various aspects of farms and feedmills. In 1983, for instance, the company released a system that controlled the manufacture of feed pellets for cattle.

Nonetheless, government contracts remained essential to Ravens viability. In 1984 alone, defense orders accounted for more than 20 percent of the companys total sales. The question we have to debate internally is how much defense business do we want in relation to our total business, Christensen explained to the Dow Jones News Service on November 25, 1983. This was particularly true because military procurement was not the only potential venue for Ravens diverse products. As the dominant paradigm of American agriculture shifted from small family farms to agribusinesses that operated on vast scales, Raven found new customers for its productivity-enhancing electronic control systems. For instance, the companys computerized monitoring system for the application of herbicide to fields sold quite briskly in 1985. Another key product in this sector was Ravens grain loss monitor, an electronic device used with combines to measure the amount of grain wasted in planting. To bolster its position in this industry, Raven acquired Beta 11 Inc. in 1984. This St. Louis, Missouri-based producer of electronic feed mill control systems had annual sales exceeding $2 million.

The company clearly recognized that opening up new markets would remain crucial to its continued success (as Christensen would explain later to Barrons, the companys aim during this period was to forge a diverse, recession-resistant structure). To this end, Raven acquired Glasstite, Inc. of Dunnell, Minnesota, in April 1986. This privately held company manufactured fiberglass truck tops, and the purchase afforded Raven entrance to the automotive market. Raven solidified its place in that sector in 1987, when it acquired Astoria Fibra-Steel, a utility truck body business. The company continued to develop its original product lines as well. In 1987 Ravens Aerostar was chosen to produce custom-made inflatables for Macys annual Thanksgiving Day Parade. Moreover, Aerostar did a brisk business supplying hot air balloons to the growing recreational ballooning market.

Even with all of the changes the company underwent during the 1980s, Raven adhered to its long-standing organizational structure. Because its operations were so far-flung, the company gave the directors of each division a great deal of autonomy. Raven termed this system intrapreneurialism and allowed each division head to maintain his or her own sales, production, and engineering staffs. Theyre almost independent entities, a company executive told the Journal of Business Strategy. The idea is that the division manager knows the business best so, to some extent, let him or her run it. Raven did provide a managerial umbrella over the divisions, though, overseeing credit, accounting, data processing, and most personnel functions.

The Early 1990s

Tensions in the Persian Gulf and the United States involvement in the Gulf War were a boon to Ravens short-term sales. After the Air Force awarded Raven a $6 million contract to produce electronic temperature control devices for the C-130 cargo transplant planes in 1989, the company won a $22 million contract from the Army in 1991 to manufacture 250,000 suits designed to protect American soldiers from possible chemical and biological warfare attacks in Iraq. Not surprisingly, sales for fiscal year 1992 (which ended January 31, 1992) rose dramaticallyto $100.6 million, up from $85.5 million in 1991. In fact, the company was named one of Americas fastest-growing companies by Financial World in 1991. Moreover, immediately after the Gulf War, Raven received orders from different military departments to restock electronic equipment that had been depleted during the campaign. Despite the revenue garnered by defense orders, though, Christensen would later rue the large contracts. In some ways, working with the military can spoil you, in that a large contract can lull you to sleep, he noted to the Journal of Business Strategy.

Company Perspectives:

Our mission is to become a dominant factor in the niche markets we serve by meeting world class standards of quality, cost and service. In doing so, we will produce above-average profits for our shareholders, which will be shared by our employees. We will attract and retain quality employees and give them the motivation and support to succeed and grow with the company.

Christensens concerns were triggered by the rapid decrease in defense spending that occurred in the aftermath of the Gulf War. With the Cold War over and no significant threats on the horizon, the militarys budget was severely curtailed. But despite the fact that 30 percent of its total sales in fiscal year 1991 were connected to defense contracts, Raven remained optimistic. With six years of record sales behind it by 1993, the company set itself the goal of becoming a $200 million company by 2000. Christensen confidently told Barron s that Raven could make up for losses in defense work with orders for the companys automotive products, automation controls, precision farming devices, and outerwear. In fact, the company recently had formed an alliance with major catalogue retailers Lands End and L.L. Bean to produce Gor-Tex parkas and sportswear.

The Mid-1990s

Raven continued to try to reduce its dependence on government contracts throughout the mid-1990s. To strengthen its position in the nondefense-related electronics market (in 1992, for example, the military was the end customer for more than 90 percent of the electronics divisions sales), Raven acquired Automatic Coil Corp. from Designatronics in 1993 and AJ. Electronics Inc. from DDL Electronics in January 1995. The company focused on expanding other aspects of its operations as well. Also in 1995, Raven bought several assets of Winzen International that were related to high-altitude balloon manufacturing. Moreover, in January 1996, Raven acquired a full line of ultrasonic sensor controls from K. Eldredge Electronics of Australia. Intended to strengthen Ravens position in the precision farming sector, the Eldredge purchase added to Ravens product line devices, which included a sensor control that automatically regulated operating depths on air seeders and planters and an ultrasonic head height control system for combines.

It seemed initially that Raven would be able to recover quickly from the loss of defense-related revenue. Sales for fiscal year 1994 rose to $121.5 million from $111.2 million in fiscal year 1993. Ravens sales flattened in fiscal year 1995, however, reaching only $121.7 million, and dropped for the first time in more than a decade in 1996, to $120.4 million. Equally disturbing was the companys diminishing profits. Net income reached an all-time high of $7 million in fiscal year 1994, but dropped nearly 13 percentto $6.1 millionin fiscal year 1995 and recovered only marginallyback to $6.2 millionin 1996.

Refocusing in the Late 1990s

Raven resolved to overcome these difficulties. In February 1997, the company made an important acquisition when it added Norcore Plastics, Inc. to its plastics division. Based in Tacoma, Washington, Norcore was a leader in the manufacture of large industrial storage tanks. Norcore had benefited in particular from its application of dual laminate technology, which produced tanks capable of handling high-purity chemicals and liquids (of special use to the semiconductor manufacturing industry). This $3 million acquisition not only complemented Ravens existing storage tank operations, but also provided the company with a West Coast manufacturing location.

Through moves such as this one, and buoyed by the soaring U.S. economy, Raven was able to recapture its earlier momentum by the late 1990s. In fiscal year 1997, the company earned a net profit of $7.7 million on sales of $139.4 million. Sales rose to $149.6 million in fiscal 1998, and again to $152.8 million the following year. The companys continued success, however, was called into question by the underperformance of certain of its divisions, which threatened to weight down the entire company.

At the close of the decade, Christensen declared in a press release that Raven would refocus on core operations through a restructuring in which it intendeded to redeploy or dispose of non-core assets. At the time of the announcement, the company had already shed its Astoria unit and, in October 1999, made the decision to sell its automotive businesss flagship enterpriseGlasstitefor $8.5 million. Although Glasstite had returned to profitability in 1998 after two years of losses, analysts had long accused Raven of overextending itself in the automotive sector. Of special concern was the companys investment of $1.5 million to build a new 50,000-square-foot manufacturing plant for Glasstitean outlay that Raven had not been able to recoup.

By exiting the automotive market, Raven demonstrated its commitment to concentrating on sportswear, agriculture, and plastics. Raven also would continue to compete in its original nicheballooning. Aerostar had launched a major international marketing campaign in June 1998, seeking to boost orders for its custom-made inflatable balloons. In 1999, the company received a contract from NASA to produce a unique high-atmosphere balloon. Im confident youll see this company back on a growth track, Christensen told the Associated Press.

Principal Divisions

Automatic Coil; Electronics Systems Division; Engineered Films Division; Flow Controls Division.

Principal Competitors

OSullivan Corporation; Top Air Manufacturing, Inc.

Key Dates:

Raven Industries is founded by four former General Mills employees.
Raven acquires Glasstite, Inc. and Poly Plastic & Design Corp.
Company buys Astoria Fibra-Steel.
Company purchases Automatic Coil Corp.
Raven acquires AJ. Electronics Inc. and certain assets of Winzen International; sells Astoria.
Company builds new factory for Glasstite in Arizona; purchases full line of products from K. Eldredge Electronics.
Raven takes over Norcore Plastics, Inc.
Company sells Glasstite.

Further Reading

CEO Interview: Raven Industries, Wall Street Transcript, October 24, 1994.

Meyer, Harvey, Underdog: A Military Contractor Spreads Its Wings, Journal of Business Strategy, September 19, 1997.

Palmer, Jay, Raven Industries Enjoys Ballooning Business, Barrons, August 17, 1992, p. 14.

Raven Industries, Implement and Tractor, January 11, 1996.

Raven Industries Acquires Norcore Plastics, Tank & Technology, Composite News, February 10, 1997.

Raven Industries Outlook, Dow Jones News Service, August 12, 1983.

Raven Industries Sees Net Up Strongly in 4th Quarter, Dow Jones News Service, November 25, 1983.

Slovak, Julianne, Raven Industries, Fortune, May 21, 1990.

Rebecca Stanfel