AeroVironment Hits an Air Pocket As Revenue, Earnings Drop

Image source: AeroVironment.

The drone industry is one of the most promising arenas in aerospace right now, with many companies looking for ways to profit from the use of unmanned aerial vehicles. AeroVironment has been a first-mover in the military drone space, and investors hope that the company will find ways to get into the commercial industry as well. Coming into Tuesday's fiscal fourth-quarter financial report, AeroVironment shareholders were prepared to see declines in sales and a modest net loss. The company ended up doing somewhat better than that, but investors didn't seem satisfied with the company's look forward at the 2017 fiscal year. Let's take a closer look at the latest from AeroVironment and whether better times are yet to come for the drone specialist.

AeroVironment loses altitude

AeroVironment's fiscal fourth-quarter numbers lost momentum from better results in past quarters. Revenue was down 2% to $84.8 million, which was slightly worse than the 1.4% drop that most investors were expecting. Net income of $5.36 million was off about a quarter from last year's period, and the resulting earnings of $0.23 per share showed similar declines despite easily outpacing the consensus forecast for a $0.07 per share loss.

Taking a closer look at how AeroVironment did, the company said that its two major segments reversed their usual pattern of performance. Sales in the efficient energy systems segment, which makes products related to electric vehicle charging, were up $1.1 million from the year-ago quarter. That helped to offset a larger $2.8 million drop in revenue from the unmanned aircraft systems segment.

AeroVironment also remained under pressure in terms of maintaining its margin figures. Gross income fell 16% from year-ago levels, with product-related issues pulling down the entire company's numbers. Gross margin plunged seven percentage points to 45%. Operating income saw similar decreases, with only a reduction in research and development expenses helping to offset higher overhead costs. That sent operating income down by about half a percentage point.

Backlogs figures continued recent trends. Funded backlog of $65.8 million was up slightly from this time last year, but it represented a nearly $14 million drop sequentially compared to the end of January.

CEO Wahid Nawabi was generally pleased with AeroVironment's performance. "International small [unmanned aircraft systems] revenue grew significantly in fiscal 2016," Nawabi said, and "we also made significant process in developing the right solution for what we believe is a very large emerging market opportunity for commercial UAS applications."

What's ahead for AeroVironment?

AeroVironment's CEO also thinks fiscal 2017 will be a positive year for the company. As Nawabi said, "We believe we are well positioned for long-term growth potential in our core and growth markets by staying focused on helping our customers proceed with certainty." Conver also remains optimistic about the future for AeroVironment.

However, AeroVironment's fiscal 2017 guidance left some concerns about the pace of its potential growth. For fiscal 2017, AeroVironment believes that it will have revenue of between $260 million and $280 million. That happens to be exactly what the company projected for fiscal 2016, signaling low expectations for any quick uptick in revenue in the near-term. The range is also below the consensus forecast for nearly $285 million in sales. Guidance for profits of $0.20 to $0.35 per share are more consistent with investor expectations, neatly bookending the $0.28 per share forecast among those following the stock.

AeroVironment investors seemed dissatisfied with the company's performance, sending the stock down 3.5% in after-hours trading immediately following the announcement. To make shareholders happier about the company, AeroVironment needs to follow through on its commercial drone opportunity and produce the growth that investors have waited to see for a long time.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends AeroVironment. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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