AeroVironment (NASDAQ: AVAV) Shares tumbled 15.6% as of 10:45 a.m. ET on Thursday after reporting mixed third-quarter earnings last night.
Ahead of the report, analysts forecast that AeroVironment would earn $0.68 per share on revenue of $181.4 million. AeroVironment exceeded sales forecasts, reporting quarterly revenue of $188.5 million. However, earnings per share were barely two-thirds of what was forecast: $0.47 per share.
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AeroVironment’s revenue grew 4%, setting a new quarterly record for the maker of small military drones. CEO Wahid Nawabi attributed the popularity of the company’s ‘loitering munition systems’ (i.e. kamikaze drones) to the strong revenue performance, noting that the company also grew its backlog of future business in the quarter by 25% allowed to grow.
The bad news is that the profitability of these sales has fallen, with AV’s gross profit margin falling 300 basis points to 39%. Nawabi blamed this on higher sales of loitering ammunition.
The worst news is that when earnings are calculated according to generally accepted accounting principles (GAAP), the damage was even greater. Turns out that AV’s earnings per share of “$0.47,” already less than Wall Street had hoped, was just a pro forma number. Actual GAAP earnings for the quarter were just $0.27 per share – down 59% year over year, and the opposite of what you’d expect if sales were to increase.
This fact is probably the main reason why investors are selling AV stock today.
As for guidance, management said 2025 revenue will be somewhere between $790 million and $820 million, which would be $805 million at the midpoint. That would equate to 12% year-over-year revenue growth, which isn’t bad, and better than what AV achieved in the third quarter.
However, management did not provide a GAAP earnings forecast, saying only that pro forma earnings should come in somewhere between $3.18 and $3.49 per share. At the midpoint ($3.33), that equates to about 11% year-over-year growth, implying management will miss analysts’ earnings estimates of $3.42.
So back-to-back earnings misses for AV stock? No wonder investors are angry.
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