Here's the most important thing I learned from AeroVironment's (Nasdaq: AVAV ) earnings report yesterday: Reading the earnings report isn't enough.
Sure, it tells you the basics:
- Sales in the fiscal third quarter of 2008 eked out a 5% gain versus last year's Q3.
- Stronger-than-expected margins on service contracts boosted operating margins to 16%.
- Profits beat expectations, with per-share earnings landing at $0.28 per share.
The release also told us that AeroVironment is sticking with its projections for both sales and profits. Sales will end this fiscal year up 20% to 25% over last year, in line with long-term targets in the same range. Operating margin will hover somewhere between 12% and 14%, in line with the 12.8% operating margin booked over the first three quarters of this fiscal year.
Color to the numbers
But that's far from the whole story at AeroVironment. To get the rest, you had to listen to the post-earnings conference call. That's where we learn why the stock was tumbling this morning, despite beating earnings and confirming guidance last night: Management clarified that it would end the year at the lower end of guidance for both sales and earnings. But even more important than the quarter-by-quarter earnings game, the conference call also makes clear that AeroVironment is not entirely what we thought it was.
Or at least what I thought it was
Up until yesterday, I'd always thought of AeroVironment as a maker of unarmed, unmanned, small spy planes. Four-pound Raven UAVs. One-pound Wasps. As it turns out, AeroVironment indeed manufactures unarmed, unmanned, small spy planes -- but on occasion it looms lethal and large:
- One name that popped up early on the conference call was a new product called "Switchblade." Similar to a Wasp in size, it will be launched from a tube, bazooka-style, and then be guided to its target like other UAVs. But here's the kicker: The Switchblade carries an explosive charge. If needed, it can take out a target kamikaze-style.
- AeroVironment is developing a hydrogen fuel cell-powered, high-altitude spy plane that could one day challenge larger plane-makers Northrop Grumman (NYSE: NOC ) and Boeing (NYSE: BA ) for control of the stratosphere. Like the former's Global Hawk, and the latter's now-defunct Condor, the Global Observer project shows that AeroVironment can do "big" just as easily as it can do "small."
- Similarly, but on a smaller scale, we learn that AeroVironment has been testing a UAV twice the size of its Raven, capable of making salt-water landings. AeroVironment doesn't see a market for the Aqua Puma, per se, but it believes the product can evolve into something marketable.
I don't have a lot of hope for this last item, because if Northrop's Fire Scout can land right on deck, I doubt that the Navy will have much interest in fishing a bunch of flying cats out of the soup. But AeroVironment 's other projects do suggest that there's more to this company than I originally thought.
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