The drone industry has huge growth prospects, and investors have looked to AeroVironment (AVAV 0.35%) as having potential to become a leader in unmanned aerial vehicles. So far, the key word there has been "potential," because AeroVironment's growth hasn't lived up to the high expectations of most of its shareholders.

Coming into Tuesday's fiscal fourth-quarter financial report, AeroVironment shareholders wanted to see a huge upsurge in growth in revenue and earnings, and the company did an exceptional job of topping expectations on that front. However, its near-term guidance wasn't quite as good as most had hoped, and that led to concerns about what's coming down the road for the drone maker. Let's take a closer look at AeroVironment and what its latest results say about its future.

Drone depiction.

Image source: AeroVironment.

AeroVironment hits records

AeroVironment's fiscal fourth-quarter numbers were quite solid. Revenue soared by nearly half to $125.4 million, doing even better than the 45% rise that most investors were looking to see from the company. Net income was even more favorable, more than quadrupling to $30.5 million, and that resulted in earnings of $1.30 per share. That number blew away the consensus forecast among those following the stock for about $1.03 per share on the bottom line.

A closer look at the numbers showed the extent of AeroVironment's in its unmanned aircraft systems segment. The drone business saw revenue jump almost $40 million, or 52%, from the year-ago quarter. The trend that investors have seen in previous quarters reversed itself, as this time it was the efficient energy systems unit that saw slower top-line growth of just 9%. The difference between the two segments was even more pronounced when you look at gross profit, where the drone segment saw a rise of more than 60% while the efficient energy unit suffered about a one-fifth decline.

A similar effect was visible in the product sales and contract services categories. The smaller contract segment posted gains of 15% that translated to improvement in gross profit of nearly a fifth. But product revenue dropped 31%, and gross profit for the segment was down close to 40% from the year-ago quarter. Overall, revenue and gross margin on product sales nearly doubled, while the corresponding figures for contract services were down by roughly half from year-ago levels.

The most impressive element of AeroVironment's results was how well the company did in controlling costs. Overhead expenses were flat from year-ago levels despite the soaring revenue, and research and development costs were down by almost 45%. Some of the positive results came from working down backlog, which at $78 million was up by a fifth from year-ago levels but down by more than $50 million from where it was three months ago.

CEO Wahid Nawabi was ecstatic about the results. "Through the successful execution of our strategic plan," Nawabi said, "AeroVironment achieved record performance in our fourth quarter." The CEO pointed to international sales of small UAVs and solid domestic demand for its tactical missile systems as driving the top line higher.

What's next for AeroVironment?

AeroVironment was optimistic about the future. As Nawabi said, growth in funded backlog on a year-over-year basis should end up "positioning AeroVironment for long-term growth."

The guidance that AeroVironment gave for the current quarter, however, didn't live up to expectations. The drone maker believes that it will have sales of $40 million to $44 million in the current fiscal first quarter, which compared extremely poorly to the $50 million consensus figure among those following the stock. Similarly, calls for a loss of $0.32 to $0.40 per share for the quarter were more than double the red ink that investors were prepared to see.

Looking ahead, though, full-year fiscal 2018 projections don't look as bad. Sales of $280 million to $300 million would represent roughly 6% to 13% growth, and earnings of $0.45 to $0.65 per share neatly surround the $0.54 per share that AeroVironment brought in last year. Moreover, the guidance is consistent with full-year expectations among investors.

Shareholders in AeroVironment weren't happy with the near-term negative surprise, and the stock dropped 8% in after-hours trading following the announcement. For those who believe that the good times will continue for AeroVironment on a fundamental basis, today's drop could be exactly the opportunity they've been looking for.