AeroVironment, Inc. Delivers a Beat, Narrows Its Focus

AeroVironment, Inc. (AVAV -0.20%) announced better-than-expected fiscal fourth-quarter 2018 results on Tuesday after the market closed, highlighting both the continued momentum of its core unmanned aircraft systems (UAS) business and the recent divestment of its efficient energy systems (EES) operations.

With shares down around 6% in after-hours trading as of this writing -- albeit after a nearly 7% pop in Tuesday's regular session ahead of the report -- let's take a closer look at what AeroVironment accomplished over the past few months, as well as what investors should be watching in the year ahead.

Image source: AeroVironment.

AeroVironment results: The raw numbers

Data source: AeroVironment. *For the quarter ended April 30, 2018.

What happened with AeroVironment this quarter?

• Within AeroVironment's top line, product sales declined 13.6% year over year to $88.4 million, while contract services revenue increased 116.9% to just under $29 million. 
• Subsequent to the end of the quarter (on June 1, 2018), AeroVironment announced an agreement to sell its EES business to German car parts supplier Webasto Charging Systems for $35 million. As such, EES is being reported as discontinued operations.
• For fiscal 2018, revenue (including discontinued operations) was $309 million -- above the high end of guidance provided last quarter for a range of $280 million to $300 million. Excluding discontinued operations, revenue grew 18% to $271 million.
• Full-year earnings arrived at $0.84 per share, also above guidance for a range of $0.45 to $0.65. Excluding discontinued operations, earnings came in at at $0.95 per share.
• AeroVironment's backlog at the end of the quarter sat at a record $174.3 million, up from $70.3 million at the same point last year.

What management had to say

AeroVironment CEO Wahid Nawabi stated:

Our team continued its outstanding execution of our business strategy and exceeded our revenue and profitability guidance for fiscal 2018. As a repositioned, pure-play solutions company with significant growth opportunities across our Unmanned Aircraft Systems and Tactical Missile Systems businesses and record funded backlog of $174.3 million, we have entered Fiscal 2019 from a position of strength. During the fiscal year, we identified significantly increased funding for our solutions in the fiscal 2019 U.S. government budget request, generated strong orders for Switchblade and positioned the company to capitalize on new opportunities in international small UAS. Further, we continued our progress in developing our HAPSMobile, Inc. global broadband communications business and our Commercial Information Solutions business, and have significant momentum to continue delivering shareholder value.

Looking forward

For fiscal 2019, AeroVironment expects revenue of between $290 million and $310 million, the midpoint of which represents year-over-year growth (excluding discontinued operations) of roughly 10.7%. Assuming 5% ownership of HAPSMobile -- and keeping in mind AeroVironment can increase its ownership percentage of the joint venture to 19% at any time prior to the first test flight of the HAPSMobile aircraft under development -- that should translate to earnings per diluted share of between $1.10 and $1.40.

Investors should note that the latter range includes a gain of $0.25 per share related to a recent litigation settlement. Excluding this one-time item, the midpoint of AeroVironment's earnings outlook is roughly in line with most investors' expectations.

In the end, while the EES divestment makes AeroVironment's results a bit murky, there was nothing not to like about this solid end to the fiscal year. Given the resulting honed focus on its core drone market, and considering AeroVironment has made a habit of underpromising and overdelivering lately, I think investors should be more than pleased with its latest report.