The drone industry has attracted a lot of attention from investors for quite a while, and among the many companies that those following drones saw as having high potential, AeroVironment (NASDAQ:AVAV) has consistently remained near the top of the list. With a key head start in developing unmanned aerial vehicles, AeroVironment seemed to have the inside track to become a leader in the budding industry. Yet its sluggish execution hasn't gotten the company as far as many would have hoped by now.

Coming into Thursday's fiscal second-quarter financial report, AeroVironment shareholders wanted to see top-line growth even if it came at the cost of earnings. AeroVironment's numbers were mixed, but even though the company sees a more promising future ahead, investors didn't seem to get the answers they were looking for from the drone maker's report.

Several aircraft with graphics showing ground control over a varied terrain against a cloudy sky.

Image source: AeroVironment.

The latest from AeroVironment

AeroVironment's fiscal second-quarter numbers didn't quite live up to everyone's expectations. Revenue was higher by 11% to $73 million, although that was a bit lower than the $74.5 million that most of those following the stock had anticipated. However, net income fell about 20% to $6.1 million. Even so, earnings of $0.29 per share was quite a bit better than the consensus forecast among investors for just $0.16 per share.

Countervailing factors affected AeroVironment's results for the quarter. On one hand, service revenue saw healthy gains from year-earlier levels, picking up $8.5 million over the period. However, a modest decline in product sales held back the company's overall top-line growth. The challenges on the product side of the business hurt AeroVironment's overall gross margin, which dropped 7 full percentage points to 39%. On the expense side, rising overhead expenses as well as spending on research and development ate into some of its profits, although there was a big decline in income tax expense that helped the bottom line.

One area that looked encouraging for AeroVironment was its backlog. Remaining obligations under firm orders in customer contracts rose to $163.9 million, which was an increase of more than $50 million from where the figure stood 12 months ago.

CEO Wahid Nawabi was pleased with the way the fiscal year has started out. "Overall," Nawabi said, "demand drivers for our solutions remain strong as we continue to make progress across our business." The CEO pointed to rising backlog figures as further evidence of AeroVironment's success.

What's ahead for AeroVironment?

AeroVironment is enthusiastic about the future. In Nawabi's words, "We are committed to delivering on our full fiscal year goals through successful execution across small [unmanned aircraft systems], tactical missile systems, [high-altitude pseudo-satellites], and commercial information solutions." AeroVironment expects to get much larger in the future, stoking profitability to a greater extent than in the past.

As a result of its performance so far this year, AeroVironment boosted its guidance for fiscal 2019. The company now expects revenue to total $300 million to $310 million, which represents the upper half of the previous range that it had provided in past guidance. On the bottom line, earnings of $1.30 to $1.50 per share would compare favorably to the previous guidance for between $1.10 and $1.40 per share in income.

However, stock analysts didn't seem to appreciate the progress that AeroVironment has made. Piper Jaffray argued that the stock already fully reflected most of the potential growth that the company has, especially in its international government business. The stock analyst left its neutral rating on AeroVironment unchanged and boosted its price target by just $1 to $78 per share, well below the more than $91 per share that the stock fetched on the close the previous day.

In that light, shareholders in AeroVironment seemed unsatisfied with the way the company's results turned out, and the stock was down more than 15% at midday Friday following the Thursday afternoon announcement. Now that AeroVironment is focused on drones, it'll be interesting to see how much more quickly it moves forward to capitalize on the many areas in which experts see them as a lucrative growth opportunity.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool recommends AeroVironment. The Motley Fool has a disclosure policy.