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Why AeroVironment Stock Popped 14.5% Today

By Rich Smith – Updated Apr 11, 2019 at 8:52AM

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The drone manufacturer just blew away analyst earnings estimates.

What happened

Shares of AeroVironment (AVAV 0.08%) are soaring today, up 14.5% as of 12:25 P.M. EST after the manufacturer of drone aircraft reported a big earnings beat last night.

Expected to earn just $0.14 per diluted share for its fiscal Q3 2019, AeroVironment instead reported a profit of $0.35 per share on sales of $75.3 million.

Drone firing rockets at a tank

AeroVironment reversed a loss from the year-ago quarter. Image source: Getty Images.

So what

AeroVironment's sales climbed 38% year over year, and the company expanded its gross profit margin by 700 basis points, to 40%. The company's profit, meanwhile, marked a reversal from its year-ago Q3 2018 loss. CEO Wahid Nawabi called the results outstanding, and predicted they will lay a "strong foundation for fiscal year 2020," now less than three months away.

If there was a downside to the news, it was that on the cash flow statement, AeroVironment now shows that it has generated almost no actual cash profit this year despite the strong GAAP earnings. Free cash flow (FCF) for the first three reported quarters of 2019 totals just $91,000 -- a steep decline from the $24.1 million in FCF that the company had generated by this point last fiscal year.

Check out the latest earnings call transcript for AeroVironment.

Now what

Whether or not free cash flow improves, AeroVironment management laid out a strong case for continued GAAP profitability as this fiscal year winds down. The company's latest guidance predicts that AV will end the year with between $300 million and $310 million in revenue, and will earn between $1.60 and $1.80 per diluted share.

The new numbers are about $0.30 ahead of previous management guidance, partly explained by the fact that AV says it will report a one-time gain of $0.26 a share from a litigation settlement.

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

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