The potential for aircraft without human pilots to serve military and commercial purposes has never been greater, and investors have been adamant that AeroVironment (AVAV -1.19%) should be one of the biggest beneficiaries of this growing trend. Recently, the company has made big efforts to bounce back from some past setbacks, and many had gotten optimistic that this would finally be the time that AeroVironment made the most of its opportunities.

Coming into Tuesday's fiscal fourth-quarter financial report, AeroVironment shareholders were ready to deal with declines in quarterly revenue and profit, but they still wanted to see hope for a stronger fiscal 2020. Unfortunately, AeroVironment wasn't able to give investors the long-term outlook they had wanted to see, once again raising questions about whether the UAV manufacturer will ever live up to the hype surrounding the drone market.

Aerial vehicle graphic showing flight in cloudy sky with various applications.

Image source: AeroVironment.

AeroVironment's latest turbulence

AeroVironment's fiscal fourth-quarter numbers showed the challenges the company has faced. Revenue sank 23% to $87.9 million, and just about the only good news about that was that the decline was less severe than the 30% drop that most of those following the stock had expected. Meanwhile, net income came in at $5.7 million, down by nearly two-thirds from year-ago levels. The resulting earnings from continuing operations of $0.26 per share matched the consensus forecast among investors, even though it too was down sharply from the fourth quarter of fiscal 2018.

Nearly all of AeroVironment's top-line declines came from weaker product sales. Service revenue was relatively flat for the period, but product-related revenue dropped by more than $25 million for the period. The fact that AeroVironment got more of its business from service revenue also contributed to about a three percentage point drop in gross margin levels to 42%.

Backlog also remained relatively stagnant. AeroVironment said that it has $164.3 million in funded backlog, which is down just $100,000 from year-ago levels.

For the full fiscal year, though, the numbers looked better. Full-year revenue climbed 17% from 2018 levels, and earnings per share almost doubled over the same period on a continuing basis.

CEO Wahid Nawabi tried to take a big-picture view. "We strengthened our position as an industry leader," Nawabi said, "accelerated our growth strategy, and expanded our footprint." The CEO said that AeroVironment is still going through a longer-term transformation to become more competitive.

What's ahead for AeroVironment?

AeroVironment highlighted the specific missions that the company has taken on. As Nawabi described it, "We are protecting more United States and allied forces with our unmanned aircraft and tactical missile systems, empowering more farmers and researchers with data tools to grow more and earn more, and rolling out the next generation HAWK30 solar HAPS system to help connect billions of people to the global information network."

Yet that optimism didn't meet the expectations that investors had with respect to AeroVironment's results for the coming fiscal year. The company set guidance for fiscal 2020 at $350 million to $370 million in revenue, working out to adjusted earnings of $1.47 to $1.67 per share. Not only is that less than the $1.74 per share that AeroVironment posted for earnings from continuing operations during fiscal 2019, but the midpoint is below the consensus forecast for $1.61 per share on the bottom line.

Shareholders in AeroVironment wanted to see more encouraging projections, and the stock quickly dropped almost 10% in after-hours trading following the announcement. That doesn't mean that the drone maker's long-term future is doomed, but it does indicate that AeroVironment will have to get back on track if it wants to reassure its investors that its vision for the future is still attainable.