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Why AeroVironment Stock Just Got Destroyed

By Rich Smith – Dec 7, 2021 at 12:52PM

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The defense company missed sales targets badly -- and promised more of the same.

What happened

Investors shot shares of defense contractor and unmanned aerial vehicles manufacturer AeroVironment (AVAV 0.78%) out of the sky on Tuesday, and the stock is down 26.2% as of 11:40 a.m. ET. The funny thing is, AeroVironment didn't miss earnings this morning -- it beat them.

Analysts had forecast that AeroVironment would earn only $0.62 per share in fiscal Q2 2022, but in fact the company said this morning that its adjusted profit was $0.78 per share. On the other hand, AeroVironment fell well short of sales expectations, reporting quarterly sales of only $122 million where Wall Street had expected more than $130 million.  

Big red arrow going down over a stock chart.

Image source: Getty Images.

So what

So was fiscal Q2 a good quarter or a bad quarter for AeroVironment? Let's dig into the details.

Q2 revenues surged 32% year over year (YOY) at AeroVironment, but gross profit increased only 4% and operating profit plunged 76% -- "primarily the result of an increase in selling, general and administrative ('SG&A') expense of $9.8 million and an increase in research and development ('R&D') expense of $2.3 million," reported the company. Although the company therefore ended up being able to report better-than-expected pro forma earnings -- and a 62.5% increase in pro forma profits YOY -- the result on the bottom line was that AeroVironment earned only $0.10 per share in profits calculated according to generally accepted accounting principles (GAAP) -- up just 11% YOY.  

Thus, not only did the company sell less than expected, but sales growth was also pretty anemic, and earnings simply didn't measure up to expectations.

Now what

And the news gets worse from there. AeroVironment CEO Wahid Nawabi warned that "headwinds to our business have intensified in recent months, requiring us to reduce our full year outlook" for the balance of fiscal 2022. In particular, the company blamed "supply chain delays, extended procurement cycles due to the global COVID-19 pandemic, [and] slower decision making in Washington" for its decision to cut guidance as follows:

Full-year sales will now range from only $440 million to $460 million, versus Street expectations of $560 million to $580 million. Earnings will range from $1.23 to $1.37 per share -- roughly half what the company had previously predicted, and only pro forma. When earnings are calculated according to GAAP, AeroVironment will probably lose money this year -- somewhere between $0.33 and $0.47 per share.

Long story short, this was a miserable report. Investors are selling accordingly.

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

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