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Why Dronemaker AeroVironment Crashed This Week

By Lou Whiteman – Dec 10, 2021 at 10:00AM

Key Points

  • The company released quarterly results that beat expectations, but investors were more focused on drastic cuts to full-year guidance.
  • Supply chain issues and sluggish government contracting are weighing on results.
  • This is the second straight quarter in which AeroVironment guidance has underwhelmed.

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The company has a disappointing full-year outlook.

What happened

AeroVironment (AVAV 0.69%) reported quarterly results earlier this week that came in ahead of expectations, but cut guidance. Investors reacted by heading for the exits, sending AeroVironment shares down 20% heading into Friday morning trading.

So what

On Dec. 7, AeroVironment reported fiscal second-quarter earnings of $0.78 per share, beating analyst expectations for $0.62 per share. But the $122 million in revenue fell short of the $130 million consensus, and the company lowered its full-year sales and earnings outlook substantially.

An AeroVironment drone in action.

A soldier prepares to launch an AeroVironment drone. Image source: AeroVironment.

AeroVironment now expects earnings of $1.23 to $1.37 per share in all of fiscal 2022, down from $2.50 to $2.70. Revenue is now expected to come in at $440 million to $460 million, down from $560 million to $580 million.

The company makes small to midsize drones primarily for the military. CEO Wahid Nawabi issued a statement saying, "Headwinds to our business have intensified in recent months," necessitating the cuts.

Nawabi added, "The negative impact from supply chain delays, extended procurement cycles due to the global COVID-19 pandemic, slower decision making in Washington tied to Continuing Resolution related budget uncertainties and staffing shortages have prevented us from realizing the growth and bottom line results expected at the start of this fiscal year." 

Following earnings, AeroVironment was cut to a hold from a buy at Canaccord, and at least three analysts lowered their price targets for the stock.

Now what

The reasons for the cuts are understandable and hardly unique to AeroVironment, but it's worth noting this is the second straight quarter the company reported solid earnings but warned on guidance. The market sell-off this time around is likely at least partly due to disappointment that the company wasn't able to fully realize the challenges that were up ahead when it cut guidance three months ago.

AeroVironment is a company in a period of transition. Earlier this year, it acquired Arcturus UAV, expanding its total addressable market to include larger drones. It's a deal that makes sense, but the company is trying to integrate Arcturus during a challenging period for the business.

The guidance is an indication that things will not get better overnight. Investors this week were in no mood to wait out the storm.

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

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