What happened

After the closing bell Monday, AeroVironment (AVAV -0.13%) reported fiscal 2023 third-quarter earnings that came in below expectations, and management lowered its full-year view. But much of the issue was timing, and the drone maker sees robust demand up ahead. That upbeat outlook helped drive shares of AeroVironment up by as much as 10% on Tuesday morning.

So what

AeroVironment is a maker of small to mid-sized unmanned aerial vehicles (UAVs) that have been a key piece of the assistance the United States has provided in support of the Ukrainian war effort. The war has demonstrated the effectiveness of AeroVironment's drones on the battlefield and raised the profile of the small defense stock.

The company reported revenue of $134.4 million in its fiscal third quarter, which ended Jan. 28, up 49% year over year and ahead of the $125 million consensus. But earnings of $0.33 per share came in short of the $0.41 per share consensus. Gross margin increased to 34% compared to 24% a year ago, but those gains were partially offset by increases in research and development and selling and administrative expenses.

AeroVironment cut its estimate for full-year earnings per share to a range of $1.13 to $1.33, down from the previous $1.26 to $1.58 range, primarily due to non-cash issues, including accelerated depreciation charges and a greater-than-expected unrealized loss tied to company equity investments.

"This quarter's performance sets the stage for a strong finish to fiscal 2023," CEO Wahid Nawabi said in a statement. "We believe the company is well positioned for even better results going forward, as we leverage our attractive, cutting-edge portfolio of products and services to drive continued double-digit organic top-line growth and solid bottom line results."

Now what

In a quarter where investors have largely ignored results in favor of focusing on what is to come, AeroVironment delivered perhaps the perfect kind of a "miss." Though its earnings per share figures were below expectations, the reasons why largely had to do with accounting, and the business looks poised for real growth.

AeroVironment ended the quarter with a funded backlog of $413.9 million in future business, up 83% year over year. Given the massive munitions expenditures occurring in Ukraine and the rising geopolitical tensions around the globe, the United States and its allies are going to need to replenish and stockpile weapons in the years to come. AeroVironment should get a growing chunk of that spending.

For years, AeroVironment ranked as a rare higher-risk/higher-reward choice among normally steady defense stocks. Over the past year, AeroVironment has come a long way toward proving the quality of its products, and investors seem to believe in the potential for the company to soar from here.