AeroVironment's December Sell-Off: A Case of Guidance Reset vs. Record Revenue

The market's verdict on AeroVironment's latest report was clear: the headline revenue beat was priced in, but the profitability miss and guidance cut reset expectations lower. The core expectation gap was stark. On the top line, the company delivered a massive surge, with . That 151% year-over-year jump was fueled by its BlueHalo acquisition and solid organic growth, a powerful signal of demand.

Yet the bottom line told a different story. Adjusted earnings per share came in at , . More critically, it represented a . This wasn't just a miss; it was a reversal of recent momentum, with the company flipping to a GAAP operating loss due to acquisition costs and a shift toward lower-margin services.

The real catalyst for the stock's 13% decline last month was the guidance reset that followed. Management slashed its full-year adjusted EPS outlook to a range of , . This cut directly priced in lower future profitability, overshadowing the record revenue print. In the game of expectations, investors were willing to pay for growth, but they were not willing to pay for a future where that growth was less profitable. The sell-off was a classic "guidance reset" move, where the market revalues the stock based on a lower path for earnings.

The Backlog & Order Book: Strength Priced In?

The record bookings and backlog numbers are undeniably strong, but they do not fully offset the guidance reset. Management's decision to cut its full-year profit outlook suggests that the margin pressure and cost headwinds it sees are not yet fully reflected in the current order book.

The company's order intake was spectacular, with . This indicates robust demand far outpacing current revenue. More importantly, the funded backlog as of November 1, 2025, , a significant just six months prior. This backlog provides a tangible buffer, locking in future revenue for the coming quarters.

Yet the guidance cut is a clear signal that this backlog strength may not be enough to protect profitability. The company's own explanation for the profit decline points to a shift toward lower-margin services and acquisition costs. The guidance reset implies management anticipates these headwinds will persist or intensify, likely eating into the gross margin of those backlog orders. In other words, the backlog captures revenue volume, but the profitability trajectory for that revenue has been reset lower.

This creates an expectation gap. The market had priced in growth from that backlog, but it did not fully account for the new, lower-margin profile of that growth. The guidance cut is a forward-looking admission that the path to profit from these strong orders is steeper than previously thought. For now, the backlog is a shield, but it is not a guarantee against the profitability reset that drove the sell-off.

Catalysts & What to Watch: The Guidance Re-Reset

The recent 30.5% bounce in the stock price suggests the market is testing whether the guidance reset is now fully priced in. This sets up a clear next phase: a test of execution against the revised path. The key catalysts will determine if this is a buying opportunity or the start of a longer reset.

First, watch for execution against the revised full-year guidance. Management has cut its adjusted EPS outlook to . The critical near-term test is the third-quarter report, where investors will scrutinize whether the company is on track to hit the lower end of that range. Any further margin commentary or updates on cost controls will be vital. The reset is complete only if the company can demonstrate it can navigate the lower-margin shift and acquisition costs to meet this new, lower bar.

Second, monitor the conversion of recent awards into revenue. The company has secured major contracts, including an . Coast Guard. While these are strong signals of demand, the market needs to see them flow through the income statement. The key indicator is whether these new orders, which may carry different margin profiles, can offset the profitability pressure from the backlog mix. The stock's reaction to updates on these specific contracts will reveal if the market believes the growth is still worth paying for.

Finally, the current market sentiment signal is a potential short-term bounce. . The key question is whether this bounce has legs. If the guidance reset is truly baked in, the stock should stabilize. If not, any stumble on Q3 execution could trigger another leg down. The next move is a test of whether the reset is complete. For now, the market is giving the company a chance to prove it can deliver on the new, lower expectations.