AVAV shares slide 6% as guidance disappoints

AeroVironment (AVAV) posted strong Q2 results for fiscal 2025, with earnings per share (EPS) of $0.89, well above analyst expectations of $0.59, though slightly down from $1 a year earlier. Revenue grew 24% year-over-year to $189.5 million, beating the $184.5 million consensus. The company also outperformed on adjusted EBITDA, posting $37.2 million versus the estimated $31.5 million. However, despite these strong quarterly figures, AeroVironment's full-year revenue and EPS guidance came in lower than Wall Street expectations, which dampened investor sentiment.

AeroVironment operates across multiple sectors, including unmanned systems (UxS), where it generated $120 million in revenue, surpassing estimates of $107.8 million. Its other segments, however, fell short of expectations, with the Loitering Missile Systems (LMS) segment bringing in $52 million against an estimated $57.9 million, and MacCready Works (MW) contributing $17.5 million versus a $19.6 million estimate. Despite the shortfalls in these segments, the company highlighted growth in its UxS business, which continues to be a key revenue driver.

The company maintained its fiscal 2025 guidance, projecting full-year revenue of $790 million to $820 million and EPS between $3.18 and $3.49. While these figures are strong, they fall below analysts' expectations of $833.8 million in revenue and $3.50 in EPS. Additionally, AeroVironment reaffirmed its adjusted EBITDA guidance of $143 million to $153 million, lower than the consensus estimate of $158.4 million. The softer outlook for the year may reflect challenges in certain product segments and broader market uncertainties.

AeroVironment specializes in unmanned aircraft systems and missile production, supplying key military technologies like its Switchblade drones to the U.S. Department of Defense and other international clients. The company’s strong ties to the defense sector and recent contracts, including a $990 million award for its Switchblade drones, provide a stable revenue base. AeroVironment is also involved in cutting-edge projects with NASA and electric vehicle charging solutions, making it a well-diversified technology leader.

Key performance metrics included gross profit of $81.5 million, up 24% year-over-year, and an adjusted gross margin of 43%, matching last year’s performance. The company reported $762.5 million in cash reserves, giving it significant financial flexibility to weather near-term challenges. However, operating margins declined from 24.3% to 16.8%, which could signal rising costs or inefficiencies that may need to be addressed to sustain profitability.

Despite beating on revenue and EPS, AeroVironment’s stock fell 6.7% after hours, likely due to the cautious full-year guidance. The stock had gained 54% year-to-date before the earnings report, and the post-earnings dip pushed shares down to around $189. With the stock trading below key technical levels, it may face further downside pressure if the company’s guidance doesn’t improve in future quarters.

In conclusion, AeroVironment's Q2 results showed strong execution, especially in its UxS segment, but investors were disappointed by the company’s full-year outlook. While its defense contracts provide a stable growth foundation, ongoing concerns about margin compression and segment-specific weaknesses may weigh on the stock’s performance in the near term. However, given its strategic positioning in the aerospace and defense sectors, AeroVironment remains a key player to watch.