AeroVironment’s (NASDAQ:AVAV) Q2 Sales Beat Estimates But Full-Year Sales Guidance Misses Expectations

Aerospace and defense company AeroVironment (NASDAQ:AVAV) reported Q2 CY2024 results exceeding Wall Street analysts’ expectations, with revenue up 24.4% year on year to $189.5 million. On the other hand, the company’s full-year revenue guidance of $805 million at the midpoint came in 3% below analysts’ estimates. It made a non-GAAP profit of $0.89 per share, down from its profit of $1 per share in the same quarter last year.

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“AeroVironment has once again delivered excellent results, including record first-quarter revenue that’s 24% higher than the same period last fiscal year,” said Wahid Nawabi, AeroVironment chairman, president and chief executive officer.

Focused on the future of autonomous military combat, AeroVironment (NASDAQ:AVAV) specializes in advanced unmanned aircraft systems and electric vehicle charging solutions.

Defense Contractors

Defense contractors typically require technical expertise and government clearance. Companies in this sector can also enjoy long-term contracts with government bodies, leading to more predictable revenues. Combined, these factors create high barriers to entry and can lead to limited competition. Lately, geopolitical tensions–whether it be Russia’s invasion of Ukraine or China’s aggression towards Taiwan–highlight the need for defense spending. On the other hand, demand for these products can ebb and flow with defense budgets and even who is president, as different administrations can have vastly different ideas of how to allocate federal funds.

Sales Growth

A company’s long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Over the last five years, AeroVironment grew its sales at an incredible 18.5% compounded annual growth rate. This shows it expanded quickly, a useful starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. AeroVironment’s annualized revenue growth of 29% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

We can dig further into the company’s revenue dynamics by analyzing its most important segments, Products and Services, which are 84.2% and 15.8% of revenue. Over the last two years, AeroVironment’s Products revenue (aircrafts, missile systems, satellites) averaged 69.2% year-on-year growth. On the other hand, its Services revenue (maintenance, training, consulting) averaged 20.7% declines.

This quarter, AeroVironment reported remarkable year-on-year revenue growth of 24.4%, and its $189.5 million of revenue topped Wall Street estimates by 2.1%. Looking ahead, Wall Street expects sales to grow 13.3% over the next 12 months, a deceleration from this quarter.

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Operating Margin

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

AeroVironment was roughly breakeven when averaging the last five years of quarterly operating profits, one of the worst outcomes in the industrials sector.

Looking at the trend in its profitability, AeroVironment’s annual operating margin decreased by 1.9 percentage points over the last five years. The company’s performance was poor no matter how you look at it. It shows operating expenses were rising and it couldn’t pass those costs onto its customers.

In Q2, AeroVironment generated an operating profit margin of 12.2%, down 5.1 percentage points year on year. This contraction shows it was recently less efficient because its expenses grew faster than its revenue.

EPS

Analyzing long-term revenue trends tells us about a company’s historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.

AeroVironment’s EPS grew at a remarkable 12.3% compounded annual growth rate over the last five years. However, this performance was lower than its 18.5% annualized revenue growth, telling us the company became less profitable on a per-share basis as it expanded.

We can take a deeper look into AeroVironment’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, AeroVironment’s operating margin declined by 1.9 percentage points over the last five years. Its share count also grew by 17.5%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders.

Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For AeroVironment, its two-year annual EPS growth of 61.8% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q2, AeroVironment reported EPS at $0.89, down from $1 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects AeroVironment to grow its earnings. Analysts are projecting its EPS of $2.92 in the last year to climb by 28.9% to $3.77.

Key Takeaways from AeroVironment’s Q2 Results

We were impressed by how AeroVironment beat analysts’ revenue and EPS expectations this quarter. On the other hand, its full-year revenue guidance missed and its EBITDA guidance for the full year fell short of Wall Street’s estimates. The outlook is likely to dominate the narrative and weigh on shares. The stock traded down 2.6% to $189 immediately following the results.

So should you invest in AeroVironment right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.