Aerospace and defense company AeroVironment (NASDAQ:AVAV) fell short of the market’s revenue expectations in Q4 CY2024, with sales falling 10.2% year on year to $167.6 million. The company’s full-year revenue guidance of $787.5 million at the midpoint came in 5.8% below analysts’ estimates. Its non-GAAP profit of $0.30 per share was 54.8% below analysts’ consensus estimates.
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AeroVironment (AVAV) Q4 CY2024 Highlights:
- Revenue: $167.6 million vs analyst estimates of $188.2 million (10.2% year-on-year decline, 10.9% miss)
- Adjusted EPS: $0.30 vs analyst expectations of $0.66 (54.8% miss)
- Adjusted EBITDA: $21.8 million vs analyst estimates of $33.86 million (13% margin, 35.6% miss)
- The company dropped its revenue guidance for the full year to $787.5 million at the midpoint from $805 million, a 2.2% decrease
- Management lowered its full-year Adjusted EPS guidance to $3.03 at the midpoint, a 9.3% decrease
- EBITDA guidance for the full year is $138.5 million at the midpoint, below analyst estimates of $148.3 million
- Operating Margin: -1.8%, down from 7.7% in the same quarter last year
- Free Cash Flow was -$29.61 million, down from $48.76 million in the same quarter last year
- Market Capitalization: $3.99 billion
Company Overview
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 sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Thankfully, AeroVironment’s 18.3% annualized revenue growth over the last five years was incredible. Its growth beat the average industrials company and shows its offerings resonate with customers.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. AeroVironment’s annualized revenue growth of 23.5% 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 83.4% and 16.6% of revenue. Over the last two years, AeroVironment’s Products revenue (aircrafts, missile systems, satellites) averaged 10.4% year-on-year declines while its Services revenue (maintenance, training, consulting) averaged 9% declines.
This quarter, AeroVironment missed Wall Street’s estimates and reported a rather uninspiring 10.2% year-on-year revenue decline, generating $167.6 million of revenue.
Looking ahead, sell-side analysts expect revenue to grow 35.5% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and suggests its newer products and services will catalyze better top-line performance.
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Operating Margin
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
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 operating margin decreased by 7.5 percentage points over the last five years. This raises an eyebrow about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. . AeroVironment’s performance was poor no matter how you look at it - it shows costs were rising and that it couldn’t pass them onto its customers.
AeroVironment’s operating margin was negative 1.8% this quarter. The company's consistent lack of profits raise a flag.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in 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 decent 9.5% compounded annual growth rate over the last five years. However, this performance was lower than its 18.3% annualized revenue growth, telling us the company became less profitable on a per-share basis as it expanded.
Diving into AeroVironment’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, AeroVironment’s operating margin declined by 7.5 percentage points over the last five years. Its share count also grew by 17.7%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders. 
Like with revenue, we 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 141% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.
In Q4, AeroVironment reported EPS at $0.30, down from $0.63 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects AeroVironment’s full-year EPS of $2.09 to grow 117%.
Key Takeaways from AeroVironment’s Q4 Results
We struggled to find many positives in these results as the company missed Wall Street’s estimates across all key metrics and lowered its full-year guidance. Overall, this was a weaker quarter. The stock traded down 17.8% to $116.75 immediately after reporting.
AeroVironment underperformed this quarter, but does that create an opportunity to invest right now? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.