AeroVironment, a military drone maker, recently released their full-year FY24 earnings report, exceeding expectations on both the top and bottom lines. The company experienced a significant increase in sales in their Loitering Munition Systems (LMS) segment, driven by the continued demand for their Switchblade drones. This surge in sales propelled the company forward, with revenues in the final quarter of FY24 reaching $197 million, a 6% increase year-over-year.
The demand for Switchblade drones, particularly the Switchblade 600 and Switchblade 300, led to a 74% year-over-year growth in the LMS segment. AeroVironment secured a major contract to deliver Switchblade 300s to the U.S. Marine Corps under the Organic Precision Fires-Light (OPF-L) program, with the potential contract value reaching $249 million. Additionally, the company’s Switchblade 600s were selected under the U.S. DoD’s Replicator initiative, which is expected to provide significant funding for AeroVironment.
While the LMS segment saw impressive growth, the UnCrewed Systems (UxS) and McCready Works segments experienced declines in revenues. The UxS segment, which accounts for 53% of the company’s revenue, saw a 15% year-over-year decline in revenues. Similarly, the McCready Works segment faced delays in government authorizations, leading to a ~9% decline in revenues.
Despite the positive sales performance, AeroVironment reported a decrease in their funded backlog by 5.6% year-over-year, totaling $400 million. The company’s fourth-quarter earnings per share came in at 43 cents, higher than expected but lower than the previous year. However, the company reported a significant improvement in gross margins, rising to ~40%, driven by a favorable product mix with increased Switchblade sales.
Looking ahead, AeroVironment anticipates scaling the production capacity of their Switchblade drones to meet the growing demand. While the company’s profitability and margin profile are improving, there are some concerns about potential headwinds, including increased competition and delays in contract approvals. As a result, some analysts have downgraded their recommendation on the stock to a Hold.
In conclusion, while AeroVironment shows promise with strong demand for its products, investors should consider the potential risks and uncertainties in the near term. The company’s ability to navigate these challenges will be crucial in determining its future performance in the rapidly growing drone market.
