By Al Root
Sometimes growth isn't good enough.
Shares of drone maker AeroVironment fell early Wednesday after the company reported weaker-than-expected quarterly results.
For its fiscal third quarter, the company announced earnings per share of 64 cents from sales of $408 million. Wall Street was looking for the company to announce earnings per share of 68 cents from sales of $476 million.
A year ago, AeroVironment reported earnings per share of 30 cents from sales of $168 million. Sales grew 143% year over year, boosted by the May acquisition of BlueHalo. Comparable sales grew 38%.
Funded backlog was $1.1 billion, flat with the fiscal second quarter. Unfunded backlog was $3 billion, also flat with the second quarter. The unfunded backlog includes $1.4 billion of "SCAR-related work," according to the company.
That will be a sticking point for investors. SCAR is short for Satellite Communications Augmentation Resource. It's a big program for the U.S. Space Force, worth some $1.7 billion, and BlueHalo provides antennas for the SCAR program.
AeroVironment shares dropped 17.4% on Mar. 2, the first trading day after fighting broke out in Iran. That conflict wasn't responsible for the decline. Instead, investors were worried that the U.S. Space Force would reopen bidding on the SCAR contract.
That seems to be happening. The unfunded backlog includes SCAR options that are "no longer expected to be awarded," according to the company's news release.
"We remain in active discussions with the U.S. Space Force regarding the BADGER phased array antenna system to support the SCAR or Satellite Communication Augmentation Resource program," said CEO Wahid Nawabi on a conference call. "We appreciate that the contract was temporarily paused while we work together on a firm fixed price contract that provides a commercialized product solution."
He added in a news release that quarterly results were impacted by "timing and adjustments in our Space business." The government shutdown didn't help, either. Still, "strong order flow and growth in funded backlog during the quarter are setting the stage for record fourth quarter revenue and a solid start to fiscal year 2027."
The company has taken in $2.1 billion in new orders in the first nine months of the fiscal year, far exceeding the $1.3 billion in reported sales.
"SCAR is now in the rearview mirror," wrote William Blair analyst Louie DiPalma on Wednesday, adding that the outlook for AeroVironment's defense technology remains strong. He rates AeroVironment shares Buy and doesn't have a price target.
Still, investors are disappointed. AeroVironment shares were down 6.3% in early trading at $207.60, while the S&P 500 was up 0.4% and the Dow Jones Industrial Average was down 0.1%.
Despite recent weakness, AeroVironment stock was up 80% over the past 12 months through Tuesday trading, boosted by rising defense spending worldwide and an increased focus on autonomous battle solutions.
Growth is still robust, just not as good as it was expected to be. For 2026, AeroVironment expects sales of $1.9 billion, down from prior guidance of just under $2 billion. AeroVironment reported fiscal year 2025 sales of $821 million.
Earnings per share are expected to land between $2.75 and $3.10. Prior guidance was $3.40 to $3.55. Wall Street currently projects $3.31.
The new guidance implies fiscal fourth quarter earnings per share of about $1.50. Wall Street is about 30 cents higher than that.
Overall, it's a disappointing quarter, which the initial stock reaction shows.
Investors might have been hoping for a guidance boost, especially with so much drone-based fighting in Iran, which is putting the spotlight on unmanned technologies, the kind AeroVironment specializes in.
Write to Al Root at allen.root@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 11, 2026 10:20 ET (14:20 GMT)
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