AVAV's fiscal Q1 2027 adjusted EPS of $0.59 crushed the $0.25 consensus by 138%, with funded backlog hitting a record $1.5 billion, up 37% year over year.
AeroVironment secured a $464 million LOCUST contract, which represents the first U.S. military production deal for directed energy systems, with shot costs under $10 per firing.
Despite the beat, GAAP net income stayed negative, free cash flow hit -$36 million, and management reaffirmed rather than raised full-year guidance.
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On September 2, Jim Cramer told Mad Money viewers he was saying "not yet, not now" on AeroVironment (NASDAQ:AVAV) because competition in its corner of defense was too strong. Seven days later, the drone and laser maker posted the biggest earnings beat it has produced in years.
I have been following defense-tech names for a while, and this is the kind of setup that punishes conviction on both sides. Shares walked into the report down 5% on the day and are down 39% year to date. Then the numbers hit.
Fiscal Q1 2027 adjusted EPS came in at $0.59 versus the $0.2479 consensus, a 138% surprise. Revenue of $480.49 million topped the $456.09 million estimate and grew 5.7% year over year. Bookings landed at roughly $700 million for a 1.4x book-to-bill, and funded backlog hit a record $1.50 billion, up 37% year over year.
CEO Wahid Nawabi said: "AV's fiscal year 2027 is off to a strong start, with record first-quarter revenue and funded backlog and landmark strategic wins."
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Directed energy was the standout. AeroVironment landed a $464 million LOCUST award for the Army's Enduring High Energy Laser program, which Nawabi called "the first ever production contract for direct energy systems in U.S. military history." He said LOCUST fires at "under $10 per shot" and predicted the product line could become a "well over a half a billion dollar plus a year franchise" within roughly a year.
Compare that to Cramer's competition worry. Nawabi said on the call that on the P550 reconnaissance program, "We're essentially getting well over 80% of the dollars of those awards so far, maybe close to 90% of the awards." The $117 million P550 win is part of what he expects to become a $1 billion program over the next few years.
Cramer's skepticism is not without evidence. GAAP net income remained a loss of $5.07 million. The Space, Cyber and Directed Energy segment fell 21% year over year to $134.52 million. Free cash flow was negative $36 million, and management reaffirmed rather than raised guidance of $2.125 billion to $2.225 billion in revenue with non-GAAP EPS of $3.02 to $3.34. Roughly 70% of non-GAAP EPS is back-half weighted, and Nawabi flagged uncertainty over "how fast can Congress approve the next fiscal year's budget?"
Still, last quarter's smaller 25% beat produced a 19% one-day jump. In pre-market Thursday, shares were quoted at $147.42. If you believed Cramer on September 2, the question now is whether the competition thesis survives a record backlog and the Army's first production laser contract. If you did not, the record backlog says the turn may already be underway.
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