AeroVironment Shares Slide as Annual Outlook Is Cut

AeroVironment slashes full-year guidance after a major Space Force contract cancellation leads to a Q3 revenue and earnings miss, though backlog hits a record $1.1B.

The defense and aerospace contractor AeroVironment has revised its full-year guidance downward following a disappointing third-quarter performance for fiscal 2026. The company fell short of Wall Street's projections on multiple fronts, a situation largely triggered by the termination of a key defense contract.

Quarterly Results Miss the Mark

For the quarter ending January 2026, AeroVironment reported revenue of $408 million. While this figure represents a significant 143% year-over-year increase, it fell well below the analyst consensus estimate of approximately $485 million. Adjusted earnings per share came in at $0.64, missing the forecasted range of $0.71 to $0.72.

The primary driver of the shortfall was the cancellation of the Satellite Communications Augmented Reality (SCAR) contract by the U.S. Space Force. Company leadership clarified that the termination stemmed from financial disagreements, not technical performance issues. Nevertheless, the event forced AeroVironment to record a non-cash goodwill impairment charge of $151.3 million within its space systems segment.

Revised Guidance Reflects New Realities

In light of the lost contract and delays in other government awards, management has significantly tempered its expectations for the full fiscal year 2026. The company now anticipates revenue in the range of $1.85 billion to $1.95 billion, a reduction from its previous target near the $2 billion mark.

The forecast for adjusted earnings per share was also lowered to a band of $2.75 to $3.10, down from the prior guidance of $3.40 to $3.55. On a GAAP basis, the company expects to report a net loss per share of between $4.10 and $4.44.

Despite these setbacks, AeroVironment's backlog presents a silver lining. The funded backlog reached a record $1.1 billion, and a book-to-bill ratio of 1.6 indicates that new orders are substantially outpacing current revenue recognition. Organic revenue growth remained robust at 38% compared to the prior year.

Analyst Sentiment: Cautious but Supportive

Several financial institutions have maintained their positive long-term ratings on the stock while adjusting their price targets to reflect the near-term challenges:

• RBC Capital Markets reaffirmed its "Outperform" rating but reduced its price target to $250 from $325.
• KeyBanc Capital Markets maintained its "Overweight" rating, lowering its target to $295 from $330. Analysts cited sustained international demand for defense products as a continuing tailwind.

A notable concern emerging from the quarterly report is a sharp contraction in gross margin, which fell to approximately 24% to 27%. This is a substantial drop from the company's historical margin profile of around 40%, highlighting the impact of the contract termination and shifts in product mix.

Since reaching a 52-week high of 354.30 euros in October 2025, the share price has lost roughly half its value. The path to recovery will likely depend on two key factors: the company's ability to efficiently convert its record backlog into revenue and improved margins in coming quarters, and the timely operational launch of its new manufacturing facility in Salt Lake City, which is slated to begin production within a year.