AeroVironment Beats Q1 Estimates, Expands LOCUST Production Capacity

AeroVironment reported first-quarter fiscal 2027 revenues of $480.49 million and adjusted EPS of $0.59, surpassing Zacks Consensus Estimates of $467.9 million and $0.22, respectively. According to GN markets/earnings (en-US), the company attributes the beat to budget timing and a delivery profile weighted toward the latter half of the fiscal year. Management maintained its full-year outlook, signaling confidence in the underlying demand for its core product lines despite current headwinds in specific service segments.

CEO Wahid Nawabi highlighted the LOCUST directed energy system as the primary driver for future commercialization. Following a nearly $465 million U.S. Army E-HEL award and the first international direct commercial sale, the company projects LOCUST could become a franchise generating over $500 million in annual revenue within approximately one year. This growth trajectory relies on the expansion of production capacity and the pursuit of additional domestic and international contracts.

Full-Year Guidance Remains Unchanged

CFO Sean Woodward reaffirmed fiscal 2027 revenue guidance of $2.125 billion to $2.225 billion, alongside adjusted EBITDA of $305 million to $325 million. Non-GAAP EPS is projected between $3.02 and $3.34. The financial outlook assumes a revenue split of 45% in the first half and 55% in the second, with EBITDA following a one-third to two-thirds distribution. This back-loaded structure is supported by $1.5 billion in funded backlog and 86% revenue visibility to the midpoint of the guidance range.

Woodward explained that the company expects second-quarter adjusted EBITDA to decrease slightly as sales mix shifts. The outlook assumes a short-term continuing resolution followed by the approval of the U.S. defense budget by December. While the first quarter showed strength, management did not raise guidance, citing uncertainty around the timing of the fiscal 2027 budget as a key variable.

Capacity Investments Drive Expansion

To support franchise programs, AeroVironment plans capital spending of 12% to 14% of revenues for fiscal 2027. This investment includes a $100 million campus in Southern California, a 200,000-square-foot facility in Salt Lake City for loitering munitions, and expansions in Albuquerque for LOCUST and Huntsville for Freedom Eagle-1. Free cash flow is expected to be negative during this period as the company funds these production capacity upgrades.

Nawabi stated that demonstrated production readiness has been critical to securing past awards. The company links its current investments in LOCUST, Red Dragon, and Freedom Eagle-1 directly to customer demand and future contracting opportunities. Higher volumes and firm-fixed-price production contracts are expected to strengthen margins in the second half, with the SCDE segment targeting a margin model comparable to Autonomous Systems over the next two years.

Segment Performance Shows Divergence

Autonomous Systems revenues increased 21% year over year to $346 million, while Strategic Directed Energy revenues declined 21% to $134.5 million. The drop in SCDE reflects the termination of the SCAR program and other discontinued government contracts. Adjusted gross margin improved to 30% from 29%, with product margin reaching 40%. However, service margin fell to 8% due to lower Cyber & Mission Solutions volume, which left fixed costs underabsorbed.

Management noted that cyber and mission services are not central to the long-term growth thesis. Woodward indicated that higher service volumes should eventually improve margins, but product commercialization remains the primary path for EBITDA expansion. The company continues to focus on scaling its hardware offerings to offset the impact of reduced service revenue.