Why AeroVironment, Inc. (NASDAQ: AVAV) stock is falling

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AeroVironment, Inc. (NASDAQ: AVAV) stock fell over 7% on 26th June, 2019 (As of 1:26 pm GMT-4; Source: Google finance) after the company missed the earnings estimate for the fourth quarter of FY 19. The gross margin from continuing operations for the fourth quarter of fiscal 2019 was $37 million or 42% of revenue compared to $50.6 million or 45% of revenue for the fourth quarter of fiscal 2018. The decrease in gross margin was mainly due to a decrease in product margin of $12.3 million and a decrease in service margin of $1.2 million. Gross margin as a percentage of revenue declined from 45% to 42% primarily due to an increase in the proportion of service revenue to total revenue, unfavorable service revenue mix and higher CIS inventory reserves. Income from continuing operations for the fourth quarter of fiscal 2019 was $5.1 million or 6% of revenue compared to $27.9 million for the fourth quarter of fiscal 2018. The decline in income from operations was primarily due to a decrease in gross margins of $13.6 million, an increase in SG&A expense of $5 million and an increase in R&D expense of $4.2 million. AVAV has posted the net other income for the fourth quarter of fiscal 2019 of $2.8 million compared to net other income of $0.9 million for the fourth quarter of fiscal 2018.

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Moreover, cash, cash equivalents and investments at the end of the fourth quarter fiscal 2019 totaled $332.6 million, which is an increase of $34.8 million from the end of fiscal 2018 cash, cash equivalents and investments of $297.8 million. Net inventory at the end of the fourth quarter fiscal year 2019 was $54.1 million compared to $37.4 million at the end of the fourth quarter fiscal year 2018.

AVAV in the fourth quarter of FY 19 has reported the adjusted earnings per share of 24 cents, missing the analysts’ estimates for the adjusted earnings per share of 28 cents, according to the analysts polled by FactSet. The company had reported 23 percent fall in the adjusted revenue to $88 million in the fourth quarter of FY 19, beating the analysts’ estimates for revenue of $82 billion. The decline in the topline was due to a decrease in product deliveries of $25.4 million as well as a decrease in service revenue of $0.3 million. Fourth quarter fiscal 2019 revenue by major product lines/program reflects Small UAS of $52 million, TMS was $16 million, HAPS was $17.4 million and other was $2.5 million.

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