iRobot (IRBT) Up 21.9% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for iRobot (IRBT). Shares have added about 21.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is iRobot due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

iRobot Q1 Earnings and Revenues Surpass Estimates

iRobot delivered better-than-expected results for the first quarter of 2020. Compared with the year-ago quarter, the results suffered from disruptions caused by the coronavirus outbreak.

The company reported a loss of 32 cents per share in the quarter, whereas its GAAP loss in the quarter was 64 cents per share. The Zacks Consensus Estimate for the quarter was loss per share of 67 cents. However, in the year-ago quarter, it reported earnings of 96 cents per share.

It is worth mentioning here that Section 301 tariff costs had adversely impacted earnings by 23 cents, higher than 12 cents in the year-ago quarter.

Revenue Details

In the quarter under review, the company’s revenues of $192.5 million exceeded its projection of $175-$185 million. Also, the metric surpassed the Zacks Consensus Estimate of $180 million by 7%.

However, the quarterly top line decreased 19% year over year as the pandemic adversely impacted sales activities and manufacturing supply chain.

Total product units of 721 shipped in the quarter decreased 17.7% year over year, while average selling prices fell 1.9%. Notably, revenues from vacuum products declined 23.1% year over year to $170 million. Units shipped were 625 thousand, down from 764 thousand in the year-ago quarter. Further, revenues from mopping products soared 35.3% to $23 million. Units shipped were 96 thousand, down from 112 thousand in the first quarter of 2019.

On a geographical basis, the company sourced 42.6% of revenues from domestic operations, the rest came from the international arena. Domestic revenues totaled $82 million, reflecting a 28.1% decrease from the year-ago quarter. International revenues declined 10.5% to $110.6 million. International operations suffered from a 14% fall in revenues in Japan and an 11% decline in EMEA.

Margin Profile

In the quarter under review, iRobot’s adjusted costs of revenues decreased 0.8% year over year to $113.8 million, representing 59.1% of revenues compared with 48.3% in the year-ago quarter. Adjusted gross profit in the quarter decreased 36% year over year to $78.8 million, while adjusted gross margin contracted 1090 basis points (bps) to 40.9%.

Research and development expenses were $36.8 million, up 4.2% year over year. This accounted for 19.1% of revenues compared with 14.8% in the year-ago quarter. Selling and marketing expenses decreased 5.8% to $36.6 million. As a percentage of revenues, it reflected 19% of the top line compared with 16.3% in the prior year. General and administrative expenses were $24.6 million, up 7.3% year over year. The figure mirrored 12.8% of the total revenue base compared with 9.6% in the year-earlier quarter.

In the quarter, the company recorded an adjusted operating loss of $14.4 million against operating income of $33.1 million in the year-ago quarter. Adjusted operating margin was (7.5%) versus 13.9% in the first quarter of 2020.

Tariff costs related to Section 301 amounted to $6.6 million in the quarter, increasing 87.9% from the year-ago quarter. The metric adversely impacted margins by 3.4% in the quarter.

Balance Sheet and Cash Flow

iRobot exited the first quarter with cash and cash equivalents of $248.8 million, increasing 3.9% from $239.4 million recorded at the end of the last reported quarter. Total long-term liabilities were $65.2 million, down sequentially from $66.2 million.

In the quarter, the company generated net cash of $40.7 million from its operating activities, reflecting a decline of 22.7% from the year-ago quarter. Capital used for purchasing property and equipment totaled $7.3 million compared with $6 million in the first quarter of 2019.

During the quarter, the company repurchased 0.7 million shares for $25 million consideration.

Outlook

In the present uncertain environment, iRobot is focused on handling costs (through workforce reduction, suspension of certain marketing actions for Terra and others), workers’ safety, fulfillment of customer demand and maintaining business strength.

It believes that revenue challenges will persist in the near term. Also, restructuring charges of $2 million will be recorded in the second quarter.

However, healthy demand for Roomba i7, Roomba s9 and Braava jet m6 products, healthy sales in retail stores, and spur in the e-commerce business will likely benefit. Also, it noted that the exclusion of Roomba products from tariffs imposed under section 301 — permission granted by the United States Trade Representative and effective Aug 7, 2020 — will help in effectively dealing with the prevailing macro headwinds.

In the second half of 2020, the company anticipates improved results as compared with the first half of the year. It believes that cost-saving measures will yield savings of $30 million in 2020.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 428% due to these changes.

VGM Scores

Currently, iRobot has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, iRobot has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
iRobot Corporation (IRBT) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.