It has been about a month since the last earnings report for iRobot (
IRBT Quick Quote IRBT - Free Report) . Shares have lost about 8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is iRobot due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
iRobot Beats on Q2 Earnings, Hikes View for 2020
iRobot kept its earnings streak alive in the second quarter of 2020, beating estimates by an outstanding 404.76%. Also, its sales surpassed estimates by 5.82%. Notably, the results also fared well compared with the year-ago quarter.
The company reported earnings of $1.06 per share in the quarter, whereas the Zacks Consensus Estimate was pegged at earnings of 21 cents. Notably, the year-ago quarter’s earnings were 48 cents. Healthy sales growth and improved margins aided the year-over-year rise of 120.8%. Revenue Details
The company generated revenues of $279.9 million in the quarter, exceeding the revised projection (provided in June) of $260-$270 million. Also, the metric surpassed the Zacks Consensus Estimate of $264.5 million.
On a year-over-year basis, the quarterly revenues increased 7.6%, driven by healthy demand for Roomba i7 Series and s9 Series; and Braava jet m Series. Notably, revenues derived from premium robots — products having $500 of more as list price — expanded 43%. Total product units of 1,044 shipped in the quarter decreased 2.8% year over year, while average selling prices increased 3.7%. For vacuum products, revenues of $251 million reflected growth of 5.9% from the year-ago quarter. Units shipped were 930 thousand, down 0.5% from the year-ago quarter. Further, revenues from mopping products increased 26.1% to $29 million. Units shipped were 114 thousand, down from 139 thousand recorded in the second quarter of 2019. On a geographical basis, the company sourced 50.1% of revenues from domestic operations, the rest came from the international arena. Domestic revenues totaled $140.2 million, reflecting a 12.6% increase from the year-ago quarter. International revenues rose 3% to $139.7 million. International operations gained from a 43% increase in revenues in Japan, while suffering from a 14% fall in EMEA sales. Margin Profile
In the quarter under review, iRobot’s adjusted costs of revenues increased 1.4% year over year to $140.4 million, representing 49.8% of revenues compared with 53.2% in the year-ago quarter. Adjusted gross profit in the quarter grew 14.6% year over year to $139.5 million, while adjusted gross margin expanded 300 basis points (bps) to 49.8%. The margin improvement reflects the benefits derived from the exclusion of Roomba from Section 301 tariffs.
Research and development expenses were $36.6 million, up 2.5% year over year. This accounted for 13.1% of revenues compared with 13.7% in the year-ago quarter. Selling and marketing expenses decreased 13% to $49.1 million. As a percentage of revenues, it reflected 17.5% of revenues compared with 21.7% in the prior-year quarter. General and administrative expenses were $21.9 million, up 6.1% year over year. The figure mirrored 7.8% of the total revenue base compared with 7.9% in the year-earlier quarter. In the quarter, the company recorded adjusted operating earnings of $40.5 million, reflecting an increase of 158.2% from the year-ago quarter. Adjusted operating margin was 14.5%, higher than 6% in the year-ago quarter. Balance Sheet and Cash Flow
iRobot exited the second quarter with cash and cash equivalents of $230.7 million, decreasing 7.3% from $248.8 million recorded at the end of the last reported quarter. Total long-term liabilities were $65.9 million, up sequentially from $65.2 million.
In the first half of 2020, the company generated net cash of $28.2 million from its operating activities, reflecting an increase of 32.2% from the year-ago comparable period. Capital used for purchasing property and equipment totaled $19 million compared with $14.7 million in the first half of 2020. During the first six months of 2020, the company repurchased 0.7 million shares for $25 million consideration. Notably, no shares were repurchased in the second quarter of this year. Outlook
A solid customer base, spur in the e-commerce business, strengthening sell-through and low inventory level with retailers will likely benefit the company in the second half of 2020. Also, product innovations will be a key tailwind.
Being more optimistic about revenue prospects in the second half, iRobot anticipates 2020 revenues to remain flat to grow slightly from the 2019 level. The new projection reflects an improvement from the company’s previous expectation of a year-over-year decline. Also, revenue growth in the third quarter of 2020 is predicted to be more than that reported in the fourth quarter. How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 148.89% due to these changes.
At this time, iRobot has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been 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.