A month has gone by since the last earnings report for iRobot (IRBT Quick QuoteIRBT - Free Report) . Shares have lost about 5.5% 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 drivers.

iRobot Q4 Earnings Top Estimates, Costs to Hurt 2021

iRobot reported impressive results for the fourth quarter of 2020, with earnings beating estimates by 320%. Also, the company’s sales exceeded estimates by 12.3%.

Its adjusted earnings were 84 cents per share in the quarter, surpassing the Zacks Consensus Estimate of 20 cents. Also, the bottom line increased 21.7% from the year-ago figure of 69 cents, driven by healthy sales growth. Lower margin ailed in the quarter.

For 2020, the company’s adjusted earnings were $4.14 per share, surpassing the Zacks Consensus Estimate of $3.51. Also, its bottom line increased 14.4% from the year-ago figure of $3.62.

Revenue Details

The company generated revenues of $544.8 million in the quarter, surpassing the Zacks Consensus Estimate of $485 million. On a year-over-year basis, quarterly revenues increased 27.7%, driven by healthy demand for products.

Sales generated from the e-commerce platform (representing 60% of the quarter’s revenues) increased 70% year over year. Notably, the e-commerce platform includes online sources of retailers, the company’s app and website, and e-commerce websites. In addition, direct sales to consumers expanded 117% year over year and represented 12.5% of the quarter’s revenues.

Revenues derived from premium robots — products having $500 or more as list price — expanded 55% year over year in the quarter.

Total product units of 2,193 thousand shipped in the quarter reflected a year-over-year increase of 14.9%, while average selling prices grew by 3.2%. For vacuum products, revenues of $484 million reflected growth of 24.7% from the year-ago quarter. Units shipped were 1,952 thousand, up 12.8% from the year-ago quarter. Further, revenues from mopping products increased 56.4% to $39 million. Units shipped were 241 thousand, up from 179 thousand recorded in the fourth quarter of 2019.

On a geographical basis, the company sourced 58.1% of revenues from domestic operations, the rest came from the international arena. Domestic revenues totaled $316.3 million, reflecting a 28% increase from the year-ago quarter. International revenues grew 27.2% to $228.6 million. International operations gained from a 39% revenue increase in Japan and a 26% rise in EMEA sales.

For 2020, the company’s revenues totaled $1.43 billion, increasing 17.8% from the previous year. Also, the top line surpassed the Zacks Consensus Estimate of $1.37 billion.

Margin Profile

In the quarter under review, iRobot’s non-GAAP costs of revenues increased 27.8% year over year to $325.3 million, representing 59.7% of revenues compared with 59.7% in the year-ago quarter. Non-GAAP gross profit in the quarter grew 27.5% year over year to $219.5 million, while adjusted gross margin remained flat year over year at 40.3%.

Research and development expenses were $44.7 million, up 20% year over year. This accounted for 8.2% of revenues compared with 8.7% in the year-ago quarter. Selling and marketing expenses increased 37.5% to $129.3 million. As a percentage of revenues, it reflected 23.7% in the quarter compared with 22% in the prior-year quarter. General and administrative expenses were $25.9 million, up 21.8% year over year. The figure mirrored 4.7% of the total revenue base compared with 5% in the year-earlier quarter.

In the quarter, the company recorded adjusted operating earnings of $30.4 million, reflecting an increase of 12.8% from the year-ago quarter. Adjusted operating margin was 5.6%, lower than 6.3% in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting fourth-quarter 2020, iRobot had cash and cash equivalents of $432.6 million, increasing 45.6% from $297.2 million recorded at the end of fourth-quarter 2019. Total long-term liabilities were $77.7 million, up 11.2% sequentially from $69.9 million.

In 2020, the company generated net cash of $232.1 million from its operating activities, higher than $130.1 million recorded in 2019. Capital used for purchasing property and equipment totaled $31.6 million in 2020, down 10.6% year over year.

In 2020, the company repurchased 0.7 million shares for $25 million consideration. Notably, no shares were repurchased in the second, third and fourth quarters of this year.

Outlook

iRobot anticipates revenues of $1.635-$1.675 billion for 2021, suggesting a year-over-year increase of 14-17%.

Non-GAAP gross profit is expected to be $665-$695 million and non-GAAP operating income is expected to be $110-$120 million. Tariff-related headwinds are expected to be $41-$43 million, while sales and marketing spending are predicted to increase $20 million. Non-GAAP earnings per share are likely to be $3.00-$3.25 per share.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 65.77% due to these changes.

VGM Scores

Currently, iRobot has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise iRobot has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.