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iRobot (IRBT) Down 5.9% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for iRobot (IRBT - Free Report) . Shares have lost about 5.9% 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 its most recent earnings report in order to get a better handle on the important drivers.

iRobot Lags Q2 Earnings Estimates, Lowers Projection

iRobot reported mixed results for second-quarter 2021. Its earnings lagged estimates by 6.9%, while sales beat the same by 2.87%.

The company’s adjusted earnings in the reported quarter were 27 cents per share, lagging the Zacks Consensus Estimate of 29 cents. The bottom line declined 74.5% from the year-ago figure of $1.06. The results suffered from supply-chain disruptions, which offset gains derived from top-line growth.

Tariff costs related to Section 301 adversely impacted earnings by 40 cents in the quarter as against a positive contribution of 23 cents in the year-ago quarter.

Revenue Details

The company generated revenues of $365.6 million in the reported quarter, surpassing the Zacks Consensus Estimate of $355 million. On a year-over-year basis, quarterly revenues increased 30.6%, driven by a healthy product demand.

Sales generated from the e-commerce platform (representing 66% of the reported quarter’s revenues) increased 20% year over year. Notably, the e-commerce platform includes online sources of retailers, the company’s app and website, and e-commerce websites. Direct sales to consumers expanded 36% year over year to $45 million and represented 12.3% of the quarter’s revenues.

Total product units of 1,314 thousand shipped in the quarter reflected a year-over-year increase of 25.9%, while average selling prices grew 5.9%. For vacuum products, revenues of $323 million reflected growth of 28.7% from the year-ago quarter. Units shipped were 1,146 thousand, up 23.2% from the year-ago quarter. Revenues from mopping products increased 48.3% to $43 million. Units shipped were 168 thousand, up from 114 thousand recorded in the second quarter of 2020.

On a geographical basis, the company sourced 53.8% of revenues from domestic operations, the rest came from the international arena. Domestic revenues totaled $196.8 million, reflecting a 40.4% increase from the year-ago quarter. International revenues grew 20.8% to $168.8 million. International operations gained from a 7% revenue increase in Japan and a 29% rise in EMEA sales.

The North America business gained from healthy demand for premium and mid-tier robots for floor cleaning from retailers. The business in EMEA benefited from solid demand from distribution and retail partners.

Margin Profile

In the quarter under review, iRobot’s non-GAAP costs of revenues increased 61% year over year to $226.1 million, representing 61.9% of revenues compared with 50.2% in the year-ago quarter. Non-GAAP gross profit of $139.5 million was stable on a year-over-year basis, while adjusted gross margin decreased 1160 bps to 38.2%.

Research and development expenses were $38.7 million, up 5.8% year over year. This accounted for 10.6% of revenues compared with 13.1% in the year-ago quarter. Selling and marketing expenses increased 56.3% to $76.7 million. As a percentage of revenues, it reflected 21% in the reported quarter compared with 17.5% in the prior-year quarter. General and administrative expenses were $26.5 million, up 21.1% year over year. The figure mirrored 7.2% of the total revenue base compared with 7.8% in the year-earlier quarter.

In the quarter under review, the company recorded adjusted operating earnings of $9 million, down 77.9% from the year-ago quarter. Adjusted operating margin was 2.4% versus 14.5% in the year-ago quarter.

Tariff costs related to Section 301 totaled $11.6 million in the reported quarter, as against ($6.6) million in the year-ago quarter. Its impact on gross and operating margin was (3.2%) versus 2.4% in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting second-quarter 2021, iRobot had cash and cash equivalents of $415.8 million, decreasing 17% from $500.8 million recorded at the end of first-quarter 2021. Total long-term liabilities were $69.8 million, down 0.3% sequentially.

In the first six months of 2021, the company generated net cash of $1.8 million from its operating activities, down 993.6% from the year-ago period. Capital used for purchasing property and equipment totaled $21.9 million, increasing 15.6% year over year.

In the first half of the year, the company repurchased shares worth $50 million.

Outlook

For 2021, iRobot decreased its revenues expectation to $1.55-$1.62 billion from $1.67-$1.71 billion mentioned earlier. It also noted that revenues in the second half of 2021 will decline 1-8% from the year-ago period. Third-quarter revenues are predicted to increase in low-single digits.

Non-GAAP gross profit is expected to be $612-$645 million, lower than $645-$675 million stated previously. Non-GAAP operating income is expected to be $80-$110 million, down from $110-$120 million mentioned previously. Exclusion from tariff-related costs of Section 301 will be a relief in the second half of the year, while costs related to the tighter availability of semiconductor chips add to the concerns.

The company lowered its non-GAAP earnings projection to $2.25-$3.15 per share from the previously mentioned $3.00-$3.25.

iRobot plans to repurchase shares worth $100 million under an accelerated share repurchase agreement. The execution of the plan is expected next month.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -59.78% due to these changes.

VGM Scores

Currently, iRobot has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise iRobot has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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