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iRobot (IRBT) Q4 Earnings Surpass Estimates, Q1 View Bleak

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iRobot Corporation (IRBT - Free Report) delivered better-than-expected results for the fourth quarter of 2019. Its earnings surpassed estimates by 66.67% while sales beat the same by 3%.

The company reported earnings of 70 cents per share in the quarter, outpacing the Zacks Consensus Estimate of 42 cents. Earnings, adjusted for one-time items, were 69 cents per share, representing a 40% drop from the year-ago figure of $1.15. The results were affected by weak margins.

For 2019, the company’s earnings were $2.97, above the Zacks Consensus Estimate of $2.68. Earnings, adjusted for one-time items, were $3.62 per share, decreasing 15.4% year over year.

Segmental Revenues

In the quarter under review, the company’s revenues of $426.8 million exceeded its projection of $413-$423 million. On a year-over-year basis, the quarterly top line improved 10.9%, benefiting from a healthy performance in the United States.

Also, the company’s revenues surpassed the Zacks Consensus Estimate of $414.3 million.

Total product units of 1,909 shipped in the quarter increased 13.5% year over year while average selling prices grew 4.3%. Notably, revenues from vacuum products grew 7.5% year over year to $388 million. Units shipped were 1,730 thousand, up from 1,520 thousand in the year-ago quarter. Further, revenues from mopping products soared 62.5% to $39 million. Units shipped were 179 thousand, up from 162 thousand in the fourth quarter of 2018.

On a geographical basis, the company sourced 57.9% of revenues from domestic operations, the rest came from the international arena. Domestic revenues totaled $247.2 million, suggesting a 14.8% increase from the year-ago quarter. International revenues grew 6.1% to $179.6 million. International operations benefited from a healthy sales generation in the EMEA region, partially offset by weakness in Japan.

For 2019, the company’s revenues of $1.21 billion increased 11.1% from the previous year. Also, full-year revenues surpassed the Zacks Consensus Estimate of $1.20 billion. Product demand, especially for Roomba i7, Roomba s9 and Braava jet m6, were solid in the year. Also, revenues from the sales of Braava products exceeded $100 million.

Margin Profile

In the quarter under review, iRobot’s adjusted costs of revenues surged 31.7% year over year to $254.6 million, representing 59.7% of revenues compared with 50.2% in the year-ago quarter. Adjusted gross profit in the quarter decreased 10% year over year to $172.2 million while adjusted gross margin shrank 950 basis points (bps) to 40.3%. The margin took a hit from adverse impacts of tariffs and pricing activities.

Research and development expenses were $37.3 million, down 0.4% year over year. This accounted for 8.7% of revenues compared with 9.7% in the year-ago quarter. Selling and marketing expenses slipped 0.1% to $94 million. As a percentage of revenues, it reflected 22% of the top line compared with 24.5% in the prior year. General and administrative expenses were $21.2 million, down 14.6% year over year. The figure mirrored 5% of the total revenue base compared with 6.5% in the year-earlier quarter.

Adjusted operating income in the quarter under review plunged 35.1% year over year to $27 million. Adjusted operating margin contracted 450 bps to 6.3% in the reported quarter. Tariff costs had a negative impact of $21.9 million on the quarter’s operating income.

Balance Sheet and Cash Flow

iRobot exited the fourth quarter with cash and cash equivalents of $239.4 million, soaring from $70.5 million recorded at the end of the last reported quarter. Total long-term liabilities were $66.2 million, down from $67 million sequentially.

In 2019, the company generated net cash of $130.5 million from its operating activities, reflecting growth of 82.1% from the previous year. Capital used for purchasing property and equipment totaled $35.3 million compared with $32.4 million in the preceding year.

Outlook

In the quarters ahead, iRobot anticipates gaining from solid consumer demand for robotic vacuum cleaning products. For 2020, the company predicts revenues to be $1.32-$1.35 billion, suggesting growth of 9-11% from the year-ago reported figure.

Adjusted gross profit in the year will likely be $510-$523 million while gross margin is expected to be 38-39% compared with 46% in 2019. The reduction in gross margin hints at the unfavorable impacts of pricing activities, promotional actions and tariff woes (related to Section 301 amounting to $47-$50 million for the full year).

Adjusted operating income is anticipated to be within $55-$75 million while margin is projected to be 4-6%. Adjusted earnings per share are predicted to be $1.70-$2.30. The company noted that tariff costs, pricing and promotional actions might hurt the operating income and earnings.

The company noted that roughly 40% of the projected revenues will be generated in the first half of 2020. Revenues in the first quarter are forecast to decline 8-12% year over year while that in the second, third and fourth quarters might grow in low- to mid- teens.

Lower revenues along with a depressed gross margin will likely induce an operating loss of $7-$14 million in the first quarter. Adjusted loss per share is assumed to be 15-40 cents. Tariff costs in the quarter are estimated at $6-$8 million.

iRobot Corporation Price, Consensus and EPS Surprise

iRobot Corporation Price, Consensus and EPS Surprise

iRobot Corporation price-consensus-eps-surprise-chart | iRobot Corporation Quote

Zacks Rank & Stocks to Consider

The company currently has a market capitalization of $1.4 billion and a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the Zacks Industrial Products sector are Graco Inc. (GGG - Free Report) , Barnes Group, Inc. (B - Free Report) and Tennant Company (TNC - Free Report) . While Graco currently sports a Zacks Rank #1 (Strong Buy), Barnes and Tennant carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Current-year earnings estimates for these companies have moved north over the past 60 days. Further, the trailing four-quarter positive earnings surprise for Graco, Barnes and Tennant is 0.40%, 4.21% and 28.65% each, on average.

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