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High Product Demand to Aid iRobot (IRBT) Despite Cost Woes

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iRobot Corporation IRBT, which is based in Bedford, MA, manufactures and provides robots for use in commercial and domestic purposes worldwide. The products are primarily sold via chain stores, national retailers, online, distributors and resellers. The company presently carries a Zacks Rank #4 (Sell).

There are a number of factors that are influencing iRobot’s prospects. A brief discussion on important factors and earnings estimates is discussed below:

Top-Line Performance and Projections: The company delivered impressive results for the first quarter of 2021. Its revenues surpassed estimates by 15.94% and expanded 57.5% on a year-over-year basis on healthy product demand.

In the quarters ahead, solid product offerings as well as healthy product demand, brand awareness investments and innovation capabilities are expected to be beneficial for iRobot.

For 2021, the company expects revenues of 1.67-$1.71 billion, up from the previously mentioned $1.635-$1.675 billion. Also, it mentioned that a healthy supply chain, lower tariff exposure, solid direct-to-consumer sales and manufacturing in Malaysia will likely help the top-line performance in 2022. Revenues are expected to be up in mid-to-high teens in 2022.

Revenue Sources: The company has been benefiting from healthy revenues from e-commerce sites, Home App, the company’s website and online sources of retailers. In first-quarter 2021, the company’s sales from the online platform expanded 90% from the year-ago quarter. This represented 56% of its revenues in the first quarter.

In addition to the above-mentioned factors, the company is benefiting from recurring revenue sources and direct sales to consumer. In the first quarter of 2021, it derived 11.5% of its first-quarter sales from direct sales to consumers. Notably, this represented year-over-year growth of 146%.

Gross Margin Headwinds: In the first quarter of 2021, costs related to tariffs, higher air freights and costs related to components had adverse impacts on iRobot’s gross margin. For 2021, the company expects gross profit of $645-$675 million, lower than the previously stated $665-$695 million. Gross margin for the year is expected to be 39%.

The company noted that higher transportation costs as well as a hike in raw material expenses and air freight are expected to hurt the gross margin. Also, restrictions on the availability of semiconductors, and high promotional and pricing actions will play spoilsports.

Operating Margin and Earnings: The company expects high operating expenses to be a threat to its operating performance. In first-quarter 2021, operating expenses expanded 18.8% from the year-ago quarter. For 2021, operating expenses are expected to be $535-$555 million and operating income is likely to be $110-$120 million, with margin of 7%. Notably, operating costs were $487.5 million in 2020, whereas operating margin was 10.5%.

For the second quarter, the company expects a sequential increase in its operating expenses and a decline in the operating margin.

As regard to the bottom line, the company expects adjusted earnings of $3.00-$3.25 for 2021, suggesting a decline from $4.14 per share reported in 2020.

In the past three months, the company’s shares have declined 18.2% against the industry’s growth of 6.2%.

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Zacks Investment Research

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Earnings Estimate: iRobot’s earnings estimates are pegged at 30 cents for the second quarter of 2021, suggesting a decline of 71.7% from the year-ago reported figure. Likewise, earnings estimates are pegged at $1.59 for the third quarter of 2021 and $3.13 for 2021, suggesting year-over-year decreases of 38.4% and 24.4%, respectively.

For 2022, the company’s earnings estimates are pegged at $5.17, indicating growth of 65.4% from the year-ago quarter’s reported figure.

iRobot Corporation Price and Consensus

iRobot Corporation Price and Consensus
iRobot Corporation Price and Consensus

iRobot Corporation price-consensus-chart | iRobot Corporation Quote

Stocks to Consider

Some better-ranked stocks in the Zacks Industrial Products sector are Tennant Company TNC, Applied Industrial Technologies, Inc. AIT and Lincoln Electric Holdings, Inc. LECO. While Tennant currently sports a Zacks Rank #1 (Strong Buy), both Applied Industrial and Lincoln Electric carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for the companies have improved for the current year. Further, earnings surprise for the last reported quarter was 82.81% for Tennant, 35.64% for Applied Industrial and 16.10% for Lincoln Electric.

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Lincoln Electric Holdings, Inc. (LECO) : Free Stock Analysis Report

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iRobot Corporation (IRBT) : Free Stock Analysis Report

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