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Will iRobot Corporation Surprise Wall Sheet When It Reports Earnings Next Week?

iRobot (NASDAQ: IRBT  ) is set to report its fiscal 2014 second-quarter earnings after the market closes on July 22. Investors are hoping for a strong quarter to help fuel a rebound in the robotics stock. Shares of iRobot have lost some ground lately, falling more than 3% in the past week. Let's look at Wall Street's estimates for the quarter and whether iRobot could over deliver on those projections when it reports next week.

Do the robot
Analysts expect iRobot to post a GAAP profit of $0.22 per share for the second quarter, down from earnings-per-share of $0.28 a year ago. The Street is more optimistic about iRobot's ability to generate strong revenue in the quarter. Analysts are looking for second quarter revenue of $142.5 million, up from $130 million in the year-ago period. This is toward the high end of management's forecast for second quarter revenue in the range of $138 million-$145 million.

However, if history is any indication, iRobot could surprise investors by topping expectations. The robotics company, after all, has beaten analysts estimates for GAAP earnings in the past four consecutive quarters. While this is encouraging, as Foolish investors we know the danger of anchoring to past performance. Therefore, we'll need to dig deeper to uncover what's driving iRobot's current sales.

Source: iRobot.

iRobot's autonomous navigation bots known as Ava 500 Video Collaboration went on sale earlier this year. This is a key growth initiative for the company because it gives iRobot a presence in the health care and enterprise markets. In iRobot's upcoming earnings call, investors will want to keep an eye out for how well these new automatons are selling.

Operating costs are another area to watch. In the previous quarter, iRobot said it planned to continue increasing ad spending to better promote its new home vacuum devices including its higher margin Roomba 880 and new floor-mopping robot, Scooba 450. Moreover, these products are currently in limited distribution and won't be available on a global scale until iRobot's third quarter. This could result in near-term sales pressure, though investors should see sales rebound during the second half of the year .

What it all means
iRobot's decision to heavily invest in research and development is at fault for the company's declining profitability in recent quarters. While this could hinder earnings in the near-term, the bigger picture looks promising for iRobot as it expands into new growth channels like health care. Additionally, it's worth mentioning that as much as 33% of iRobot's shares are currently sold short, which means many investors are betting against the bot maker heading into its earnings. Therefore, if iRobot surprises Wall Street to the upside, investors could see a short squeeze in the stock. Ultimately, this is a stock best suited for patient investors with at least a long term time horizon.

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Tamara Rutter

I've been an analytical writer for The Motley Fool since 2011. I cover the sectors of Consumer Goods, Technology, and Industrials. Connect with me on Twitter using the handle, @TamaraRutter -- I'd love to hear from you!

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9/3/2015 3:59 PM
IRBT $29.67 Up +0.12 +0.41%
iRobot CAPS Rating: *****