iRobot Corporation (NASDAQ:IRBT) announced strong third-quarter 2018 results on Tuesday after the market closed, crushing expectations and raising its full-year revenue and earnings guidance thanks to the outperformance of its newest Roomba robotic vacuums.

Even so, shares fell more than 12% early Wednesday after the home robotics leader told investors its profits will take a hit from tariffs in the fourth quarter. Let's dig in, then, to get a better idea of what drove iRobot's impressive quarter and what we should be watching in the months ahead.

Hand using smartphone to control iRobot's Roomba i7+ self-cleaning vacuum.

IMAGE SOURCE: IROBOT.

iRobot results: The raw numbers

Metric

Q3 2018

Q3 2017

Year-Over-Year Growth

Revenue

$264.5 million

$205.4 million

28.8%

Net income

$31.9 million

$22.1 million

44.3%

Earnings per share (diluted)

$1.12

$0.76

47.4%

DATA SOURCE: IROBOT QUARTERLY FILINGS.

What happened with iRobot this quarter?

  • iRobot didn't provide specific quarterly guidance. So for perspective -- and though we don't usually pay close attention to Wall Street's demands -- these results absolutely crushed expectations for earnings of $0.48 per share on revenue of $245 million.
  • Adjusted EBITDA increased 47% year over year to $53.6 million.
  • Profits were higher than expected thanks to a combination of stronger-than-expected revenue growth and, to a lesser extent, delayed marketing expenses.
  • iRobot's recently launched Roomba e5, i7, and i7+ self-cleaning robotic vacuum models helped drive 45% year-over-year growth in the United States.
  • Braava floor-mopping robot revenue grew 9% year over year. iRobot plans to run exclusive Braava TV ads in the fourth quarter in both the U.S. and Japan to raise awareness for the category.

What management had to say

iRobot Chairman and CEO Colin Angle noted the company enjoyed growth across all major regions, led by the United States.

"We have delivered very strong results thus far this year," Angle added. "I am very excited about our positioning for the upcoming holiday season and confident in our ability to deliver our increased 2018 financial expectations."

During the subsequent conference call, Angle also teased that while the launches of iRobot's newest Roomba models were indeed exciting for the company, investors "should expect the pace of new product introductions to continue into 2019."

Looking forward

Looking to the full year, iRobot now expects 2018 revenue of $1.08 billion to $1.09 billion (up from $1.06 billion to $1.08 billion previously), operating income of $92 million to $96 million (narrowed from $90 to $96 million before), and earnings per share of $2.55 to $2.75 (compared to its prior range of $2.30 to $2.50).

So why the decline? According to Angle during the call, iRobot will take a $5 million hit to operating income in the fourth quarter due to last month's imposition of a 10% tariff on all vacuum cleaners manufactured in China. 

To be clear, the gravity of iRobot's outperformance this quarter allowed it to increase its top- and bottom-line outlook in spite of those tariffs. But management also explained that the tariffs are scheduled to increase to 25% at the start of 2019 and will likely put "moderate pressure" on the robotic vacuum cleaner category.

Of course, iRobot also noted it will search for opportunities to reduce costs to mitigate the tariffs' impact over the longer term. But in the meantime, it's no surprise to see shares pulling back in spite of iRobot's quarterly beat and raise.

Steve Symington owns shares of iRobot. The Motley Fool owns shares of and recommends iRobot. The Motley Fool has a disclosure policy.