Expectations were muted going into iRobot's (NASDAQ:IRBT) fourth-quarter earnings report. The company had lowered its expectations coming out of a weaker-than-expected third quarter, over fears that the trade war between the U.S. and China would hamper growth. The company was impacted by 10% tariffs that are likely to increase to 25% in 2019 if no agreement is reached; the implementation date for that 25% figure was delayed until March 2, pending a resolution in trade talks.

iRobot delivered results that gave investors cause for celebration, sending the stock up as much as 16% in the wake of its results before settling for an 8% gain the day after its earnings report. Let's take a look at several of the factors that led to the jubilation and what it means for iRobot.

A young girl sitting on a couch smiling and holding a notebook while her dad looks on, as a robotic vacuum cleans a carpet in the foreground.

Image source: iRobot.

1. What impact?

In conjunction with its third-quarter results, iRobot said it had decided not to pass on the additional costs from the 10% tariff to U.S. retailers or consumers during the important holiday season. As a result, the company expected full-year gross margins of about 50%, the result of a $5 million hit to operating income due to the tariffs.

What iRobot actually delivered was much better than expected. Revenue for the full year of $1.092 billion exceeded the high end of management's guidance, while gross margins of 50.8% were also higher than forecast. This resulted in diluted earnings per share of $3.07, which easily topped the range of $2.55 to $2.75 the company anticipated. This also surpassed analysts' consensus estimates, which called for revenue of $1.07 billion and earnings per share of $2.44.

2. Robust guidance

Given the ongoing uncertainty related to the trade war, iRobot's forecast was surprisingly strong. The company is guiding for full-year 2019 revenue in a range of $1.28 billion to $1.31 billion, which would represent year-over-year growth between 17% and 20%. iRobot is anticipating operating income of $108 million to $118 million, and earnings per share in a range of $3.00 to $3.25.

While investors should be wary of getting caught up in Wall Street's short-term thinking, we can do a comparison of its expectations to put the above numbers into context. Analysts' consensus estimates are calling for full-year revenue of $1.28 billion, at the low end of management's guidance, and earnings per share of $2.88.

Check out the latest iRobot earnings call transcript.

Shareholders were clearly enthusiastic about the strength of iRobot's forecast for the year, especially considering there hasn't been a resolution to the trade war as of this writing.

3. New revenue streams?

iRobot's CEO Colin Angle said, "This year we will continue on a growth diversification journey, focusing on driving growth of non-Roomba products, as well as supply chain and manufacturing diversification for longer-term production stability." There's a lot to unpack in that sentence, as it addresses several developments.

One of the biggest revelations was regarding the "supply chain and manufacturing diversification." Angle said iRobot would "engage a contract manufacturer outside of China to produce several Roomba robots, beginning in 2019." This would effectively mitigate the overhang of the trade war, which has been an ongoing concern for investors.

The statement was also no doubt a nod to the company's recent announcement regarding iRobot's long-awaited entry into the robotic lawn maintenance category with the introduction of the iRobot Terra, the company's autonomous lawnmower. The product will be introduced in Germany this year and will undergo beta testing in the U.S. iRobot also plans to "introduce several additional new products mid-year." The combination of Terra and other new products will help drive "growth of non-Roomba products." The company will also likely boost ad spending on its floor-mopping Braava and pool-cleaning Mirra robots.

More where that came from?

Investors have plenty to look forward to if iRobot's plans come to fruition. With iRobot's strong results, robust guidance, and several new products on the horizon, this may be just the beginning of shareholders' good fortune. The additional news that the company will bypass some of the effects of the trade war is just icing on the cake.