iRobot (NASDAQ:IRBT) ended 2018 on a high note. The robotic vacuum maker soared when the company provided better-than-expected results for the holiday quarter, even after absorbing the impact of tariffs related to the ongoing trade war between the U.S. and China. The company also announced plans to move some of its manufacturing out of China, which has been responsible for the bulk of iRobot's production.

Expectations were high going into the first quarter, as investors were hoping iRobot could capitalize on the momentum from the fourth quarter. But Wall Street was disappointed with the results, driving the stock down 22% as of this writing.

A father and daughter on a couch as a robotic vacuum cleans the carpet in the foreground.

The iRobot Roomba i7. Image source: iRobot.

A strong start to 2019

iRobot reported revenue of $237.7 million, an increase of 9% year over year. This put revenue well below analysts' consensus estimate for $251.4 million. Myopic investors seemed to focus solely on the revenue miss, even though there was plenty of good news in the report.

It's also important to note that on the conference call to discuss the results, CFO Alison Dean said in response to an analyst question, "First-quarter revenue was in line with our expectations." Since company executives are in a much better position than others to gauge the success of the quarter, this should be given greater weight than analysts' expectations.   

Adjusted net income came in at $33.1 million, a decline of 15% versus the prior-year quarter, resulting in adjusted EPS of $0.96, down nearly 8%, but well above the $0.59 expected by Wall Street.

iRobot delivered year-over-year revenue growth across all major regions. Revenue increased by 7% in the U.S. and 12% in international markets as the company launched its highly successful Roomba i7 and i7+ in Europe, the Middle East, and Africa (EMEA) region, as well as in Japan and China.

The company's operating expenses grew by more than 7% year over year, with all of that increase coming from continued investment in sales and in research and development. This comes in advance of the two product launches iRobot plans for the second quarter: the Terra lawn-mowing robot and an as-yet-undisclosed device.

On the conference call, CEO Colin Angle reiterated the company's plans to diversify its manufacturing and supply chain and said it would begin production outside China in 2019. "We are moving some of our production outside of China and starting with some of our more easy-to-build products," he said.

What the future could hold

In keeping with the company's practice, iRobot didn't provide quarterly guidance, but reaffirmed its revenue forecast for the year, and increased its EPS projections in light of the unexpected tax benefit.

For 2019, iRobot is guiding for revenue in a range of $1.28 billion to $1.31 billion, up 18.5% year over year at the midpoint of its guidance. The company is forecasting operating income between $108 million and $118 million -- growth of between 2% and 11.5% versus 2018. iRobot is expecting EPS in a range of $3.15 to $3.40, which would range from a loss of 1% to a gain of about 7%.

There are a couple of factors weighing on the company's annual forecast. The trade war and the resulting tariffs are still influencing iRobot's bottom line, though the company did institute a price hike in the U.S., designed to help partly offset some of the damage.

In the absence of specific quarterly targets, and to put this into the perspective of Wall Street sentiment, analysts' consensus estimates are calling for revenue of $269.85 million and EPS of $0.38. 

The investor takeaway

Because the robotic vacuum specialist doesn't provide quarterly guidance, the expectations placed on it for this quarter were entirely the product of Wall Street's imagination. Given that these estimates are more art than science -- and that analysts' best guesses don't always reflect the business environment or the company's goals -- investors should ignore the short-term market noise and focus on iRobot's bright future in home robotics.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.