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iRobot Doesn't Know Its Own Strength: Is That a Good Thing?

By Steve Symington - Apr 24, 2013 at 1:43PM

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iRobot rose more than 16% after exceeding its own guidance set just last month. Is it still a buy?

Just when you think you know what earnings season will bring, it seems like your favorite companies tend to throw you a curve ball.

Last month's expectations...
Of course, this time you can't blame iRobot (IRBT -1.78%) investors for being surprised; a little over a month ago, the robot maker's stock rose 10% in a single day after the company raised its earnings guidance "based on strong quarterly results to date in both [its] Home Robot and Defense & Security business units."

All told, iRobot said at the time it expected first-quarter revenue to come in between $102 million and $104 million, with earnings per share from $0.16 to $0.20 and adjusted EBITDA of $10 million to $12 million.

...meet today's reality
As I noted at the time, last month's revised guidance offered a much-needed reprieve for weary iRobot shareholders following the two seemingly dismal quarterly reports that preceded it.

Then, Tuesday after the market close, iRobot reported its official first-quarter numbers. As a result -- and luckily for iRobot investors who stuck around after last month's pop -- the stock is currently trading up around 15% as of this writing.

As it turns out, iRobot managed to outperform even its own lofty expectations. First-quarter revenue rose 9% year over year to $106 million, and net income skyrocketed to $8.4 million, or $0.29 per diluted share. Even after including a one-time $0.08-per-share benefit from investment tax credits, that's still a massive improvement over the meager $0.02 per share the company earned during the same three months in 2012.

A guiding light
Perhaps most exciting, however, is iRobot's strong guidance. Next quarter, the company now expects revenue between $128 million and $133 million, with earnings per share in the range of $0.15 to $0.20. Management also raised its full-year 2013 revenue guidance slightly and expects sales to come in between $485 million and $495 million, up from the previous range of $480 million to $490 million.

Even better, iRobot also raised its earnings expectations for the year, saying it should now earn between $0.80 and $1.00 per share. For those of you keeping track, that's a boost of nearly 40% on both the top and bottom ranges of its previous 2013 EPS guidance of $0.57 to $0.72 per share.

Notable new automatons
So how does iRobot plan to keep up the pace?

First up, as expected, domestic Home Robot revenue growth of 44% helped drive a 14% year-over-year gain in overall quarterly Home Robot revenue, while International Home Robot revenue still made up around two-thirds of iRobot's total consumer sales. Of course, the consumer segment has remained iRobot's saving grace through the past years' difficulty, so it's no surprise the performance here remained strong.

iRobot Roomba 760. Source: iRobot.

On that note, it also appears that iRobot is finally done integrating its acquisition of Evolution Robotics, which closed last October and has since remained a drag on earnings. Sure enough, iRobot says it has officially launched its new Braava robot, an iRobot-branded version of Evolution Robotics' old Mint floor-sweeping bots.

In addition, while iRobot's first-quarter revenue was unexpectedly boosted by the timing of Defense Department orders for spare unmanned ground vehicle parts, last month's unexpected $14.4 million contract for iRobot's awesome throwable FirstLook bots gave the company some much-needed confidence to know it can exceed its goals in the Defense and Security segment going forward.

iRobot FirstLook throwable robot. Image Source: iRobot.

Finally, as management noted in February, iRobot also began shipping its RP-VITA remote telepresence robots to partner InTouch Health during the quarter, where the tablet-powered automatons were outfitted with InTouch's specialized medical equipment. Apparently, however, medical professionals also haven't wasted any time pushing the robots into the fray, with around one dozen of them already being used in hospitals.

With that in mind, as I wrote back in January when RP-VITA first received the go-ahead from the FDA, investors should be careful not to expect a significant positive impact on iRobot's earnings from the new robot -- at least for now, anyway.  Even so, it's encouraging to know things seem to be moving along nicely for the platform, and you can be sure I'll keep close tabs to see what medical professionals think after spending some time with the technology.

Foolish final thoughts
While I fully expect more volatility while holding shares of iRobot in the future, this is yet another long-term play for me and I'm convinced this solidly profitable company will reward investors' patience over time.

At risk of sounding like a broken record, then, and even as the stock trades near 40 times trailing earnings, I'm reiterating my stance that shares of iRobot have plenty of upside left even after today's pop.

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