iRobot Corporation (NASDAQ:IRBT) announced excellent third-quarter 2015 results relative to expectations on Tuesday evening, but the market didn't exactly respond in kind. Albeit likely buoyed by its strong Q3 performance, shares of iRobot dropped more than 4% Wednesday after the company issued cautious guidance for the remainder of the year.

Let's take a closer look:

iRobot results: The raw numbers

 

Q3 2015 Actuals

Q3 2014 Actuals

Growth (YOY)

Sales

$143.6 million

$143.5 million

0%

Net Income

$12.8 million

$14.6 million

-12.3%

Adjusted EPS

$0.42

$0.48

-12.5%

Source: iRobot Corporation. 

What happened with iRobot this quarter?

  • These results might not look impressive at first, with revenue roughly flat and net income per share down 12.5% year over year. But note iRobot's top line fell squarely within its guidance range provided three months ago for Q3 revenue of $143 million to $146 million, and earnings per share came in significantly above guidance for $0.20 to $0.24.
  • Revenue benefited from strong continued strong growth in the U.S. and China, but was hurt by "softness in Japan."
  • Earnings partly exceeded expectations as iRobot decided to withhold some previously planned marketing investments intended to bolster demand in Japan, where broader economic headwinds are negating their impact.
  • iRobot also repurchased $20 million in stock under its current authorization during the quarter
  • iRobot called consumers' reaction to the Roomba 980 "tremendous," exceeding iRobot's expectations since the cutting-edge robotic vacuum's launch in September.
  • Consequentially, Home Robot revenue is still expected to grow in the "high teens" overall in 2015
  • iRobot also received and fulfilled several large orders for its defense and security business, including two indefinite quantity/indefinite delivery (IDIQ) contracts to the Naval Surface Warfare center with a combined ceiling of $96 million.
  • Defense and security ended Q3 with a backlog of $28 million. 

What management had to say
As iRobot Co-founder and CEO Colin Angle elaborated:

While we are experiencing weakness in a few isolated international markets, we expect the macro impact to be temporary. Global spending on robotic vacuum cleaners continues to grow, and we are maintaining our leadership position in the market despite several recent entrants in the category. We remain optimistic about the industry and our growth prospects in the coming years.

Relatedly, Angle spoke of both the significance of the Roomba 980 and its implications for iRobot's future plans:

The Roomba 980 is the first iRobot product to incorporate the VSLAM technology we acquired as part of acquisition of Evolution Robotics. This flagship Roomba is our first step into the Internet of Things, enabling new functionality today, such as remote app-control and systematic navigation, as well as paving the way for new products and capabilities in the future. We look forward to discussing our strategies to take advantage of these advances in other forums in coming months.

Looking forward
For the fourth quarter, iRobot anticipates revenue of $200 million to $205 million (up 26% to 29%), and earnings per share of $0.53 to $0.58 (up 71% to 87%). This implies U.S. revenue growth in the high-teens percentage range, Considering consensus estimates predicted Q4 revenue and earnings of $215.6 million and $0.65 per share, respectively, this explains why shares of iRobot fell on Wednesday.

Combined with iRobot's relative outperformance in Q3, however, iRobot now expects full-year 2015 revenue of $610 million to $615 million (down from its prior range of $625 million to $635 million), and earnings per share of $1.35 to $1.40 (an increase from $1.25 to $1.35 previously).

While it may have been a difficult decision, I applaud iRobot management's prudence in recognizing its incremental marketing investments pegged for Japan were better off trickling down to the bottom line for now. I'm also encouraged that iRobot still maintains its leadership position and is enjoying massive growth in several other key markets as home robots gradually become more ubiquitous. And finally, I think investors have plenty to look forward to as iRobot reveals details on its plans to use its latest technologies to launch new products and capitalize on the Internet of Things.

Steve Symington owns shares of iRobot. The Motley Fool owns shares of and recommends iRobot. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.