Let's Get Ready to Roomba (U.S.A.)
About 400 PackBots are now being used by the military, Gesuale says, and a recent $26 million order from the U.S. Navy to build another 213 units gives the company some momentum.
The twin caterpillar-tracked PackBots, which cost as much as $115,000 apiece, are used in bomb disposal, mine clearing and other "dangerous, dirty or dull" tasks, according to both the company and the Defense Advanced Research Projects Agency, which leads the Department of Defense's initiative to put robots on the battlefield.
Wall Street was swept off its feet by iRobot's (IRBT2) first-quarter financial results.
The Burlington, Mass.-based maker of the Roomba3 robotic vacuum posted a net loss of $2.9 million, or 12 cents a share, an improvement from the $4.1 million, or 42 cents a share, in red ink recorded a year ago. Analysts were looking for a loss of 17 cents a share. Sales surged 123% year-over-year to $38.2 million, trumping the Street's projection of $31.1 million. Buyers hoovered up shares of iRobot to the tune of an 8% gain on Wednesday.
Continuing demand for iRobot's Roomba and a pickup in military orders for PackBot4, a bomb-disposal robot in use in Afghanistan and Iraq, aided the top line. The stock is now back above its November initial-public-offering price of $24 but well shy of the January peak near $38 that was fueled by a strong holiday selling season. Investor enthusiasm was tempered during the first quarter by the shaky debut of the Scooba5 floor washer. Scooba and its $399 price tag failed to sway consumers, and some retailers had to offer discounts to move inventory.
But Paul Coster, an analyst at J.P. Morgan, credited iRobot with righting itself quickly and providing the revenue surprise. "First-quarter results were better than we expected owing to robust initial sell-in of Scooba," he wrote in a research note published Tuesday. "We may have been overly cautious regarding initial Scooba sales and consumer seasonality in the first quarter." IRobot doesn't break out sales by product.
In a conference call late Tuesday after quarterly results were released, management labeled as a "rogue retailer" the first chain to slash prices on Scooba, an automated floor cleaner about the size of a medium deep-dish pizza. IRobot said it's no longer allowing that retailer to stock Scoobas. Since the initial rollout, Best Buy (BBY6) and Home Depot (HD7) haven't placed re-orders, according to Coster. IRobot stepped up direct sales of its top-of-the-line products and plans to introduce a less expensive version of Scooba that will sell for $299. Roombas sell for between $150 and $300, depending on the range of software features used in different models of the automated vacuum cleaners.
"I will admit Scooba's birthing has been eventful," said Colin Angle, co-founder and chief executive of iRobot, during the conference call. The CEO reaffirmed guidance issued in February, saying he expected 2006 sales of between $177 million and $192 million. Earnings could hit a penny a share, much lower than last year's profit of 11 cents, due to expanding marketing and research expenses. Wall Street analysts project earnings of 34 cents a share for 2007.
Angle also pointed to improved margins, saying profits on sales increased 7.6 percentage points from the same period last year.
While iRobot's consumer business, which accounts for as much as 70% of its sales, is prone to seasonal swings, its military business, which picks up the balance, provides stability, says Brian Gesuale, an analyst with Raymond James & Associates.
About 400 PackBots are now being used by the military, Gesuale says, and a recent $26 million order from the U.S. Navy to build another 213 units gives the company some momentum. The twin caterpillar-tracked PackBots, which cost as much as $115,000 apiece, are used in bomb disposal, mine clearing and other "dangerous, dirty or dull" tasks, according to both the company and the Defense Advanced Research Projects Agency, which leads the Department of Defense's initiative to put robots on the battlefield.
"Missions, for example, surveillance and reconnaissance, that are long and repetitive may be better accomplished by a machine that never gets tired or bored and doesn't need a break," says Jan Walker, a spokesman for DARPA. "In the future, the Army, for example, envisions using unmanned systems for reconnaissance, to deploy sensors, to carry weapons, equipment and supplies, locate threats, act as a communications relay, assess battle damage assessment, detect mines, detect chemical, biological, radiological, nuclear contamination, and provide security, early warnings, and target acquisition and designation."
Gesuale says the current backlog of 250 military machines represents almost $33 million in sales. "That's nearly 100% visibility on the government side of the business," he says. "This helps because the consumer side follows a heavy seasonal pattern, during the holiday season in the fourth quarter and also around Mother's Day."
J.P. Morgan's Coster suspects iRobot is sticking with its current forecasts because of the seasonal sales shift on its consumer side, and wrote that the seasonal slowdown will likely shift to the second quarter. Consumer sales will hit $134 million this year, he wrote, and climb to $164 million in 2007. Military revenues should hit $32 million this year and grow to $43 million next year.
The company is also expanding into Europe, Korea and Japan. That may be a bigger boon than expected since robots are more widely accepted in Asian markets. Yi Guo, a professor at the Stevens Institute of Technology's Robotics and Automation Laboratory in Hoboken, N.J., says consumers in Japan are particularly keen customers for a wider range of uses.
"In Japan, there's a big trend for entertainment and service robots," Guo says. "There's a trend toward humanoid robots for entertainment. Some can even mimic human actions, like dancing. In the U.S., I think the trend is more for service robots like the Roomba."
IRobot management also addressed a major concern for analysts: The some 18.7 million shares owned by company executives and the venture-capital firms that invested in iRobot before the IPO. The lockup period for those shares expires on May 20. A potential selloff could pressure the stock price.
"The executive team has no plan to sell stock any time soon," Gesuale says. "The second takeaway is that the VC community will ultimately liquidate, but will do in an orderly fashion."
The Bottom Line
In its civilian business iRobot makes gadgets, so it could be subject to fickle consumer tastes. But Gesuale thinks it's in solid shape regardless.
"There's a convenience and aging of America theme here," he says. "A lot of senior citizens don't want to leave their homes when they get older, but can't spend lots of time pushing around a vacuum cleaner."
The increased marketing expenses for the Scooba launch will subside, he adds, though overall advertising will be stepped up for the critical fourth quarter. The new military order and an increase in contract R&D revenue - government money for new robotics projects including a small unmanned vehicle - will also help.
"It's a nice diversified end-market play," he says. "You're basically riding the robot-adoption theme into two diversified end markets. It's hard to gauge the timing and size of these [government] awards, but they've been very good and have come in above expectations. And on the consumer side, they've got a great brand."
If Gesuale's confidence in the company proves accurate, then iRobot shares won't be gathering dust for long.
Von: 03.05.2006, by Will Swarts, http://www.smartmoney.com/