Friday, July 27, 2012

Apple Earnings Review: Revenues & EPS Miss!


Apple reported QE June 2012 financial results on Tuesday, July 24

Apple management forecast $34 billion in total revenues, the analysts expected $37 billion, and the results were $35 billion. That's a QoQ decrease of -$4.16 billion or -11% QoQ and +23% YoY. Geography, product lines, and gross margin came into play for the miss.

Apple's weak quarter was the result of Asia-Pacific sales, notably China, dropping from $10.15 billion to $7.89 billion. That's a QoQ hit of -$2.26 billion and -22%. Sales in the Americas held up relatively well (-$376 million, -3% QoQ) but all regions decreased. Not only that, sales in Europe of $8.24 billion (-$570 million, -6% QoQ) exceeded Asia-Pacific! Most were convinced last quarter when Asia-Pacific sales surpassed Europe it was forever.

Apple was saved from a worse quarter by iPad sales growth (+$2.58 billion, +39% QoQ) to counteract the drop in iPhone sales (-$6.45 billion, -28% QoQ). The other product lines reported small decreases (Mac Computers, Music Products & Services, and iPods). The new iPad, after trademark litigation delays, arrived in China July 20.

Gross margin, as expected with a forewarning from management, decreased from an all-time high of 47.37% to 42.81%. This is above the 15-quarter average of 41.06%.

Total assets surged to another all-time and tech sector high of $162.9 billion. Apple's market capitalization has been #1 worldwide. Cash and marketable securities were $27+ billion. Add long-term marketable securities and the liquid reserves are $117+ billion!

Result, QoQ Change, YoY Change
Total Assets: $162.90 billion, +8%, +53%
Total Revenues: $35.02 billion, -11%, +23%
Net Income: $8.82 billion, -24%, +21%
Earnings per Share: $9.32, -24%, +20%

Outlook QE September 2012: CFO Peter Oppenheimer, "Looking ahead to the fourth fiscal quarter, we expect revenue of about $34 billion and diluted earnings per share of about $7.65". For total revenues that's -3% QoQ and +20% YoY. For earnings per share, that's -18% QoQ and +9% YoY. Initial estimates by analysts are EPS $10.22 (+10% QoQ, +45% YoY) and total revenues of $37 billion (+9% QoQ, +34% YoY). These analysts' projections may well be revised downwards soon.















“We’re thrilled with record sales of 17 million iPads in the June quarter,” said Tim Cook, Apple’s CEO. “We’ve also just updated the entire MacBook line, will release Mountain Lion tomorrow and will be launching iOS 6 this Fall. We are also really looking forward to the amazing new products we’ve got in the pipeline.”

View from the Lake From here on the peninsula, I see a long-term upside for AAPL though iPhone 5, which presumably will be launched during Holiday Q4 2012. Calendar Q4 is the annual cyclical high anyway and with iPhone 5 we could easily see $50+ billion in quarterly sales. That results in the January 2013 earnings announcement for a huge pop in AAPL. A mini-iPad (7-inch screen?) isn't going to be a game-changer, would cannibalize the existing iPad, doesn't generate the margins for Apple, and I would buy one for my wife. Time for the innovative pipeline of "amazing new products" CEO Tim Cook talks about to work some magic to sustain growth post-iPhone 5.

Disclosure: I have a beneficial interest in a long position in AAPL stock.

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