Friday, February 8, 2013

Apple Earnings Review: EPS Misses on Record Revenues!


Apple reported QE December 2012 financial results on January 23

Apple earnings highlights were:
1) Record revenues of $54.51 billion vs. $46.33 billion a year ago
2) Near-record operating income of $17.21 billion vs. $17.34 billion a year ago
3) Record net income of $13.08 billion vs. $13.06 billion a year ago
4) Near-record earnings per share of $13.81 vs. $13.87 a year ago

"Record" means an all-time high surpassing the prior year pinnacle at QE December 2011. "Near-record" means second highest all-time, so achingly close but not quite beating the prior year peak at QE December 2011. The calendar Q4, the Holiday Quarter, is when Apple can break its own, and technology sector, records. This is especially true if the latest iPhone roll out is timed accordingly. By not beating all these key metrics, which is the Apple Way, the King of Technology financial performance is mixed plus lost some luster and mystique.

Top Line Expectations Apple management forecast $52.00 billion in total revenues, the analysts expected $54.69 billion, and the result was $54.51 billion. That's a strong +52% QoQ increase and a solid +18% YoY increase. A very small miss that still decisively breaks the company and technology sector records as Apple ups their own ante.



Bottom Line Expectations Apple management forecast $11.75 earnings per share, the analysts expected $13.42, and the result was $13.81. A beat, but not good enough when it is the Mighty Apple. That's a strong +59% QoQ increase and an "oh so close" -0.43% YoY decrease. The prior year QE December 2011 record earnings per share of $13.87 still stands as an Apple all-time record high. The good news is Apple continues as the Ultimate Cash Flow Machine with a record $24.73 per share cash flow from operations. This is akin to printing your own money.



Annual Trends The annual trends for total revenues and earnings per share are below. As noted in prior reviews, the top is most likely in and growth is slowing for Apple on a year over year basis as the chart indicates below. The bar keeps being set higher and higher. The good news is management pays a dividend ($2.65 this quarter) and has an ongoing stock repurchase program.



Margins The concern and ongoing uncertainty is the decreasing gross margin. Gross margin (38.63%) is at an 8-quarter low. By comparison, the all-time high was the recent QE March 2012 at a stellar 47.37%. Operating margin (31.57%) did increase as operating expenses were effectively controlled. Hence net margin (23.99%) also increased. The margins have been remarkable, but peaked at the QE March 2012. The 16-quarter averages are 41.04%, 30.79%, and 23.07%, respectively.



Quarterly Regional Sales Trends Apple's primary driver of revenues continues to be the Americas then Europe. Greater China sales were next, but the growth is not as impressive. Retail sales growth continues strong as does Japan and the Remainder of Asia Pacific.



Quarterly Product Sales Trends From the chart below, is there any doubt that Apple is first and foremost an iPhone company? iPhone sales ($30.66 billion) reached a new record and comprise 56.24% of total sales. iPad likewise reached a new quarterly record sales of $10.67 billion. Mac computers sales decreased and the peak was reached last quarter. iPod sales rebounded significantly to a 2012 peak. iTunes, Software, and Services reached an all-time high as did Accessories.



Financial Position Total assets surged to another all-time and tech sector high of $196.09 billion. This should exceed $200 billion next quarter. Apple's market capitalization has been #1 worldwide. Cash and marketable securities are $39+ billion. Add long-term marketable securities and the liquid reserves are $137+ billion!

CEO Statement “We’re thrilled with record revenue of over $54 billion and sales of over 75 million iOS devices in a single quarter,” said Tim Cook, Apple’s CEO. “We’re very confident in our product pipeline as we continue to focus on innovation and making the best products in the world.”

CFO Statement “We’re pleased to have generated over $23 billion in cash flow from operations during the quarter,” said Peter Oppenheimer, Apple’s CFO. “We established new all-time quarterly records for iPhone and iPad sales, significantly broadened our ecosystem, and generated Apple’s highest quarterly revenue ever.”

Outlook QE March 2013:
• revenue between $41 billion and $43 billion
• gross margin between 37.5 percent and 38.5 percent
• operating expenses between $3.8 billion and $3.9 billion
• other income/(expense) of $350 million
• tax rate of 26%

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

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