Apple Earnings Brighten the Yearly Outlook

Those bullish on Apple (AAPL) received a double-dose of good news this week, as positive earnings results and share buybacks now support the near-term outlook for the stock.  Surging iPhone sales and a $30 billion addition to its shareholder payout program have helped to reassure investors that the world’s most valuable company is still on course to move ahead in increasingly competitive industry sectors.  “Profits in the fiscal second quarter rose to $10.2 billion, which is a gain of 7%,” said Vlad Karpel, options strategist at TradeSpoon.  “Increased emerging markets access through China Mobile (CHL) helped push iPhone sales to 43.7 million, well above the 37.7 million that was the consensus estimate.”

Apple also announced an additional repurchase authorization, bringing its program to $90 billion from $60 billion previously, along with a seven-way stock split.  The company’s plan is to take on new debt as its way of paying for its bigger dividend plans and stock buybacks.  The report showed that earnings-per-share beat the analyst forecast of $10.22, coming in at $11.62 per share.  For those focused on dividends, Apple announced a May increase of 8% and all of these factors created a strong positive for the stock in after hours trading. 

Apple’s Expected Earnings

But while this bodes well for those bullish on Apple for the near-term, some serious questions still remain when we look at the potential outlook for the next few quarters.  The company’s guidance is calling for quarterly revenues in the neighborhood of $38 billion for the next reporting period (which would be a slight increase from the $35 billion posted during the same interval last year).  EPS results could be modestly helped if the 38% expected gross margin and much smaller share count come in line with the company’s estimates.

For the second quarter, EPS came in with gains of 15% when compared to the results posted during the same period last year.  The market consensus was expecting a flat reading in the revenue portion of the report, but the final outcome was much more impressive at 5%.

iPhone and iPad Sales

Most of the optimism here is being created by strength in iPhone sales.  But negatives could be found, as well.  Specifically, key weakness was seen in massive declines for iPad sales, which were well below the results posted last year.  At this stage, it is clear that the initial excitement over the company's newer tablet offering has started to wane as total sales came in at only 16.4 million.  Last year, Apple sold 19.5 million iPad units.  On balance, these results should be viewed as encouraging for investors.  Longer term, however, we can still see widespread criticism over the ways Apple (both as a company and as a stock) has performed in recent quarters. 

Overall, many investors remain concerned over the company’s slowing growth prospects.  But at the same time, the latest figures will give CEO Tim Cook more time to plan new strategy and direction for the company.  Cook has made several recent announcements suggesting that Apple has new and highly innovative products that are currently in the development pipeline.  So far, most of the speculation has centered around iPhones with bigger touch screens, a new set-top box for Apple TV, and a wearable device meant to competed with the smartwatch made by Samsung. 

So, while it is clear that most of the optimism and enthusiasm that previously surrounded the company has diminished over the last few years, these latest results (and stock strategy moves) should give the company some leeway with shareholders and in the eyes of the broader media -- at least for the time being.  TradeSpoon offers a two-week trial subscription with options trading signals for investors of all experience levels.