Apple Management's Tone 'Much More Cautious' Than Usual On Conference Call

• Apple Inc. AAPL shares are down 7 percent since December 28.
• Bernstein’s A.M. (Toni) Sacconaghi, Jr. maintained an Outperform rating for the company, with a price target of $135.
• Apple repeatedly mentioned a tough macro backdrop and meaningful FX headwind during its call, Sacconaghi stated.

Apple reported its quarterly revenue at $75.9B, ahead of the Bernstein estimate of $75.6B, but below consensus expectation of $76.5B. The company’s gross margin, at 40.1 percent, beat expectations. Analyst Toni Sacconaghi said, however, that excluding a onetime patent settlement payment from Samsung, Apple’s GM was largely in-line.

Apple reported its EPS at $3.28, up 7 percent y/y, ahead of the Bernstein estimate of $3.18 and consensus of $3.23. However, excluding the impact of the discrete patent settlement and lower tax rate, the company’s EPS stands at about $3.17.

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The EPS estimate for FY16 remains unchanged at $8.57, while that for FY17 has been raised from $9.70 to $9.71. “For FY 16, while we adjusted iPhone units upward, we decreased iPad growth and increased Opex, netting us out where we started. FY17 is relatively unchanged,” Sacconaghi wrote.

Apple's FQ2 guidance was significantly short of the consensus expectations. The analyst mentioned that the implied iPhone unit guidance of 50 - 52M+ for FQ2 “appears notably better than many investors had feared as a worst case scenario.” Sacconaghi believes that the iPhone guidance appears “modestly aggressive,” while overall revenue guidance and EPS seem to be “achievable.”

In the report Bernstein noted, “Despite the solid overall guidance relative to expectations, Apple executives on the conference call projected a much more cautious tone than is typical, repeatedly invoking the difficult macro backdrop and the meaningful currency headwind.”

Sacconaghi commented, however, that the iPhone business remained “fundamentally healthy,” despite falling units in FY16.