Upcoming Earnings: Tech Giant Apple Reports After Tuesday's Close

Apple Inc. AAPL reports fiscal second-quarter earnings after the closing bell on Tuesday, May 1.  The stock has been under a little pressure over the past few weeks as analysts have expressed concerns that iPhone sales in this quarter and the next will fall short of their expectations.

Some of the supply chain concerns stem from recent earnings reports and outlooks from key AAPL suppliers including Taiwan Semiconductor Mfg. Co. Ltd. (ADR) TSM and Austrian firm AWS, a manufacturer of sensors used in smartphones. 

These fears seem to crop up around every one of AAPL’s reports, and investors could get a better idea of whether or not demand for iPhones, particularly the high-end iPhone X, has been waning when the company reports on Tuesday.

As the largest source of revenue for the company, the iPhone remains the primary focus among analysts and investors. In fiscal Q1, iPhone revenue was up 13 percent year-over-year to $61.58 billion, driven by higher average selling prices, while iPhone units declined 1 percent year-over-year.

Analysts, on average, estimate that the company sold 53 million iPhones in fiscal Q2, which is down almost 10 million units from where estimates were at the end of 2017. As a result of some of the recent supply chain concerns, analysts have indicated they’ll be keeping an eye on AAPL’s revenue guidance for fiscal Q3 to get an idea of whether or not management is expecting a slowdown in iPhone sales.

While the iPhone business is AAPL’s largest, its fastest growing segments in recent quarters have been Services and Other Products. Services is the second largest segment by revenue, and it was up 18 percent year-over-year to $8.47 billion in fiscal Q1. Again, analysts are expecting about 19 percent year-over-year growth from the Services segment in fiscal Q2.

Other products, which includes Apple TV, Apple Watch and Beats products, among others, grew 36 percent year-over-year to $5.49 billion in fiscal Q1. The new HomePod speaker went on sale in January and management might provide some commentary around how that product is doing so far.

Finally, another area that analysts are likely to look at is AAPL’s cash pile. Once tax reform was passed, CFO Luca Maestri said “we are targeting to become approximately net cash neutral over time,” but didn’t really provide any details as to the mix of share buybacks, dividends, acquisitions and other expenses. At the time, AAPL had a $163 billion in net cash.

Apple Earnings and Revenue Estimates

For fiscal Q2, AAPL is expected to report adjusted EPS of $2.69 on revenue of $61.1 billion, according to third-party consensus estimates. In the prior-year quarter, AAPL earned $2.10 per share on revenue of $52.9 billion. Management issued guidance for revenue between $60 billion and $62 billion in fiscal Q2, while gross margin is expected to be between 38 percent and 38.5 percent, down slightly from 38.9 percent in the prior-year quarter.  

APPLE 2018 STOCK CHART. AAPL hit a new all-time high of $183.50 on March 13 and pulled back a little bit through the end of March. Over the past week, the stock has dropped rapidly on weak earnings reports and outlooks from several key AAPL suppliers. Chart source: thinkorswim^® by TD Ameritrade.  Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Apple Options Trading Activity

Around the upcoming earnings release, options traders have priced in about a 4 percent stock move in either direction, according to the Market Maker Move indicator on the thinkorswim® platform. Implied volatility was at the 74^th percentile as of this morning.

In short-term trading at the May 4 weekly expiration, calls have been active at the 170 strike price, while puts have been active at the 160 and 162.5 puts. Looking further out at the May 18 monthly expiration, trading on the call side has been heavier at the 170 and 175 strikes, and puts have seen heavier trading at the 160 strike.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

What’s Coming Up

Earnings season continues this week and some of the major companies scheduled to report are Pfizer Inc. PFE, Merck & Co., Inc. MRK, Tesla Inc. TSLA, Activision Blizzard, Inc. ATVI and Alibaba Group Holding Ltd. BABA. So far, results have been pretty strong this quarter. As of April 27, 53 percent of the companies in the S&P 500 (SPX) have reported results; 79 percent have beaten earnings estimates and 74 percent have beaten revenue estimates, according to FactSet.

At the end of the week, attention will likely be drawn back to economic data with April’s employment report due out Friday morning. If you have time, check out today’s market update for a look at what else is going on across markets.

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