- Apple announced earnings on Tuesday, and both its profit and earnings per share were higher than Wall Street expectations.
- Apple’s guidance was also a big relief to investors worried about iPhone sales.
- Apple also announced a $US100 billion share buyback program and raised its dividend by 16%.
- The stock rose in after-hours trading.
Apple reported strong iPhone sales in the first three months of the year, throwing cold water on the most feverish fears gripping some investors, concerned that the tech company’s key business line was running out of steam.
Shares of Apple were up roughly 3% in after hours trading on Tuesday after the company reported fiscal Q2 earnings that beat analysts’ revenue and profit targets, and forecast stronger-than-expected results in the current quarter.
Apple also declared a new $US100 billion stock buyback program, and boosted its dividend to by 73 cents a share.
While sales of Apple’s iPhone did not deliver a big upside surprise, nor did they fall through the floor, as some worried they might.
“This is the first cycle we’ve had where the top-of-the-line iPhone model has also been the most popular,” Apple CEO Tim Cook said on a conference call with analysts on Tuesday.
The $US1,000 iPhone X – Apple’s most expensive iPhone ever – was the best-selling phone “every week” during the quarter, Cook said. The comments come amid investor worries, fuelled by negative press reports, that Apple’s high-priced flagship model was not selling well.
Although Cook would not provide specific sales figures for the iPhone X, he stressed that the performance should be viewed as a sign of strength regardless of the details.
“The team wins the Super Bowl, you want them to win by a few more points, but it’s a Super Bowl winner, and it’s how we feel about it,” Cook said during the call.
A healthy outlook for the June quarter
Perhaps more important than the past three months, Apple provided a reassuring outlook for the coming months.
The company forecast fiscal Q3 revenue between $US51.5 billion and $US53.5 billion, a range with a midpoint comfortably above the $US51.6 billion average analyst forecast. In recent weeks, “whisper numbers” among some investors event anticipated that fiscal Q3 revenue could come in below $US50 billion, according to a note by GBH Insights analyst Dan Ives, following Apple’s results.
“This guidance number was much better than feared and will be a “major relief” for the stock,” Ives wrote.
Apple’s iPhone average selling price was up 11%, which is one of the reason that iPhone sales rose 14% despite a 3% increase in the number of iPhone sold. “We’re going to continue to provide different iPhones for folks to meet their needs,” Apple CEO Tim Cook said on a call with analysts.
Apple said the iPhone average selling price was up 11% in the recently-ended quarter, which is one of the reason that iPhone sales rose 14% despite a 3% increase in the number of iPhone sold. “We’re going to continue to provide different iPhones for folks to meet their needs,” Apple CEO Tim Cook said on a call with analysts.
Apple CFO Luca Maestri said the buybacks would start this quarter. Much of the capital return was made possible after Apple was able to bring $US269 billion in overseas holding back to the United States after the tax reform bill passed last year.
Apple has already paid $US275 billion to shareholders since 2012.
Here are the key numbers from Apple’s fiscal Q2 report:
Revenue: $US61.1 billion, up 16% year-over-year, versus expectations of $US60.86 billion
EPS: $US2.73, up 30% year-over-year, versus expectations of $US2.60 per share
Gross margin: 38.3%, down 1% year-over-year
iPhone sales: 52.2 million, up 2% year-over-year, versus expectations of 51.9 million
iPhone average selling price: $US728, up 11% year-over-year
iPad sales: 9.1 million, up 2% year-over-year
Mac sales: 4.07 million, down 3% year-over-year
Q3 guidance: between $US51.5 billion and $US53.5 billion
Notes from the call:
6:00: OK we’re done here, thanks for tuning in!
5:56: Tim Cook: “The smartphone is the best market to be in in the history of the world.”
5:55: Cook shouts out India, which is starting to install LTE networks, and could be the third largest smartphone market in the world. “I don’t see the market saturated from a market point of view and certainly not from an iPhone point of view,” he said.
5:52: “Let me address the smartphone market a bit. In terms of the market in general, if you look at last year, last data point on the full market, there were still half a billion feature phones sold in the world. Many of those were sold into emerging markets. We still believe over time every phone sold will be a smartphone. So it seems to us with that many feature phones being sold that’s a pretty big opportunity.”
5:47: “The way we think about is price a reasonable price for the value we deliver and I feel we did that” with iPhone X in response to a question about if lower price could lead to more sales growth.
5:44: Cook: “I don’t want to give too much away, but [health is] an area of great interest we think we can make a big difference in, it’s a major strategic thrust of ours”
5:41: This is the largest dividend increase we’ve done, Maestri said. “You will be able to keep
5:39: “We protected by encrypting it and we keep the bulk of information on the device so that the user is in control of it. We also collect much less overall than others do. If you look at our model, if we can convince you to buy iPhone or iPad we make a little bit of money, you’re not our product,” Tim Cook said.
5:34: Tim Cook talks about services, and teases “other services we are working on.” He sees it as a huge opportunity
5:33: Tim Cook answers question about Chinese trade war: “I’m a big believer that both countries can win and grow the pie.” He also mentioned that “iPhone X was the most popular smartphone in all of China last quarter.”
5:32: “In terms of longer term, we’re on target to our 2020 goal of doubling the services revenue of 2016,” Cook said.
5:27: Tim Cook on the iPhone X: “The team wins the Super Bowl, you want them to win by a few more points, but it’s a Super Bowl winner, and it’s how we feel about it.”
5:27: Now we’re starting the exciting part of the call – Q&A.
5:26: We plan to plan for annual dividend increases going forward, Maestri said.
5:24: Maestri going over what Apple’s priorities for that money is – the goal is to become net cash neutral.
5:23: Apple’s net cash position is $US145 billion, Maestri says. That’s a lot of money.
5:22: Luca Maestri loves to talk about Apple’s enterprise partnerships.
5:17: Maestri talks about a 451 Research survey that shows customer satisfaction with iPhone is 95%.
5:16: Now CFO Luca Maestri is speaking.
5:15: Get fired up, Cook is excited about an increased dividend and $US100B in buybacks.
5:14: Tim Cook says that Apple is “narrowing the site selection for a new US campus,” which means it hasn’t been selected.
5:13: “We generated almost $US34 billion in earnings in 6 months and we’re very bullish on Apple’s future. We have the best pipeline of products and services we’ve ever had.”
5:11: “We believe privacy is a fundamental human right,” Tim Cook said. He’s spending time on this earnings call talking about Apple’s privacy policies.
5:07: “HomePod is widely recognised for having the best sound quality for its size and class,” Tim Cook says. “We’re looking forward to adding new features to HomePod.”
5:05: “Paid subscriptions passed 270 million, up 30 million in the last 90 days, contributing to the overall increase in services revenue.”
5:03: “Services were up 31% and wearables were up almost 50%,” Tim Cook says during his prepared remarks.
5:00: We’re getting started. Tim Cook is giving prepared remarks.
Here are the charts:
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