Apple's Mixed Earnings Bag Includes Stock Sweetener
After all the hype and speculation, Apple's Q1 earnings managed to beat Wall Street's lower expectations, but the conference call was thin on new product details. While that didn't please the legions of company fans, investors and analysts were thrown bones thanks to a stock buyback plan and a 15 percent dividend. There's little chance that any of those moves would quench speculation about Apple's near-term future, and the competition that awaits.
For any company in the world, a quarter with revenues of US$43.6 billion and profits of $9.5 billion would be reason for celebration. Unfortunately, Apple isn't any company.
"Apple beat highly lowered expectations for the quarter," Trip Chowdhry, managing director for equity research at Global Equities Research, told MacNewsWorld.
Its numbers were better than expected by Wall Street, but disappointing to many financial analysts, especially compared to last year's performance for the quarter ending in March. Then, Apple revenues were lower -- $39.2 billion -- but profits were higher at $11.6 billion.
That's a source of concern to analysts because it shows an erosion of profit margins -- the amount of money Apple makes on a product it sells.
Those margins took a big hit in this year's first quarter compared to last year's -- 37.5 percent in 2013 compared to 47.4 percent in 2012. The outlook for margins in the next quarter isn't any better -- somewhere in the 36-37 percent range.
Frustrated by Stock Decline
Even with the raft of new and refreshed products expected in the second half of the year, those margins worry analysts. "Their ability to generate cash is being reduced going forward, regardless of the new products," Rob Enderle, president and principal analyst with the Enderle Group, told MacNewsWorld.
The products Apple will be introducing soon may have much thinner margins, he said. "Margins for Apple are very important. They are a premium class vendor. They are a vendor that should not be competing on volume sales."
It was apparent during Apple's earnings call Tuesday that CEO Tim Cook was concerned by how Wall Street was treating Apple's stock lately. Shares have been selling at around $400, down from around $600 a year ago.
"The decline of Apple's stock price over the last couple of quarters has been very frustrating to all of us, but Apple remains very strong, and we will continue to do what we do best," he said during the call.
"We can't control items such as exchange rates and world economies and even certain cost pressures," he continued, "but the most important objective for Apple will always be creating innovative products, and that is directly in our control. We will continue to focus on the long-term, and we remain very optimistic about our future."
Appeasing Wall Street
Despite that statement, Cook revealed at the earnings event that Apple will be taking measures designed to buoy its stock price. Those will include a $100 billion stock buyback program and a 15 percent dividend boost.
The money for those programs will come from Apple's vaunted cash reserves, which have been a sore point with investors who believe the company is hoarding cash that should be in their pockets.
Cook appears to be coming around to Wall Street's view on Apple's cash reserves. "We continue to generate cash in excess of our needs to operate the business, invest in our future and maintain flexibility to take advantage of strategic opportunities," he said at the earnings event.
Not everyone saw gloom in Apple's latest earnings report. "The results were good results," Gartner Research Vice President Carolina Milanesi told MacNewsWorld.
"I think that the stories about the death of Apple were definitely premature," she added.
Consistent with Apple tradition, Cook used the earnings event to tease new product releases while not offering any details about them.
"We've got some really great stuff coming in the fall and across all of 2014," he said.
That "great stuff" may include an Apple TV set and a smart watch. "We expect a TV by the end of 2013," Gartner's Milanesi said.
An Apple watch may also be on the release clock. "If they can do it stylishly and elegantly and not like the chunky things you're seeing in the market at the moment, the time is definitely right, especially if they can have it in time for the holidays," she said.
When it comes to new products, even thin details can get an Apple watcher excited, Tim Bajarin, president of Creative Strategies told MacNews World. "From what Tim [Cook] said today, Apple is giving us a lot of hope that they've got some exciting new products for us through the end of this year."