Tuesday, April 23, 2013

Apple tops fiscal Q2 2013 estimates, but with first year-over-year earnings drop since 2013

Apple released its fiscal Q2 2013 financial results on Tuesday, after the market close. For the fiscal 2013 second quarter Apple showed revenue of $43.6 billion and a quarterly net profit of $9.5 billion, or $10.09 per diluted share.

Revenue was up from the year-over-year quarter, but net income was down. A year ago, Apple had revenue of $39.2 billion. It also had a net profit of $11.6 billion, or $12.30 per diluted share, so net income dropped about 18 percent, year-over-year, while revenue rose about 11 percent.

International sales accounted for nearly two-thirds, or 66 percent of the quarter’s revenue.

Gross margin was 37.5 percent compared to 47.4 percent in the year-ago quarter, which showed just why net income was down. Apple's lower margin products, such as the iPad mini, are hurting gross margin, and the rumored lower-cost iPhone won't help there, though Apple may see revenue increase.

The drop in earnings was Apple's first year-over-year quarterly earnings decline in nearly a decade.

The market took the news well. Apple stock was up $19.76‎ to $425.89 or nearly five percent, in after-hours trading (at the time of this writing).

In terms of unit sales, Apple sold 37.4 million iPhones in the quarter, compared to 35.1 million in fiscal Q2 2012. Apple also sold 19.5 million iPads during the quarter, compared to 11.8 million a year ago. Apple sold just under four million Macs, just a slight drop from last year, when it sold four million.

Tim Cook, Apple’s CEO said:
We are pleased to report record March quarter revenue thanks to continued strong performance of iPhone and iPad. Our teams are hard at work on some amazing new hardware, software, and services and we are very excited about the products in our pipeline.
Apple's CFO, Peter Oppenheimer, said:
Our cash generation remains very strong, with $12.5 billion in cash flow from operations during the quarter and an ending cash balance of $145 billion.
Apple also gave the following guidance for its fiscal 2013 third quarter, which ends at the end of June:
  • Revenue between $33.5 billion and $35.5 billion
  • Gross margin between 36 percent and 37 percent
  • Operating expenses between $3.85 billion and $3.95 billion
  • Other income/(expense) of $300 million
  • Tax rate of 26%
Even at the high end, Apple's guidance is less than the $38.6 billion in sales and 38.6 percent margin that analysts, on average, had been expecting for its next quarter, ahead of Apple's earnings conference call.

If Apple is not going to be a growth stock, it's going to be an income stock, however. The company said that it now has about $145 billion in the bank, and it intends to use that cash. Apple said it would increase its share repurchase authorization program from the $10 billion announced last year to $60 billion.

Apple said it was the largest single share repurchase authorization in Apple's history. It expects to complete the buyback by the end of calendar year 2015.

Meanwhile, Apple declared a dividend of $3.05 per common share, payable on May 16, 2013 to shareholders of record on the close of business on May 13, 2013. That is a dividend increase of about 15 percent.

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