Apple -- January 29, 2019 -- EPS Reaches All-Time High at $4.18

Those reports that Apple had died were premature. Apple's EPS hit an all-time high despite iPhone revenue coming in lower. I would love to see the graphic with three EPS lines on it: hardware, services, EcoSystem.

Link here. 

How big is Apple? It's above the banner at the Drudge Report. Yup, that big.

Apple's EPS hit an all-time high. Everything else is background noise. Despite buybacks, wasted R&D, currency losses, plunging Chinese market, Apple still has $245 billion in cash and about $115 billion in debt.

Dividend: for the past few years, Apple has raised its annual dividend in February. The last dividend increase was a full dime, from 63 cents to 73 cents (quarterly). If I have one complaint with regard to Apple from an investor's point of view: the company has been a bit too "tight." I think the company has always been that way but now the company would be hugely influenced by Warren Buffett who absolutely does not like dividends, unless he's the one on the receiving end. 

Updates

Immediately After Results Reported 

Q&A:

• Why not more stock buybacks? We've done $250B in repurchases since the beginning of the program. But want to buy back stock in a "disciplined" manner that accounts for market conditions.
• Wow! $250 billion in repurchases equals the amount of cash Apple has. Had they not done the buybacks, all things being equal, they would have $500 billion in cash
• Apple's stock is now up 5.6% after hours. The earnings call disclosures about services and the installed base seem to be helping.
• Long term stock? It's an open-book test. 
• The XR is Apple's most popular iPhone model, and is followed by the XS Max and then the XS.

Look at the CFO's remarks:

• Also notes product gross margin was 34.3% and services GM was 62.8%. This is the first time that Apple is breaking this out.
• Margins of 62.8%!!
• Double-digit growth seen in Germany, Poland, Spain, Mexico, Vietnam.
• Apple's iPhone active installed base is now above 900M. -- closing in on one billion for the installed base -- almost equal to every person over the age of 12 owning an Apple iPhone in China
• Services revenue hit new records in all 5 geographic segments.
• Apple has surpassed 360M paid subscriptions across its ecosystem, up from 330M+ three months earlier. Adds the number is expected to top 500M next year.
• The Mac and iPad installed bases hit all-times. Half of last quarter's Mac and iPad buyers were first-time buyers. 
• Apple's wearables business is said to be approaching the size of a Fortune 200 company.
• Reiterates Apple aims to eventually become net cash neutral. Currently has ~$130B in net cash.

Tim Cook, earnings call, oldest to newest:

• Reiterates China was responsible for most of Apple's revenue shortfall relative to original guidance, and that revenue grew outside of China.
• China wearables revenue was up over 50%, and Apple's Chinese active installed base grew. Over 2/3 of Chinese Mac and iPad buyers were first-time buyers.
• Cook takes a minute to talk up the iPhone XS and XR's feature sets. "We couldn't be more proud of our iPhone lineup and our industry-leading customer satisfaction." But he admits that customers are (on average) holding onto their existing iPhones a little longer. 
• App Store, Apple Pay, cloud services, App Store search ad revenue and AppleCare had record revenue.  
• Apple Pay transactions hit 1.8B, well over twice year-ago levels.
• Cloud services revenue rose over 40%.Apple News had over 85M monthly active users. Remarks come amid reports that Apple is planning a news/magazine subscription service that will be integrated with Apple News. Apple News had over 85M monthly active users. 
• The largest services category represents less than 30% of total services revenue. 
• Regarding wearables sales, which rose nearly 50%, Cook says (not surprisingly) that both Apple Watch and AirPods were strong. 
• We're trying to make it easier to trade in an iPhone in stores. Company recently began making it easier to pay via installments.

The link to the earnings release.

Live, from a blog, oldest to newest:

• Earnings are out. Revenue is at $84.3B, above an $83.97B consensus. EPS is at $4.18, slightly above a $4.17 consensus.
• For the March quarter, Apple expects revenue of $55B-$59B vs. a $58.98B consensus.
• Shares are up 2% after hours.
• iPhone revenue fell 15% Y/Y in the December quarter to $51.98B. That fits with the guidance Apple previously gave. Mac revenue rose 9% to $7.42B, iPad revenue rose 17% to $6.73B.
• "Wearables, Home and Accessories" revenue rose 33% to $7.31B. Services revenue, previously said by Apple to be above $10.8B, rose 19% to $10.9B. 
• The stock is now up 3% after hours. Expectations were clearly pretty low for Apple going into earnings, and that's allowing shares to move higher in spite of a light March quarter outlook that implies a 7% Y/Y revenue drop at the midpoint.  
• Mac, iPad, Services and wearables/home/accessories revenue all came in above analyst estimates. iPhone revenue came in below.
• Apple posted a December quarter gross margin of 38%, down 0.4 points annually and in line with its revised guidance. For the seasonally weaker March quarter, it expects a GM of 37%-38% -- lower unit volumes are a headwind, but lower memory prices appear to be limiting the impact. 
• Last quarter's sales by region: 
• Americas +5% Y/Y to $36.94B 
•  Europe -3% to $20.36B 
• Greater China -27% to $17.96B 
• Japan -5% to $6.91B 
• Rest of Asia Pac +1% to $6.93B 
•  China is (as signaled by the warning) clearly quite weak right now. But U.S. sales seem to be holding up well. And the performance of the Rest of Asia Pac segment is encouraging given what Apple has said about emerging markets pressures.
• Apple is now up 3.7% after hours. Some chip suppliers, such as Skyworks, Qorvo and Broadcom, are up moderately.
• Apple ended its December quarter with $245B in cash and $115B in debt. Its cash-flow statement says that repurchases of common stock totaled $8.8B during the quarter.
• Buybacks at work: Apple's diluted share count for the December quarter was 4.77B. That's down from 5.16B a year ago and helped EPS grow 7% in spite of a 5% revenue drop.
• The company notes its active device installed base hit a new high of 1.4B last quarter. It was previously reported to be at 1.3B as of January 2018.

 Original Post

From Business Insider:

• Apple is set to release its first-quarter results Tuesday afternoon
• it is one of the most highly anticipated reports in years
• strategists point out that despite recent volatility and some uncertainty surrounding the upcoming report, shares are not expected to see a particularly large move
• Apple shares have fallen 33% since their October high of $233.47
Apple trade live here.


Tim Cook, the company's CEO, already warned investors and analysts earlier this month of disappointing results, saying that its revenue will likely be around $84 billion for the holiday period. Previously, the company had expected to post sales of between $89 billion and $93 billion.

Analysts and investors will be keen to hear at least one new detail that Apple will start releasing with this earnings report: the profitability of its services business, which Apple wants to grow into a $50 billion business by 2020.

More:


Here's what analysts are now expecting the company to report on its top and bottom lines, and how those forecasts compare with its year-earlier results:


• Fiscal first-quarter (FQ1) revenue: $83.97 billion. In FQ1 2018, Apple posted $88.29 billion in sales.
• FQ1 earnings per share (EPS): $4.17. In FQ1 2018, the company earned $3.89 a share.
• Fiscal second-quarter (FQ2) revenue guidance: $58.97 billion. In FQ2 2018, Apple saw sales of $61.14 billion.
• FQ2 EPS guidance: $2.62. In FQ2 2018, the company earned $2.73 a share.

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Disclaimer: I am Apple Fanboy #3.

Note: my investment horizon is 75 years.