Jan
22

Apple Earnings Preview: Time to Step Up

David Markets, Technology 2013-01-22


Apple reports QE December 2012 financial results on Wednesday, January 23, after market close

Apple earnings are on the line this quarter. This will be a defining moment for the King of Technology. The Holiday Quarter, the QE December 2012, is the Big Quarter for Apple on an annual cyclical basis. The prior year QE December 2011 total revenues were $46.33 billion, an Apple and technology sector all-time record high. Earnings per share a year ago were $13.87, an Apple all-time high. Earnings per share have since decreased each of the past 3 quarters in 2012.

First come the revenues. Apple management projects an incredible $52 billion and the analysts’ estimates are even higher at about $55 billion. Either would be Apple and technology sector records.

Estimated QE December 2012 Total Revenues (GAAP)
Yahoo Finance Estimates: $54.69B avg, $52.01B low, $59.55B high, 45 analysts
Prior Quarter: $35.97B = +52% QoQ
Prior Year: $46.33B = +18% YoY
Apple Management Outlook: $52.00B which is +45% QoQ and +12% YoY

Amazing, total revenues look great for Apple! No where to go but up?

Next comes the earnings per share. Apple management estimates $11.75 and the analysts estimate $13.42. Earnings per share a year ago were $13.87, the aforementioned Apple all-time high. Earnings per share have since decreased each of the past 3 quarters in 2012 to $12.30, then $9.32, and finally last quarter to $8.67. A QoQ increase is a given, but the YoY increase is the great uncertainty and yet necessary to maintain the spectacular growth rate.

Estimated QE December 2012 Earnings per Share (GAAP)
Yahoo Finance Estimates: $13.42 avg, $11.97 low, $15.50 high, 47 analysts
Prior Quarter: $8.67 = +55% QoQ
Prior Year: $13.87 = -3% YoY
Apple Management Outlook: $11.75 which is +36% QoQ and -15% YoY

What! Earnings per share is not keeping pace with revenues? This implies lower gross, operating, and net profit margins.

Will there be an encore after the unprecedented, record-smashing QE December 2011 performance? Although the top line will be worth checking for Apple’s market share and dominance, as in total revenues greater than $50 billion, it is the earnings per share that ultimately count for shareholders. If earnings per share reported is greater than $13.87, the legend continues. Management has delivered the bottom line to shareholders.

If earnings per share is near this benchmark, but a little less, Apple continues as the greatest technology company but the peak will be perceived as attained last year, the hard slog begins to maintain the throne, and the product pipeline better have something on deck with strong margins. A big EPS miss (exclusive of extraordinary items) would indicate the world has moved on and away from Apple as competitors swarm the ecosphere previously controlled by the King.

Prior Quarter Earnings Review: Apple Earnings Review: Margins Down, Uncertainty Up

Disclosure: I have a beneficial interest in a long position in AAPL stock.

$AAPL $XLK

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Address: http://ospreyflyer.com/apple-earnings-preview-time-to-step-up/
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  • r.wack

    Whether or not earnings per share keeps pace with revenue is irrelevant. In fact, if earnings per share kept pace with revenue when earnings as a share of revenue are viewed from an already very high baseline, something would be very, very wrong in the world. It would mean there is no competition. In the modern world where patents are simply ignored without consequence, that will not – and cannot – be the case.

    What is important is the percentage growth of earnings, YOY…and, secondarily of course, percentage growth of revenue. In point of fact also, it would be very important to take into account moves up or down in expenditures for R&D.

    Apple stock spends a good deal of time trading at ridiculously low earnings multiples and only occasionally moves into marginally low earnings multiple territory. At some point, investors will find a P/E mean around which they will orbit, barring some catastrophe or major upside blowout. That would probably be somewhere between 10 and 15, but it should be about 15 now, given company performance and the fact that even if Apple is losing market share, it’s still growing sales and earnings at a good clip year over year…and especially given the fact that very marginal companies in all market sectors populate the P/E level of 15 and below. Apple may not be taking over the world, but it’s clearly not a marginal player at this point in time, even if it does attract some very marginal investors who seem to view it as though it’s some new kind of alien animal in the zoo and not simply another corporate entity.