Apple, Good Enough

October 22, 2008

104

Trader Mark’s thoughts on Apple’s earnings. Note AAPL was up around 12 points, 13%, from the close in after hours trading.

The Tribe Has Spoken – Apple (AAPL) Good Enough

As we state every quarter with Apple (AAPL) you never know how the masses will react to the traditional "smash the numbers and then lowball guidance by a large amount". This time they lowballed guidance even more than usual, but with the absolute hammering in the stock, the tribe seems to have had enough red meat. After pummeling the stock all day, we’re seeing some rebound in afterhours but only to levels Apple enjoyed coming into the day. But it’s not a 30% down moment at least.

Apple Inc. on Tuesday reported a fiscal fourth-quarter profit that rose 26% from a year ago on revenue of almost $8 billion and increases in sales of its Macintosh computers, iPods and iPhones.
For its fourth quarter, Apple said it earned $1.14 billion, or $1.26 a share, on revenue of $7.9 billion, up from of $904 million, or $1.01 a share, on $6.22 billion in sales in the same period a year ago. The results beat the earnings estimates of analysts surveyed by FactSet Research, who forecast Apple to earn $1.10 a share on revenue of $8.02 billion.
During the quarter that ended Sept. 27, Apple said it sold 2.6 million Mac computers, along with 11 million iPod digital media players.
Apple also said it sold 6.9 million iPhones during the quarter, which included the release of the new 3G iPhone, in July.
Jobs called the iPhone sales "spectacular" and took a shot at one Apple rival, saying, "We sold more phones than RIM," (o snap)
Because subscription accounting for sales of the iPhone and Apple TV means some revenue is not reported till months after it is collected as cash, Apple also disclosed “adjusted” revenue and net income. On that basis, the company’s numbers look quite a bit higher, with $11.68 billion of “Adjusted Sales” and $2.44 billion of “Adjusted Net Income,” it said.
Gross profit came in at 34.7%, it said, up from 33.6 percent in the year-ago quarter
International sales accounted for 41 percent of the quarter’s revenue.
Although earnings topped Wall Street analysts’ estimates, Apple kept with its tradition and delivered a first-quarter outlook that fell below analysts’ forecasts.
Chief Financial Officer Peter Oppenheimer said in a statement that for Apple’s fiscal first quarter, the company expects to earn between $1.06 and $1.35 a share on revenue in a range of $9 billion to $10 billion, for what is typically Apple’s busiest business period. Such results could end up below what Apple reported in the same quarter a year ago, when it earned $1.58 billion, or $1.76 a share, on $9.6 billion in sales.
However, analysts surveyed by FactSet Research had forecast Apple to earn $1.65 a share on $10.6 billion in sales. While Apple is known for exceeding both its own, and Wall Street’s estimates, the low-ball outlook, combined with the uneasiness about consumer spending during the holiday season, could drum up more negativity than usual around Apple’s stock and its potential for growth next year.
Oppenheimer said that Apple would remain "prudent" with its outlook because in the current economic environment, "visibility is low and forecasting is challenging."

Gross margin holding up very well; and iPhone sales off the hook. However, I actually do think they are lowering guidance this time around since they are SO far below analysts – they never go this far below the bar.