Earnings Scorecard: Apple FY2018 Q1
- Apple reported a very good earnings report to start the new fiscal year.
- The premium iPhone helped maintain margins and the services business reported strong revenue growth.
- The company reported a mixed 2018 outlook below expectations and management gave some information on its cash repatriation plan.
The technology giant, Apple reported a strong quarter to start off its fiscal 2018. The sales number this quarter included the company’s first premium smartphone on the market. It seems like the iPhone X did modestly well but the 2018 iPhone sales outlook was a bit of a letdown for Wall Street analysts. Apple reported earnings of $3.89/share versus expectations of $3.85/share. Revenue was also very strong coming in at $88.3 billion versus expectations of $87.6 billion. Over the past six months, Apple’s stock has gone up close to 18%.
Looking at the revenue segments, the iPhone is still the main revenue generator for the company with $61.5 billion and selling 77.3 million units. The units sold declined by 1% from the previous year. However, the revenue was up 13% because of the premium iPhone X which maintains the company’s margins. The average selling price for the iPhone was $796 versus expectations of $755. The other main product segments (iPad & Macs) reported the following unit sales and revenue growth numbers:
- iPad- 13.1million units sold (+1% unit sales growth, +6% revenue growth).
- Mac- 5.1 million units sold (-5% unit sales growth and revenue growth)
Apple’s services business reported 18% revenue growth and is becoming the company’s hidden gem. The services revenue segment generated $8.47 billion and the Other Products (Apple TV, Apple Watch, Beats products, iPods) generated $5.5 billion (36% revenue growth). The Apple Watch seems to be gaining traction now with consumers. According to industry research from IDC and Canalys, Apple’s 6 million shipments in 2016Q4 was 50% of all smartwatch sales. Apple’s services business is likely to grow with its 1.3 billion ios userbase which was also reported by the CFO, Luca Maestri.
Apple’s margins seem to be still fine and above the 35–36% threshold as the company reported margins of 37.5% down from 38.4% a year ago. The high averaging selling price for iPhones will be able to maintain the 37% margin for the year. Apple’s cash pile is now $285.1 billion before debt payments and $163 billion after debt payments. Apple is a big beneficiary of the new tax reform and will be able to repatriate its overseas cash at a lower tax rate. The CFO, Luca Maestri hinted at share buybacks, dividends, and M&A as some of the uses of the cash. The company still plans to heavily invest in its future growth and also improve its supply chain and manufacturing with its $350 billion investment pledge until 2023. Apple plans to invest in advanced manufacturing and anticipates paying $38 billion to the U.S. to repatriate its overseas cash hoard.
Although the outlook was a bit below expectations it was still a good quarter for Apple and the company still remains an undervalued stock. The company is growing its services business well and selling m approximately 95.5 million units a quarter which is pretty impressive. The company is also producing a lot of free cash flow which will be passed onto shareholders through dividend growth and share buybacks.
Grade: B+
Estimates: Earnings-$3.85/share ; Revenue- $86.24 billion (Ranking of 232/773 on Estimize)
Disclosure: Cresco Investments is long Apple Inc. (Stock Ticker: AAPL).
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article is intended for information, engagement & entertainment purposes only, and is not to be construed as investment advice or direction. Investors are strongly encouraged to perform due diligence and/or consult with their financial advisor.
