AAPL: Will Apple Earnings Be Plump and Sweet?

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There aren’t many companies that revel in the big reveal the way Apple (AAPL) does.

Apple earnings aapl stockOn Thursday, AAPL held an event to unveil its new line of iPad Air tablets. The personal technology giant also announced updates to iPad Mini line as well as new models of its iMac computers. The thinner and lighter iPad Air 2 was the star of Tim Cook’s latest reveal, although the CEO did cover updates such as the iPad Mini 3, as well as the Touch ID feature and enhanced cameras.

While I always find Apple’s announcements interesting from both a consumer perspective as well as an investment perspective, Thursday’s presentation is far less important to me than Monday’s upcoming release of the company’s fiscal fourth-quarter earnings results.

Apple earnings nearly always serve as a bellwether for the tech sector. And given that Apple stock is perhaps the most widely held of any large-cap tech; any significant movement in AAPL stock will have a material effect on a whole lot of investor portfolios, as well as in a lot of mutual funds, exchange-traded funds, 401k accounts and the major market indices.

So, what should we expect to see from the Apple earnings report for Q4?

I think the company’s huge iPhone 6 and 6 Plus sales will give both its top and bottom lines a boost in the quarter. The trick, of course, will be whether those sales can hoist Apple earnings past Wall Street’s expectations — no doubt already lofty, considering we all knew these blockbuster products were coming out.

As of this moment, expectations are for AAPL’s Q4 top line to come in at $39.84 billion, or about a 6.2% year-over-year jump from the $37.5 billion revenue the company captured in the same quarter a year prior. As for the bottom line, expectations here are for earnings per share of $1.31, well above the $1.18 per split-adjusted share the company earned in Q4 2013. Gross margins are expected to come in between 37% and 38%.

Although new iPhone 6 and 6 Plus sales were extremely strong right out of the starting gate (the company sold some 10 million units the first weekend alone), there was a marked slowdown in sales of existing iPhones early in the quarter in anticipation of the new models. This is something I consider to be a minor concern, and easily offset by the iPhone 6 sales, as well as by the higher price of the new handsets. The iPhone 6 also is thought to have relatively lower production costs when compared to its price, and thus higher per-unit margins for AAPL.

Another potential bright spot for Apple earnings is Mac sales. Despite a PC market that continues to contract, Mac sales have been robust this year. During Q2, the company surprised us all by announcing an 18% year-over-year boost in Mac shipments. I think we could see an equally impressive showing in the Mac division, especially given the traditional back-to-school boost it gets in fiscal Q4.

The one area of concern for Apple earnings this time around is, ironically, the iPad.

Thursday’s big reveal on that front was no happenstance, as the company needed to juice up its tablet line to bolster a slowdown in this market segment. In Q3, iPad shipments fell about 9% year-over-year. That was the second consecutive quarter of iPad shipment declines — a reality that Cook and company have decided not to take lying down.

Bottom Line

The bottom line here is that if Apple earnings can best expectations on a combination of robust iPhone metrics, as well as good Mac numbers, we can forgive any expected shortfall in iPad performance — especially considering Thursday’s announcement to remedy the situation with the iPad refresh.

As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.

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