What You Need to Know Before Apple Earnings (AAPL)


Though the buzz surrounding the launch (or non-launch) of the Apple Inc. (NASDAQ:AAPL) smartwatch has yet to fully subside, the company’s next big newsmaking event is already upon us. On Monday, we’ll get the Apple earnings report for its second fiscal quarter of 2015.

apple earningsGranted, AAPL didn’t do itself any favors headed into its earnings release. The company took online pre-orders for the ballyhooed watches beginning on April 10 and assured consumers they’d be available in stores on April 24. In the meantime though, the launch date has been pushed back. Whoops.

Of course, it’s not like the watch was going to impact the Apple earnings numbers for fiscal Q2.

On that note, what can owners of AAPL stock expect to hear from the company after the market closes on Monday? More specifically, what does Apple do for an encore the quarter after the iPhone 6 — the best-selling iPhone yet — hit the market?

The answer might surprise you.

Apple Earnings Outlook

As of the most recent numbers, Apple is expected to have earned $2.14 per share on $55.7 billion in revenue for the quarter that ended in March. Both numbers are better than the year-ago bottom line of $1.66 per share of AAPL stock and top line of $45.6 billion. Moreover, the company itself offered Q2 revenue guidance of between $52 billion and $55 billion when it unveiled its Q1 results.

And just for the record, betting on Apple to top estimates is a pretty good bet. The company hasn’t missed earnings estimates since its fourth fiscal quarter of 2012. Indeed, the company may be better positioned for a bigger beat than one would even normally expect from Apple … and shareholders have China to potentially thank for it.

For perspective, though the iPhone 6 debuted in the United States before the end of September (meaning fiscal Q1 was a full quarter of sales of the device) the launch in China didn’t materialize until mid-October. Point being, the first full quarter of sales in China bled into the first part of fiscal Q2. This could lead to a better-than-average post-launch quarter.

Some ancillary numbers underscore the idea that iPhone sales may be stronger than expected for last quarter thanks to demand in China. The most convincing of these is how the iOS app store’s sales in China actually grew at a faster pace than Google Inc’s (NASDAQ:GOOGL, NASDAQ:GOOG) Google Play store sales did for the same period, despite the fact that several new Android devices launched in that market around that time.

All told, despite strong sales of 74.5 million iPhones in Q1, some pros are saying Apple could have still shipped more than 50 million iPhones in fiscal Q2.

2 Things for AAPL Owners to Mull

While sales and profits are clearly an important piece of the upcoming Apple earnings report, numbers alone don’t tell the whole story… particularly about the future. There are two other factors investors may want to know about — or even ask about — before, during, or after the earnings call.

Capital return: The cash-laden company has been and still is looking for ways to give back some of that money to owners of AAPL stock, and the preferred method remains a combination of dividends and stock buybacks. More of the same is on the way too. Citi analyst Jim Suva expects the dividend to rise by 10% in the foreseeable future, and simultaneously expects the amount allocated for buybacks to grow from $90 billion to $120 billion.

Cable television: While the Apple TV device never even came as close to changing the way we watch television the way the iPhone changed the way we use and think about mobile phones, the advent of Apple’s cable television product could be the very thing that makes the company a mainstay in our living rooms; half of consumers want to proverbially cut the cord. This service has far more potential than the Apple smartwatch anyway. The questions are, when is it going to become a reality, what will it cost and who’s on board? Some are saying the service/product could be unveiled as early as June.

Bottom Line for AAPL Stock

For the fiscal year ending in September, analysts project a profit of $8.69 per share of AAPL on $226.6 billion in sales. Apple has already booked $3.1 worth of profit on $74.6 billion in revenue in Q1. If it earns the expected $2.14 per share and generates the expected $55.7 billion for fiscal Q2, that will leave a gap of only $3.49 and a sales gap of only $96.3 billion for the last half of the year to reach full-year targets.

Those are very achievable numbers, even with the inevitable slowdown in sales of the iPhone 6. Indeed, the projections may well underestimate the company.

Some analysts are projecting smartwatch unit sales in the 30 million to 40 million range for 2015. At an average price of $400 each, that alone would mean roughly $14 billion in revenue — none of which would cannibalize Apple’s other product lines. Meanwhile, iPhone sales will continue to trickle in, the cable television product could launch sooner than most seem to expect, and Apple is quietly nearing completion of its streaming music service.

With all of those initiatives on the table, the expected revenue growth of 5% for fiscal 2016 seems oddly low. The Apple earnings report and conference call on Monday may well paint a more bullish picture than we’re seeing now regarding the longer-term future.

Competitor Microsoft Corporation (NASDAQ:MSFT) reports last quarter’s earnings today, after the close, as does Google.

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

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