Apple misses estimates on weaker iPhone sales and falls 5% after market hours

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Following three days of losses on world stock markets, Apple’s disappointing results after the close last night has pressured futures yet again. As flagged previously, the expectation of a new version of the  iPhone later has held back sales in this quarter, and the device now accounts for around 2/3 of profits, but the company still increased earnings by 20% year over year.  Despite a robust overall growth picture, the shares were marked down by over 5% in after hours trading after the shares were effectively priced for perfection.

For the period ended June 30 (the company’s fiscal third quarter), Apple reported revenue 23% higher at $35 billion and net income of $8.8 billion, or $9.32 per share, compared with net income of $7.3 billion or $7.79 per share for the same period the previous year. Expectations were for earnings of $10.35-10.50 per share on revenue of $37-38 billion.

The company had revenues of $4.1 billion in its 372 retail stores in the quarter, with $11.1m average sales per store and 83 million visitors, up 12 per cent on a year ago.

The company now has $117.2 billion in cash or equivalents, a growth of $7 billion in the last quarter,  and will pay a quarterly dividend of $2.65 per share in August with a share buy back starting in September. Gross margin was 42.8% in the quarter.

For the quarter ending September 2012, Apple expects earnings of $7.65 per share on revenue of $34 billion. Analysts had been expecting earnings of $10.3 per share on revenue of $38 billion reflecting that the company expects to ship the new iPhone in the next financial year (October onwards). Apple’s gross margin, which grew year-on-year but fell sequentially, would be 4 percentage points lower at 38.5 per cent in the next quarter, due to the impact of a stronger US dollar and product transition.

iPhone sales were a quarter lower at 26 million units compared with the March quarter compared with expectations of 28 million units but sales have doubled in China in the last 12 months, though they were flat year on year in Europe . In contrast, sales of the iPad were very healthy with 17 million units shipped, compared with expectations of 15 million units, an 84% growth year on year. 84 million iPad’s have now been sold in total since its launch. Mac shipments were 4 million units, and the iPod 6.8 million units.

So in summary, Apple has been a victim of its rumour mill and despite the launch of a new range of Mac’s and strong growth in iPad sales, the importance of the iPhone on earnings is increasingly clear.  The next quarter will also have subdued results as investors await the big launches in October onwards.  Still with 20% earnings growth, compared with a p/e of 14.7, and its gigantic $117 billion cash pile, the company is far from expensive. iPhone 5 will come and by all accounts it will keep Apple as the leading edge in the smartphone business. At $560 or so, the shares needn’t be chased, but, in our opinion, this remains a robust long term growth story.

Contrarian Investor UK

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