After Thursday’s bell, we received third-quarter fiscal results from tech giant Apple (AAPL) for its final period in June. Over the past few months, there has been a lot of uncertainty surrounding the name, as the coronavirus pandemic prompted management to retain any formal guidance. While stocks had come together tremendously in this report, an explosive report combined with a stock split announcement sent the stock to a new high in trading after hours.
Too much for all those concerns about Apple’s declining revenue over the prior year period. As the table below shows, the five key revenue segments showed growth in their respective results for the third quarter of 2019. Management was actually calling for a decent decrease in iPhone revenue, making the 1.7 increase % was actually a pleasant surprise. All the other segments showed double-digit increases, led by the iPad with growth of more than 31% and Mac approaching 22%. Perhaps the only disappointment here was the service segment, which only came in or was slightly below most analyst estimates. The dollar values below are in millions, except per share amounts.
(Source: Previously linked third quarter earnings report and Apple IR site, seen here)
Service margins showed an impressive increase of 309 basis points, while product margins continued their downward trend. An explosion of more than $ 7 billion on the top line would obviously seep into the income statement. The lower tax rate combined with the buyback certainly helped the EPS figure hit more than 50 cents ahead of the street. Even with a number of analyst estimates increasing in recent weeks, this report was one of the best we’ve seen from the company.
As was largely expected, the Apple administration did not provide any guidance for the fiscal period of September’s fourth fiscal quarter. However, there was confirmation that the iPhone launch will be delayed a bit, meaning that there will be no new phones available until early or mid-October. I’m sure analysts will be quick to raise estimates considerably after this big hit in the third quarter, but we could see a loss of revenue / earnings next time if expectations rise too high.
As we looked at the shares themselves, management decreased the buyback a bit, only repurchasing shares worth around $ 16 billion. I mentioned that possibility in my preliminary article, that high concentration could cause some conservatism. The surprise here was that a four-for-one stock split was announced, which will again send the actual number of shares outstanding much higher, but Apple’s shares will then drop to about $ 100 or so based on current prices. Interestingly, that will cause Apple’s weight in the Dow Jones Industrial Average (“Dow 30”) to drop, as that index is based on stock price.
Apple shares topped $ 400 in the after-hours session, setting a new all-time high in the process, and as a result there will be plenty of analysts who don’t look good. The stock entered this earnings report above the average street price target, with many analysts having targets between $ 300 and $ 300. We will certainly see many targets increased after this report, and the stock split It will probably lead to more purchases. While we’ll have to wait a bit longer than usual for the next set of iPhone releases, Apple goes to bed this week out of fear that the coronavirus is really hurting business.
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