(Bloomberg) — Apple Inc. posted a 33 percent jump in profit last quarter, fueled by strong demand for the iPhone and sales growth in China. The company also boosted its capital- return program by $70 billion.
Net income in the quarter that ended in March was $13.6 billion, or $2.33 a share, and revenue rose 27 percent to $58 billion, the Cupertino, California-based company said Monday in a statement. IPhone sales in greater China outpaced those in the U.S. for the first time, helped by the Chinese New Year celebration, Apple said.
Booming demand for the larger-screened iPhone 6 and 6 Plus is putting Apple on pace for its highest annual profit since 2012 — a record — and the company also forecast sales in the current period that may exceed analysts’ estimates. That signals enduring demand for the iPhone and optimism for Apple Watch — the company’s first new gadget under Chief Executive Officer Tim Cook — which reached consumers last week.
“If it actually does come in with a strong March number that will make us say, ‘Hey, this does have more staying power, therefore I think there’s going to be less doubt, there’s more to proving that it’s working in China, proving that this has more sustainable momentum than other product cycles,” Alex Gauna, an analyst at JMP Securities LLC, said prior to the release.
Analysts on average had forecast second-quarter profit of $2.16 a share and sales of $56 billion, according to data compiled by Bloomberg. The company’s shares rose 1.5 percent in extended trading, after gaining 1.8 percent to $132.65 at the close in New York.
IPhone Growth
IPhone unit sales jumped 40 percent to 61.2 million. That topped analysts’ average prediction for 58.1 million, based on data compiled by Bloomberg. Total revenue from greater China surged 71 percent to $16.8 billion.
“The progress we’ve made in China has been remarkable and we continue to make incredible investments in China,” Chief Financial Officer Luca Maestri said in an interview. “The growth rate in China is significantly higher than most parts of the world.”
IPhone sales in the country probably won’t exceed those in the U.S. every quarter, because of seasonality, he said, “but over the long arc of time you could certainly draw that conclusion.”
Apple forecast the momentum will continue in the third quarter, with revenue projected to rise to $46 billion to $48 billion from $37.4 billion a year ago. Gross margins will be 38.5 percent to 39.5 percent, compared with 39.4 percent a year earlier. Analysts on average had predicted revenue would rise 26 percent in the current period to $47 billion, with gross margin at 39.5 percent.
Watch Demand
Renewed investor optimism for new products, including the Apple Watch, has helped boost shares to record levels this year. The company’s market value has surged to more than $772 billion, making it the world’s largest by that measure.
“The customer response for the Watch has been great,” Maestri said. “We are working very, very hard to catch up from a supply standpoint — keep in mind this is not only a new product but it’s an entirely new category.”
Apple is working to get its Watch supply and demand in balance by the end of the current quarter, he said.
Cash and marketable securities increased to $193.5 billion at the end of March, Apple said. That’s driving Apple’s increase to its capital return program, which now totals $200 billion. The plan unveiled Monday includes boosting its share-buyback authorization by $50 billion to $140 billion, and increasing the company’s dividend by 11 percent.
Higher Dividend
The company will pay a quarterly dividend of 52 cents a share on May 14 to shareholders of record at the close of business May 11. Apple returned more than $112 billion to investors from August 2012 to March 2015, the company said.
Apple has also raised the equivalent of more than $40 billion in debt in less than two years to help finance dividends and buybacks, letting it return more money to investors without incurring U.S. taxes on foreign profits.
While Apple has been praised by activist shareholder Carl Icahn for returning cash, he’s been pushing for more. Icahn has argued that Apple is undervalued and should be trading at $203 a share, which would give the company a market capitalization of more than $1 trillion. His optimism for Apple is driven in part by his expectations for the larger-screened iPhone and new products, including the Watch.
Another bright spot for Apple was Mac unit sales, which rose 10 percent to 4.56 million, as new products have breathed life into the PC line. Analysts had predicted 4.7 million Mac unit sales.
IPad sales dropped 23 percent to 12.6 million, marking the fifth straight quarter of year-over-year declines. Analysts had predicted a 17 percent drop.
Apple Adds Yet Another Title: Largest Dividend Payer in S&P 500
(Bloomberg) — The world’s biggest company just became the biggest source of dividends in the Standard & Poor’s 500 Index.
Apple Inc. raised its dividend by 10.6 percent to $2.08, putting it on the hook for about $12.1 billion in annual payments, according to data compiled by Bloomberg and S&P. That eclipses the $11.6 billion sent out in dividends each year by Exxon Mobil Corp., the previous title holder.
Three years after restoring its dividend, Apple has become a company known on Wall Street as much for bequeathing cash to investors as it is for its iconic devices. The dividend boost was announced as part of an expansion in its capital return program to $200 billion, including $140 billion in buybacks.
“It speaks to the success of the brand and their product that they’re generating so much cash,” Peter Jankovskis, who helps oversee $1.9 billion as co-chief investment officer of Lisle, Illinois-based OakBrook Investments LLC, said by phone. “They still have ample cash to continue growing the company and researching and releasing new products.”
On an annual basis, Apple’s dividend went up by $1.16 billion, good for the 20th largest increase in the history of the S&P 500, according to data compiled by Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. Viewed as a $9.9 billion boost in its payout, Apple’s restoration of its dividend in March 2012 was the biggest increase on record.
Buyback Data
Apple’s $50 billion increase in its buyback authorization boosted the total repurchases announced by American companies to a record $133.6 billion in April, data compiled by Birinyi Associates Inc. show. So far this year, buybacks have amounted to almost $400 billion, with February, March and April accounting for three out of the four busiest months ever. 
While Apple has been praised by activist shareholder Carl Icahn for returning cash, he’s been pushing for more. Icahn has argued that Apple is undervalued and should be trading at $203 a share, which would give the company a market capitalization of more than $1 trillion.
Apple jumped 1.8 percent to $132.65 during regular trading. After the company released results after the market close, the shares climbed 1.3 percent.
“At this point, it makes sense for them to be in the mode of listening to their shareholders and returning capital to them,” Jankovskis said. “It’s a positive development for shareholders and it reflects the maturation of the company.”
Apple IPhones Sales in China Outsell the U.S. for First Time
(Bloomberg) — Apple Inc. sold more iPhones in greater China than in the U.S. for the first time, buoyed by the New Year gift-giving holiday as the larger-screened smartphones found eager buyers in Asia.
While the Cupertino, California-based tech company doesn’t break out iPhone shipments by country, Chief Financial Officer Luca Maestri confirmed the sales in an interview Monday, after the company reported record profit during the first three months of the year. He didn’t give specific unit sales figures.
“The progress we’ve made in China has been remarkable and we continue to make incredible investments in China,” Maestri said. “The growth rate in China is significantly higher than most parts of the world. In the short-term, we don’t expect China to become bigger than the U.S. but over the long arc of time, you could certainly draw that conclusion.”
The success of the iPhone in China along with last week’s rollout of the Apple Watch underscore the importance of Chinese consumers for Chief Executive Officer Tim Cook’s efforts to keep up sales momentum. Revenue rose 27 percent to $58 billion in the fiscal second quarter, topping analysts’ average projection for $56 billion, according to estimates compiled by Bloomberg.
Cook said Apple is on track have about 40 stores in greater China by the middle of 2016, up from the current 21. He has also said China is poised to overtake the U.S. as Apple’s biggest market at some point.
“By everything I can see, we did extremely well,” Cook said of Apple’s sales in China during a conference call following the results.
“Our big question is what happens in China for the next few quarters?” said Ben Bajarin, an analyst at Creative Strategies LLC. “Are they on par with the U.S.? At some point in time, it feels like it is inevitable that every quarter iPhone in China will be bigger than the U.S.”
