Brilliant! Peche questions popular Apple results prognosis.

By Sean Peche*

I’m so excited, Apple “beat the estimates”

Fantastic news, tell me about the results

Revenue declined 3%

Hang on, inflation is +5% so that’s -8% real

Yes, but in “constant currency” terms they grew by 2%

That’s nonsense – this is a global business and currencies aren’t constant

Imagine a bank reporting “constant interest rates” or an oil company reporting “constant oil prices”

But they “beat the estimates”

Haven’t you realised by now, that these companies guide analysts with their estimates PRECISELY so they can beat them?

Earnings per share was $1.52

And did that grow?

No, but they … STOP

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And any movement in weighted average shares?

Yes, they fell 3.4% y/y

So fewer shares in issue but EPS didn’t grow…

sounds like operating income declined

Yes, by 6%

And free cash flow?

Fell 20%

Share-based comp?

Up 7%

Well, at least something else went up…

other than inventory (+37%) and accounts receivable (+14%)

What about higher interest income on all their cash?

They have $107bn of debt so net cash is not as high as you might think $57bn

But that’s only 2.2% of their $2.6trn market cap, hardly the downside protection of the old days when net cash was half their market cap

Well, they spent $39bn buying back shares plus another $2.7bn paying taxes for their share awards …

So, 75% of free cash flow buying back shares

And the number of shares at year-end fell by how much?

-1.38%

What’s the historic PE ratio?

28 although they did increase their dividend by 4%

It’s the yield that’s important, not the increase off a low base

I see – that’s only 0.55%

So let me get this straight, you’re excited about paying 28 times earnings for a $2.6trn company with declining revenue, zero EPS growth, and hardly any cash where your only hope of a positive return, is 0.55% unless you can find a “greater fool” willing to pay more than 28times earnings for your shares

Well, they did mention “artificial intelligence” on the call so that’s exciting

Maybe the only thing “artificial”, is thinking that owning Apple is “intelligent”

• Sean Peche is the founder and chief investment officer of the Ranmore Fund

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Apple iPhone sales bounce back, helping top estimates

By Mark Gurman

Sales of Apple Inc.’s iPhone rebounded last quarter, helping the world’s most valuable company top earnings estimates and weather an industrywide downturn that has battered much of its product lineup.

Overall revenue amounted to $94.8 billion in the fiscal second quarter, Apple said Thursday, exceeding the $92.6 billion analysts predicted. Though the sales fell 2.5% in the period, the company had warned investors to expect a drop of roughly twice that.

The results suggest that Apple is beginning to recover from a slump that’s plagued both the computer and smartphone industries. It’s a particular relief for investors after Qualcomm Inc., a key supplier, raised fresh concerns about phone demand earlier this week. Apple’s sales in China — a weak spot for other tech companies — also came in a bit better than expected. 

As expected, Apple announced plans for $90bn in stock repurchases — the same as last year’s plan. The company also raised its quarterly dividend 4% to 24 cents a share.

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The shares gained 2% in late trading after the report was released. They had closed at $165.79, up 28% for the year.

Though the performance was better than expected, it marked two straight quarters of sales declines — a first for Apple since the pandemic began. Earnings, meanwhile, were unchanged from a year earlier, at $1.52 a share. That compared with an average estimate of $1.43 a share.

On a conference call with analysts, Apple said that revenue in the current period would drop by a similar amount as in the past quarter, which ended April 1. That suggests a dip of about 3%. The company also said it would continue to see a negative impact from foreign exchange rates.

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Apple generated $51.3 billion in sales from the iPhone — its flagship product — in the second quarter, topping analyst predictions of $49 billion. That’s just a 1.5% rise from a year ago but marked a record performance for a March quarter, Chief Executive Officer Tim Cook said. The increase came “despite the challenging macroeconomic environment,” he said in the statement.

Like many tech CEOs delivering earnings reports, Cook also discussed artificial intelligence. He said it had enormous potential and that Apple would continue weaving it into products in a “very thoughtful” way.

From a supply perspective, the second quarter was an opportunity for the iPhone 14 to rebound. The device had suffered from constraints during the previous period due to Covid policies in China.

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The iPad saw revenue fall 13% to $6.67 billion, roughly in line with estimates of $6.7 billion. New models, which included a revamped entry-level version and Pro models with M2 chips, didn’t do much to spur purchases in the quarter. 

Likewise, revenue in the Mac division dropped 31% to $7.17 billion. That trailed forecasts of $7.7 billion. Research firms already warned that it was a bleak quarter for the lineup, with IDC estimating that Mac shipments fell about 40% in the quarter. Apple had updated the MacBook Pro and Mac mini, adding faster processors, but they failed to reignite the unit’s sales.

The home, wearables and accessories division, which includes AirPods, the Apple Watch and the TV set-top box — fell less than 1% to $8.76 billion. That beat estimates of $8.5 billion. The company added a faster processor to the Apple TV during the holiday quarter and updated its HomePod speaker during the March quarter. 

The services business, which includes iCloud, Apple Music, the App Store and the TV+ streaming service, brought in $20.91 billion, missing estimates of $21.1 billion. Still, it was a 5.5% gain from a year earlier. Last quarter, Apple promised that services revenue — alongside the iPhone — would accelerate.

The company did particularly well in emerging markets, Cook said, pointing to record quarterly sales in Mexico, Indonesia, the Philippines, Saudi Arabia, Turkey and the United Arab Emirates. And the company’s overall sales would have been up if you held currencies constant, he said.

For Apple and other US companies with a global footprint, a strong dollar has decreased the value of revenue generated in other parts of the world.

“Despite these challenges, we continue to manage for the long term,” Cook said.

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