Apple’s 10-Year Earnings Winning Streak Officially Over
There’s an old saying in baseball: Don’t change anything when you’re on a winning streak--not your socks, cap, batting stance and certainly nothing about your daily routine.
For the last decade, Apple (NASDAQ: AAPL), whether intentionally or not, has followed that maxim, delivering one mind-bending technology wowser after another along with metronome quarterly earnings increases, one after another. It’s a remarkable streak, worthy of comparisons to Joe DiMaggio’s 56-game hitting streak 72 years ago.
There’s an old saying in baseball: Don’t change anything when you’re on a winning streak—not your socks, cap, batting stance and certainly nothing about your daily routine.
For the last decade, Apple (NASDAQ: AAPL), whether intentional or not, has followed that maxim, delivering one mind-bending technology wowser after another along with metronome quarterly earnings increases, one after another. It’s a remarkable streak, worthy of comparisons to Joe DiMaggio’s 56-game hitting streak 72 years ago.
That is until April 23, when, for the first time in a decade, Apple recorded an earnings loss, a second-quarter 18 percent downturn in net income to $9.55 billion, or $10.09 per share, from the $11.62 billion in revenue or $12.30 a share, it posted during the same period last year. Revenue, however, increased 11 percent to $43.6 billion from the $39.2 billion the vendor rang up last year, beating analysts’ expectations.
The quarterly loss had been expected—the consensus forecast for the quarter was $10 per share in earnings on $42.3 billion in sales.
Now that the winning streak is over, what will Apple change to get off the shneid? New products and new markets are in the wings, suggested Tim Cook, Apple’s chief executive.
“Our teams are hard at work on some amazing new hardware, software, and services and we are very excited about the products in our pipeline,” he said.
As for Apple's Q2 performance, four sets of numbers pop out:
- iPad sales spiked 64 percent to 19.5 million units from 11.9 million a year earlier, obviously the byproduct of the iPad Mini and a new iteration of the iPad. Is the iPad Apple's new bellwether?
- Sales of Apple’s iPhone, even aided by the iPhone 5 introduction, rose only 6.5 percent to 37.4 million units from the prior year’s 35.1 million devices sold. Is there weakness now in that brand?
- Gross margin for the quarter contracted—by a lot—to 37.5 percent from the year earlier’s 47.4 percent. How will this margin shrinkage affect investor confidence?
- A slight 2 percent Mac unit sales slide to just under 4 million units for the quarter, not nearly as precipitous a drop in PCs shipped as the industry at large and other vendors in particular have suffered. How will Apple interpret those numbers for future Mac plans?
We all know Apple’s stock has been bludgeoned by investors in the past six months, dropping more than 40 percent from a peak of more than $700 to its current level hovering just above $400, in the process raising persistent questions about the company’s ability to grow.
Perhaps to renew investors’ faith in its stock, Apple has initiated an uber-aggressive plan to deliver cash to shareholders, repurchasing some $60 billion of its shares, an eye-popping jump from the $10 billion to which it previously had committed, prompting Peter Oppenheimer, Apple’s chief financial officer, to call it the largest repurchase plan in history.
Indeed, according to the Los Angeles Times, only two other IT industry stock buybacks are in shouting distance of Apple’s—both by Microsoft, one in 2008 for $40 billion and another two years earlier for $36 billion.
Apple also bumped its quarterly dividend by 15 percent and declared a $3.05 per share of common stock dividend it will pay out to shareholders of record as of May 13. Apple said it will borrow cash to fund the share repurchase plan, preferring not to dip into its colossal $145 billion stash on hand. The overall program will cost the company about $100 billion by the end of 2015, officials said.
"We are very fortunate to be in a position to more than double the size of the capital return program we announced last year," Cook said. "We believe so strongly that repurchasing our shares represents an attractive use of our capital that we have dedicated the vast majority of the increase in our capital return program to share repurchases."
As for Q3, Apple said it expects revenue between $33.5 billion and $35.5 billion and gross margin between 36 percent and 37 percent with operating expenses of $3.85 billion to $3.95 billion.