Apple Q2 earnings expected to fall 'in line,' analysts cautious about June quarter

AppleInsider · April 30, 2018 4:05PM

As they do every year at this time, analysts are looking past the concluded quarter and are expressing concern about how Apple may perform later this year mostly due to guesses at iPhone demand. Here's what to expect from Tuesday's earnings release.

Concerns from the supply chain about demand in the next iPhone cycle hit Apple's stock price hard in April. However, analyst consensus predicts that the company will post a March quarter in line with Apple's guidance when it announces quarterly earnings after market close on Tuesday.

Apple's guidance, issued when it announced its last quarterly earnings Feb. 1, showed revenue between $60 billion and $62 billion for the second quarter of the year. Analysts mostly predict a number in that range, but are already shifting the gaze forward to Apple's next quarter.

The analyst view

Analyst Katy Huberty from Morgan Stanley, whose analyst note on April 20 sent Apple's stock tumbling, nevertheless predicted that "we expect Apple to report an in-line March quarter." Huberty predicted that Apple will have sold 52.3 million iPhones in the March quarter, compared to a previous estimate by Morgan Stanley of 53.3 million. Apple sold 50.8 million iPhones in Q2 of 2017.

Analysts surveyed by Bloomberg agreed, with a consensus that Apple would show revenue of $61 billion for the second quarter. Apple posted revenue of $52.9 billion in the second quarter in 2017.

Other numbers from the second fiscal quarter of 2017 included 4.2 million Macs sold and $7.042 billion in revenue from the software/services category, which includes the App Store, Apple Music, Apple Pay, iTunes and AppleCare.

Looking to the future

Huberty predicted a much bigger cut to June quarter estimates of iPhone sales, predicting 34 million sold compared to her previous estimate of 40.5 million based on soft demand and reports from the supply chain. This has been a continuing theme in analyst predictions of the upcoming iPhone cycle throughout the spring.

Eyes Tuesday will be on what guidance number Apple announces for its third quarter.

Other factors

The second quarter is also the first full quarter since the enactment of the 2017 tax reform, raising questions as to whether it will affect Apple's earnings. The Wall Street Journal predicted a "capital return bonanza," which may return some of the $269 billion the company has stashed overseas, and perhaps offset some of the trouble caused by the alleged softening iPhone demand.

Meanwhile, some are asking whether Apple's earnings even matter after all. At Seeking Alpha, Bill Maurer notes that, because of the capital return plan, "this is the one quarterly report a year where the pressure on Apple to report solid business results is the least."

Apple's new sixth generation iPad was released too late to have any impact on the second fiscal quarter.

Once again, Apple finds itself in the unique position in which there are questions about its business model and overall health, despite its status as the most valuable company in the history of the world.

Apple will give the results of its latest quarter, and provide guidance for the quarter ending in June, after markets close on Tuesday. A conference call with analysts and members of the media will follow at 2 p.m. Pacific, 5 p.m. Eastern, and AppleInsider will have full coverage.

AppleZulu · April 30, 2018 4:37PM

Overwrought quarterly feedback does terrible things for business, undermining good long-term strategies and rewarding stupidity that generates good quarterly numbers at the expense of long-term viability. Companies like Apple that actually do look long-term are forced to do this ridiculous dance every three months to entertain the Jim Cramers of the world, while trying to compartmentalize all that in order to pay attention to what's actually important.

luxetlibertas · April 30, 2018 5:20PM

Quarterly reports invite short term thinking. It may be a good idea to publish only HY and FY reports, and report only minimal information at Q1 and Q3. This would send the right signal about the way Apple is running the business. It would save a lot of useless work at Apple HQ.

gmgravytrain · April 30, 2018 5:52PM

Every damn quarter brings more doom and gloom for Apple. Won't Tim Cook ever figure some way out of this annoyance? Apple has so much cash to be able to do something about this nonsense. I'm not saying Apple has to join in a quarter to quarter race but do something at least to offset the constant chatter of iPhone sales losses. What's worse is that Wall Street is saying that $269B of overseas cash is already baked into the share price. How is that even possible, not knowing what Apple intends to do with it. Apple always seems to have such poor quarterly predictions while so many other companies get a free pass. This quarter's doom and gloom as been going on for a few weeks on an almost a daily basis.

I'm sure this crap doesn't harm Apple's value in any significant way, especially if shares are being bought back at a lower price, but it's just stupid to always be singling out Apple when there are plenty of other stocks that can be crapped on for various reasons. I'm counting on Apple raising dividends and Apple will certainly be able to carry that out.

gregg thurman · April 30, 2018 5:57PM

luxetlibertas said:

Quarterly reports invite short term thinking. It may be a good idea to publish only HY and FY reports, and report only minimal information at Q1 and Q3. This would send the right signal about the way Apple is running the business. It would save a lot of useless work at Apple HQ.

Or you could do what DELL did: take it private, then you wouldn’t have to report at all. With interest rates where they are, combined with Apple’s FCF (Free Cash Flow) an LBO (Leveraged Buy Out) wouldn’t be out of the question, even at $250/share.

minisu1980 · April 30, 2018 5:59PM

Let me get the analyst narrative straight:

1) Sky is falling because iPhone X is not selling well, because it is a law of physics people will not spend more than $999 on a smartphone despite of the fact people regularly spend far more than this on things that are far more frivolous (wine, collectable cards, clothes, etc) The same thing was said about the original iPhone's price point.
2) Questionable supply chain rumors pass through a human centipede of analysts, each ingesting the output of the one before him, adding their own special flavor for the next one to devour. (These rumors are routinely wrong, Cook directly stated it is fools endeavor to try and draw conclusions from the supply chain, Cook stated iPhone X out sold other iPhone models last quarter ... with factual reported profits to suggest this was the case)
3) 2 days before the end of quarter results, their tune changes to "oh wait, we think Apple will meet their guidance". (It is known the majority of iPhone sales occur on the last day of the quarter /s)
4) Wait, wait we weren't wrong maybe just a bit off on the timing of our predictions ... yeah next quarter lets look for failure next quarter.

It amazing these people still have jobs. I find it funny they layout their doomed predictions, then lower their price target from $205 down to $203. If they actually believed any of their own "data" you would think they would put the target maybe below what it's currently trading, instead of still being $40 higher. I'm still confident reality, over a long enough time, will bring the price back inline hopefully before my calls expire in 2020.

gregg thurman · April 30, 2018 6:00PM

Adding to the above, taking Apple private would have the added benefit of reducing its legal radar cross section

nunzy · April 30, 2018 6:23PM

News flash: Apple announces record quarter, stock drops.

Wall Street just doesn't understand Apple. They never have.

retrogusto · April 30, 2018 6:58PM

As a shareholder not planning to sell in the coming weeks, I don’t mind if the share price is unreasonably low right now for whatever silly reason, because Apple is almost definitely going to be doing some buybacks with some of the overseas cash, and a lower price just means they will be able to retire more shares and I’ll end up owning a larger percentage of the company than I would otherwise.

Apple has always been undervalued in the ~15 years that I have been buying and never selling their shares, which in the long run has been good, because I probably would have sold if it had ever seemed overpriced, and I’d be kicking myself now.

luxetlibertas · April 30, 2018 7:31PM

gregg thurman said:

Or you could do what DELL did: take it private, then you wouldn’t have to report at all. With interest rates where they are, combined with Apple’s FCF (Free Cash Flow) an LBO (Leveraged Buy Out) wouldn’t be out of the question, even at $250/share.

Apple is not like a utility, it depends on people and innovation. A leveraged buyout is about debt servicing not about changing the world. People would leave. Apple would crumble. If Apple had grown as a family business, it could be Apple and still be privately held. But not by way of financial engineering.

rogifan_new · April 30, 2018 7:54PM

Last quarter analysts were nervous about the March quarter. Now they’re nervous about June, 2 months from now they’ll be nervous about September, and 2 months after than the jitters will be about December. I’ve never known another publicly traded company that generated so much noise every quarter come earnings time. It’s ridiculous.

rogifan_new · April 30, 2018 7:56PM

gregg thurman said:

Adding to the above, taking Apple private would have the added benefit of reducing its legal radar cross section

And I’ve heard that Dell is thinking of going public again.

carnegie · April 30, 2018 8:39PM

gregg thurman said:

luxetlibertas said:

Quarterly reports invite short term thinking. It may be a good idea to publish only HY and FY reports, and report only minimal information at Q1 and Q3. This would send the right signal about the way Apple is running the business. It would save a lot of useless work at Apple HQ.

Or you could do what DELL did: take it private, then you wouldn’t have to report at all. With interest rates where they are, combined with Apple’s FCF (Free Cash Flow) an LBO (Leveraged Buy Out) wouldn’t be out of the question, even at $250/share.

gregg thurman said:

Adding to the above, taking Apple private would have the added benefit of reducing its legal radar cross section

Who, or what combination of whos, do you imagine would want (and be able) to take Apple private at a cost of more than $1.2 trillion?

I understand what a leveraged buyout is. But who would be the buyer(s)?

Kuyangkoh · April 30, 2018 11:38PM

What?? Analysts said Q2 drops before and now they changes thier tone...now they are saying Q3 drops again....and these clowns are still employed??
hmmm, i want thier job

78Bandit · May 1, 2018 2:15PM

Q2 will be in-line with the already reduced expectations based on Apple's estimates that were lower than the consensus at the time.

Q3 will be interesting. Q3 iPhone unit sales for the past three years have been 47.5M, 40.4M, and 41.0M. Q1/18 unit sales were approximately 3% higher than Q1/15 and Q1/16. Q1/17 wasn't comparable since it was a 14-week quarter. I would expect anything under 43M-45M of estimated unit sales to be very disappointing. Of course Apple won't give unit estimates, but you can get a relatively good idea from the revenue estimates.

Q3 revenue for the past three years has been $49.6B, $42.4B, and 45.4B. For Apple to maintain it's current revenue growth rate that was largely based on increased iPhone ASP and services they need to have Q3 estimated revenue in the $53B range.

Apple Q2 earnings expected to fall 'in line,' analysts cautious about June quarter

The analyst view

Looking to the future

Other factors

Comments