Solid quarter for Apple helped by emerging markets

Apple issued its latest earnings report after the Wall Street close last night with strong sales in China helping offset weakness in other markets. The shares were little changed in after hours trading with revenues a little light and earnings per share beating expectations.

The company reported profit fiscal third quarter earnings of $7.75 billion, up 12.3% from $6.9 billion in the same period in 2013. Taking into account the early June 7 for 1 split in the shares, earnings per share came in at $1.28, up from $1.07 in the year before period. Sales increased 6% to $37.43 billion from $35.32 billion in the same period a year earlier, helped by Chinese revenues which grew by 28%. Gross profit margins grew to 39.4%. Apple predicts sales of $37-40 billion in the quarter ending in September.

Analysts had expected earnings per share of $1.23 a share for the quarter and revenues of $38 billion.

Apple sold 35.2 million iPhones during the third quarter, up 13% year on year (31.2 million) but below expectations, of 35.9 million units whilst iPad sales fell 9% to 13.3 million. iPhone sales in China increased 48% year on year, driven by a supply deal with China Mobile and sales in the BRIC countries grew by 55%.

Consumers in Europe, the US and Japan have held off buying iPhones with all the rumours of a new iPhone 6 in September with the media suggesting it has a much larger screen than iPhone 5. This has helped subdue sales in this fiscal quarter. If the new iPhone does launch in the Autumn as expected, the companies sales in the period October-December will be interesting. For now the share buy backs and dividends have helped lift sentiment in the shares. In the last quarter the company returned $8.3 billion to shareholders and bought 59 million shares. The fact that the proportion of revenues being spent on R&D has risen is giving credence to the rumours of some exciting new launches including a watch and TV. Apple’s R&D spending of $1.6 billion in the three months to June represented 4 per cent of sales – the highest ratio since 2006.

At $95 the company has a $566 billion market cap and the shares have risen over around 20% this year helped by the new investor friendly policies of CEO Tim Cook including buy backs and the stock split.

This quarter’s earnings are pretty dull but solid, the tail end of 2014 will hopefully be the game changer for the company and surely put the shares over $100. Tim Cook said he was “incredibly excited” about new operating systems for iPhones and computers as well as “new products and services that we can’t wait to introduce”. Just how exciting…..lets see!

Contrarian Investor UK

IMPORTANT: The posts I make are in no way meant as investment suggestions or recommendations to any visitors to the site. They are simply my views, personal reflections and analysis on the markets. Anyone who wishes to spread bet or buy stocks should rely on their own due diligence and common sense before placing any spread trade.