Apple Inc (AAPL)

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$AAPL Apple Expected to Report Higher Prices Drove Record Quarterly Revenue

Source: Dow Jones News
By Tripp Mickle
Apple Inc. is scheduled to report results for its fiscal first quarter, which ended Dec. 30, after the market closes Thursday. Here's what you need to know.

EARNINGS FORECAST: Earnings of $3.86 a share is the consensus of analysts surveyed by Thomson Reuters, compared with $3.36 a share a year ago. The company hasn't provided earnings guidance for the quarter but in November said it expects gross margin to be between 38% and 38.5% in the quarter.

REVENUE FORECAST: Revenue of $87.06 billion is expected by analysts, compared with $78.4 billion reported a year earlier. In November, Apple said it expected revenue to be between $84 billion and $87 billion in the quarter.

Dollars & Cents: Apple raised prices last year in a move that has the potential to boost overall revenue even as the number of iPhones it sells stagnates. Analysts believe the strategy paid off in December. Apple is projected to report a 1.5% increase in iPhone shipments, according to analysts surveyed by FactSet, but the $1,000 iPhone X, released on Nov. 3, is expected to lift the average selling price of the device 9% to $755. Those higher prices are expected to lift iPhone revenue 10% to $60 billion in the period. Meanwhile, Apple kept more old iPhone models on the market in December, a move that market research firm Strategy Analytics predicts helped the company increase iPhone shipments 22% in China.

Taxman: Apple in mid-January announced it would pay $38 billion in taxes on the $252 billion it holds overseas, but it hasn't said how much of that money it will bring back to the U.S. or outlined what will be returned to shareholders through buybacks or dividends. The company typically announces capital return plans in April or May and may hold off discussing it until then. But expect analysts to ask for more clarity on Apple's plans now that it no longer needs to hold cash overseas to avoid paying higher U.S. taxes. Also, look for the company to update its new effective tax rate. Morgan Stanley expects Apple to benefit from a lower tax rate of approximately 15.9% due to tax reform, adding $1.13 to its current fiscal-year earnings per share

Promised Land: Analysts and investors will zero in on Apple's revenue projections for the March quarter. With the iPhone X contributing less than two months of sales during the last quarter, many analysts had banked on strong sales in the current period because of pent up demand. Some have scuttled those projections recently amid reports that iPhone manufacturing has slowed. Toni Sacconaghi of Bernstein reduced his projections for the current quarter to 53 million units from 66 million and warned the earnings call could trigger downward earnings estimates for the period. Analysts currently project revenue for the March quarter of $66.54 billion, according to FactSet.

The Great Divide: Apple doesn't break out its mix of iPhone sales by model, forcing analysts and investors to come up with their own estimates. One of the key indicators of demand is channel inventory. Apple tries to keep inventory in the five- to seven-week range. UBS analyst Steve Milunovich said that if the iPhone X is a disappointment relative to Apple's expectations, then the company's inventory levels could be higher. During its last earnings call for the quarter ended Sept. 30, the company indicated it expected healthy demand for the iPhone X by saying it increased inventory by 1.3 million smartphone units to support the iPhone 8 launch, 50% less than the 2.5 million it added during the release of the iPhone 7 in the same period a year earlier.

Trouble No More: The company's business in China is showing signs of improvement. Sales rose in the September quarter from a year earlier, marking the first quarterly gain in more than a year. Analysts expect this quarter to deliver another increase with sales projected to rise 9.2% to $17.73 billion, according to FactSet. The growth is expected to be driven by improved iPhone sales in that market and the continued strength of App Store sales.


(END) Dow Jones Newswires

February 01, 2018 06:14 ET (11:14 GMT)

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