Apple Earnings Disappoint; Markets Mixed This Morning

The most significant story line this morning will be market reaction to a disappointing earnings report from Apple (Nasdaq: AAPL  ) . Shares reacted immediately in aftermarket trading, down about 5%, where they remained in premarket trade this morning. It can be difficult to discern the reason behind the lower-than-expected top and bottom lines for Apple. The company, which is largely driven by its two blockbuster products, the iPhone and iPad, is affected by somewhat unpredictable consumer behavior ahead of the introduction of new products like the iPhone 5, as well as the growing importance of markets like China. Apple CEO Tim Cook alluded to seasonal impacts in China that weighed on iPhone results while declining to blame the global economy for the poor results and lowered third-quarter outlook.

The results are affecting the major indexes this morning -- particularly Nasdaq Composite, given that Apple accounts for 12.7% of the index's movement. Here's a snapshot of where futures markets stood as of this writing.

Futures Index

Gain/(Loss)

Gain/(Loss) %

Value

Dow Jones Industrial Average (INDEX: ^DJI  )  50 0.40% 12,574
Nasdaq (12)  (0.47%) 2,536
S&P 500 (INDEX: ^GSPC  ) 4 0.32% 1,333

Source: Yahoo! Finance.

Aside from Apple, notable S&P 500 earnings reports will come today from Ford, Corning, PepsiCo, and Whole Foods, among others. Dow components Caterpillar (NYSE: CAT  ) and Boeing (NYSE: BA  ) are also reporting results. Expectations for Boeing call for earnings per share of $1.13, down from $1.25 one year ago. For Caterpillar, earnings estimates stand at $2.28, a huge increase from last year's $1.52 because of acquisitions. Revenue growth for the mining and construction equipment giant is expected to rise 20% to $17.1 billion. Key for Caterpillar will be the effect of slowing growth in crucial emerging markets like China and Brazil, as well as the negative impact from Europe's recession and anemic economic growth in the U.S.

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Brenton Flynn owns no shares of the companies mentioned. The Motley Fool owns shares of Whole Foods Market, Corning, PepsiCo, Ford Motor, and Apple. Motley Fool newsletter services have recommended buying shares of PepsiCo, Whole Foods Market, Ford Motor, Apple, and Corning. Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Motley Fool newsletter services have recommended creating a diagonal call position in PepsiCo. The Motley Fool has a disclosure policy.

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  • Report this Comment On August 09, 2012, at 7:01 PM, MHedgeFundTrader wrote:

    Steve Jobs’ creation dropped a real bombshell on the market Tuesday when it announced Q2, 2012 earnings that were rotten to the core. The timing could not have been worse for a market that was on the verge of complete nervous breakdown. Of the 53 brokers who provided research coverage of the Mountain View, California firm, 27 rated it a “buy”, 21 “outperform”, and precisely zero “underperform”. And you wonder why retail has bailed on Wall Street.

    The numbers made grim reading. Sales, which had been targeted at $37 billion came in at only $35 billion. Profits amount to $8.82 billion, taking earnings per share to $9.32, well down from the $10.37 expected. Estimates for iPhone sales had run as high as the low 30 millions. The actual figure was 26 million. In overnight trading, the shares opened down a gob smacking $40, instantly vaporizing $37 billion in market capitalization.

    Apple is suffering from the mother of all delayed consumption headaches. Consumers love their products so much they have gone on strike until the vastly upgraded and better performing iPhone 5 is launched in the fall, yours truly included. So the dip in profits will reappear as a spike in profits in the next one or two quarters. This means that if you missed the 50% run up since the beginning of the year, you may have a chance to take another bite at, well, the apple.

    Apple is not just an IPhone story. The mini iPad is expected out soon. Apple TV is expected to be huge next year. Apple has only just scratched China’s market of 600 million cell phone users. Its six stores are regularly the scene of long lines, and occasional riots by consumers desperate to buy their products. Droves are crossing the border by train from Shensen to Hong Kong, where Apple products are more easily available.

    In the spring I lead readers into the August $400-$450 call spread which became one of our most profitable trades of the year. I took them out a month ago because we had already squeezed out most of the profit, and because I thought that exactly this kind of disappointment might occur.

    The intelligent thing to do here is to wait for the current shock to work its way through the system. You also want the present melt down in the broader market to exhaust itself. That could take us well into August. The best-case scenario here is that you get back in when the stock falls all the way down to its June low at $525. If it then drops below $500, double up. This would be a once in a lifetime gift.

    Mad Hedge Fund Trader

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