Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Ahead of Apple Earnings, Are There Guidance Clues?

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

In just a matter of days, all eyes will be on Apple (NASDAQ: AAPL  ) as it steps up to the earnings plate on Wednesday. Some analysts have characterized this as Apple's most important quarterly release of the past decade. That's because shares have experienced a gut-wrenching 30% pullback since September, as investors seem to have lost confidence in the iPhone maker, even though there are no signs of deterioration in its fundamental business.

One way to form expectations for Apple is based on exactly what it tells you: guidance.

The guidance game
Apple plays the guidance game, but historically it has done so in a way that's almost comically low. The company also doesn't update guidance, so it's a one-time glimpse each quarter into what Apple expects to put up for the following quarter. Here are the more pertinent details what CFO Peter Oppenheimer provided on the last conference call, and how they compare against last year.


Q4 2012 Guidance

Q4 2011 Actual


$52 billion

$46.3 billion

Gross margin



Operating expenses

$4.05 billion

$3.4 billion




Source: Earnings conference call. Calendar quarters shown.

Q4 2011 is currently the record holder for both revenue ($46.3 billion) and net income ($13.1 billion). Let's dig deeper into the outlook for the top and bottom lines and see what investors can expect.

Up high
It's a safe assumption that Apple will beat its own guidance and as such will post record revenues. The company has already said it expects 80% of sales to be driven by products launched near the end of the year, most notably including the iPhone 5 and iPad Mini.

Since the beginning of 2010, Apple has beaten its own revenue guidance by an average of 15.7%. That would imply that the company could post revenue of more than $60 billion, which is well above the current consensus estimate of closer to $55 billion. On top of that, the amount by which it normally beats has been declining more recently.

Source: SEC filings and earnings conference calls. Calendar quarters shown.

For the past two quarters, Apple "only" beat its guidance by single-digit percentages. That could indicate one of two things. Either it actually disappointed its own internal expectations since it normally beats by much more, or its guidance is becoming more realistic. If the company meets the Street forecast, it will top its outlook by just 6%, which is about the same as its revenue beat in the previous quarter.

The curveball is that in Q4 2011, Apple beat its guidance by a whopping 25% thanks to the busy holiday shopping season -- its biggest beat in three years. If Apple gets another holiday boost, it could post a revenue blowout.

Down low
There's been some investor concern over the idea that Apple will post negative earnings growth in the fourth quarter, because of gross margin contraction related to its newly redesigned products. Since 2010, Apple's average EPS beat relative to guidance has been 36.7%. This, too, has been declining lately, which carries the same two implications as noted above.

Source: SEC filings and earnings conference calls. Calendar quarters shown.

Since there are a lot of moving parts before you get to the bottom line, there's also a lot more potential for fluctuations, including for some things that are out of Apple's control, such as foreign currency exchange movements.

Apple hedges most of these fluctuations, but last quarter, foreign exchange hedging expense was higher than it expected. This type of activity is included in other income and expense, which Apple guided to $380 million. OI&E has been more volatile lately, in part because of macroeconomic factors.

Operating expenses are usually predictable and right in line with guidance, typically plus or minus a few percent, but there should be no surprises to speak of.

Blowout hints
There are already a number of hints that Apple will have a strong quarter. AT&T (NYSE: T  ) has said it sold a record number of iPhones during the quarter, which means it moved at least 7.6 million iPhones. Verizon (NYSE: VZ  ) also reported that its 9.8 million smartphone activations were driven in part by a "higher mix" of iPhones.

Apple also saw a monstrous sequential increase to $21.1 billion in manufacturing and component purchase commitments, implying it was preparing for a monster quarter. Investors could easily have a blowout on their hands.

There's no doubt that Apple is at the center of technology's largest revolution ever and that longtime shareholders have been handsomely rewarded, with more than 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and more importantly, your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

Read/Post Comments (1) | Recommend This Article (21)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 22, 2013, at 1:27 AM, aappllee wrote:

    Apple became the classic pump and dump hiding behind a smoke screen of tax selling , its a shame apple management didn't support their stock or werethey in on it. The hedges try that with exxonmobil and they would burn them to the ground. Sorry new investors . There are no ethics or Morales on wall street. Its just unmitigated greed.s.n.a.f.u.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2205361, ~/Articles/ArticleHandler.aspx, 9/26/2016 5:01:28 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 days ago Sponsored by:
DOW 18,261.45 -131.01 -0.71%
S&P 500 2,164.69 -12.49 -0.57%
NASD 5,305.75 -33.78 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/23/2016 4:00 PM
AAPL $112.71 Down -1.91 -1.67%
Apple CAPS Rating: ****
T $41.28 Up +0.17 +0.41%
AT and T CAPS Rating: ****
VZ $52.56 Up +0.21 +0.40%
Verizon Communicat… CAPS Rating: ****