2 Reasons Investors Were Disappointed With Apple Earnings

Last night's earnings release for Apple (NASDAQ: AAPL  ) was jam-packed with new information for investors to digest, both good and bad. Under the "good" column, we can file the generous new capital return program and solid results for the March quarter.

However, there are still a few items that investors are placing in the "bad" column, judging by the weakness that shares saw today. What were investors disappointed with?

Guidance
Apple's outlook for the June quarter came in below consensus. Revenue is expected in the range of $33.5 billion to $35.5 billion, while the Street is modeling for sales of $38.2 billion. On top of that, profitability is predicted to deteriorate further, with gross margin of 36% to 37%.

This will be the second quarter under Apple's new guidance methodology, and investors are now taking the company's outlook at face value following CFO Peter Oppenheimer's comments in January. Guidance for the June quarter was destined to be the single greatest challenge that investors were facing with the report. Even though Apple topped the high end of its own revenue forecast, one instance isn't enough of a sample size to formulate any patterns.

The main reason why gross margin should decline sequentially is that Apple will lose some operating leverage as revenue similarly falls sequentially. Apple's been investing very heavily in manufacturing gear and infrastructure recently, and that relatively higher proportion of fixed costs within the cost structure will put a dent in margins during a seasonally slow time.

A shift in product mix was also cited, which likely hints at continued strength with older iPhones and the iPad Mini, which carry lower prices.

"This fall"
In Tim Cook's prepared remarks, he teased that Apple's working on new offerings to introduce "this fall and throughout 2014." Many investors had been expecting new iPhone models as early as June or July, thanks to the constant Apple rumor mill. Cook's comments imply that investors and consumers may have to wait a little longer before new iPhones are released, which will give competitors even more time to chip away at Apple's market share.

Analysts picked up on the tidbit, and Cook simply declined to elaborate further.

Summertime, and the livin' isn't easy
These two notions are closely related, as later product launches would lend to muted June guidance. It'll be a slow summer for Apple, but the flip side of that is a busy winter.

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 reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.


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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 April 24, 2013, at 8:32 PM, PaulApp wrote:

    Name Innovated products Apple made after Steve Jobs died!

  • Report this Comment On April 24, 2013, at 8:44 PM, Oril wrote:

    It was not really a generous capital return project considering that management is prepared to take on enormous debt in the face of deteriorating profitability. This is just going to cause further pain for investors going foreword. Holding onto a stock that continues to decline 3% a week in order to collect a dividend of 3% a year makes no sense at all.

  • Report this Comment On April 24, 2013, at 9:07 PM, DanManners wrote:

    Well it all comes down to what the new products are. We pretty much know earnings and margins are going to suffer until then. We have been paid to wait. However, one interesting note that I read is on the buybacks so far on 1 billion of the 10 billion has been spent.

    That signals that Apple expects the stock to get cheaper. Otherwise they would have spent it already. Now with 59 billion to go, will they wait until 2015 on the last day of the year?

    This was a signal to me that they expect the stock to get very cheap after or near the next earnings call. Apple at $ 313? You can buy back alot more shares. Maybe they know the products in the pipeline are not so great. Maybe buy back shares at $ 250? or $200 like Bethany McClean's price target. At 200 we could buy back 30% of the company.

    Anyway you look at it, it looks real bad. I expect Apple to keep dropping. The news will get so bad that no buy back or dividend will stop the fall.

    See you downstairs.

  • Report this Comment On April 24, 2013, at 11:43 PM, lakawak wrote:

    1. Because they were terrible.

    2. And expected to get worse.

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