Why Apple Earnings Will Be Only Part of the Story

Apple (AAPL -2.19%) will release its quarterly report on Monday, and investors have finally started getting excited about the tech giant again after seeing its shares plunge during the first half of the year. But with challenges from activist investors to boost shareholder value, ongoing competition from Google and Amazon.com, and a wide swath of new product launches coming in the next several months, Apple will have plenty to discuss besides its earnings numbers when CEO Tim Cook talks to investors Monday afternoon.

After a long hiatus during which shareholders grew fearful about Apple's continued ability to have new-product success, the launch of the iPhone 5s and 5c has reawakened hopes for solid Apple earnings results this quarter. Opening-weekend sales of the two new iPhone models reached 9 million, almost doubling its initial sales last year for its iPhone 5 and making it clear that customers haven't abandoned Apple for lower-priced products from Amazon and Google. Yet with the new iPhones coming out in the last week of the quarter and with new refreshes for the iPad and iPad mini coming next month, Apple investors need to key in on any future guidance the company provides in the report. Let's take an early look at what's been happening with Apple over the past quarter and what we're likely to see in its report.

Stats on Apple

Source: Yahoo! Finance.

When will Apple earnings grow again?
In recent months, analysts have finally started raising their views on Apple earnings after a long decline earlier in the year. They've boosted their September- and December-quarter projections by about 3% each, with more modest 2% gains for the full 2014 fiscal year. The stock has also bounced back, climbing 22% since late July.

You can count on much of the attention for the quarter focusing on the iPhone launch. Shares vaulted higher by more than 5% when Apple reported its opening sales, accompanied by expectations that Apple's revenue and gross margins would hit the upper end of the guidance it had previously provided. Expectations are therefore fairly high, and any signs of sluggish sales in October could reverse some of the stock's recent gains.

Yet investors will be looking at a lot more than earnings in the Apple report. The plunge in Apple shares below the $400 mark earlier this year brought a huge amount of attention on whether the company should take measures to boost shareholder value. News that Carl Icahn had bought a large position in Apple shares in August sent shares up 5% in a single day, as investors hoped that Icahn's track record of boosting shareholder value would lead to a rebound. Just earlier this week, Icahn called once more for a massive $150 billion buyback, drawing objections from bond guru Bill Gross and others who argue that suggesting financial gimmicks distracts from Apple's core focus on its business.

What's clear is that Apple is avoiding the temptation to take on rivals Google and Amazon by sinking too far into the lower-end of the smartphone and mobile device industry. Some investors have criticized Apple for not cutting prices on its iPhone 5c and iPad Mini to lower levels. Yet one reason for the strategy might simply be that supply constraints would make it impossible for Apple to meet higher demand that would result from lower prices, and so the company is content to boost margins wherever it can to take maximum advantage of available profits from producing at full capacity.

In the Apple earnings report, don't let yourself focus too much on the backward-looking numbers from the September quarter, as they largely reflect consumers waiting for new products to come on line. Instead, watch the commentary about early results from the iPhone launch and any guidance Apple offers on the December quarter and beyond. Moreover, any concessions to Icahn that lead to increased buybacks, dividends, or other shareholder-friendly initiatives could give the stock a one-time bump.

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