An Early Look at Apple, Inc.'s Second Quarter

Mark your calendar. Apple (NASDAQ: AAPL  ) announced its fiscal 2014 second-quarter earnings date on Monday, scheduling the report for Wednesday, April 23, after market close. The report will be followed by a conference call and an analyst question-and-answer session at 5:00 p.m. ET.

Source: Apple.

Save this link to tune into the call.

Speaking of Apple's second-quarter earnings, what can kind of results can investors expect from the report?

Speculating based on guidance
In the past, Apple's guidance wasn't very useful. These days, however, it seems to be a useful benchmark for forecasting actual performance.

To illustrate just how accurate Apple's guidance has been, check out the chart below:

Fiscal quarters shown. Source: SEC filings.

Even when it comes to Apple's important gross profit margin metric, management's guidance has been within 100 basis points of actual results for four quarters in a row.

How did its guidance suddenly become such a reliable benchmark for the company's performance? Isn't Apple known for its extremely cautious guidance?

First, Apple made a fundamental effort in January 2013 to begin providing more accurate estimates. CFO Peter Oppenheimer explained the change in the company's first-quarter 2013 earnings call:

In the past we provided a single-point estimate of guidance that was conservative, that we had reasonable confidence in achieving. This quarter and going forward we're going to provide a range of guidance that we believe that we're likely to report within. No guarantee as forecasting is difficult, but we believe that we will report within that range.

In other words, Apple said it would finally attempt to be as accurate as possible with its guidance figures. 

Second, it's undoubtedly easier for it to make accurate predictions now that it isn't growing nearly as fast as it was several years ago. So, based on its guidance for Q2, what can investors expect from the world's most valuable tech company?

Second-quarter projections
Apple has guided for revenue between $42 billion and $44 billion and a gross profit margin between 37% and 38%. Since it has reported results at the high end of guidance for both revenue and gross margin in nearly every quarter since management changed the way it provides guidance, it would be reasonable to expect Apple to report about $43.5 billion in revenue and a gross profit margin of about 37.9%.

Compared to the year-ago quarter, this would mean revenue growth would be flat and gross margin may be up 40 basis points. Flat revenue growth is due to unfavorable comparisons, since Apple launched its iPhone lineup in China one quarter early this year compared to last. A gross margin gain would be notable, finally signaling Apple's negative gross profit margin trend may now have officially stabilized.

Gross margin for Q2 2014 is an estimate. Fiscal quarters shown. Source: SEC filings.

All said, flat revenue and an improving gross profit margin should translate to a small single-digit percentage gain in year-over-year net income and a higher single-digit to low double-digit year-over-year EPS gain (EPS should see outsized gains compared to net income thanks to Apple's aggressive share repurchases).

If Apple reports figures like the ones outlined in this article, investors should be pleased. Considering that it faces unfavorable comparisons and the stock is priced for very little growth, EPS growth of about 8% would support the case for Apple's long-term story as a cash cow that continues to grow.

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Read/Post Comments (7) | Recommend This Article (2)

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 03, 2014, at 10:41 AM, Renee wrote:

    This is well-below most analysts' expectations, though. If this indeed materializes, stock will drop significantly prior to the iPhone 6 release

  • Report this Comment On April 03, 2014, at 10:47 AM, Mathman6577 wrote:

    The so-called analysts need more realistic expectations.

  • Report this Comment On April 03, 2014, at 11:03 AM, TMFDanielSparks wrote:

    @Reneee,

    Not sure where you get your analyst estimates, but it appears to be right in line with expectations (and even more bullish on EPS): http://finance.yahoo.com/q/ae?s=aapl+Analyst+Estimates

    Consensus analyst estimate for $43.57 billion in revenue and EPS of $10.14 compared to $10.09 in the year-ago quarter.

    @Mathman6577,

    What would you say is more realistic? Given that revenue and GM have landed slightly higher than guidance for 4 quarters in a row, why do you expect this quarter to buck the trend?

  • Report this Comment On April 03, 2014, at 11:43 AM, Renee wrote:

    @TMFDanielSparks

    Guidance from Apple is only a small part of the stock price. Analysts (who often buy the stock themselves, and thus setting the market price) have expectations which are not always inline with Apple's, and also change through time based on things that reveal themselves between Apple's own PR announcements (like the economy in a key market for Apple going up/down, sales figures by a big Apple reseller, Apple supplier woes, etc).

    Source for missed numbers, for example to support the above is the China Mobile, which most analysts had a worst-case scenario of 17M iPhones to be sold, which has now been adjusted to 16M (significantly below even the low-end estimates they had before). source: http://tech.fortune.cnn.com/2014/03/20/apple-china-mobile-ip...

    As for the 46 analysts that Yahoo uses in the link you've provided, I'm not sure who those are, but those numbers certainly don't jibe with the big analysts' numbers out there.

  • Report this Comment On April 03, 2014, at 2:46 PM, TMFDanielSparks wrote:

    @Renee, I'm pretty sure Yahoo sources the analysts collected from Reuters.

    Could you provide a link to the list of the big analyst numbers you are referring to? I'm curious to what their consensus is.

  • Report this Comment On April 03, 2014, at 2:53 PM, Renee wrote:

    I don't have links handy. You can google many of them.

    We get hard copies of their reports at the office daily, as well as digital copies and analytics (but those are paid-for, and not for free distribution, sorry).

  • Report this Comment On April 06, 2014, at 6:59 AM, Mathman6577 wrote:

    Daniel: An example. One "famous" Apple analyst camped out at the Apple store on 5th Ave. and counted the number of people waiting in line for the iPhone 5s and 5c. He suggested that since his count indicated a smaller crowd than previous launches that the phone will would not be a big seller. Well I think he was wrong.

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