Apple Inc. Has an Amazing Quarter

Shareholders of Apple (NASDAQ: AAPL  ) must be feeling pretty smug right now. Despite financial metrics that just about every company on the planet would envy, there has been some very real concern that the company's profitability had essentially peaked. Indeed, the net income trends over the last several quarters was starting to look quite troubling. During the most recent quarter, Apple put those fears to rest.

An amazing quarter
For the most recent quarter, the sell-side estimates for revenues ranged between $41.76 billion to $44.50 billion. On the bottom line, analysts had expected anywhere between $9.65 a share and $10.69 a share. Apple, driven by better-than-expected iPhone sales, blew these numbers away, coming in at $45.65 billion in sales and $11.62 a share on the bottom line. More importantly, that bottom-line beat wasn't just driven by buybacks but by genuine net income growth ($10.2 billion against last year's $9.5 billion).

The nice thing about this quarter is that there just wasn't much to fault the company on. Gross margins were well above the expected range of 37%-38% at 39.3%, and Apple indicated on the call that all of its three iPhone segments (low-end iPhone 4s, mid-tier iPhone 5c, and high-end iPhone 5s) grew year over year from their respective categories in the year-ago period. The only "negative" is that iPad sales came in a little light, but the iPhone is much more important as far as revenues and gross margin dollars go.

A good but not amazing guide
The company guided to $36-$38 billion on the top line, gross margins in the 37%-38% range, and operating expenses in the range of $4.4 billion-$4.5 billion. This implies operating income of $9.425 billion and net income -- at a 26.1% tax rate and with $200 million in other income -- of $7.11 billion. This is slightly above the $6.9 billion of net income generated in the year-ago period (but still down from $8.8 billion in the same period during 2012). The trend of year-over-year net income declines has apparently been reversed.

That being said, Apple appears to be giving pretty conservative guidance, so if we assume that it at least comes in at the high end of the gross margin guide or the high end of the revenue guidance, we get a significantly better number. While it may be optimistic to assume that Apple can continue to pull off the trick of generally beating the midpoint of its guidance, the company does have a good track record of properly managing expectations.

A great 2014 for Apple
With Apple having turned in a great quarter, and with the company almost certainly looking to beat last year's net income number based on the Q1 and Q2 results and the midpoint of the Q3 guide, it seems that the biggest "fear" vis-a-vis Apple has been put to rest. 2014 looks to be a great year for Apple shareholders and a very painful one for short sellers. 

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