Apple Inc's Blowout Quarter Is Just the Beginning

Apple trounced estimates on iPhone sales, revenue, and profits. Plus, the possibility for new product releases could set the stage for a huge year.

Apr 24, 2014 at 11:25AM

Consumer technology giant Apple (NASDAQ:AAPL) had a fantastic quarter, after many predicted it would fall flat. For several weeks, analysts had been ratcheting down their estimates for this quarter in light of the fact that Apple has basically been stuck in a "muddle-through" period. With no new product releases in quite some time, and the prospect of a new iPhone on the horizon, it stood to reason that consumers would hold off buying Apple devices until later this year.

However, Apple's quarter was an absolute home run. The company handily beat estimates on revenue and profit, and gave an optimistic third-quarter outlook. In addition, Apple announced a plan to lavish investors with cash via an expanded stock buyback and a dividend increase. The company even plans to split its stock, spurring further excitement. With a blowout quarter in the rearview mirror and a slew of new product releases on the horizon, Apple has set itself up for a huge year.

Strong performance across most products
Among its key product categories, only iPads lagged estimates. Apple sold 16.35 million units, falling below expectations of more than 19 million. However, this was more than offset by extremely strong iPhone sales. Apple sold 43.7 million iPhones, well ahead of the 38.45 million expected.

Apple's iPhone sales, which had lagged in recent quarters, easily beat estimates and were the primary contributor to such strong results. In all, Apple posted $45.6 billion in revenue and $11.62 in earnings per share. Average analyst expectations called for $43.53 billion and $10.18 per share in profits. On a year-over-year basis, Apple produced 4.5% revenue growth and 15% earnings growth. Essentially, analysts expected little to no growth versus the same quarter last year.

Importantly, Apple's gross margin expanded by nearly 2 full percentage points, which is a crucial indicator that costs are finally getting under control after the company's gross margin had contracted in recent quarters. Plus, Apple's strong EPS growth demonstrates the power of its significant share buyback program.

Boatloads of cash
Both growth and income investors got what they wanted out of Apple. The company plans to split its stock 7-1, increase its annualized dividend by 8% to $13.16, and expand its stock buyback authorization by $30 billion. Overall, Apple plans to increase its total capital returns to $130 billion, up from $100 billion previously.

Apple is getting serious about funneling more cash back to shareholders. This makes sense, since the company literally has more cash than it knows what to do with. Apple's massive cash pile has sat on the balance sheet, earning virtually nothing for investors. By investing in new products, increasing share buybacks, and raising dividends, Apple is demonstrating a commitment to rewarding shareholders.

Apple's cash hoard fell after the most recent quarter, from $159 billion to $151 billion. It wouldn't be a surprise to see this trend continue, as Apple was not getting credit for its mountain of cash. Despite having upwards of one-third of its entire market capitalization in cash, Apple's earnings multiple was well below both the market and most other large-cap technology stocks.

The bottom line
Apple had no bad news in its most recent earnings report, which reversed a long-running trend of quarterly disappointments. The company trounced estimates on iPhone revenue and profit, and only disappointed on iPads. Since the iPhone is Apple's most important device, such strong performance more than offset tepid iPad sales.

Additionally, Apple is rewarding shareholders handsomely. Management announced a stock split, a dividend increase, and expanded its stock buyback program. Moreover, Apple handed in a current-quarter outlook that was better than expected. This implies that the company is optimistic about what the future holds, which will likely entail a new iPhone, a possible television, and maybe even a wearable device. Add it all up, and Apple's blowout quarter may be just the beginning of great things to come.

Here's how Apple secures future growth, but it isn't the best way to play the biggest thing to come out of Silicon Valley in years!
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now... for just a fraction of the price of AAPL stock. Click here to get the full story in this eye-opening new report.

Bob Ciura owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information

Compare Brokers