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Can Apple Keep Its Streak Alive When It Reports Earnings?

By Danny Vena – Oct 30, 2018 at 6:00AM

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This will be the first quarter that includes sales of the recently released iPhone models.

Even in the face of recent market unrest, Apple (AAPL 0.79%) shares are still clocking in near all-time highs hit earlier this month. The company has steadfastly resisted Wall Street's attempt to call the top by continuing to innovate on its flagship iPhone, working to double its subscription revenue, and developing new products and services.

The Cupertino company will get its next chance at bat when Apple reports the financial results for its fiscal fourth quarter, after the market close on Nov. 1. Let's review the company's recent results and see what we can expect when Apple reports earnings.

Apple exec Phil Schiller stands on a stage in front of giant renderings of an iPhone and an unspecified planet

Apple exec Phil Schiller on stage introducing the iPhone XS. Image source: Apple.

Something to call home about

For the fiscal third quarter (which ended June 30), Apple again defied expectations. It reported sales of $53.3 billion, an increase of 17% year over year, exceeding analysts' consensus estimates and topping out at the high end of its forecast. Careful cost control resulted in operating income that also grew by 17% compared to the prior-year quarter, resulting in diluted earnings per share of $2.34, up 40% year over year and easily exceeding the high end of expectations.

iPhones continued their trek higher, selling 41.3 million units: up 1% compared to the prior-year quarter, but slightly below the 41.6 million expected by analysts. Apple made up the difference by selling more high-priced models, with the average selling price of $724 increasing 19% compared to the same period last year.

Apple's Other Products business -- which includes Apple Watch, AirPods, Apple TV, Beats headphones, and the HomePod smart speaker -- produced the highest segment growth for the company, with revenue of $3.74 billion, up 37% year over year.

All eyes will be on the new iPhones

Even though the newest iPhones didn't go on sale until the end of the most recent quarter -- which ended at the end of September -- investors will be looking for any insight into how the iPhone XS (pronounced 10 S), XS Max, and XR are selling as Apple still derives the majority of its sales -- more than 56% last quarter -- from its flagship device. The XS and XS Max went on sale Sept. 21, while the release of the XR was delayed until Oct. 26 (which falls in Apple's first quarter).

Investors will also be looking for an update on Apple's plans to get its services revenue to $51 billion by 2020. As of last quarter, the iPhone maker had achieved a run rate of $35.7 billion, placing the goal well within Apple's reach.

Apple's wearables will be another area of interest. Wearables, which includes the Apple Watch, Beats, and AirPod, jumped 60% in the third quarter. The company reported in July that wearables revenue had surpassed $10 billion over the past four quarters. 

Share repurchases have also been a hot topic in recent quarters. Apple earlier this year embarked on a $100 billion buyback, replacing the $210 billion allocation that the company exhausted in the fiscal third quarter. Last quarter, Apple wasted no time, buying back a whopping $20 billion in shares. During the company's second-quarter conference call, Apple CFO Luca Maestri said investors should expect the repurchases to be done "efficiently and at a fast pace," so watch for an update on the declining share count.

Tim Cook and Jony Ive look at the iPhone XR with a crowd of people in the background.

Apple execs Tim Cook, right, and Jony Ive, left, looking at the iPhone XR. Image source: Apple.

What the quarter could look like

For the fiscal fourth quarter, Apple is expecting revenue of $60 billion to $62 billion, which would represent year-over-year growth of 14% to 18%. The company is also calling for gross margin of 38% to 38.5%, and operating expenses of about $8 billion.

Analysts' consensus estimates are calling for revenue of $61.48 billion, up 16.9% year over year and near the high end of Apple's forecast; earnings per share are being pegged at $2.78, rising 34.3% compared to the prior-year quarter.

While investors keep waiting for the other shoe to drop, Apple continues to march to the beat of a different drummer. This quarter will likely be a continuation of what we have seen before.

Danny Vena owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

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