Apple (AAPL 0.30%) is scheduled to report fiscal 2022 second-quarter earnings after the markets close on Thursday. The highly anticipated results will highlight how one of the world's biggest companies is grappling with supply chain disruptions caused by the coronavirus pandemic.
Already, shortages have caused Apple to miss billions in sales as it didn't have sufficient products to meet consumer demand. When it reports Q2 earnings on April 28, investors will closely monitor Apple's ability to navigate the supply disruptions.
Supply shortages cost Apple $6 billion in sales in Q1
In its fiscal first quarter of 2022, which ended Dec. 25, Apple reported total sales of $123.9 billion. That was up from the $111.4 billion it generated during the same period in the year before. The company grew sales in all its product segments except the iPad, which was most significantly affected by supply shortages. Apple continues to be fueled primarily by sales of iPhones. The latest generation of the iPhone helped boost sales of the product to $71.6 billion, up from $65.6 billion the year before.
When asked directly during the company's first-quarter conference call that followed the earnings release, CEO Tim Cook elaborated on the effects of supply shortages on sales:
From a supply constraint point of view, as you recall, we said that in Q1, the December quarter, that would have constraints more than 6 [billion dollars], and we clearly did have constraints more than 6. On March, we're saying that where we will have -- we will do better or have less constraints than we had in the December quarter.
In other words, Apple's sales in Q1 would have been at least $6 billion higher had it not been for supply shortages. One of the surprising aspects of the pandemic has been how resilient consumer demand has been. Apple is not the only company reporting an inability to meet the insatiable consumer appetite.
CFO Luca Maestri expects Apple to deliver solid revenue growth in Q2 despite supply chain constraints. Fortunately, he sees the headwinds easing to become less of an issue. The company reported sales of $89 billion in Q2 last year, so investors can use that as a reference point when it reports figures for Q2 this year. Interestingly, Apple forecasts a gross profit margin between 42.5% to 43.5% in Q2, which would be higher than last year at the midpoint.
That highlights Apple's negotiating power with suppliers and its ability to keep costs flat amid rising inflation worldwide. Still, the figures are just forecasts, and it remains to be seen if Apple will hit those targets in the upcoming report.
What this could mean for Apple investors
Analysts on Wall Street expect Apple to report revenue of $94.02 billion and earnings per share (EPS) of $1.43. If it meets those consensus projections, it will represent increases of 5.6% and 2.14%, respectively, from the same period the year before.
Decelerating revenue growth and modest earnings growth could partly explain why Apple's stock is down roughly 9% on the year. The other explanation could be its meteoric 210% rise over the last three years. A slight cool-down in this excellent stock should not worry investors. Nevertheless, it will be important to monitor the business and observe how it deals with supply disruptions in the near term.