Scheduled to report fiscal third-quarter results on Thursday, investors will be watching to see if Apple (AAPL 5.98%) inches closer to a return to revenue growth. The tech company's top line declined in both of its two most recent reported quarters. But analysts, on average, are expecting Apple to report a narrower year-over-year decline for the three-month period ended in June (fiscal Q3).
More importantly, investors will likely look to Apple's quarterly results to see if any trends or commentary from management point to a possible return to top-line growth later this year. Returning to growth during such a tough macroeconomic environment would make a great case for the resilience of Apple's business. On the other hand, worsening sales trends could be a red flag -- one that could lead investors to believe shares aren't worth their current pricey valuation of more than 33 times earnings.
As Apple's fiscal third-quarter earnings report approaches, let's review what the tech company said about its sales trends when it reported its most recent results. The exercise provides some hints about whether the company could return to growth later this year.
Promising improvement
Perhaps the most objective evidence of improving sales trends at Apple was the fact that revenue in fiscal Q2 was down only 3% year over year. This compared to a 5% decline in fiscal Q1. Additionally, Apple's services business revenue reached a fiscal second-quarter record, and its installed base of active devices hit an all-time high. Further, Apple chief financial officer Luca Maestri noted that the company's revenue actually increased year-over-year on a constant currency basis -- and that growth was broad-based, with year-over-year revenue growth "in the majority of the markets we track."
Though management didn't provide a specific revenue guidance range for its fiscal third quarter, Maestri did say that management anticipated its reported year-over-year decline for the period to be similar to its fiscal Q2 decline. Analysts, however, believe year-over-year revenue performance will improve slightly, as it did in fiscal Q2. The consensus forecast calls for fiscal third-quarter revenue of $81.8 billion, or a 1.4% year-over-year decline.
It's worth noting that Apple's business performance during this uncertain environment is better than it looks, as the iPhone maker has been facing currency exchange headwinds. Indeed, Apple management's outlook for its year-over-year revenue growth rate expectation in fiscal Q3 bakes in an expected negative year-over-year foreign exchange impact of almost 4%.
Whatever Apple reports for fiscal Q3 revenue, investors will likely look particularly closely at any commentary about how revenue could fare in fiscal Q4. Analysts, on average, are currently modeling for a return to very small growth during the period. For Apple to meet analysts' expectations, the company will need to guide for revenue of about $90.4 billion, or 0.2% year-over-year growth.
Uncertainty remains elevated
Overall, fiscal Q2 sales trends and management's commentary during the quarter paint a picture for a likely scenario of Apple returning to growth by fiscal Q4. But investors should be prepared for a wide range of outcomes in such an uncertain market. With such rapid increases in interest rates from the Federal Reserve and an inflationary environment, uncertainty is high and forecasts are difficult.
Investors will find out exactly how Apple is doing -- and what management is thinking about its fiscal fourth-quarter top-line potential -- when the company reports earnings after market close on Thursday.
