Though Apple's (AAPL 5.98%) top line in its fiscal third quarter was down 1% year over year, there was a lot to like about the quarter. Not only was this a narrower year-over-year decline than the previous quarter, but sales were better than management had anticipated and ahead of analysts' average forecast.
Perhaps even more important, Apple returned to earnings growth, as earnings per share came in significantly ahead of analysts' consensus view for the profitability metric. Stealing the show for the quarter was Apple's services segment, which grew substantially year over year and came in at a record quarterly high.
Here's a closer look at the results -- and why the quarter's performance should be viewed as a reason for shareholders to keep betting on the iPhone-maker's shares.
Robust results in a challenging market
Revenue was down 1% year over year despite a 4 percentage point headwind from foreign exchange. This was an improvement from a 3% year-over-year decline last quarter.
Further, it's a solid result, given a challenging smartphone market in the U.S. Management said in Apple's earnings call that weak iPhone revenue in the U.S. weighed on revenue in its Americas region, which declined almost 6% year over year. As the company's biggest geographical segment, this held back the company's top line.
Despite softness in Apple's Americas segment, the report included many other bright spots. First and foremost, services revenue grew 8% year over year and increased by a double-digit year-over-year rate in constant currency, according to comments from Apple chief financial officer Luca Maestri during the company's fiscal third-quarter earnings call.
Capturing the segment's momentum, this growth rate was an acceleration, compared to 5% year-over-year revenue growth in fiscal Q2. Importantly, management said it expects further acceleration in the company's reported services revenue growth rate in fiscal Q4.
Thanks to strength outside of the Americas for the iPhone, the product segment's sales actually increased year over year on a constant-currency basis -- a testament to the resilience of Apple's biggest product line. However, iPhone revenue fell 2% year over year on a reported basis.
Greater China's performance is also worth calling out. The important market returned to growth in the quarter, with sales rising 8% year over year. This compares to a 3% year-over-year decline in Greater China revenue in fiscal Q2.
Perhaps most important of all was the fact that Apple returned to earnings growth. Earnings per share rose 5% year over year to $1.26. This starkly contrasts with a 3% year-over-year decline in earnings per share last quarter. Analysts, on average, were expecting earnings per share of $1.21.
Results worthy of the stock's valuation
Overall, the results helped justify the stock's current valuation. A return to year-over-year earnings growth, revenue growth on a constant-currency basis, and management's comments about expecting improved year-over-year performance for both services and iPhone on a reported basis in fiscal Q4 are all reasons for shareholders to be pleased with the report.
While the stock isn't cheap with a price-to-earnings ratio of about 32, Apple's resilient business in a difficult environment demonstrates why the stock is worth holding onto for the long haul.
