Apple (NASDAQ:AAPL) is scheduled to report quarterly earnings on Monday after the market close. This is a major event that will attract a lot of attention from investors and the media, so it´s best to be prepared in advance in order to know what to look for for when the numbers are released. Let´s go through the main areas of interest.
Based on Apple's guidance in its last earnings report, quarterly revenue is expected to be in the range of $37 billion to $40 billion. Wall Street analysts are expecting revenue near the high end of the guidance, specifically $39.84 billion, according to data compiled by Thomson Reuters.
Sales in the same period last year, which is Apple´s fiscal fourth quarter ending in September, reached $37.47 billion, so the Street is on average expecting an annual year-over-year growth rate of 6.3%.
Analysts on average expect earnings per share of $1.31; this would represent an increase of more than 11% versus a split-adjusted $1.18 per share in the fourth quarter of fiscal 2013.
While investors should not pay too much attention to short-term earnings forecasts, watching how estimates change can be quite illustrative in evaluating analysts' expectations and trends leading to the earnings release.
The average earnings forecast 90 days ago was $1.34 per share. However, when Apple reported earnings for the quarter ending in June, guidance came in below expectations, so analysts adjusted their forecasts to the downside. The average earnings estimate for Apple in the coming report had fallen to $1.29 per share 30 days ago.
But Apple has received 12 positive revisions in the last 30 days, lifting the average EPS estimate to $1.31. Analysts are becoming increasingly optimistic, which is most likely due to encouraging initial sales data for Apple´s new iPhone 6 and iPhone 6 Plus models.
While the new iPhone models were only available for sale toward the end of the quarter, the iPhone is a major contributor for Apple when it comes to both sales and profits, so what happens in this segment will be of utmost importance in terms of overall financial performance.
On Sept. 22, Apple announced that it had sold a record-breaking 10 million units of its new iPhone 6 and iPhone 6 Plus models in just three days. This beats the previous sales record of 9 million units for the iPhone 5s and iPhone 5c in the first three days after their launch in September 2013. l
Importantly, while the new iPhone models were not available in China during the last quarter, they are hitting the shelves in the country this time. Initial demand in China and its impact on guidance for the current key holiday quarter can be as just important as sales figures for the quarter ending in September.
Most analysts calculate that the iPhone 6 Plus has higher gross margins than other models, so a product sales mix more skewed toward the iPhone 6 Plus could mean better profitability for Apple during future quarters. Smartphones with bigger screens tend to be particularly popular in emerging markets, so a successful iPhone 6 Plus could provide a double win for Apple, producing higher margins and gaining market share versus Android devices in developing countries.
iPad sales are expected to remain under pressure during the quarter. Global tablet sales are slowing down as consumers buy larger-screen smartphones and keep their old tablets for longer periods. Besides, Apple just launched its new iPad Air 2 and iPad mini 3 models on Thursday; many customers most likely waited for the new models rather than renewing their iPads during the last quarter.
While the Mac segment does not have the same financial weight as the iPhone or even the iPad, Apple has been doing much better than other players in the PC industry lately. Mac unit sales grew by a healthy 18% during the quarter ended in June, and preliminary numbers from IDC indicate that Mac shipments increased 8.9% during the September quarter, considerably better than the 1.7% decline estimated for the industry as a whole.
The iPhone will be the star of the show when Apple reports earnings on Monday, but the sales guidance for the holiday quarter could prove even more crucial than the sales performance for the last quarter. Wall Street analysts have grown more optimistic lately about Apple's quarterly numbers; this is encouraging for the overall sales trend, but it also raises the bar higher for Apple.
Andrés Cardenal 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.