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Apple Beats Earnings on the Back of Strong iPhone Sales

By Andrés Cardenal - Oct 20, 2014 at 6:07PM

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Massive iPhone sales and surprisingly strong growth in the Mac segment were the main drivers behind a very strong earnings report.

Source: Apple.

Apple (AAPL -2.98%) announced better-than-expected numbers for the quarter ended in September on the back of remarkably strong iPhone growth and surprisingly healthy Mac sales. While iPad sales are under pressure, the overall picture looks quite positive for investors in Apple stock after the latest earnings report.

Strong numbers
Sales during the fourth quarter of fiscal 2014 came in at $42.12 billion, a 12.4% increase versus $37.47 billion in the same period last year. The figure was above the company's guidance for between $37 billion and $40 billion in revenues during the quarter, and also better than Wall Street analysts' forecast of $39.94 billion on average.  

Gross margin was 38% of sales during the quarter, at the high end of the company's guidance for gross margins of between 37% and 38% of revenues.

Apple delivered earnings per share of $1.42, a big increase of 20.3% versus $1.18 per share in the fourth quarter of fiscal 2013, and also comfortably above analysts' forecast of $1.31 per share.

The company allocated $17 billion to share buybacks during the last quarter, bringing the total buyback amount over fiscal 2014 to a massive $45 billion.

Not only were the numbers for the last quarter better than expected, but guidance for the key December quarter was also quite strong. The company expects revenue in the range of $63.5 billion to $66.5 billion during the first quarter of fiscal 2015. That compares favorably versus Wall Street expectations of $63.52 billion on average.

The products
The iPhone is the main driver for Apple, and healthy demand in this segment was the biggest factor behind the company's successful quarter. iPhone unit sales increased 16% year over year to 39.27 million devices sold during the last quarter, while iPhone revenues grew 21% to $23.68 billion.

Importantly, the average selling price in the iPhone segment increased to $603 from $577 in the same quarter last year. Strong prices in the iPhone division were probably the main reason behind the company's healthy profit margins during the quarter, and they bode well in terms of evaluating demand for Apple's new iPhone 6 and iPhone 6 Plus models.

iPad unit sales declined 13% year over year to 12.3 million units. Demand for tablets has been weak on an industrywide basis lately, and Apple launched its new iPad Air 2 and iPad Mini 3 last week, so consumers had little incentive to update their old iPads during the quarter ended in September.

On the other hand, the Mac is remarkably strong. Apple sold 5.52 million units during the quarter, a big 21% increase versus the same quarter last year. It's particularly interesting to note that Apple delivered record Mac sales in a period that isn't a holiday quarter and in the context of declining industry sales. According to IDC, total PC industry shipments declined 1.7% during the third quarter of 2014.  

Not only that, but Macs are also outselling iPads in terms of total revenues, with $6.6 billion in total revenues for the Mac segment versus $5.3 billion in iPad sales during the last quarter. It seems as if weakness in the iPad segment is being more than made up for with surprisingly strong performance in Macs.

Sales in the iTunes/Software/Services division grew 8% to $4.61 billion, while revenues in the accessories segment increased 13% to $1.49 billion.

The bottom line
It seems the new iPhone 6 and iPhone 6 Plus are resonating well among consumers, and this is a big positive for investors in Apple stock, not only in terms of financial performance but also when evaluating the company's ability to continue bringing successful products to the market. While iPad sales are languishing, the Mac is more than compensating with remarkably strong performance. In all, Apple has just delivered a fairly strong earnings report.


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