Apple (NASDAQ:AAPL) stock was rising by more than 5% on Tuesday after the close, as the company reported explosive financial performance for the December quarter on the back of booming iPhone 6 and iPhone 6 Plus sales. Let's look at Apple's blowout earnings report and what it means for investors in Apple stock.
A monster quarter thanks to blockbuster iPhone sales
Total sales during the December quarter came in at $76.6 billion, a big 30% increase versus the same quarter in the prior year. This kind of growth is nothing short of amazing for the biggest listed corporation in the world, and the number came in considerably above Wall Street forecasts, since analysts were on average expecting $67.7 billion in revenue.
The main driver behind this impressive performance was the iPhone. Apple sold 74.5 million devices during the quarter, a massive 46% increase versus the December quarter in 2013. iPhone sales crushed expectations, as Wall Street was forecasting 67.5 million units.
In U.S. dollar terms, iPhone revenues jumped 57% year over year, reaching $51.2 billion during the quarter. In spite of currency headwinds in many international markets, Apple keeps benefiting from tremendous pricing power because of the positive impact of the iPhone 6 and iPhone 6 Plus models. The average selling price in the iPhone segment was $687, a roughly $50 increase versus the same quarter in 2013.
iPad unit sales declined 18% versus the same quarter in the prior year to 21.4 million. The number was below expectations of 22 million units, but analysts were already expecting a big decline because of general industry contraction over the past several quarters. Mac units grew 14% to 5.5 million, in line with Wall Street forecasts, and doing much better than most competitors in the business.
Sales growth was rock-solid across different geographies, with the notable exception of Japan, where currency devaluation was a big headwind during the quarter.
Sales in the Americas region grew 23%, revenues in Europe increased by 20%, and Greater China was particularly explosive, with a spectacular year-over-year sales increase of 70%. Performance in Japan was the main weak spot, with an annual revenue increase of only 8%, while sales in the Rest of Asia Pacific market grew by a healthy 33% year over year.
Earnings and cash flows
Gross margin was 39.9% of sales during the quarter, a material increase versus 37.9% in the same quarter of 2013. The figure was also much better than the company's guidance for the quarter, in the range of 37.5% to 38.5%. The iPhone has higher profit margins than the other business segments, so strong performance in this division was probably the main factor behind rising profitability during the last quarter.
Apple allocated more than $5 billion to share repurchases and $2.8 billion to dividends during the December quarter. This brings total capital returns to investors to nearly $103 billion, and more than $57 billion of that money was distributed over the past 12 months.
The company produced $33.7 billion in operating cash flows, a historical record for Apple and a massive 49% increase versus the same quarter in the prior year. Apple's cash hoard is a truly mind-blowing $178 billion as of the end of the quarter. That would theoretically be enough to purchase 480 of the 500 names included in the S&P 500 Index.
Thanks to a combination of strong revenue growth, expanding profit margins, and share buybacks reducing the outstanding share count, earnings per share jumped 48% year over year, to an all-time record $3.06 per share. The figure crushed earnings estimates, as analysts were forecasting $2.60 in earnings per share for the period.
For the coming quarter, management expects sales to be in the range of $52 billion to $55 billion, roughly in line with analysts' expectations of $53.8 billion.
The iPhone 6 and 6 Plus are proving to be spectacular growth drivers for Apple, and the company is capitalizing on that success to produce expanding profit margins and massive amounts of cash flows for shareholders. Investors in Apple stock have strong reasons to cheer the company's latest earnings report.
Andrés Cardenal owns shares of Apple. He doesn't believe in putting to much weight on quarterly performance when analyzing investments, but he won't deny or confirm that he smiled when he learned about Apple's spectacular performance in the last quarter. The Motley Fool recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.