Apple (NASDAQ:AAPL) is scheduled to report earnings on Monday, April 27, after the market closes. Needless to say, this is a crucial event attracting lots of attention from the investing community and the specialized media, so it's important to be prepared in advance so that you know where to look once the news hit the wires.
It's all about the iPhone
Wall Street analysts are on average forecasting earnings per share of $2.14 on $55.76 billion in revenues for the quarter ending in March. Apple's ability to hit or exceed those forecasts will depend heavily on iPhone sales, as the product is the biggest contributor when it comes to both sales and earnings by a wide margin: The iPhone brought in nearly 69% of total revenues in the December-ended quarter.
Fortunately for investors in Apple stock, the iPhone 6 and iPhone 6 Plus models are an explosive success for the company. Apple sold 74.5 million iPhone devices during the December-ended quarter, a massive 46% increase versus the same period in the prior year. In U.S. dollar terms, iPhone revenues jumped 57% year over year.
Foreign currency headwinds can be a considerable drag on revenues, but Apple is benefiting from extraordinary pricing power in smartphones. The average selling price in the iPhone segment was $687 in the last quarter, an increase of roughly $50. Growing unit sales and strong pricing are major positives when it comes to both revenues and profit margins.
According to data compiled by Fortune, Wall Street analysts are on average projecting 56.8 million iPhone devices being sold during the most recent quarter. This would represent a year-over-year increase of almost 30%. Forecasts vary considerably, though: The lowest estimate is at 50 million units, and the most bullish one expects 64 million devices.
Dividends and buybacks drive returns
Apple is actively distributing tons of capital to investors via both dividends and buybacks. The company has rewarded investors with $57 billion in distributions over the past year. Management has indicated that Apple will update its capital distribution program when it reports earnings for the March-ended quarter and investors will want to keep a close eye on announcements related to that.
Investors benefit when a company distributes more cash via per-share dividends, or when share buybacks reduce the amount of shares outstanding, which increases earnings per share. Besides, dividends and buybacks say a lot about a company's ability to generate more cash that it needs to reinvest in the business, which is clearly a major positive in terms of business quality and financial strength.
Academic research has proven time and again that companies paying growing dividends and making big share buybacks tend to outperform the market in the long term, so Apple's announcement in this area merit a lot of attention. With a current annual dividend payment of $1.88 per share, Apple stock yields about 1.5% at recent stock prices.
The China opportunity
As the smartphone market matures in developed countries, Apple will need to continue expanding into emerging markets to sustain its rapid growth rates. Among those countries, China is a particularly relevant geography to watch.
The iPhone 6 and iPhone 6 Plus were launched in China during the second half of October, so they were not available there during all of the quarter ended in December. Still, iPhone sales more than doubled in Mainland China during the last quarter.
Total sales in the greater China region, which includes China, Hong Kong, and Taiwan, grew 70% year over year in the December-ended quarter. Apple produced $16.1 billion in revenues from the greater China region during the period, accounting for a big 21.6% of total sales. China is not only a big market for Apple, but it's also growing at a remarkable speed, so it will have a major impact on overall company-level growth rates.
Interestingly, data from China Mobile (NYSE:CHL), an Apple partner, is looking quite encouraging in that area. The biggest carrier in China has announced that it had more than 143 million 4G customers as of March 31, 2015; this represents an increase of 53 million since the end of 2014. Assuming that Apple is probably one of the main beneficiaries from China Mobile's growth in 4G customers, this could be signaling a strong quarter for Apple in China.
Sales and earnings numbers are clearly very important, however, the fundamental drivers of those sales and earnings are even more determinant in the long term. With this in mind, investors will want to pay close attention to iPhone demand, capital distributions, and China growth in the coming earnings release from Apple.
Andrés Cardenal owns shares of Apple. The Motley Fool recommends Apple and China Mobile. 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.