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Reading Between the Lines of Apple Inc.’s Conference Call Data

By Motley Fool Staff – Feb 3, 2016 at 2:14PM

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Investors who take the time to listen to or read a transcript of a company's earnings conference call tend to get rewarded with a few juicy nuggets of information. The Motley Fool’s Dylan Lewis and Sean O’Reilly share one they found.

One tiny detail can change an outperformer into an underperforming company.

In this video segment, Sean O'Reilly and Dylan Lewis talk about one number Apple (AAPL -1.51%) originally stated in its conference call, what one perceptive analyst pressed them on, and how the data changes when the new information is factored in.

A transcript follows the video.


This podcast was recorded on Jan. 29, 2016.

Sean O'Reilly: So, we keep mentioning the conference call. What was your best takeaway or tidbit for our listeners from the conference call?

Dylan Lewis: I really honed in on the gross margins. The reason I think this is such an awesome thing from the conference call is, something I was talking about is, you can look at financial statements, and you can make numbers look very pretty in a table.

Without context or framing for why things are doing certain things, it's very easy to just say, "OK, that was great," and check it off. And so, during the rundown, running through all the numbers Luca Maestri highlighted the company's 40.1% gross margin for the quarter, which is actually up from the previous quarter's 39.9%. That's not really ...

O'Reilly: 0.2%? (laughs)

Lewis: ... [It's] a 20 basis-point bump, but that's not really the whole story. In December, Samsung paid Apple $548 million to settle a long-standing patent dispute between the two companies.

O'Reilly: Naughty, naughty Samsung.

Lewis: And this is actually something we also talked about, maybe in late December or something on the podcast. So, that baked into the topline number that that gross margin is based on ...

O'Reilly: So, really, it didn't grow.

Lewis: More of an operational metric, and this is something Maestri has talked about after being pressed on it from one of the analysts that covers Apple, that $550 million figure contributed something like a 40 basis-point change in gross margins. So, the more accurate gross margin number on a products side is closer to 39.7%. And that's actually down both sequentially and year-over-year. So, you know, any time you see that 40% gross margin, that's pretty gaudy, right?

O'Reilly: Right.

Lewis: That's something Apple's going to play up. That's not a sustainable number here, and I think, when you look at what they've guided for for the next quarter, it's somewhere between 39% and 39.5%, that just reinforces the fact that that's closer to where the real number is. So, I love that, particularly just because it showed how great getting into the weeds on the conference call can be, and how valuable it can be for investors.

Dylan Lewis has no position in any stocks mentioned. Sean O'Reilly has no position in any stocks mentioned. The Motley Fool owns shares of and recommends 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.

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