Apple Surges To New Record High On Strong iPhone 8 Guidance, Earnings Beat Despite iPhone Sales Miss

With Apple trading just shy of all time highs (and with a quarter trillion in cash on the books), the market was wondering if AAPL can once again surprise to the upside ahead of the all important iPhone 8 quarter, as well as provide some guidance what it plans to do with its cash hoard. And while, there was no explicit guidance on the now $260BN+ in gross cash, Apple has surged after hours on the strong top and bottom line beat, and just as strong guidance, despite a small iPhone sales miss in the current quarter.

Apple reported Q3 earnings which beat on both the bottom line and top line while missing modestly on iPhone sales, as Apple sold 40.0 million iPhones, just below the 40.1 million expected, if 1.5% higher than a year ago, despite also missing on ASPs (which came in at $606, below the $628 expected) while Chinese revenues disappointed once again declining by 9.5% Y/Y. However, the silver lining, and what most appear to be focused on was Apple's strong forecast, with the company forecasting $49 billion to $52 billion in revenue for the upcoming, critical quarter, a range that was well above sellside consensus of $49.12 billion, suggesting Apple is quite optimistic about the upcoming iPhone 8 product launch.

Earnings of $1.67 were higher than the $1.57 expected, on revenue of $45.4 billion, which also beat expectations of $44.9 BN, and 12% higher than a year ago.

Also helping AAPL this quarter was an unexpected boost from iPad sales, with Apple selling 11.4 million units in the quarter, 15% higher than the 10 million it sold a year ago, and well above expectations.  Apple released two new models in June, the 10.5-inch iPad Pro and an updated 12.9-inch Pro, and these are clearly resonating with buyers. The iPad numbers also indicate 28% quarter-over-quarter growth. In Q2, Apple sold only 8.9 million iPads

On the negative side, Apple forecast a gross margin of 37.5%-38.0% for Q4, below the consensus estimate of 38.2%, while revenue in China declined for the 6th consecutive quarter, down 9.5%.

The results in a nutshell:

  • Q3 EPS: $1.67 Exp. $1.57
  • Q3 Revenue: $45.4, Exp. $44.9Bn
  • iPhone unit sales: 40.0 milion, Exp. 40.1 million. iPhone sales generated $24.848 billion in revenue, 61 % of total.
  • Apple forecast the average iPhone selling price in Q4 would be: $606, below the Exp. $628

Apple also provided the following guidance for its fiscal 2017 second quarter:

  • revenue between $49 billion and $52 billion
  • gross margin between 37.5 percent and 38 percent
  • operating expenses between $6.7 billion and $6.8 billion

As Bloomberg notes, the unexpected upside in Apple’s forecast indicates that at least some sales of the next-generation iPhone will occur in the fourth quarter, refuting the recent Citi downgrade which expected substantial rollout delays. As a reminder, Apple is working on three new iPhones, including a completely revamped version for the product’s 10th anniversary, which may not ship in bulk until one or two months after the first models.

Tim Cook was predictably happy:

“With revenue up 7 percent year-over-year, we’re happy to report our third consecutive quarter of accelerating growth and an all-time quarterly record for Services revenue,” said Tim Cook, Apple’s CEO. “We hosted an incredibly successful Worldwide Developers Conference in June, and we’re very excited about the advances in iOS, macOS, watchOS and tvOS coming this fall.”

His CFO shared the sentiment:

“We reported unit and revenue growth in all our product categories in the June quarter, driving 17 percent growth in earnings per share,” said Luca Maestri, Apple’s CFO. “We also returned $11.7 billion to investors during the quarter, bringing cumulative capital returns under our program to almost $223 billion.”

And judging by the initial reaction in the stock, which is over 5% higher in after hours trading, shareholders shared his sentiment.

The result in chart format:

Apple Net Income grew 11.8% Y/Y, while iPhone sales rose 1.5%.

Q3 Revenue of  45.4 billion beat expectations of $44.9 billion.

Product sales: While the market ignored the modest miss in iPhone sales in the current quarter, it was pleasasantly surprised by the 15% surge in iPad sales, which jumped to 11.4 million units, generating $5 billion in revenue in the quarter, 2% higher Y/Y. Apple also said it sold 4.29 million Macs in Q317, compared to 4.25 million units in the year ago quarter, a 1% year-over-year unit sales growth.

Regional breakdown: sales grew in every region expect China where they declined by 9.5%, the 6th consecutive decline in a row.

Finally, while the company's record cash hoard grew once more, rising to $262 billion total, the cash number net of debt actually declined modestly to $153 billion. As a reminder, most of this cash remains locked outside of the US.

Shareholders are certainly enjoying the company's optimistic forecast, sending the stock 6% higher to new all time highs.


spastic_colon SethPoor Tue, 08/01/2017 - 18:04 Permalink

hey folks its pretty evident that the swamp is still intact and that the libtards and boomers still run the markets; oil will continue to be suppressed and anything "green" or progressive will be promoted; auto sales are being hammered but watch tesla report magical earnings; follow the money, subsidies are still going to the progressive experiment; apple's earnings are likely fake with buybacks but their gov't subsidy for their spy devices is still revenue positive.

In reply to by SethPoor

Sudden Debt Tue, 08/01/2017 - 17:06 Permalink

There wheren't a lot of new phones out this year mentioning...and how much more do you want from a phone? There's not a lot more they can expand in that part.And what kind of smart device do we still really need? My house is already bulging of phone, tablet, laptop chargers.Nobody has anymore time left to add another device into their lives. And a second thing.... people are sick of the fact that all those phones have glass screens.Most people I meet always have a crack on their phone. And they all say the same. This is number XX and the next phone I'll buy won't cost that much anymore. All they do is break.Remember those old nokia's? They could take a beating like a black hooker and a second later they would still be working.The phone era is over. 

Newbie lurker Sudden Debt Tue, 08/01/2017 - 17:41 Permalink

Whilst I agree with your sentiment, I think a lot of people (especially the youngsters) look forward to every new version of the iPhone with great awe and wonder. Plus the whole 'lease your phone' scam that all the major wireless carriers do now make it very simple to go get a new phone every year or two. I don't see the Apple dry humping infatuation ending very soon. There is something magical about the amount of technology available to the poor peasants in a cellphone. I don't see the draw myself but people nut themselves every Fall when the new iPhone widget comes out. 

In reply to by Sudden Debt

TheSilentMajority Tue, 08/01/2017 - 17:14 Permalink

Burning net cash, slight beat on revenue, creative accounting beat on the lowered earnings expectations, lower margins, getting killed in China etc.

A fairly dismal quarter actually.

Expect shares to quickly flatline after reflection.

The IP8 is also expected to have obsolete modems when they are launched. This is the poison-pill for IP8 sales.

Watch this space.

Full Court Lug… Tue, 08/01/2017 - 17:27 Permalink

So:- iWatches have flopped so bad they're not even worth mentioning anymore- No notable new products in the pipeline (just rehashes of 10-year-old products)- iPad sales have been sliding for 4 years straight with no end in sight- iPhone sales appear to have peaked- Net cash (while admittedly huge) hasn't grown since March 2014I get it, Apple did some truly amazing PR jujitsu and managed to convince the world its commodity products deserve to permanently sell at luxury margins, but I see nothing here to say they aren't treading water at best and slowly sinking at worst. Is anyone really excited about this company anymore? Have any genuinely exciting new tech products come out in the past few years?

buzzkillb Full Court Lug… Tue, 08/01/2017 - 17:39 Permalink

I see enough switchers going from Windows to MAC, because of Win10. Not sure how long that plays out, but its there. I saw an Architect get a very nice Surface desktop.  iPhone 8 is going to be heavy on the upgrade path for old iPhones (6+ users waiting for this one). Still no reason to upgrade iPads or tablets in general. Not sure what else Apple sells anymore. Then its going to be slow until 5G comes out to force phone upgrades. I would go with slowly sinking, while making a ton of funny money in the process. Losing money is going to really pop AAPL up.

In reply to by Full Court Lug…

Jballsquared Full Court Lug… Tue, 08/01/2017 - 23:54 Permalink

All good points and most of the ones I raised about $300 billion in market cap ago. The bottom line is I still have my 6 from 2 years ago, I still rank it with oxygen as to its importance to my day to day life, and I will almost definitely preorder the 8 if it comes in under a grand. Am I stupid? Maybe but cost of phone breaks down to a couple cents an hour over its life, and I have zero Microsoft nightmares that have consumed my laptop to the point I avoid using it altogether (and been on Msft since 1995, 10 may be my last pc because fuck them). I'm for the first time considering buying a Mac because my phone fucking works.

In reply to by Full Court Lug…

Snaffew FlKeysFisherman Tue, 08/01/2017 - 18:20 Permalink

I've owned 2 cell phones in my life...the droid does everything i need to do including trading and it fits neatly into my pocket.  I've been using cell phones for almost 10 years.  The i-phone is a ridiculously large brick.  I don't feel the need to watch movies on anything smaller than a 46 inch screen.  Will that be the size of the i-phone 8?

In reply to by FlKeysFisherman

BrokeMiner Tue, 08/01/2017 - 17:34 Permalink

isnt it funny that the poster child for silicon valley liberals keeps all its cash outside the US for tax purposes? as long as tim cook keeps virtue signaling about trans in the military, Apple is bulletproof from the hypocrisy

Consuelo Tue, 08/01/2017 - 17:36 Permalink

  As long as there remains disposable income in regions where there is gainful employment.Then again, with the addiction to these dumbing-down devices being what it is, perhaps disposable income isn't a factor...

Last of the Mi… Tue, 08/01/2017 - 18:11 Permalink

Funny how they never even consider getting an older flip phone, used car, and cheap apartment to get buy. All of it has to be brand new subprime financed shit that is no different from the previous version (except it doesn't have a phone jack) give me a fucking break! And by the way that is some nice set of tits on the new click bait ad.

adr Tue, 08/01/2017 - 18:46 Permalink

They really are trying to get a company to $1 trillion in market cap that fakes at least half their revenue by counting phones that never make it to consumers as sold. Funny how a company that brings in 1/3rd of what Walmart brings can be worth so much more. Walmart valued like Apple would be worth almost $2 trillion. Yeah Walmart sucks, but at least they employ a lot of Americans. So how did that American made Apple Pro desktop that looked like a trashcan do?  

HominyTwin Tue, 08/01/2017 - 21:34 Permalink

Yes, but how do I trade this motherfucker? Surprise earnings miss, easy to trade. Surprise to the upside, all the options premium goes to shit, and I sure ain't buying calls on this fucking company.