Apple (Nasdaq: AAPL) Earnings Beat Takes Everyone By Surprise

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Apple Inc. (Nasdaq: AAPL) pleasantly surprised Wall Street by comfortably beating expectations when it reported earnings for its March quarter after the market close today (Wednesday).

The Cupertino, Calif.-based tech giant also threw existing holders of Apple stock several goodies, including an expansion of the stock buyback program, a seven-for-one stock split, and an 8% increase in the dividend.

The Apple stock buyback program will expand by $30 billion, to bring the total by 2015 to $130 billion.

The raft of happy news sent AAPL stock up more than 8% in after-hours trading.

Apple
NASDAQ: AAPL
Oct 22
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Price: 102.99 | Ch: 0.52 (0.5%)

Apple reported earnings per share of $11.62, a healthy $1.46 above the $10.16 analysts had forecast as well as the $10.09 reported in the same quarter a year ago.

Revenue was $45.6 billion, which was $2 billion above both the year-ago quarter and analyst expectations.

apple earningsAnother pleasant surprise was higher gross margins, which came in at 39.3%. That, too, beat the forecast of 37.7% as well as the year-ago quarter number of 37.5%.

The good news was almost entirely driven by surprisingly strong iPhone sales. Apple sold 43.7 million iPhones in the quarter, a 17% increase over the same quarter last year and far above the Street's number of 37.7 million.

That's a positive sign for the current quarter in that it shows demand for the iPhone remained high despite the lack of any updates and rumors of iPhone models with larger screens (a 4.7-inch and a 5.5-inch) expected to arrive in the fall.

The only other sector to shine in the March quarter was iTunes/Software and Services, which saw revenue rise 11% to nearly $4.6 billion.

Mac sales were nearly flat, rising 1% by revenue and 5% by units. Meanwhile, iPad revenue slumped 13%, with unit sales falling 16%.

Still, the Apple earnings report hit a lot more high notes than anyone expected, particularly with the stock buyback and dividend increase.

But while the stellar earnings report will push Apple stock higher in the short term, it will take more than that to sustain a push back to $600 and beyond.

Join the conversation. Click here to jump to comments…

  1. Florian | April 23, 2014

    Lots of blabla with no real new information, and AAPL proved you wrong.

  2. Matt | April 23, 2014

    This is not the article you had posted earlier. You were completely wrong. Way to take down the previous article to hide your bad advice.

    • David Zeiler | April 23, 2014

      The previous article was simply a preview based on what most Apple-watchers were expecting. The big beat, as well as the other announcements, were a total surprise to everyone. The intent was always to replace the preview with the real news. We do that with all the earnings stories we write. And I still stick by my statements that Apple needs to come out with a new product category to get the stock heading back toward its all-time high.

      -David Zeiler

      • Chad | April 24, 2014

        You're saying that Apple needs to come out with a new product category in order to go back to it's all-time high?

        Translation: In order for Apple to go from $550/share to over $700/share, it needs to come out with new products.

        That's unreal advice, going out on a serious limb there David.

        • David Zeiler | April 24, 2014

          Chad,

          Thanks for the comment. I really don't think it's that much of a stretch to say that Apple needs a new product to get back to $700. At this point Apple is a victim of its own success as its so huge that even an unexpected billion or so of profits isn't all that amazing, even though it should be. It's a perfect example of the Law of Large Numbers, and it means Apple will need to come up with something big to get the stock price to move that much. I plan to write another piece on this elaborating on this idea today, so stay tuned.

          -David Zeiler

  3. Mark Sybley | April 23, 2014

    AAPL earnings today: About 10% higher than expected. 7:1 stock split in June. 8% increase in dividend. APPL shares up 7.75% after hours. If that's not a home run, I don't know what is. The iPhone, which supposedly wasn't selling if you listen to the financial prognosticators, has sold like hotcakes yet again. Don't bother listening to these analysts because only AAPL knows their numbers and they're famously secretive until it's time to report.

  4. Kieran | April 23, 2014

    You're still not seeing it. There's no "big beat" and Apple can obviously bolster its share price without one. The shares are up on 3 other announcements: a 7 for 1 stock split, a dividend increase, and a big stock buyback increase

    • (Admin) Bill Patalon | April 24, 2014

      Kiernan: Thanks for the post. And I respect the passion you put behind your arguments. As someone who's entire career has been based on writing, I know as well as anyone that passion is a positive asset … and is to be respected.

      And, believe me, I do respect it. Even when it's powering arguments that run counter to what I think. (In fact, we've got a very smart bunch of readers here at Money Map Press, which is one of the reasons I very much like working here).

      Let me counter, however, by making two other points that folks don't seem to be making here.

      First, this isn't just about financial engineering.

      The company sold 43.7 million iPhones — 10 million more than folks were expecting, in part because of the China Mobile deal, which is still ramping up.

      Apple also reported record service revenue.

      And that's in the near-term. I think that China Mobile deal is going to continue to pay off. And let's not forget that the company has made about two dozen acquisitions here over the past year. Tim Cook is proving to be a much more capable CEO than most folks thought. I think we'll see a nice payoff from some of these … and sooner than you might think.

      Second, folks here seem to be completely dismissing the buyback and stock split. And I have to say that I'm actually stunned by this dismissive point of view.

      Public companies are supposed to be run for the maximum benefit of shareholders … and you all know this. Indeed, the concept/objective is “long-term shareholder wealth maximization.” When you are the CEO of a public company, you are the steward of shareholder money. And your job is to maximize the return on that capital over the long haul.

      That means you need to strike a balance …. using the company assets and resources at your disposal to generate the best possible returns, in the "here and now" AS WELL AS in the long run.

      I make that distinction for a reason. In fact, let me show you …

      On one hand, as CEO, you don't want a guy like Tim Cook, or Jeffrey Immelt at GE, or whatever company you wish to mention, to make so much of a return in the short run that he or she damages the long-term earnings power of the company.

      On the other hand, you don’t want the company to have so much cash that it becomes a “non-performing asset” that benefits no one.

      Right now, companies like Apple and others have amassed massive cash hoards. Indeed, they are so obscenely massive that there’s no way that a company could possible invest it all into profit-generating projects. It’s more than they need for possible acquisitions. And it’s even more than they need to for the proverbial “rainy day.”

      Now, we don’t want the companies to turn ALL of that money back to shareholders – we DO want them to keep some of it to maintain flexibility and to be able to be opportunistic in the future. But we DON’T want it to become a non-performing asset.
      In short, we want them to keep enough of it to be able to pursue the Prime Directive: Long-term shareholder wealth maximization.

      When a corporation has a big cash hoard, it must do one of two things: Invest it in profit-maximizing projects (now and in the future), or turn it back to shareholders through buybacks or dividends.

      That’s what Apple is doing here.

      The “market” – the ultimate judge or arbiter – seems to be voting in favor of the moves.

      There will be benefits – some clear, and others that will only manifest themselves over time.

      Here's an example of one possibility. And it's just one.

      BusinessWeek just reported that this first stock split in nine years could pave the way for Apple to be included in the Dow Jones Industrial Average. Granted, changes are rare. But if it were added to the 30-stock index, many funds or managed accounts that mimic the index or that use Dow as the basis for their investing methodology would have to buy the stock. And that would have benefits both in terms of price and predictability.

      Just wanted to add these thoughts, because I think a lot of folks are overlooking the positives of what Apple has done.

      And I thank you – and all of your fellow subscribers here – for offering your thoughts.

      Respectfully yours;

      William (Bill) Patalon III
      Executive Editor/Editorial Director
      Money Map Press

  5. Alex | April 24, 2014

    #shameHidden

    Why did you remove your stupidity?

  6. Thomas Chorba | April 25, 2014

    Apple's I-Phone 6 will reportedly contain sapphire glass instead of Corning's Gorilla glass. Sapphire is the second hardest substance next to diamonds making it scratch resistant and practically unbreakable. This sapphire glass is being manufactured by GT Advanced Technologies (GTAT), a stock I believe that you recommended back in February 2014. GTAT has been on a tear since they partnered with Apple in their new Yuma Arizona plant where they are manufacturing the sapphire glass panels. How about writing about this stock? It appears to be a life-changing investment and many investors will become extremely rich who own it. I, for one, am very grateful to you for recommending the stock back in February. Watch it skyrocket after Apple announces the inclusion of sapphire glass, along with other new technologies in their I-Phone 6. The stock, since I have owned it, has gone from $9.95 to over $19, and it has only been 3 months! Analysts are saying GTAT is easily a $100 (or more) stock. What sayeth you?

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