Apple Inc. (AAPL) reported strong fiscal first-quarter 2015 results. Earnings of $3.06 per share jumped 47.8% year over year on higher revenues from iPhone and Mac sales, comfortably beating the Zacks Consensus Estimate by $2.60.
Quarter Details – Revenues
Revenues increased 30% year over year to $74.6 billion, comparing favorably with the forecasted range of $63.5 billion to $66.5 billion. Revenues also breezed past the Zacks Consensus Estimate of $66.9 billion.
Demand for Apple products remained strong across all geographical regions. The company generated $16.1 billion revenues from Greater China, soaring 70% year over year and 157% sequentially. In rest of Asia, the company reported revenues of $5.2 billion, up 33% year over year.
The Americas remained the biggest market for Apple in terms of sales, generating revenues of $30.6 billion, up 23% year over year. Europe generated $17.2 billion revenues, up 20% year over year.
The growth was driven by record high sale of iPhone, which hit 74.5 million units, increasing 46% year over year. iPhone revenues surged 57% from the year-ago quarter to $51.2 billion.
Unit sales for Mac also increased 14% year over year to 5.5 million, representing revenues of $6.9 billion, up 9%.
iPad registered sales of 21.5 million units, which declined 18% year over year. Revenues were around $9 billion, which also declined 22% year over year.
Services, which include revenues from the iTunes Store, App Store, Mac App Store, iBooks Store, AppleCare, Apple Pay, licensing and other services, increased 9% year over year to $4.8 billion.
Other products, which include revenues from iPod, Apple TV, Beats Electronics and Apple-branded and third-party accessories, declined 5% year over year to $2.7 billion.
The company recorded $2.6 billion in total sales from iTunes media and software services, up 8% year over year. In addition, App Store revenues shot up 41% driven by solid demand globally.
In the reported quarter, Apple opened 10 retail stores, reaching a total of 447, of which 182 are located outside the U.S.
Margins
Gross margin was 39.9%, above the company’s guidance range of 37.5% to 38.5% and also expanded 200 basis points (bps) from the year-ago quarter.
Operating expenses, increased 25.4% year over year to $5.5 billion owing to higher research & development, and selling, general & administrative expenses.
Operating margin declined 30 bps from the year-ago quarter as revenue growth was offset by the rise in total operating expenses.
Net income increased 37.9% year over year to $18 billion.
Balance Sheet and Cash Flow
Apple’s balance sheet remains strong with cash and investments of $19.4 billion at the end of the first quarter of fiscal 2015 compared with $13.8 billion at the end of fiscal 2014. Long-term debt was $32.5 billion compared with $29 billion at the end of fiscal 2014. Cash generated from operating activities was $33.7 billion, which compared favorably with $22.8 billion generated in fiscal 2014.
Guidance
For the second quarter of fiscal 2015, Apple forecasts revenues in the range of $52 billion to $55 billion, up from $45.6 billion revenues in second quarter of fiscal 2014. Gross margin is expected within 38.5% to 39.5%, while operating expenses are projected within $5.4 billion to $5.5 billion. Other income/(expense) is likely to be $350 million, while the tax rate is expected to be 26.3%.
The company remains focused on expanding in Greater China and expects to open around 40 stores in this region by mid-2016.
Apple is looking forward to the launch of its new programming language Swift by September this year. In addition, the company’s partnership with International Business Machines Corporation (IBM) is expected to yield 12 new apps in the second quarter, including three in new industries, namely health care, energy and utilities, and industrial products. The company expects to launch 100 apps under this partnership in 2015. Further, the company will launch themost awaited product of the year — Apple Watch — in April.
Our Take
We believe that strong sales of the new iPhones (6 and 6 plus) will be Apple’s key growth catalyst in fiscal 2015. We believe that iPhone sales will continue to benefit from the Apple-China Mobile partnership in the Greater China region despite the pricing pressure. Moreover, expanding the carrier base in other countries will help the company to aggressively sell iPhones, going forward. In addition, the launch of Apple Watch this year will remain crucial for the company and given the market buzz, we believe the product will add to its top-line growth.
Other Stocks to Consider
Currently, Apple has a Zacks Rank #2 (Buy). Other stocks worth considering in the technology sector include VASCO Data Security International Inc. (VDSI) and Fortinet Inc. (FTNT). While VASCO Data Security sports a Zacks Rank #1 (Strong Buy), Fortinet has a Zacks Rank #2.
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