Apple Inc AAPL reported fiscal fourth-quarter 2017 results wherein earnings per share and revenues of $2.07 and $52.6 billion easily beat the Zacks Consensus Estimate of $1.87 and $51.2 billion, respectively. On a year-over-year basis, earnings and revenues grew a respective 24% and 12%.
The blowout performance allayed investor concern, leading to a 3% increase in share price in the aftermarket session.
Steady iPhone sales (higher average selling price was a big factor) along with a spurt in Services segment and a resurgent Macs and iPad business backed the impressive results. Business in China saw massive reacceleration, jumping 12% year over year to $9.8 billion, driven by Services and Mac sales. We note that in fiscal third-quarter 2017, sales in the region had declined 10% year over year.
Apple Inc. Price, Consensus and EPS Surprise
Apple Inc. Price, Consensus and EPS Surprise | Apple Inc. Quote
Apple also gave a very encouraging outlook for fiscal first-quarter 2018, anticipating strong demand for its much awaited edition, iPhone X. For the current quarter, sales are expected to be in the range of $84 to $87 billion compared with $78.4 billion reported in fiscal first-quarter 2017. The Zacks Consensus Estimate is pegged at $83.3 billion.
Quarterly Details
Total iPhone unit sales came in at about 46.7 million, up 3% year over year. Revenues from iPhone grew 2% from the year-ago quarter to $28.8 billion (54.7% of total revenue).
Services – including revenues from Internet Services, App store, Apple Music, AppleCare, Apple Pay, and licensing and other services – surged 34% year over year to nearly $8.5 billion. App Store sales were a big contributor. Across the segment, the number of paid subscribers grew 25 million to a total of 210 million in the last three months. The company is on track to double Services revenues of $24 billion in fiscal 2016 by 2020.
Apple sold 10.3 million iPads in the quarter, up 11% year over year. Revenues of $4.8 billion were up 14% from the prior-year quarter.
Apple Mac unit sales were up 10% year over year to approximately 5.4 million, while revenues grew 25% from the prior-year quarter to $7.2 billion.
Other products – including revenues from Apple TV, Apple Watch, Beats products, iPod, and Apple-branded and third-party accessories – increased 36% year over year to over $3.2 billion.
Geographical Performance
Demand for Apple’s products improved across most of the geographical regions except Japan. As much as 62% of the sales were from the International markets.
The Americas (the biggest market for Apple) generated revenues of approximately $23.1 billion in the quarter, up 14% year over year.
Europe generated nearly $13 billion in revenues, up 20% on a year-over-year basis.
Revenues from Japan fell 11% year over year to $3.9 billion while the rest of Asia Pacific generated revenues of $2.8 billion, up 5% year over year. China was up 12%.
Margins
Gross margin was 37.9%, a decrease of 10 basis points (bps) from the year-ago quarter.
Operating expenses increased 12.5% year over year to $6.8 billion due to higher research & development, selling, general and administrative expenses. As a result, operating margin dropped 10 bps from the year-ago quarter to 25%.
Balance Sheet and Cash Flow
Apple’s cash and cash equivalents (and short-term marketable securities) were $268.9 billion at the end of the year and long-term debt was $97.2 billion.
For the year ended Sep 30, 2017, cash generated from operating activities was $63.6 billion.
Apple returned about $11 billion this quarter through dividends and share repurchases. The company has returned $234 billion to shareholders out of its $300 billion capital return program.
Apple also declared a quarterly dividend of 63 cents per share, payable on Nov 16, 2017 to shareholders of record as of Nov 13.
Guidance
For fiscal first-quarter 2018, gross margin is expected within 38–38.5%, while operating expenses are projected within $7.65–$7.75 billion. Other income/(expense) is likely to be $600 million, while tax rate is expected to be 25.5%.
Zacks Rank & Stock Price Movement
Currently, Apple carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The company’s shares marginally outperformed the broader market in the past year. The stock registered growth of 54.5% compared with the industry’s gain of 53%.
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Stocks to Consider
Top-ranked stocks in the broader technology sector include NVIDIA Corporation NVDA Applied Materials AMAT, and Jabil Inc JBL. While NVIDIA and Jabil sport a Zacks Rank #1, Applied Materials carries a Zacks Rank #2 (Buy).
Long-term earnings growth rate for NVIDIA, Applied Materials and Jabil is currently projected to be 11.2%, 17.1% and 12%, respectively.
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