Apple (AAPL) Earnings Q3 2013: Modest Results Confirm Wall Street Concerns, Despite High iPhone Sales

 @redletterdave
on July 23 2013 5:07 PM
Cook Tim
Apple CEO Tim Cook. Apple has been named the most valuable brand in the world. Reuters

Apple Inc. (NASDAQ: AAPL) reported its fiscal third-quarter earnings on Tuesday afternoon after the market closed, and as expected, the company's modest guidance range and Wall Street concerns were confirmed by lower-than-expected revenue of $35.3 billion and quarterly profit of $6.9 billion, or $7.47 per diluted share.

Apple CFO Peter Oppenheimer provided guidance for Q3 2013 at the company's last earnings call, expecting revenue between $33.5 billion and $35.5 billion, but Wall Street analysts remained skeptical amid concerns about its growth prospects across its existing and future product lines. For the most part, Wall Street's predictions fell between Apple's low and high guidance range, with the general consensus that year-on-year revenues will be either flat or slightly down. In Q3 2012, Apple posted quarterly revenue of $35.0 billion and net profit of $8.8 billion, or $9.32 per diluted share.

If there's one part of its Q3 2013 earnings Apple can hang its hat on, it's iPhone sales. Quarterly iPhone sales reached 31.2 million in Q3 2013, compared to 26 million in the year-ago quarter. But besides the iPhone, sales were down across Apple's main product lines. Apple sold 14.6 million iPads in Q3 2013, down from 17 million in the year-ago quarter, and 3.8 million Macs, down from 4 million Macs in the year-ago period.

“We are especially proud of our record June quarter iPhone sales of over 31 million and the strong growth in revenue from iTunes, Software and Services,” said Apple CEO Tim Cook. “We are really excited about the upcoming releases of iOS 7 and OS X Mavericks, and we are laser-focused and working hard on some amazing new products that we will introduce in the fall and across 2014.”

Gross margin for Apple's fiscal third quarter was 36.9 percent compared to 42.8 percent in the year-ago quarter, and international sales accounted for 57 percent of revenue. Apple currently holds $146.6 billion in cash and marketable securities. Apple’s Board of Directors also declared a cash dividend of $3.05 per share of its common stock. The dividend is payable on Aug. 15, 2013, to shareholders of record as of the close of business on Aug. 12, 2013.

“We generated $7.8 billion in cash flow from operations during the quarter and are pleased to have returned $18.8 billion in cash to shareholders through dividends and share repurchases,” Oppenheimer said Tuesday.

Analysts across the board had expected Apple's Q3 2013 earnings per share to be down anywhere from 7 percent to 29 percent. Wall Street analysts predicted an average of $34.90 billion in revenue and $7.29 earnings per diluted share, and Thomson Financial predicted $35.09 billion in revenue on $7.31 earnings per diluted share.

Of course, the market was looking forward to Apple reporting sales of its key product lines, particularly the iPhone, iPad and Mac lines. Wall Street predicted sales of 26.6 million iPhones, 17.6 million iPads and 3.9 million Macs in Q3 2013.

In the last quarter alone, Apple announced many new hardware and software products, including Mac OS X Mavericks and iOS 7, but it actually released only one piece of hardware during that time frame. Unfortunately for Apple, the new 2013 MacBook Air received only lukewarm reviews, even with its much-improved battery life. The company will need more products to drum up excitement -- and more important, sales -- if it hopes to avoid another disappointing earnings call.

Oppenheimer provided guidance for Apple's fiscal fourth quarter of 2013, expecting quarterly revenue between $34 billion and 37 billion and gross margin between 36 and 37 percent.

Visit this link starting at 5 p.m. EDT to listen to Apple's Q3 3013 conference call.

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