Apple Reports Earnings After The Close Today

Apple reports fiscal second-quarter earnings after the closing bell today, Tuesday, May 1.  The stock has been under significant pressure over the past few weeks as analysts have expressed concerns that iPhone sales in this quarter and the next will fall short of their expectations. Stock has slight recovered over the last few sessions as earning loom.

Some of the supply chain concerns stem from recent earnings reports and outlooks from key Apple suppliers including Taiwan Semiconductor Manufacturing and Austrian firm AWS, a manufacturer of sensors used in smartphones.

These fears seem to crop up around every one of Apple’s reports, and investors could get a better idea of whether or not demand for iPhones, particularly the high-end iPhone X, has been waning when the company reports on Tuesday.

As the largest source of revenue for the company, the iPhone remains the primary focus among analysts and investors. In fiscal Q1, iPhone revenue was up 13% year-over-year to $61.58 billion, driven by higher average selling prices, while iPhone units declined 1% year-over-year.

Analysts, on average, estimate that the company sold 53 million iPhones in fiscal Q2, which is down almost 10 million units from where estimates were at the end of 2017. As a result of some of the recent supply chain concerns, analysts have indicated they’ll be keeping an eye on Apple’s revenue guidance for fiscal Q3 to get an idea of whether or not management is expecting a slowdown in iPhone sales.

While the iPhone business is Apple’s largest, its fastest growing segments in recent quarters have been Services and Other Products. Services is the second largest segment by revenue, and it was up 18% year-over-year to $8.47 billion in fiscal Q1. Again, analysts are expecting about 19% year-over-year growth from the Services segment in fiscal Q2.

Other products, which includes Apple TV, Apple Watch and Beats products, among others, grew 36% year-over-year to $5.49 billion in fiscal Q1. The new HomePod speaker went on sale in January and management might provide some commentary around how that product is doing so far.

Finally, another area that analysts are likely to look at is Apple’s cash pile. Once tax reform was passed, CFO Luca Maestri said “we are targeting to become approximately net cash neutral over time,” but didn’t really provide any details as to the mix of share buybacks, dividends, acquisitions and other expenses. At the time, Apple had a $163 billion in net cash.

Apple Earnings and Revenue Estimates

For fiscal Q2, Apple is expected to report adjusted EPS of $2.69 on revenue of $61.1 billion, according to third-party consensus estimates. This trend has been reducing and gives Apple the chance to blow past current estimates. Last Qtr the forecast was EPS of $2.91. If Apple comes lcose to that the expect a significant pop.

The Market is expecting Apple Revenue to be $60.98B with a range form $58.27B – $62.37B. In the prior-year quarter, Apple earned $2.10 per share on revenue of $52.9 billion. Management issued guidance for revenue between $60 billion and $62 billion in fiscal Q2, while gross margin is expected to be between 38% and 38.5%, down slightly from 38.9% in the prior-year quarter.

Around the upcoming earnings release, options traders have priced in about a 4% stock move in either direction, according to the Market Maker Move indicator on the thinkorswim® platform.

In short-term trading at the May 4 weekly expiration, calls have been active at the 170 strike price, while puts have been active at the 160 and 162.5 puts. Looking further out at the May 18 monthly expiration, trading on the call side has been heavier at the 170 and 175 strikes, and puts have seen heavier trading at the 160 strike.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.