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Trading  | August 1, 2017

With Apple trading just shy of all time highs (and with a quarter trillion in cash on the books), the market was wondering if AAPL can once again surprise to the upside ahead of the all important iPhone 8 quarter, as well as provide some guidance what it plans to do with its cash hoard. And while, there was no explicit guidance on the now $260BN+ in gross cash, Apple has surged after hours on the strong top and bottom line beat, and just as strong guidance, despite a small iPhone sales miss in the current quarter.

Apple reported Q3 earnings which beat on both the bottom line and top line while missing modestly on iPhone sales, as Apple sold 40.0 million iPhones, just below the 40.1 million expected, if 1.5% higher than a year ago, despite also missing on ASPs (which came in at $606, below the $628 expected) while Chinese revenues disappointed once again declining by 9.5% Y/Y. However, the silver lining, and what most appear to be focused on was Apple’s strong forecast, with the company forecasting $49 billion to $52 billion in revenue for the upcoming, critical quarter, a range that was well above sellside consensus of $49.12 billion, suggesting Apple is quite optimistic about the upcoming iPhone 8 product launch.

Earnings of $1.67 were higher than the $1.57 expected, on revenue of $45.4 billion, which also beat expectations of $44.9 BN, and 12% higher than a year ago.

Also helping AAPL this quarter was an unexpected boost from iPad sales, with Apple selling 11.4 million units in the quarter, 15% higher than the 10 million it sold a year ago, and well above expectations.  Apple released two new models in June, the 10.5-inch iPad Pro and an updated 12.9-inch Pro, and these are clearly resonating with buyers. The iPad numbers also indicate 28% quarter-over-quarter growth. In Q2, Apple sold only 8.9 million iPads

On the negative side, Apple forecast a gross margin of 37.5%-38.0% for Q4, below the consensus estimate of 38.2%, while revenue in China declined for the 6th consecutive quarter, down 9.5%.

The results in a nutshell:

  • Q3 EPS: $1.67 Exp. $1.57
  • Q3 Revenue: $45.4, Exp. $44.9Bn
  • iPhone unit sales: 40.0 milion, Exp. 40.1 million. iPhone sales generated $24.848 billion in revenue, 61 % of total.
  • Apple forecast the average iPhone selling price in Q4 would be: $606, below the Exp. $628

Apple also provided the following guidance for its fiscal 2017 second quarter:

  • revenue between $49 billion and $52 billion
  • gross margin between 37.5 percent and 38 percent
  • operating expenses between $6.7 billion and $6.8 billion

As Bloomberg notes, the unexpected upside in Apple’s forecast indicates that at least some sales of the next-generation iPhone will occur in the fourth quarter, refuting the recent Citi downgrade which expected substantial rollout delays. As a reminder, Apple is working on three new iPhones, including a completely revamped version for the product’s 10th anniversary, which may not ship in bulk until one or two months after the first models.

Tim Cook was predictably happy:

“With revenue up 7 percent year-over-year, we’re happy to report our third consecutive quarter of accelerating growth and an all-time quarterly record for Services revenue,” said Tim Cook, Apple’s CEO. “We hosted an incredibly successful Worldwide Developers Conference in June, and we’re very excited about the advances in iOS, macOS, watchOS and tvOS coming this fall.”

His CFO shared the sentiment:

“We reported unit and revenue growth in all our product categories in the June quarter, driving 17 percent growth in earnings per share,” said Luca Maestri, Apple’s CFO. “We also returned $11.7 billion to investors during the quarter, bringing cumulative capital returns under our program to almost $223 billion.”

And judging by the initial reaction in the stock, which is over 5% higher in after hours trading, shareholders shared his sentiment.

The result in chart format:

Apple Net Income grew 11.8% Y/Y, while iPhone sales rose 1.5%.

Q3 Revenue of  45.4 billion beat expectations of $44.9 billion.

Product sales: While the market ignored the modest miss in iPhone sales in the current quarter, it was pleasasantly surprised by the 15% surge in iPad sales, which jumped to 11.4 million units, generating $5 billion in revenue in the quarter, 2% higher Y/Y. Apple also said it sold 4.29 million Macs in Q317, compared to 4.25 million units in the year ago quarter, a 1% year-over-year unit sales growth.

Regional breakdown: sales grew in every region expect China where they declined by 9.5%, the 6th consecutive decline in a row.

Finally, while the company’s record cash hoard grew once more, rising to $262 billion total, the cash number net of debt actually declined modestly to $153 billion. As a reminder, most of this cash remains locked outside of the US.

Shareholders are certainly enjoying the company’s optimistic forecast, sending the stock 6% higher to new all time highs.

A revolutionary initiative is helping average Americans find quick and lasting stock market success.

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