Apple (AAPL) Q4 Earnings & Revenues Beat But Decline Y/Y

Apple Inc. (NASDAQ:AAPL) posted better-than-expected results for both earnings and revenues in the fourth quarter of fiscal 2016.

Earnings of $1.67 per share surpassed the Zacks Consensus Estimate of $1.66, but dropped more than 15% from the prior-year quarter figure.

Revenues of $46.852 billion were also above the Zacks Consensus Estimate of $46.626 billion but declined 9.9% from the year-ago quarter.

Product Details

Apple iPhone unit sales came in at about 45.5 million, down 5% year over year. Revenues from iPhone also declined 13% from the year-ago quarter to $28.2 billion (60% of total revenue).

Nearly 9.3 million units of iPad were sold in the quarter, generating revenues of $4.3 billion. Revenues remained flat year over year despite a 6% drop in unit sales.

Apple Mac unit sales declined 14% year over year to approximately 4.9 million, while revenues dropped 17% from the prior-year quarter to $5.7 billion.

Services, which include revenues from Internet Services, AppleCare, Apple Pay, licensing and other services, surged 24% year over year to nearly $6.3 billion. The company revealed that its sales from Apple Music surged 22% year over year and that from the App Store and Apple Pay also gained a lot of traction.

Other products, which include revenues from Apple TV, Apple Watch, Beats products, iPod and Apple-branded and third-party accessories, declined 22% year over year to over $2.4 billion.

Geographical Performance

Demand for Apple’s products remained soft across most of the geographical regions except Europe and Japan. As much as 62% of sales were from the International markets.

Americas (the biggest market for Apple) generated revenues of approximately $20.2 billion in the quarter, down 7% year over year.

Europe generated nearly $10.8 billion in revenues, up 3% on a year-over-year basis.

Owing to persistent macroeconomic weakness, Apple revenues declined around 30% year over year in the Greater China region to $8.8 billion.

Revenues from Japan rose 10% year over year to $4.3 billion.

In the rest of Asia Pacific, the company reported revenues of $2.7 billion, down 1% year over year.

Margins

Gross margin was 38%, a decline of 190 basis points (bps) from the year-ago quarter.

Operating expenses increased 2.1% year over year to $6.1 billion due to higher research & development expenses. As a result, operating margin plunged 610 bps from the year-ago quarter to 25.1%.

Balance Sheet and Cash Flow

Apple’s cash and cash equivalents (and short-term marketable securities) were $67.2 billion at the end of the quarter, compared with $41.6 billion at fiscal 2015-end. Long-term debt was $75.4 billion compared with $53.5 billion at the end of fiscal 2015.

For the quarter, cash generated from operating activities was $16.1 billion.

Apple returned about $9.3 billion in capital returns this quarter through dividends and share repurchases.

The company also declared its quarterly dividend of 57 cents per share payable on Nov 10 to shareholders of record as on Nov 7.

Guidance

For the first quarter of fiscal 2017, Apple forecasts revenues in the range of $76 billion to $78 billion.

Gross margin is expected within 38% to 38.5%, while operating expenses are projected within $6.9 billion to $7 billion. Other income/ (expense) is likely to be $400 million, while tax rate is expected to be 26%.

APPLE INC Price, Consensus and EPS Surprise

APPLE INC Price, Consensus and EPS Surprise | APPLE INC Quote

Our Take

Better-than-expected iPhone sales have definitely come as a respite. The company is also seeing strength in the number of switchers from Android and other operating systems to iOS.

But the macroeconomic headwinds remain for now, especially in China, one of the high-growth regions for Apple. Competition is also mounting in most of the markets in which Apple operates.

Nonetheless, Apple is optimistic about the long-term growth prospects in regions like China and India. The expected launch of newer devices in the current quarter will also open more avenues for the company’s growth.

Apple’s Services business is also expected to remain strong as it is mostly dependent on the already installed Apple devices. Also, in the long run, Apple is expected to benefit from its robust cash position, strength in technology and the ecosystem that it has built, given its loyal customer base. Further, its enterprise collaborations with the likes of Deloitte, IBM Corp. (NYSE:IBM) , Cisco (NASDAQ:CSCO) and SAP SE (NYSE:SAP) are expected to be important long-term growth drivers.

Currently, Apple has a Zacks Rank #3 (Hold)

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