Apple reports earnings miss in Q216

Apple today announced financial results for its fiscal 2016 second quarter ended March 26, 2016. The Company posted quarterly revenue of $50.6 billion and quarterly net income of $10.5 billion, or $1.90 per diluted share. These results compare to revenue of $58 billion and net income of $13.6 billion, or $2.33 per diluted share, in the year-ago quarter. Gross margin was 39.4 percent compared to 40.8 percent in the year-ago quarter. International sales accounted for 67 percent of the quarter’s revenue.

Wall Street expected Apple to report earnings of about $2 a share on $51.97 billion in revenue, according to a consensus estimate from Thomson Reuters. Analysts also expected Apple to report iPhone shipments of about 50.3 million units in the second quarter, bringing in revenue of $33.23 billion for the product category, as per StreetAccount. Apple’s Q215 results: Profit of $13.6 billion, or $2.33 a share, on revenue of $58 billion.

“Our team executed extremely well in the face of strong macroeconomic headwinds,” said Tim Cook, Apple’s CEO, in a statement. “We are very happy with the continued strong growth in revenue from Services, thanks to the incredible strength of the Apple ecosystem and our growing base of over one billion active devices.”

• iPhone: 51.193 million units, $32.857 billion revenue (vs. 61.170 million, $40.282 billion YOY / -16% units YOY, -18% revenue YOY)
• iPad: 10.251 million units, $4.413 billion revenue (vs. 12.623 million, $5.428 billion YOY / -19% units YOY, -19% revenue YOY)
• Mac: 4.034 million units, $5,107 billion revenue (vs. 4.563 million, $5.615 billion YOY / -12% units YOY, -9% revenue YOY)
• Services: $5.991 billion revenue (vs. $4.996 billion YOY / +20% YOY)
• Other Products*: $2.189 billion revenue (vs. $1.689 billion YOY / +30% YOY)

*includes sales of Apple TV, Apple Watch, Beats products, iPod and Apple-branded and third-party accessories.

The Company also announced that its Board of Directors has authorized an increase of $50 billion to the Company’s program to return capital to shareholders. Under the expanded program, Apple plans to spend a cumulative total of $250 billion of cash by the end of March 2018.

“We generated strong operating cash flow of $11.6 billion and returned $10 billion to shareholders through our capital return program during the March quarter,” said Luca Maestri, Apple’s CFO, in a statement. “Thanks to the strength of our business results, we are happy to be announcing today a further increase of the program to $250 billion.”

As part of the updated program, the Board has increased its share repurchase authorization to $175 billion from the $140 billion level announced last year. The Company also expects to continue to net-share-settle vesting restricted stock units.

The Board has approved an increase of 10 percent to the Company’s quarterly dividend, and has declared a dividend of $.57 per share, payable on May 12, 2016 to shareholders of record as of the close of business on May 9, 2016.

From the inception of its capital return program in August 2012 through March 2016, Apple has returned over $163 billion to shareholders, including $117 billion in share repurchases.

The Company plans to continue to access the domestic and international debt markets to assist in funding the program. The management team and the Board will continue to review each element of the capital return program regularly and plan to provide an update on the program on an annual basis.

Apple is providing the following guidance for its fiscal 2016 third quarter:
• revenue between $41 billion and $43 billion
• gross margin between 37.5 percent and 38 percent
• operating expenses between $6 billion and $6.1 billion
• other income/(expense) of $300 million
• tax rate of 25.5 percent

Apple’s Q316 revenue guidance of between $41 billion and $43 billion is light vs. FactSet estimate $47.4 billion.

Apple will provide live streaming of its Q2 2016 financial results conference call beginning at 2:00 p.m. PDT on April 26, 2016 at www.apple.com/investor/earnings-call/.

MacDailyNews presents live notes from Apple’s Q216 Conference Call
Tuesday, April 26, 2016 · 4:46 pm
MacDailyNews presents live notes from Apple’s Q216 Conference Call with analysts starting at 5pm EDT/2pm PDT today.
Apple will provide live audio streaming of its Q216 Results Conference Call using Apple’s industry-leading QuickTime multimedia software.
The live webcast will begin at 2pm PDT/ 5pm EDT today here.
Apple today announced financial results for its fiscal 2016 second quarter ended March 26, 2016. The Company posted quarterly revenue of $50.6 billion and quarterly net income of $10.5 billion, or $1.90 per diluted share. These results compare to revenue of $58 billion and net income of $13.6 billion, or $2.33 per diluted share, in the year-ago quarter. Gross margin was 39.4 percent compared to 40.8 percent in the year-ago quarter. International sales accounted for 67 percent of the quarter’s revenue.
Wall Street expected Apple to report earnings of about $2 a share on $51.97 billion in revenue, according to a consensus estimate from Thomson Reuters. Analysts also expected Apple to report iPhone shipments of about 50.3 million units in the second quarter, bringing in revenue of $33.23 billion for the product category, as per StreetAccount. Apple’s Q215 results: Profit of $13.6 billion, or $2.33 a share, on revenue of $58 billion.
Live notes from Apple’s Q415 Conference Call in reverse chronological order:

End of conference call.

Cook: I think there are growing number of people in both major U.S. political parties that would like to enact comprehensive corporate tax reform in the U.S. and that would benefit the U.S. economy.
Apple are strong advocates for comprehensive corporate tax reform in the U.S.
When you factor in the over $2 billion reduction in channel inventory, you can see why the Q316 guidance is given
One more time: iPhone 6 was a tough compare. It was an anomaly
Cook: If you compare to iPhone 5s, we see a slightly higher upgrade rate, but if you compare to iPhone 6, its clearly a lower upgrade rate
Cook: The purchase value of the install base grew by 27% and the value is just shy of $10 billion, so its huge.
Cook: We want to offer a great customer experience. We want to embark on service that do that. In doing so, we have developed a very large and profitable business in that area.
Apple expense to revenue is around 10% and Apple is very proud of that number.
Cook: Now at 35 stores in China and 5 more will open for 40 by end of quarter
Cook: Larger picture, I see China not as week, but a lot more stable than the common view
Currency headwinds are significant vs. year ago.
“Death to the ‘S,'” Tim. – MDN Ed.

But this is a tough compare. iPhone 6 was an anomaly
Cook: If iPhone 6s saw an upgrade rate like they saw for iPhone 6, it would be time for a huge party
Cook: iPhone 6s upgrade cycle likely better than the rate for iPhone 5s, but it is a lot lower than iPhone 6
Cook: We believe we are going to have the best compare for iPad than Apple has had for a very long time
Cook: iPad satisfaction and usage are both very high. Cycle is very long vs. iPhone
Cook: I don’t think iPhone SE will be like iPad mini; replacement cycle is materially different
Cook: Demand for iPhone SE is much greater than Apple anticipated
Cook: Apple thrilled with response to iPhone SE
Cook: Vast majority of channel inventory reduction is in iPhone
Apple’s music business has hit an inflection point with streaming subscriptions from Apple Music making up for loss of download sales from iTunes Store. Apple expects music revenue growth gong forward
Apple’s services business is growing. — 35% growth from the App Store
Luca: iPhone Average Selling Prices will face downward pressure due to lower price of iPhone SE
Cook: Great to see the overwhelming demand for iPhone SE
Cook: iPhone SE is attracting customers who wanted latest tech in a more compact package (more than Apple thought there would be) and people who aspire to own an iPhone and who can now meet the entry price
Apple is always looking at companies to acquire if they offer technologies/people that interest Apple
With iPhone SE, Apple has seen ability to attract even more customers into the platform due to and incredible product with the latest technology at a new price point for Apple
In first half, Apple iPhone has set a record on switchers from other platforms
Cook: iPhone 6/Plus was an extraordinary cycle. Leads to a tough compare this year
Cook: The worldwide smartphone market is currently not growing. Due to macroeconomic issues. Apple is optimistic that “This too shall pass.”
YOY channel inventory reduction less than $800 million in 2015
Guidance includes effects of Channel inventory reduction, constrained supply and lower ASP of iPhone SE
Apple expects a seasonal sequential decline in iPhone and iPad sales and an increase in Mac sales
Planned channel inventory reduction is over $2 billion.
Apple is providing the following guidance for its fiscal 2016 third quarter:

revenue between $41 billion and $43 billion
gross margin between 37.5 percent and 38 percent
operating expenses between $6 billion and $6.1 billion
other income/(expense) of $300 million
tax rate of 25.5 percent

Apple plans to continue to access the domestic and international debt markets to assist in funding the program
Apple is proud to be one of the largest dividend payers in the world
Apple’s Board has approved an increase of 10 percent to the Company’s quarterly dividend, and has declared a dividend of $.57 per share, payable on May 12, 2016 to shareholders of record as of the close of business on May 9, 2016
Apple expects to continue to net-share-settle vesting restricted stock units
Apple’s Board has increased its share repurchase authorization to $175 billion from the $140 billion level announced last year
Apple cash on-hand now at $232.9 billion 90% of the total outside the United States.
IBM MobileFirst for iOS continues to grow in the enterprise the world over
Maestri: Other products grew 30% YOY thanks to Apple Watch.
Other Products: $2.189 billion revenue (vs. $1.689 billion YOY / +30% YOY) — includes sales of Apple TV, Apple Watch, Beats products, iPod and Apple-branded and third-party accessories.
Services: $5.991 billion revenue (vs. $4.996 billion YOY / +20% YOY) — Includes revenue from Internet Services, AppleCare, Apple Pay, licensing and other services.
iPad: 10.251 million units, $4.413 billion revenue (vs. 12.623 million, $5.428 billion YOY / -19% units YOY, -19% revenue YOY)
Apple generated double-digit Mac growth in a number of markets despite a challenging market for personal computers
Mac: 4.034 million units, $5,107 billion revenue (vs. 4.563 million, $5.615 billion YOY / -12% units YOY, -9% revenue YOY)
ChangeWave: Record 70% of companies plan to buy iPhone smartphones
iPhone: 51.193 million units, $32.857 billion revenue (vs. 61.170 million, $40.282 billion YOY / -16% units YOY, -18% revenue YOY)
Currency headwinds were significant
Apple remains very optimistic in the China market over the long term and remain committed to investing in China for the future
Under the expanded program, Apple plans to spend a cumulative total of $250 billion of cash by the end of March 2018

Luca Maestri: Apple Board of Directors has authorized an increase of $50 billion to the company’s program to return capital to shareholders
Cook: The future of Apple is very bright. Apple has a very strong product pipeline.
Apple plans to lower channel inventories in the June quarter
Apple believes in privacy
Apple excited with how Apple Watch, iPhone and CareKit can improve people’s health and lives
In June quarter, Apple expects to see their best iPad unit sales compare in two years
iPhone SE demand has been very strong and Apple continues to work to increase supply
Cook: We believe Apple Watch has an exciting future
Unit sales of Apple Watch exceeded sales of iPhone in its first year
Apple Watch: Unit sales met Apple’s internal expectations
Cook: We are confident in our Mac business and confident the company can continue to innovate
Over half of Mac buyers were new to Mac
Mac channel inventory reduced by about 100,000 units
Apple Pay is seeing 1 million new users per week.
Huge install base on over 1 billion devices is a source of revenue that is growing independent of the unit sales sold each quarter.
Apple Music continues to grow with over 13 million subscribers to date
March quarter services revenue was Apple’s highest ever.
Apple added more Android switchers during the first half of the fiscal year that during any other 6-month period.
Kantar: 95% iPhone loyalty rate, the highest ever measured for a smartphone
Upgrade of rate for iPhone 6 cycle, slightly higher that iPhone 5s cycle. Lower than iPhone 6
Rate of Android to iPhone switchers accelerated
Installed base of over 1 billion grew significantly
Tim Cook: Our team executed extremely well in the face of strong macroeconomic headwinds and a tough YOY compare
Tim Cook: Very busy and challenging quarter.
Start of conference call

AAPL: After Hours : 96.45 Down 7.90 (7.57%) 5:00PM EDT
AAPL: After Hours : 96.98 Down 7.37 (7.06%) 4:58PM EDT
AAPL: After Hours : 97.85 Down 6.50 (6.23%) 4:48PM EDT
AAPL: Close: 104.35 Down 0.73 (0.69%) 4:00PM EDT

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.