Will the recent positive trend continue leading up to its next earnings release, or is Apple due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Apple‘s Q3 Earnings Beat, iPhone Strength Aids Top Line
Apple reported third-quarter fiscal 2021 earnings of $1.30 per share that beat the Zacks Consensus Estimate by 30% and jumped 100% year over year.
Net sales increased 36.4% year over year to $81.43 billion, which surpassed the Zacks Consensus Estimate by 11.3%.
iPhone and Services maintained momentum in the reported quarter. iPhone sales increased 49.8% from the year-ago quarter to $39.57 billion and accounted for 48.6% of total sales. iPhone sales were driven by strong demand for the iphone-12 family of devices.
Services revenues grew 33% from the year-ago quarter to $17.49 billion and accounted for 21.5% of sales.
Apple now has more than 700 million paid subscribers across its Services portfolio, up 40 million sequentially and 150 million year over year.
Strong China & Europe Aid Top Line
Americas sales increased 32.8% year over year to $35.87 billion and accounted for 44% of total sales.
Europe generated $18.94 billion in sales, up 33.7% on a year-over-year basis. The region accounted for 23.3% of total sales.
Greater China sales surged 58.2% from the year-ago quarter to $14.76 billion, accounting for 18.1% of total sales.
Japan sales soared 30.2% year over year to $6.46 billion, accounting for 7.9% of total sales.
Rest of the Asia Pacific generated sales of $5.40 billion, up 28.5% year over year. The region accounted for 6.6% of total sales.
Product sales (78.5% of sales) surged 37.4% year over year to $63.95 billion. Non-iPhone revenues (iPad, Mac and Wearables) grew 21.2% on a combined basis.
iPad sales of $7.37 billion climbed 11.9% year over year and accounted for 9% of total sales.
Mac sales of $8.24 billion increased 16.3% from the year-ago quarter and accounted for 10.1% of total sales.
Wearables, Home and Accessories sales increased 36% year over year to $8.78 billion and accounted for 10.8% of total sales.
Gross margin expanded 530 basis points (bps) on a year-over-year basis to 43.3%. Moreover, gross margin increased 80 bps sequentially, driven by cost savings and higher mix of services.
Products’ gross margin contracted 10 bps sequentially to 36%. Services’ gross margin was 69.8%, down 30 bps sequentially.
Operating expenses rose 16.1% year over year to $11.13 billion due to higher research & development (R&D), and selling, general & administrative (SG&A) expenses, which increased 20.2% and 12%, respectively.
Operating margin expanded 770 bps on a year-over-year basis to 29.6%.
As of Jun 26, 2021, cash & marketable securities were $193.64 billion compared with $204.37 billion as of Mar 27, 2021.
Term debt, as of Jun 26, 2021, was $113.79 billion, down from $116.65 billion as of Mar 27, 2021.
Apple returned $29 billion in the reported quarter through dividend payout ($3.8 billion) and share repurchases ($17.5 billion).
Apple did not provide revenue guidance for the fourth quarter of fiscal 2021, given the uncertainty around the impact of the coronavirus pandemic. However, management expects revenues to grow double digits year over year in the September quarter, but to be lower than June quarter’s revenue growth rate. This is due to negative impact from foreign exchange, normal growth in the Services segment and supply constraints (iPhone and iPad).
Gross margin is expected between 41.5% and 42.5% in the fourth quarter. Operating expenses are expected between $11.3 billion and $11.5 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 7.25% due to these changes.
At this time, Apple has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren’t focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Apple has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.