AAPL reported 4Q11 results after the close of trading in New York yesterday. The company earned $6.6 billion ($7.05 per share) over the three months, on revenue of $28.2 billion. This is an advance of 52% in eps, year on year, on sales growth of 39%. Although the company exceeded its guidance of $5.50 per share handily, it failed to beat the Wall Street analysts’ consensus, $7.39 a share, or the first time in a long while. (The StarMine consensus of analysts who have historically been the most accurate forecasters–which in this case may simply have been the most aggressive–had been $7.51.)
EPS for the full fiscal year 2011 (ended September 24th) were $27.68, or 82% better than results for fiscal 2010.
AAPL also gave guidance for the holiday quarter we’re in now. APPL’s 1Q12 will have 14 weeks in it instead of the normal 13. This is an adjustment companies who organize themselves on a “weeks” basis rather than a “months” basis must make every six years or so to make sure their fiscal year remains aligned with the calendar year. Anyway, AAPL’s guidance for 1Q12 is eps of $9.30. My rough guess is that this equates to a “normal” quarter of $8.50, which would be a gain of about a third over the $6.43 AAPL reported in 1Q11.
As a result of its earnings “miss,” AAPL shares are down about 6% in pre-market trading as I’m writing this.
Let’s get straight to the heart of the earnings “shortfall,” if that’s the right word to describe a quarter that’s up more than 50% year on year. It comes in the iPhone.
AAPL sold 17.1 million iPhone units in 4Q11. That’s up 21% year on year, and an all-time record for a September quarter, but down 16% from the record 20.4 million the company sold in 3Q11. There were two reasons sales weren’t higher, both related to the introduction of the new iPhone 4s.
–AAPL decided not to add any new carriers to its iPhone network in the September quarter; and
–consumers slowed down purchases of the iPhone 4 in anticipation of the new model they expected to debut during 4Q11. As demand waned toward quarter end, carriers slowed down purchases of iPhones from AAPL. Apple Store sales of iPhones were particularly weak.
APPL has since reported that the iPhone 4s has sold over 4 million units during the first three days of its launch in early October, more than double the rate at which the original iPhone 4 left the warehouses when it first came to market. At $645 each, those sales amount to $2.6 billion, or about $.85 a share. They could just as easily have occurred in 3Q11 if AAPL had moved the launch date of the 4s back to late September rather than early October.
How good is the iPhone business today? “In our wildest dreams we couldn’t have gotten off to a start as great as we have on the 4s,” says CEO Tim Cook. Cook also noted that AAPL had anticipated a much larger reduction in telecom purchases of the original iPhone during the quarter than what actually occurred.
AAPL sold 11.1 million units during the quarter, an all-time record. That’s up 20% quarter on quarter and 166% year on year. AAPL finally seems to have obtained enough manufacturing capacity to keep up with demand.
Unit sales were up 37% year on year and 30% quarter on quarter. That’s also an all-time record. AAPL sees some cannibalization of the Mac business by iPads, but is still producing growth much greater than the PC industry.
Once half the company, iPods are now less than 10% of AAPL’s revenue. Unit sales were 6.6 million during the quarter, down 27% year on year and 12% sequentially.
Even with an extra week to work with, I don’t think AAPL’s profits can be up 82% again this fiscal year. Suppose they “only” reach $35, with (to make the arithmetic easy) $1 of that coming from the 53rd week. Organic growth would then be in the low 20% range, which I think is easily doable. It could be very much higher.
At a $400 stock price, AAPL would be trading at a forward multiple of under 12x on my low-ball figure. Subtract out the $86 a share in cash (remember, AAPL has no debt) on the balance sheet from the stock price and the multiple shrinks to about 9x. Even factoring in a substantial maturing of AAPL’s businesses, of which there’s no credible evidence yet, AAPL shares seem very cheap to me.