Apple Cuts Revenue Estimate, but earnings per share should rise – The Motley Fool

Perhaps you heard: Apple (NASDAQ: AAPL) recently informed investors that the long-feared iPhone revenue stop is now in the rear-view mirror. Improved the problems with an already busy stock, management's downgraded guidance for the first quarter of its fiscal 2019 shares trading down 40% from its full-time high just a few months ago.

The causes of weak iPhone sales are diverse and include lower than expected support from Chinese consumers, less frequent replacement of older phones in developed markets, and Apple lowers the cost of battery replacement on old iPhones. Regardless of the reasons, the expected results in the first quarter are $ 84 billion in revenue, compared to the $ 89 billion in previous $ 93 billion. In the first quarter a year ago, Apple purchased revenue of $ 88.3 billion, so the updated estimate represents a decline of 5% from the previous year. A new era for the hardware manufacturer is quickly being ushered in.

New Guidance and Bottom Line

In addition to $ 84 billion in revenue, CEO Tim Cook also claimed that they expected gross profit margins of about 38% of spending around $ 8.7 billion and other revenue on $ 550 million, operating at $ 23.8 billion. This is equivalent to the gross margin of 38.4%, operating cost of $ 7.6 billion and other income of $ 756 million a year ago, which is equivalent to $ 26.3 billion in revenue. If the new guidance turns out to be true, this would mean a 9.5% decline in operating revenues this year.

  The new iPhone XS Max appears in black.

Image Source: Apple.

The free grace for Apple could be a lower tax rate (Cook said to expect 1[ads1]6.5% against 25.8% a year ago) and the fact that the company has bought back shares. Cook said that the number of shares used to calculate earnings per share should be around NOK 4.77 billion. At the end of the financial year 2018 (end of September 2018), the number of shares was NOK 4.85 billion, and the previous quarter for comparative NOK 5.16 billion. This reduction in shares will give a boost to EPS. "We also expect to report a new all-time record for Apple's earnings per share," Cook wrote.

A new reality for Apple?

I do not suggest that investors be satisfied with a bottom-line increase given the larger picture. Sales contraction is never a pleasant situation, even if the revenue is saved. However, deep profits can buy the stock a bit, while Apple is working to get back on the path to growth now as it seems to have discovered the maximum price tag iPhone users are willing to pay. Cutting prices to lure in sales may end up making the falling sales situation even worse, making Apple's search for the next growth driver outside the iPhone even more important.

However, the good news is that Apple may already have found it. Cook said non-iPhone sales increased by 19% in the first quarter, which ended in late December. This part of the business includes Mac, iPad, wearables, home and services. With Apple sitting on a $ 130 billion net cash hoard and still raking in fat profits, this is probably not the end of the way for the premium tech company.

Nicholas Rossolillo and his clients own shares of Apple. Motley Fool owns and recommends Apple shares. Motley Fool has the following options: long January 2020 $ 150 calls on Apple and short January 2020 $ 155 appeals to Apple. Motley Fool has an information policy.

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