Club name Apple (AAPL) posted a better-than-expected September quarter after the closing bell Thursday, with strong Services sales more than offsetting a slight miss on the Products side. However, shares dropped in after-hours trading after management’s December-quarter revenue guide was a bit lower than Wall Street expectations. Revenue in Apple’s fiscal 2023 fourth quarter of $89.5 billion edged down 1% but edged out expectations of $89.3 billion. Foreign exchange fluctuations were a headwind of over 2 percentage points. Earnings per share of $1.46 rose 13% compared to a year ago and exceeded the LSEG consensus estimate of $1.39 per share. Gross margin of 45.2% was a September quarter record and slightly above the 44.5% estimate. AAPL YTD mountain Apple YTD Apple shares fell more than 3% after the release. In addition to a light revenue outlook, the tech giant’s overall revenue as of the final quarter of fiscal 2023 fell for the fourth straight quarter. Remember, due to Apple’s calendar, the company’s upcoming December quarter is the first quarter of its fiscal year 2024. Bottom line Apple reported strong quarterly results to close out its fiscal year 2023. While Products sales were a bit short versus expectations, Services sales, which come with a much higher profit margin, were very strong with growth accelerating substantially versus the prior quarter. Gross income performance was better for both Products and Services. Sales guidance for the current quarter (the holiday quarter) came up shorter, however, as we’ve noted before, we think the installed user base – which hit another all-time high and stands at over 2 billion active devices and growing – and Services momentum should carry more weight with investors than any one quarter. Given what we heard Thursday, we aren’t too concerned about the guide. If anything, should it hit the stock materially, it would provide the buying opportunity many investors are looking for as short-term weakness against the backdrop of longer-term strength built on sound fundamentals is how you get market opportunities. Furthermore, though the revenue guide was a bit light, the gross margin guide was very strong. It’s not about what you make. It’s what you keep — especially in a high-interest rate environment that forces investors to focus much more on earnings as a basis for valuation versus sales. Apple is very good at methodically increasing the lifetime value of its customers over time and we don’t see that changing. As a result, we’re reaffirming our “own it, don’t trade it” view of the stock and reiterating our buy-equivalent 1 rating and $205 price target. With the current after-hours decline, the stock has dropped about 13% from its all-time high back in July, giving investors waiting for a chance to buy an opportunity. Cash and capital allocation In its September quarter, Apple generated operating cash flow and free cash flow results that were lower than what the Street was looking for. But that didn’t stop Apple from returning nearly $25 billion to shareholders — including about $3.8 billion via dividends and equivalents as well as another $15.5 billion via open market repurchases of 85 million shares. Apple exited its final quarter of fiscal 2023 with over $162 billion in cash, equivalents and marketable securities on the balance sheet. After subtracting $111 billion of debt, we’re left with a net cash position of about $51 billion at the end of the quarter. As a reminder, Apple has a policy of being so-called net cash neutral over time, meaning that if the cash isn’t used for acquisitions or organic growth investments, it’s returned to shareholders through buybacks and dividends. Quarterly commentary Despite a slightly lower-than-expected Services gross margin of 70.9%, gross income of $15.83 billion for the Services unit managed to outpace expectations thanks to record sales performance. Services, a high-margin business for Apple, reached a new all-time revenue record with growth accelerating to 16% on a year-over-year basis. Notably over the past 12 months, Apple’s Services business has generated over $85 billion — equal to a Fortune 50 company. On the call, CEO Tim Cook said Apple “achieved all-time revenue records across App Store, advertising, AppleCare, iCloud, Payment Services and video as well as a September quarter revenue record in Apple Music.” Maestri said Apple achieved “all-time revenue records in the Americas, Europe, and rest of Asia-Pacific and a September quarter record in Greater China. We also set new records in every Services category.” He added that Apple continues to see “increased customer engagement with our Services, both transacting accounts and paid accounts grew double-digits year-over-year, each reaching a new all-time high.” Products sales came up marginally short versus expectations, the Products segment’s gross income of $25.23 billion outpaced estimates thanks to strong gross margin performance of 37.2%, as seen in the earnings table above. On the post-earnings call, CFO Luca Maestri said, Apple’s “installed base of active devices reached an all-time high across all products and all geographic segments thanks to high levels of customer satisfaction and many new customers joining our ecosystem.” iPhone sales for the quarter of $43.81 billion were up from a year ago, slightly outpaced expectations, and represent a new September-quarter record. Maestri said that “iPhone active installed base grew to a new all-time high and fiscal 2023 was another record year for switches.” Given all the China demand concerns, we’re pleased to hear on the call that iPhone sales set “quarterly records in many markets, including China mainland, Latin America, the Middle East, South Asia, and an all-time record in India.” Mac sales declined in the quarter to $7.61 billion, missing expectations. The decline was due in part to challenging market conditions and a difficult comp versus the year-ago period. That said, keep in mind that the company just unveiled new M3 chip Macs earlier this week, so we should see a rebound here in the current quarter, Maestri said, “Our install base is at an all-time high and half of Mac buyers during the quarter were new to the product, driven by MacBook Air.” iPad revenue was down 10% to $6.44 billion but outpaced expectations. Over half of iPad buyers in the quarter were new to the product. Wearables, Home, and Accessories sales of $9.32 billion were down slightly versus the year-ago period and below estimates. On the call, Maestri said, “Apple Watch continues to expand its reach with nearly two-thirds of customers purchasing an Apple Watch during the quarter being new to the product.” Guidance For the current December quarter, Apple expects revenue to be in line with the year-ago period’s $117.15 billion — so flat and a bit light. However, there’s one less week in this year’s December quarter. That extra week last year added about 7 percentage points to the company’s total quarterly revenue. Foreign exchange will still be a headwind but improving sequentially, with the team estimating a negative year-over-year impact of about 1 percentage point. iPhone sales are expected to grow versus the year-ago period on an absolute basis and after normalizing for last year’s supply disruptions and the extra week. Mac year-over-year performance was guided to “significantly accelerate from the September quarter.” The company also said, “Year-over-year revenue performance for both iPad and Wearables Home and Accessories [will] decelerate significantly from the September quarter due to a different timing of product launches.” Management expects “average revenue per week [in Services] to grow at a similar, strong double-digit rate as it did during the September quarter.” Gross margin for the December quarter is expected to be between 45% and 46%, which even on the low end is a full percentage point better than the 44% estimate coming into the print. (Jim Cramer’s Charitable Trust is long AAPL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. 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Apple iPhone 15 series phones are displayed for sale at The Grove Apple retail store on release day in Los Angeles, California, on September 22, 2023.
Patrick T. Fallon | AFP | Getty Images
Club name Apple (AAPL) posted a better-than-expected September quarter after the closing bell Thursday, with strong Services sales more than offsetting a slight miss on the Products side. However, shares dropped in after-hours trading after management’s December-quarter revenue guide was a bit lower than Wall Street expectations.
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