Apple Q2 Earnings Thump Estimates, Buoyed By Robust iPhone Sales, Record Services Revenue

Apple, Inc. AAPL reported second-quarter results that exceeded expectations Thursday, in line with the positive earnings trend seen so far in the big tech space. The outperformance came as iPhone revenue exceeded expectations and the Services revenue climbed to a new record.

Apple's Key Q2 Numbers: Cupertino, California-based Apple reported earnings per share of $1.52, exceeding the consensus estimate of $1.43 per share.

The bottom line was flat with the year-ago period and down 19.2% from the previous quarter's $1.88 per share.

Revenue came in $94.8 billion versus the Street forecast of $92.96 million. This marks a 3% year-over-year decline and 19.1% sequential drop.

It should be noted the second quarter is one of Apple's seasonally slow periods, coming right after the holiday shopping season.

Analysts, including Morgan Stanley analyst Erik Woodring and Wedbush's Daniel Ives, were bracing for in-line March quarter results.

“We are pleased to report an all-time record in Services and a March quarter record for iPhone despite the challenging macroeconomic environment, and to have our installed base of active devices reach an all-time high," said Tim Cook, Apple's CEO. 

The gross margin came in at 44.26% versus 43.75% in the second quarter of 2022 and 42.96% in the first quarter of 2023.

Apple’s Shareholder Returns: The company announced a $90-billion incremental buyback authorization and a 4% year-over-year increase in dividends to 24 cents per share.

"Our year-over-year business performance improved compared to the December quarter, and we generated strong operating cash flow of $28.6 billion while returning over $23 billion to shareholders during the quarter," said Luca Maestri, Apple's CFO. 

See Also: Everything You Need To Know About Apple Stock

Apple’s Business Segments: Among products, iPhone revenue came in at $51.33 billion, ahead of the $50.3 billion Morgan Stanley’s Woodring estimated. The analyst estimated shipments at 54.5 million and ASPs at $922 due to a strong high-end mix. iPhone revenue grew 1.5% year-over-year.

Mac revenue slumped over 31% to $7.17 billion. Woodring recently trimmed his Mac shipment forecast from 4.8 million units to 4.3 million units, consequently taking down the product’s revenue estimate by 10% to $6.3  billion.

iPad revenue fell 12.8%, while Services revenue rose 5.5% to a record $20.91 billion.

Deepwater Asset Management's Gene Munster said investors are also likely to focus on the active installed base, which rose 8% year-over-year to over 2 billion in the first quarter.

"A growing base means the Apple product flywheel is working," he added.

Why June Quarter Could Be Soft: Apple could shed light on June quarter performance on the earnings call scheduled for 5 p.m. EDT.

Morgan Stanley's Woodring expects June quarter revenue of $80.3 billion, marking a 3% year-over-year decrease. This is below the consensus estimate of $84.71 billion.

The firm's expectation is premised on 41 million units of iPhone shipments, a $901 ASP and lower Mac, iPad and Services revenue. The variance of June quarter revenue vis-à-vis the consensus is primarily due to the softer iPhone revenue forecast of $37.2 billion.

Build strength in April and May could weaken as the trough of the iPhone 14 cycle approaches.

Morgan Stanley expects a better-than-consensus gross margin forecast for the quarter due to more favorable forex comparisons and further operational expenditure discipline.

AAPL Price Action: Apple shares have gained 27.8% in the year-to-date period, outperforming the S&P 500 Index, which added 5,8% during the same period.

Ahead of the quarterly results, Woodring said a March quarter beat and June quarter guide down have not historically produced a negative post-earnings stock reaction. Investors typically look past the trough of the cycle to the upcoming iPhone launch.

Munster said Apple's investment case will likely shift to a consumer staples company that should yield a higher multiple. "On top of that, Apple is making meaningful progress in AI, a dynamic that is under-appreciated by investors," he added.

The average analyst price target for Apple stock, according to TipRanks, is $177.23, suggesting a roughly 6% upside from current levels.

After closing Thursday’s regular session down nearly a percentage point at $165.79, the stock is up 0.62% in after-hours trading, according to Benzinga Pro data.

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