Apple Beats Earnings Expectations, but Stock Plunges on Weak Outlook
Consumer electronics giant Apple (AAPL) reported better-than-expected earnings for its fiscal third quarter, but its outlook for the current quarter disappointed investors, causing the stock to dive on Friday.
For the quarter ended July 1, Apple posted earnings of $1.26 per share on sales of $81.8 billion, surpassing analysts’ estimates of $1.20 per share on the same sales figure. While earnings grew by 5% from the previous year, sales dropped 1%.
The results mark Apple’s third consecutive quarter of declining sales, but it also signals a return to growth in earnings after two quarters of stagnant or declining profits. Chief Financial Officer Luca Maestri expressed optimism, stating, “Our June-quarter year-over-year business performance improved from the March quarter.”
However, Apple’s weak outlook for the September quarter dampened investor sentiment. The company expects revenue growth to be similar to what was seen in the June quarter, a decline of 1.4% year over year, despite a smaller foreign-exchange headwind.
Following the news, Apple’s stock dropped 2.9% to $185.61 in midday trading on Friday, adding to the 0.7% dip during the regular session on Thursday.
Analysts are cautious about Apple’s outlook, with Barclays analyst Tim Long noting, “The overall tone from Apple management on the call remains guarded given macro uncertainty.” Long also mentioned that Apple’s September-quarter outlook indicates four consecutive quarters of revenue declines, a trend not seen in the last two decades.
As a result, Rosenblatt Securities analyst Barton Crockett downgraded Apple stock from buy to neutral. While he maintained his price target at $198, he expressed the need for a new hit product to drive the next phase of Apple’s growth. Crockett remains skeptical about Apple’s future ventures, such as the Vision Pro mixed-reality headset scheduled for 2024 and the potential development of an Apple Car, stating, “Otherwise, it’s hard to imagine an iPhone 15 meaningfully changing the growth arc, at this juncture.”
In terms of product sales, Apple saw a 4.4% decline in hardware sales to $60.58 billion, while its services revenue rose by 8.2% to $21.21 billion in the June quarter. iPhone revenue declined by 2% to $39.67 billion, accounting for 48% of total sales. Mac computer sales fell 7% to $6.84 billion, and iPad tablet sales decreased by nearly 20% to $5.79 billion. However, revenue from Apple’s wearables, home, and accessories unit experienced a 2% growth, reaching $8.28 billion.
Investors are now eagerly awaiting Apple’s next move and hoping for a new catalyst to drive growth. The company is currently listed on the IBD Tech Leaders list.
Follow Patrick Seitz on Twitter: @IBD_PSeitz for more stories on consumer technology, software, and semiconductor stocks.
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