Ap­ple in solid earn­ings, unim­pres­sive div­i­dend hike

Financial Mirror (Cyprus) - - FRONT PAGE - By Chris Lange

Ap­ple Inc. (NAS­DAQ: AAPL) re­ported its fis­cal sec­ond-quar­ter fi­nan­cial re­sults on Mon­day af­ter the mar­kets closed. The iPhone gi­ant had $2.33 in earn­ings per share (EPS) on $58 bln in rev­enue, com­pared to Thom­son Reuters con­sen­sus es­ti­mates of $2.16 in EPS on $56.06 bln in rev­enue. The same pe­riod from the pre­vi­ous year had $1.66 in EPS on $45.65 bln in rev­enue.

Gross mar­gin for the sec­ond quar­ter was 40.8%, com­pared to 39.3% in the same pe­riod last year. In­ter­na­tional sales ac­counted for 69% of the quar­ter’s rev­enue.

The com­pany gave guid­ance for the fis­cal third quar­ter as rev­enue in the range of $46 bln to $48 bln and a gross mar­gin be­tween 38.5% and 39.5%. There are con­sen­sus an­a­lysts’ es­ti­mates of $47.06 bln in rev­enue.

In terms of the seg­ment break­down: the iPhone seg­ment moved 61.2 mln units, to­talling rev­enues of $40.3 bln; the iPad moved 12.6 mln units, to­talling rev­enues of $5.4 bln; the Mac seg­ment moved 4.6 mln units, to­talling rev­enues of $5.6 bln.

Tim Cook, CEO of Ap­ple, com­mented on its earn­ings: “We are thrilled by the con­tin­ued strength of iPhone, Mac and the App Store, which drove our best March quar­ter re­sults ever. We’re see­ing a higher rate of peo­ple switch­ing to iPhone than we’ve ex­pe­ri­enced in pre­vi­ous cy­cles, and we’re off to an ex­cit­ing start to the June quar­ter with the launch of Ap­ple Watch.”

Ap­ple may be still con­sid­ered a cheap stock against the mar­ket for growth in­vestors, but its div­i­dend yield was a mere 1.5% or so. Keep in mind that Ap­ple just

$1.68

in EPS

and re­cently was added to Industrial Av­er­age in­dex.

Af­ter Ap­ple re­in­stated its div­i­dend in late 2012, the first hike was by 15%. The sec­ond div­i­dend hike, in 2014, was roughly 8%. So, why do we ex­pect that the hike has to go up much more in 2015? The sim­ple an­swer is that Ap­ple’s yield has to go up to make a dent in the div­i­dend game. Tak­ing the div­i­dend hike to $0.60 is nearly a 28% pay­out hike. Still, does it seem nor­mal that Ap­ple, which has not used any cash yet for mega-merg­ers, should have such a low yield?

In fact, Ap­ple an­nounced that it did raise its quar­terly div­i­dend 11% to $0.52 per share, be­low what 24/7 Wall St. was hop­ing for.

What about share buy­backs? The amount of stock buy­backs seemed less clear go­ing into the earn­ings re­port. Ap­ple added $30 bln or so to its buy­back plan last year, and the com­pany has now spent over $112 bln

the Dow

Jones re­turn­ing cap­i­tal to share­hold­ers since it be­gan, in­clud­ing a to­tal of $80 bln in share re­pur­chases.

Tim Cook also com­mented on Ap­ple’s cap­i­tal al­lo­ca­tion plan: “We be­lieve Ap­ple has a bright fu­ture ahead, and the un­prece­dented size of our cap­i­tal re­turn pro­gramme re­flects that strong con­fi­dence. While most of our pro­gramme will fo­cus on buy­ing back shares, we know that the div­i­dend is very im­por­tant to many of our in­vestors, so we’re rais­ing it for the third time in less than three years.”

Shares of Ap­ple closed Mon­day up 1.8% at $132.65. Fol­low­ing the re­lease of the earn­ings re­port, shares were up 1.5% at $134.65 in af­ter-hours trad­ing, push­ing a new all-time high. The stock has a con­sen­sus an­a­lyst price tar­get of $142.13 and a 52-week trad­ing range of $81.79 to $133.60.

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