Apple (AAPL) reported its third quarter results yesterday and I believe that the results are positive on a whole. This article discusses the results and the key positive factors and the outlook for the company.
For the third quarter of 2014, Apple reported revenue of $37.4 billion with the revenue increasing by 5.9% as compared to 3Q13 revenue of $35.3 billion. The growth in net profit was more robust at 11.6% to $7.7 billion as compared to prior year period net profit of $6.9 billion.
The EPS surged by 19.6% to $1.28 in 3Q14 as compared to $1.07 in 3Q13. The company’s EPS growth rate was the highest in seven quarters and this was fuelled by strong sales of iPhone and Mac coupled with the continued share buyback program.
During the quarter, the company returned $8 billion to shareholders through dividends and share purchases. Therefore, the overall results were robust and Apple also declared a cash dividend per share of $0.47, taking the dividend for the first nine months to $1.35 per share.
During the quarter Apple sold 35 million iPhones, which was a new third quarter record. This is a big positive factor as the company continues to boost its iPhone sales even in relatively saturated markets. The biggest positive coming from the company was the iPhone sales growth in BRIC countries. During the quarter, iPhone sales increased by 55% y-o-y in emerging countries and these countries will continue to be a major growth driver for Apple in the future.
Apple’s sales growth in iPhones is also impressive considering the fact that many iPhone potential buyers are waiting for the next iPhone launch and this could have resulted in purchase delays. Once the new product hits the markets, growth in sales can be far robust.
On the negatives, iPad sales have not been good, particularly in the developed markets and I believe this trend is common for all tablet sellers. Apple sold 15.3 million units in 3Q14 as compared to 14.6 million units in 3Q13.
While the sales were lower in mature markets, growth was strong in Middle-East where iPad sales were up 64%, in China where they grew 51%, and in India, where they were up 45%. These big numbers were more than offset by lower sales in matured markets.
I do believe that sales in BRIC hold the key for iPhone and iPad in the long-term. The number of smart-phone users is increasing at a robust pace in these countries and Apple is the preferred choice for smart-phones.
Another positive from the company’s results and conference call was the likely pipeline of products over the next few quarters. According to Tim Cook – “We have an incredible pipeline of new products and services that we can’t wait to show you.”
Therefore, I expect some exciting new products over the next 1-2 year and new products will keep the revenue momentum going. In particular, the launch of iPhone 6 might be most awaited by consumers and can provide significant revenue momentum.
Also, the EPS will continue to get a boost as the company’s share buyback program is ongoing. With Apple ending the quarter with $164.5 billion in cash & marketable securities, I do expect that the company’s share buyback will continue and might be accelerated at some point of time.
Apple has also provided a strong outlook for the fourth quarter of 2014 with the company expecting revenue between $37 billion and $40 billion. The last quarter revenue estimate does not indicate that iPhone 6 will be launched over the next 3 months. However, there can be surprises with a strong pipeline of new products.
Apple is currently trading at a trailing twelve month PE of 15.9 and I believe that these valuations are attractive if Apple is able to sustain a 15%-20% EPS growth, like it has done in 3Q14. I am of the opinion that Apple is a dividend stock more than high growth stock now. With a strong cash position, the company is well positioned to create significant shareholder value along with decent growth through product innovation.