Apple Inc. (AAPL, Financial) recently reported its second quarter results for fiscal 2015 with a 27.2% year-over-year growth in revenues to $58 billion, beating the consensus estimate of $56.85 billion and the company’s own guidance of $52-55 billion in revenues. The company also logged net profit of $13.6 billion for the quarter, translating to a 40.4% year-over-year jump in EPS to $2.33 a share that comfortably beat the consensus estimate of $2.21 a share. While the company’s Q1 2015 earnings was the largest ever quarterly earnings for the corporate, Apple’s Q2 result comes a close second. Following the results, Apple shares jumped to $134.42 in after-hours trading.
Higher Margins Help Offset Currency Headwinds
Apple shipped a total of 61.2 million iPhones in Q2 2015, up 40% year-over-year and more than the expected 57 million. With the average selling price per unit growing to $659, Apple also saw gross margins climbing to 40.8% surpassing the company’s own expectation of between 38.5% and 39.5%. The company attributed the upbeat results to the enduring strength of its iPhone, Mac and App Store, with Apple witnessing a surge in the number of users switching over to iPhone compared to the previous quarters. However, while sales of Mac were in line with expectations at 4.6 million units, iPad sales lagged behind at 12.6 million units compared to the expected 14 million units.
With international revenue now representing 69% of Apple’s total revenue, the company’s results were surprisingly less affected by foreign currency headwinds, owing primarily to the increase in the average sales price per iPhone unit that helped offset the negative impact. Moreover, the Chinese market, including Taiwan and Hong Kong, saw a 7% year-over-year growth in revenues owing to the Chinese New Year holiday season, helping the region overtake Europe as Apple’s second-largest market.
The Road Ahead
The topping on the cake, following the upbeat results was Apple’s announcement that the company would allocate $200 billion for its capital return program. The company authorized a $140 billion share buyback program compared to the year-ago quarter’s $90 billion, and declared an 11% higher dividend of 52 cents a share.
Apple also provided guidance for the third quarter of fiscal 2015, with revenues projected to be in the $46-$48 billion range compared to the year-ago quarter’s $37.4 billion. Further, Apple said it expected to log gross margin of between 38.5% and 39.5% for Q3 2015. The company is set to cash in on the launch of its Apple Watch during the quarter, while its other new venture, Apple Pay, is also likely to gain momentum and substantially add to the tech giant’s revenues. Consensus estimates peg Apple’s Q3 earnings at $1.78 a share.
Final Thoughts
Apple, which competes with Google (GOOG, Financial), BlackBerry (BBRY, Financial) and Microsoft (MSFT, Financial) in the communication equipments and services market, delivered yet another impressive performance with its second quarter results, with both revenues and earnings beating the consensus estimate. While the company also followed it up with upbeat guidance for the third quarter, investors will be particularly pleased with Apple’s massive share buyback program and the announcement of a 52 cent a share dividend. Experts are looking at an average annual earnings growth rate of nearly 14% for Apple over the next five years, with a peak expected towards the end of the third quarter of 2015. Consequently, the Apple stock currently carries a ‘buy’ guidance.
