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Here Are The Key Takeaways From Apple’s Third Quarter Earnings

August 01, 2014 | About:

Apple (NASDAQ: AAPL) announced its third quarter 2014 results on July 22, exciting investors as it reported a strong set of numbers, comfortably beating earnings expectations of $1.23 a share by reporting earnings of $1.28 a share. The two high margin product lines -- the iPhone and the Mac performed surprisingly well this quarter, however iPad sales were alarmingly weak.

Let us dig deeper to find out the major highlights of Apple’s earnings.

iPhone and Mac Drive Revenue

In the third quarter earnings call, CEO Tim Cook, stated:

“Our record June quarter revenue was fueled by strong sales of iPhone and Mac and the continued growth of revenue from the Apple ecosystem, driving our highest EPS growth rate in seven quarters.”

This was pretty eminent in the 6% growth in net sales which increased by $2.1 billion in this quarter, compared with the year-ago period. The company’s quarterly revenue went up to $37.4 billion over last year’s $35.3 billion. This was driven by strong iPhone and Mac sales.

The company’s flagship offering iPhone 5s, which was launched last year, bolstered sales volumes. The sales gain is also partially attributable to the company’s improved distribution. During the quarter, Apple shipped around 35 million iPhones representing a 12.7% jump from the earlier year similar quarter.

The updated version of MacBook Air with faster processors at lower prices, along with sales of MacBook Pro also drove the sales chart for Apple. Shipment grew around 18% year over year to 4.4 million units during the quarter.

However, the iPad sales this quarter saw a 9% plunge due to lowered demand in mature markets like the U.S., which nominally offset the rise in sales of iPhones and Mac.

Earnings Remain Rock-solid

Healthy business in emerging markets such as Brazil, Russia, India and China, where iPhone shipments grew by around 55% over the previous year, helped in generating better profits this quarter. The greater share of iPhone sales in the company’s sales mix and lower manufacturing costs aided gross margins expansion to around 39.4% from 36.9% reported a year ago.

Net profit stood at $7.7 billion, up 12% from $6.9 billion reported in the year-ago quarter. The company’s robust sales aided in 20% leap of earnings per share that stood at $1.28 from $1.07 reported a year earlier.

Highlight On Acquisition Of Beats Electronics

At the earnings call, management expressed its views on the inclusion of Beats team -- a great development for music lovers after the latter becomes part of Apple’s DNA. Until recently, Apple has acquired 29 companies from the first quarter of 2013, of which 5 acquisitions were completed in this quarter. This brings in new talent and technology that further enhances the capability of the Cupertino giant.

Beats would possibly provide Apple with a fantastic subscription music service, access to rare talent and a fast growing product line-up that the company might explore further. Apple expects to spend close to $3 billion on Beats Electronics purchase, which would make Beat’s headphones and music service a part of the tech giant. Apple’s management remains optimistic of closing this deal by the fourth quarter of this fiscal year.

Last Word

Apple’s management believes that its existing product line continues to hold immense appeal and offers huge prospects for the company. Apple’s top brass are keen to keep their operating profits between 37% and 38%, and revenue between $37 billion and$40 billion in the fourth quarter. If such a favorable sales scenario persists for the next couple of months, and acquisition of Beats turns into a profitable venture, then meeting forecasts could become much easier. So, let’s stay tuned.

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