Apple Inc. (AAPL, Financial), Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) CEO Warren Buffett (Trades, Portfolio)âs top holding, climbed approximately 7% in post-market trading on Tuesday and then a further 3% at market open on Wednesday as the company reported revenues and earnings that topped analyst estimates.
The Cupertino, California-based tech giant reported revenue of $84.3 billion, up approximately $0.4 billion from the consensus estimate and closely on par with CEO Tim Cookâs guidance of $84 billion announced on Jan. 2.
High revenue in Services segment offset expected revenue decline in product sales
Cook said while âit was disappointingâ to miss the prior revenue guidance, the companyâs Services business reached ânew records,â boosted by the 1.4 billion active-installed devices for the quarter. On the earnings call, Cook and Chief Financial Officer Luca Maestri said iPhone revenues declined 15% on several factors, including the expected slowdown in China, lower-than-expected phone upgrades and battery replacements.
Despite the decline in iPhone revenues, sales in Appleâs other businesses increased 19% for the quarter, driven primarily by growth in services and wearables. Service revenues reached a record $10.9 billion, outperforming the consensus estimate on strong growth in services like the App Store and Apple Pay. Cook highlighted that services revenues in China reached record levels while revenues in wearables increased 50% on strong growth in Apple Watch and Air Pods.
Services gross margin close to double overall gross margin
Maestri said on the call Apple is reporting product gross margins and services gross margins âfor the first time,â as it more represents the companyâs performance. Services gross margin reached 62.8%, approximately twice the products gross margin of 34.3% and the overall company's gross margin of 38%, primarily due to the favorable leverage in product mix.
Stock rises in aftermarket trading on âupbeatâ guidance for the March quarter
Shares of Apple traded over 6% higher in aftermarket trading as the company outperformed top-line and bottom-line estimates. The stock increased at least a further 3% at market open on Wednesday as the company reported âbetter than fearedâ March-quarter guidance according to Wedbush analyst Daniel Ives.
Ives said even though Appleâs weak iPhone sales in China remains an âalbatross around its neck,â i.e., a major headwind in the upcoming months, the companyâs âunparalleledâ installed base remains strong. Further, Appleâs services business is âpoised to exceed $50 billionâ in fiscal 2020 as management fortifies the asset with encouraging gross margins.
GuruFocus ranks Appleâs profitability 8 out of 10: even though operating margins have declined over the past five years, the company's profit margins are still outperforming over 97% of global competitors. Additionally, the companyâs business predictability ranks three stars out of five on consistent revenue growth over the past 10 years.
Other gurus cheering on Appleâs strong earnings include Ken Fisher (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Spiros Segalas (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio).
Disclosure: No positions.
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