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Apple (AAPL) Q3 Earnings Top Estimates, Revenues Increase Y/Y
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Apple (AAPL - Free Report) reported third-quarter fiscal 2022 earnings of $1.20 per share, which beat the Zacks Consensus Estimate by 5.26% and our estimate of $1.10 per share.
However, the reported figure decreased 7.7% year over year.
Net sales increased 1.9% year over year to $82.96 billion, which beat the Zacks Consensus Estimate by 1.19% and our estimate of $81.47 billion.
Apple’s second-quarter results benefited from steady demand for iPhone 13. Services business maintained momentum in the reported quarter.
iPhone sales increased 2.8% from the year-ago quarter to $40.67 billion and accounted for 49% of total sales. Although the figure beat the consensus mark of $38.94 billion, it missed our estimate of $41.75 billion.
iPhone sales were driven by strong demand for the iPhone 13 family of devices.
Services revenues grew 12.1% from the year-ago quarter to $19.60 billion and accounted for 23.6% of sales. The figure lagged the Zacks Consensus Estimate by 0.68% and our estimate of $19.70 billion.
Services revenues were negatively impacted by unfavorable forex, the absence of revenues from Russia and the challenging macroeconomic environment.
Apple now has more than 860 million paid subscribers across its Services portfolio, up 35 million sequentially and 160 million year over year.
The segment benefited from the robust performance of Apple TV+ and Apple Arcade.
Strong Americas & Rest of Asia Pacific Sales Aid Growth
Americas sales increased 4.5% year over year to $37.47 billion and accounted for 45.2% of total sales. The figure beat the Zacks Consensus Estimate by 4.63% and our estimate of $34.99 billion.
Europe generated $19.29 billion in sales, up 1.8% on a year-over-year basis. The region accounted for 23.2% of total sales. Europe sales lagged the consensus mark by 0.91% and our estimate of $19.58 billion.
Greater China sales decreased 1.1% from the year-ago quarter to $14.60 billion, accounting for 17.6% of total sales. The figure lagged the consensus mark by 3.94% and our estimate of $15.33 billion.
Japan’s sales of $5.45 billion missed the Zacks Consensus Estimate by 12.64% and our estimate of $5.87 billion. Japan’s sales decreased 15.7% year over year, accounting for 6.6% of total sales.
Rest of the Asia Pacific generated sales of $6.15 billion, up 14% year over year. The region accounted for 7.4% of total sales. The figure beat the consensus mark by 9.68% and our estimate of $5.70 billion.
Top-Line Details
Product sales (76.4% of sales) decreased 0.9% year over year to $63.36 billion. Non-iPhone revenues (iPad, Mac and Wearables) declined 6.9% on a combined basis.
iPad sales of $7.22 billion declined 2% year over year and accounted for 8.7% of total sales. The figure beat the consensus mark by 2.52% and our estimate of $6.65 billion.
The year-over-year decline in iPad sales was attributed to supply-chain constraints and unfavorable forex.
Mac sales of $7.38 billion decreased 10.4% from the year-ago quarter and accounted for 8.9% of total sales. The figure lagged the consensus mark by 15.10% and our estimate of $8.27 billion.
Wearables, Home and Accessories sales decreased 7.9% year over year to $8.08 billion and accounted for 9.7% of total sales. The figure lagged the Zacks Consensus Estimate by 2.33% but handsomely beat our estimate of $5.09 billion.
The category sales suffered from unfavorable forex, different launch timing for Home and Accessories products and supply constraints.
Apple Watch’s adoption rate continues to grow rapidly. More than two-thirds of the customers who purchased the Apple Watch during the reported quarter were first-time customers.
Operating Details
Gross margin of 43.3% was unchanged on a year-over-year basis, better than our estimate of 42.2%.
However, gross margin decreased 40 bps sequentially due to unfavorable forex.
Products’ gross margin contracted 190 bps sequentially to 34.5% due to unfavorable forex and revenues mix.
Services’ gross margin was 71.5%, down 110 bps sequentially due to a different mix and unfavorable forex.
Operating expenses rose 15.1% year over year to $12.81 billion due to higher research & development (R&D), and selling, general & administrative (SG&A) expenses, which increased 18.9% and 11.1%, respectively.
Operating margin contracted 180 bps on a year-over-year basis to 27.8%.
Balance Sheet
As of Jun 25, 2022, cash & marketable securities were $179.31 billion compared with $192.73 billion as of Mar 22, 2022.
Term debt, as of Jun 25, 2022, was $108.71 billion, down from $112.98 billion as of Mar 26, 2022.
Apple returned $28 billion in the reported quarter through dividend payouts ($3.8 billion) and share repurchases ($21.7 billion).
Guidance
Apple did not provide revenue guidance for the fourth quarter of fiscal 2022.
Apple expects year-over-year revenue growth to accelerate during the fiscal fourth quarter compared to the third quarter, despite approximately 600 bps of unfavorable year-over-year impact from forex.
Management expects supply constraints to be lower in the fiscal fourth quarter compared with the third quarter.
Services revenue growth is expected to be lower than the June quarter due to challenging macroeconomic conditions and unfavorable forex.
Gross margin is expected between 41.5% and 42.5% in the fourth quarter. Operating expenses are expected between $12.9 billion and $13.1 billion.
Zacks Rank & Stocks to Consider
Currently, Apple has a Zacks Rank #3 (Hold).
Apple shares have outperformed the Zacks Computer & Technology sector year to date. While AAPL shares have lost 11.4%, the Computer & Technology sector decreased 25.1%.
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Apple (AAPL) Q3 Earnings Top Estimates, Revenues Increase Y/Y
Apple (AAPL - Free Report) reported third-quarter fiscal 2022 earnings of $1.20 per share, which beat the Zacks Consensus Estimate by 5.26% and our estimate of $1.10 per share.
However, the reported figure decreased 7.7% year over year.
Net sales increased 1.9% year over year to $82.96 billion, which beat the Zacks Consensus Estimate by 1.19% and our estimate of $81.47 billion.
Apple’s second-quarter results benefited from steady demand for iPhone 13. Services business maintained momentum in the reported quarter.
iPhone sales increased 2.8% from the year-ago quarter to $40.67 billion and accounted for 49% of total sales. Although the figure beat the consensus mark of $38.94 billion, it missed our estimate of $41.75 billion.
Apple Inc. Price, Consensus and EPS Surprise
Apple Inc. price-consensus-eps-surprise-chart | Apple Inc. Quote
iPhone sales were driven by strong demand for the iPhone 13 family of devices.
Services revenues grew 12.1% from the year-ago quarter to $19.60 billion and accounted for 23.6% of sales. The figure lagged the Zacks Consensus Estimate by 0.68% and our estimate of $19.70 billion.
Services revenues were negatively impacted by unfavorable forex, the absence of revenues from Russia and the challenging macroeconomic environment.
Apple now has more than 860 million paid subscribers across its Services portfolio, up 35 million sequentially and 160 million year over year.
The segment benefited from the robust performance of Apple TV+ and Apple Arcade.
Strong Americas & Rest of Asia Pacific Sales Aid Growth
Americas sales increased 4.5% year over year to $37.47 billion and accounted for 45.2% of total sales. The figure beat the Zacks Consensus Estimate by 4.63% and our estimate of $34.99 billion.
Europe generated $19.29 billion in sales, up 1.8% on a year-over-year basis. The region accounted for 23.2% of total sales. Europe sales lagged the consensus mark by 0.91% and our estimate of $19.58 billion.
Greater China sales decreased 1.1% from the year-ago quarter to $14.60 billion, accounting for 17.6% of total sales. The figure lagged the consensus mark by 3.94% and our estimate of $15.33 billion.
Japan’s sales of $5.45 billion missed the Zacks Consensus Estimate by 12.64% and our estimate of $5.87 billion. Japan’s sales decreased 15.7% year over year, accounting for 6.6% of total sales.
Rest of the Asia Pacific generated sales of $6.15 billion, up 14% year over year. The region accounted for 7.4% of total sales. The figure beat the consensus mark by 9.68% and our estimate of $5.70 billion.
Top-Line Details
Product sales (76.4% of sales) decreased 0.9% year over year to $63.36 billion. Non-iPhone revenues (iPad, Mac and Wearables) declined 6.9% on a combined basis.
iPad sales of $7.22 billion declined 2% year over year and accounted for 8.7% of total sales. The figure beat the consensus mark by 2.52% and our estimate of $6.65 billion.
The year-over-year decline in iPad sales was attributed to supply-chain constraints and unfavorable forex.
Mac sales of $7.38 billion decreased 10.4% from the year-ago quarter and accounted for 8.9% of total sales. The figure lagged the consensus mark by 15.10% and our estimate of $8.27 billion.
Wearables, Home and Accessories sales decreased 7.9% year over year to $8.08 billion and accounted for 9.7% of total sales. The figure lagged the Zacks Consensus Estimate by 2.33% but handsomely beat our estimate of $5.09 billion.
The category sales suffered from unfavorable forex, different launch timing for Home and Accessories products and supply constraints.
Apple Watch’s adoption rate continues to grow rapidly. More than two-thirds of the customers who purchased the Apple Watch during the reported quarter were first-time customers.
Operating Details
Gross margin of 43.3% was unchanged on a year-over-year basis, better than our estimate of 42.2%.
However, gross margin decreased 40 bps sequentially due to unfavorable forex.
Products’ gross margin contracted 190 bps sequentially to 34.5% due to unfavorable forex and revenues mix.
Services’ gross margin was 71.5%, down 110 bps sequentially due to a different mix and unfavorable forex.
Operating expenses rose 15.1% year over year to $12.81 billion due to higher research & development (R&D), and selling, general & administrative (SG&A) expenses, which increased 18.9% and 11.1%, respectively.
Operating margin contracted 180 bps on a year-over-year basis to 27.8%.
Balance Sheet
As of Jun 25, 2022, cash & marketable securities were $179.31 billion compared with $192.73 billion as of Mar 22, 2022.
Term debt, as of Jun 25, 2022, was $108.71 billion, down from $112.98 billion as of Mar 26, 2022.
Apple returned $28 billion in the reported quarter through dividend payouts ($3.8 billion) and share repurchases ($21.7 billion).
Guidance
Apple did not provide revenue guidance for the fourth quarter of fiscal 2022.
Apple expects year-over-year revenue growth to accelerate during the fiscal fourth quarter compared to the third quarter, despite approximately 600 bps of unfavorable year-over-year impact from forex.
Management expects supply constraints to be lower in the fiscal fourth quarter compared with the third quarter.
Services revenue growth is expected to be lower than the June quarter due to challenging macroeconomic conditions and unfavorable forex.
Gross margin is expected between 41.5% and 42.5% in the fourth quarter. Operating expenses are expected between $12.9 billion and $13.1 billion.
Zacks Rank & Stocks to Consider
Currently, Apple has a Zacks Rank #3 (Hold).
Apple shares have outperformed the Zacks Computer & Technology sector year to date. While AAPL shares have lost 11.4%, the Computer & Technology sector decreased 25.1%.
Airbnb (ABNB - Free Report) , Aspen Technology (AZPN - Free Report) , and Fastly (FSLY - Free Report) are some better-ranked stocks that investors can consider in the broader sector. All three stocks have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Airbnb shares are down 34.6% year to date. ABNB is set to report second-quarter 2022 results on Aug 2.
Aspen shares are up 28.2% year to date. AZPN is set to report fourth-quarter fiscal 2022 results on Aug 8.
Fastly shares are down 67.8% year to date. FSLY is set to report second-quarter 2022 results on Aug 3.