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Apple announces earnings Thursday evening.
Michael M. Santiago / Getty Images
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It releases results for the March quarter after Thursday’s close, and investors are optimistic that the company can meet or exceed Street estimates.
However, analysts are concerned that the June quarter forecast could pose risks, given a new round of widespread Covid-related lockdowns in China.
It is also possible that in terms of earnings, Apple (stock ticker: AAPL) will boost its earnings and unveil an updated share buyback program.
For the March quarter, Street’s consensus on FactSet sales was $94 billion, up about 5% from a year ago, with earnings of $1.42 per share. On a conference call to discuss the December quarter, Apple CFO Luca Maestri said results for the March quarter will show “strong year-over-year growth,” but at a slower pace than the 11% top-line growth in the December quarter.
While Maestri said supply constraints in the March quarter will ease from the December quarter, he also noted that Apple faces a tough comparison compared to last year: Revenue in the March 2021 quarter jumped 54%, with Mac and iPad sales up in the middle of last year. epidemic.
He also predicted a 2 percentage point drop in earnings growth from the currency, but this may be an underestimate. Note that unfavorable currency factors affected the results of several technology companies this quarter.
Microsoft
Likewise he previously warned of a possible foreign exchange hit, and the effect turned out to be worse than expected. Apple’s results can be affected similarly.
For the March quarter, The Street forecasts $48.4 billion in iPhone sales, up about 1% from a year ago. The Street sees annual declines for both Macs and iPads, with Mac sales of $9.1 billion and iPad sales of $7.2 billion. For wearable devices, including the Apple Watch, analysts see revenue of $8.9 billion. Analysts see services revenue for the quarter at $19.7 billion, which would increase 16.8% from a year earlier.
For the June quarter, Street Street forecast sales of $86.3 billion, with earnings of $1.24 per share. Apple stopped providing detailed forward guidance at the start of the pandemic, and the practice is not likely to resume this quarter, but there are concerns the suspension may be more cautious than usual given the situation in China.
Note that Microsoft’s other strong guidance for the June quarter included a lower-than-consensus forecast for the “personal computing” sector. Microsoft CFO Amy Hood has indicated that manufacturing shutdowns in China will likely affect production of both its Surface and Xbox devices, as well as third-party PCs. Apple, which produces many products in China, may be more susceptible to this problem.
In recent years, Apple has raised its dividend in connection with the March quarter earnings announcement. Evercore ISI analyst Amit Darianani believes the company will boost its dividend – now 22 cents every quarter – 6% to 7%, which means a new rate of about 23.5 cents. He thinks Apple will announce a rolling stock buyback plan — his guess is a new $90 billion mandate.
Barclays analyst Tim Long wrote in a research note on Wednesday that while he sees the upside in Street estimates for the March quarter, he says the June guidance “is likely to disappoint.” He predicts that the company will likely issue a cautious note given the “unpredictability of shutdowns” affecting Apple’s product manufacturing in China. It maintains an equal weight rating on Apple stock.
Cowen analyst Krish Sankar is more optimistic — he maintains his outperformance rating on the stock as the quarter approaches, but has similar concerns about the outlook. He writes: “We believe epidemic shutdowns in major Chinese cities could pose a risk to June quarter revenue.” Sankar also warns that events in Eastern Europe “could disrupt consumption trends”.
Evercore’s Darianani, who also maintains an outperformance rating on Apple stock, thinks the consensus estimate for June could be a bit too high. It is noted, for example, that the manufacturer’s contract
Pegatron
Factories that produce about 20% of the supply of iPhones have closed. But he is optimistic about the company’s services business, which he believes will lead to higher gross profit margins for the company over time.
So far, Apple shares are down just over 10%.
Write to Eric J. Savitz at eric.savitz@barrons.com