Oh. Well, so much for the rally in Apple (NASDAQ:AAPL) stock.
After surging nearly 4% in Thursday’s trading session, the computing colossus from Cupertino, California turned around and gave back most of its gains after markets closed Thursday — and after Apple reported its earnings for fiscal Q1 2023.
Reporting after the closing bell, Apple admitted that its earnings — $1.88 per share — and its sales as well — $117.2 billion — had both fallen short of analyst projections for the New Year’s first quarter. Wall Street was actually hoping to see something more along the lines of $1.94 per share in profit, and $121.1 billion in sales.
So two swings, and two misses.
Even worse than missing earnings, though, Apple suffered absolute declines in both numbers. Sales for the quarter fell 5%, and earnings took twice as big of a hit — down more than 10%.
And that was the good news.
The really bad news for Apple this past quarter concerned free cash flow. With cash from operations dwindling, and capital spending on the rise, Apple generated only $30.2 billion in positive cash profits for Q1. That’s a big number, to be sure. But it still represented a 32% year over year decline from the $44.2 billion in free cash flow that Apple churned out in fiscal Q1 2022 — six times the rate of the revenue decline.
Commenting on the results, Wedbush analyst Daniel Ives admitted that the results looked “mixed,” but blamed “the supply chain abyss… due to the zero Covid lockdowns in China/Foxconn” for the bulk of Apple’s troubles. With Apple’s contractors’ factories in China unable to run full throttle in the face of China’s zero-Covid restrictions (which were only lifted partially in December, and fully in January), Apple simply wasn’t able to build all the iPhones, iPads, and other iGadgets it would have liked to sell. As Ives pointed out, production delays meant anywhere from 8 million to 10 million iPhones — that the company otherwise would have sold in Q1 — will now probably have to be sold in Q2 instead.
But… isn’t that perhaps good news for Apple, or at least for Apple’s prospects in Q2? If the company missed on sales in Q1, but those sales weren’t lost, but merely pushed into a later quarter, doesn’t that seem to imply that Q2 will now be stronger than analysts had expected?
Perhaps.
Unfortunately, Apple didn’t give investors specific guidance on what it expects for sales or earnings in Q2, and what Ives said on the matter was more than a little concerning. On the one hand, the analyst insisted that investors shouldn’t lose faith in Apple — a stock that he continues to rate “outperform” and value at $175 a share — arguing that “the demand environment is more resilient than the Street is anticipating,” and predicting a rebound in gross margins to about 44% in Q2.
On the other hand, though, Ives also cautioned that “Cupertino appears to be cutting back on some orders around Macs, iPads and AirPods over the coming quarters to reflect a softer consumer backdrop.” While iPhone revenue may accelerate sequentially in Q2, investors should expect “double digits year-over-year” declines in sales of both Macs and iPads.
Overall, Wall Street analysts are pretty well unified in their views on Apple – the stock has 24 Buy reviews, against 4 Holds, for a Strong Buy analyst consensus rating. (See Apple stock forecast)
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