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Apple Inc. (AAPL - Analyst Report) reported robust second quarter 2012 results, which breezed past the Zacks Consensus Estimates. Apple earned $12.30 per share in the reported quarter, handily beating the Zacks Consensus Estimate of $10.03. Apple shares surged approximately 7.7% to reach $603.81 in after hours trading.
Earnings soared 92.2% from $6.40 reported in the year-ago quarter and were also ahead of Apple’s conservative guidance of $8.50. Apple’s second quarter beat was primarily based on the strong demand for iPhone 4S and the new iPad, which was released in March 2012.
Total revenue in the quarter surged 59.0% year over year to $39.19 billion and beat both the company’s forecast of $32.50 billion and the Zacks Consensus Estimate of $36.58 billion. The year-over-year upside was primarily driven by strong iPhone and iPad sales.
Macintosh: Apple shipped 4.02 million Macintosh computers in the reported quarter, representing a 7.0% year-over-year increase, attributable to strong demand for Macs across all geographic regions, particularly in the Asia-Pacific region ( up 29.0% year over year).
iPhones: iPhone unit sales were 35.06 million during the quarter, representing a year-over-year growth of 88.0%. Revenues from iPhone handset sales, accessory sales and carrier payments skyrocketed 85.0% year over year to $22.69 billion in the quarter.
This robust growth was primarily driven by strong demand across all geographic regions, particularly in the Asia Pacific (including China) and Japan where sales more than doubled on a year-over-year basis during the quarter.
iPads: Total iPad units sold in the quarter were 11.80 million versus 4.69 million sold in the prior-year quarter. Recognized revenues from iPad and accessories during the quarter shot up 132.0% year over year to $6.6 million, driven by strong demand for the new iPad.
iPods: Apple sold 7.67 million iPods during the quarter, representing a unit decline of 15.0% from the year-ago quarter. According to MPD data, Apple's share of MP3 players in the U.S. was over 70% in March, and iPod emerged as the highest-selling MP3 player based on the latest data published by GFK. iTunes store generated revenues of $1.9 billion during the quarter.
Retail Stores: Retail revenues in the quarter increased 38.0% year over year to $4.4 billion, primarily attributable to higher iPhone and iPad sales. During the quarter, Apple opened 2 new retail stores, 1 of which was outside the United States. At quarter end, Apple operated 363 stores worldwide. Apple’s app store continues to top the charts with more than 600,000 apps. iCloud reported more than 125 million customers.
Gross margin expanded 540 basis points (bps) year over year to 47.4%, well above management’s forecast of 42.0%, driven by lower commodity and other product costs, better-than-expected revenue and product mix. Operating margin increased to 39.3% from 32.0% recorded in the year-ago quarter. Total operating expenses increased 35.7% year over year to $3.18 billion (down 140 bps to 8.1% as a percentage of revenue).
Net income stood at $11.6 billion in the quarter, reflecting an astounding growth of 94.0% from $6.00 billion in the year-ago quarter.
Apple’s balance sheet remains strong with cash and investments of $110.2 billion at the end of the quarter compared with $97.6 billion in the previous quarter. Apple expects to announce a dividend of $2.65 during its third quarter conference call in July, 2012.
Third Quarter Guidance
For the third quarter of fiscal 2012, Apple expects revenues of approximately $34.0 billion. Earnings are projected at approximately $8.68 per share. The Zacks Consensus Estimate was pegged at $9.95 per share at the time the company reported its second quarter results.
Apple expects gross margin to be 41.5%, reflecting stock-based compensation expense of approximately $70.0 million. Operating expenses are estimated to be $3.3 billion, including about $385.0 million in stock-based compensation, while other income and expenses are anticipated to be around $175.0 million. The tax rate is estimated to be about 25.25%.
Apple has outperformed the broader market in recent times. Apple shares have surged 36.24% year to date compared to a 7.4% growth in S&P 500. We believe that Apple is currently undervalued, and expects further upside in share prices over the next 12 months.
We believe that Apple remains the biggest growth story based on its superior product pipeline, Apps, iCloud and Apple TV. Apple is also well positioned to gain from a loyal customer base and international expansion going forward, in our view.
Apple is currently expanding its business in China and other developing nations. iPhone 4S has received stupendous response in China, where sales increased five fold on a year-over-year basis in the second quarter. Apple’s ability to spur the popularity of its products in developing nations, where pricing is often an important consideration, will go a long way in deciding the company’s future growth, in our view.
Although stiff competition from Samsung, HTC, and Google Inc. (GOOG - Analyst Report), saturation in its major markets and increasing legal complexities remain concerns, continuing strong demand for its products and increasing international sales will boost results in the near term, in our view.
We maintain our Outperform recommendation over the long term (6-12 months). Currently, Apple has a Zacks #1 Rank, which implies a Strong Buy rating in the near term.