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Apple (AAPL) Q2 Earnings Top Estimates, Revenues Increase Y/Y

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Apple (AAPL - Free Report) reported second-quarter fiscal 2022 earnings of $1.52 per share that beat the Zacks Consensus Estimate by 6.29% and increased 8.6% year over year.

Net sales increased 8.6% year over year to $97.28 billion, which beat the Zacks Consensus Estimate by 2.90%.

Apple’s second-quarter results benefited from strong Mac as well as Wearables, Home and Accessories sales. Services business maintained momentum in the reported quarter

iPhone sales increased 5.5% from the year-ago quarter to $50.57 billion and accounted for 52% of total sales. iPhone sales were driven by strong demand for the iPhone 13 family of devices and launch of the new iPhone SE.

Services revenues grew 17.3% from the year-ago quarter to $19.82 billion and accounted for 20.4% of sales.
 

Apple Inc. Price, Consensus and EPS Surprise

Apple Inc. Price, Consensus and EPS Surprise

Apple Inc. price-consensus-eps-surprise-chart | Apple Inc. Quote

 

Apple TV+, Apple Arcade, Apple News+, Apple Card, Apple Fitness+ and the Apple One bundle contributed to overall growth. These new services continue to add users, content and features.

Apple now has more than 825 million paid subscribers across its Services portfolio, up 40 million sequentially and 165 million year over year.

Strong Americas Sales Aid Top-Line Growth

Americas sales increased 19.2% year over year to $40.88 billion and accounted for 42% of total sales.

Europe generated $23.29 billion in sales, up 4.6% on a year-over-year basis. The region accounted for 23.9% of total sales.

Greater China sales increased 3.5% from the year-ago quarter to $18.34 billion, accounting for 18.9% of total sales.

Japan sales decreased 0.2% year over year to $7.72 billion, accounting for 7.9% of total sales.

Rest of the Asia Pacific generated sales of $7.04 billion, down 6.7% year over year. The region accounted for 7.2% of total sales.

Top-Line Details

Product sales (79.6% of sales) increased 6.6% year over year to $77.46 billion. Non-iPhone revenues (iPad, Mac and Wearables) grew 8.7% on a combined basis.

iPad sales of $7.65 billion declined 2.1% year over year and accounted for 7.9% of total sales. The year-over-year decline was attributed to supply-chain constraints.

Mac sales of $10.44 billion increased 14.6% from the year-ago quarter and accounted for 10.7% of total sales. Sales benefited from strong demand for Apple’s M1-powered MacBook Pro.

Wearables, Home and Accessories sales increased 12.4% year over year to $8.81 billion and accounted for 9.1% of total sales.

Apple Watch’s adoption rate continues to grow rapidly. More than two-thirds of the customers who purchased Apple Watch during the reported quarter were first-time customers.

Operating Details

Gross margin expanded 120 basis points (bps) on a year-over-year basis to 43.7%. However, gross margin decreased 10 bps sequentially due to unfavorable forex.

Products’ gross margin contracted 200 bps sequentially to 36.4%. Services’ gross margin was 72.6%, up 20 bps sequentially.

Operating expenses rose 18.9% year over year to $12.58 billion due to higher research & development (R&D), and selling, general & administrative (SG&A) expenses, which increased 21.4% and 16.5%, respectively.

Operating margin expanded 10 bps on a year-over-year basis to 30.8%.

Balance Sheet

As of Mar 22, 2022, cash & marketable securities were $192.73 billion compared with $202.6 billion as of Dec 25, 2021.

Term debt, as of Mar 26, 2022, was $112.98 billion, down from $118 billion as of Dec 25, 2021.

Apple returned $27 billion in the reported quarter through dividend payouts ($3.6 billion) and share repurchases ($22.9 billion). The board of directors has also authorized an increase of $90 billion to Apple’s existing share repurchase program.

Apple also raised its dividend payout by 5% to 23 cents per share.

Guidance

Apple did not provide revenue guidance for the third quarter of fiscal 2022.

Apple expects COVID-induced supply chain disruptions and industry-wide silicon shortages to hurt the top line by $4-$8 billion, much higher than what it witnessed in second-quarter fiscal 2022. Unfavorable forex is also expected to hurt revenues by 300 bps. Absence of Russian revenues will hurt the top line by 150 bps.

Services revenue growth is expected to be in strong double digits, but the rate is expected to be lower than the March quarter.

Gross margin is expected between 42% and 43% in the third quarter. Operating expenses are expected between $12.7 billion and $12.9 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 decreased 7.9%, the Computer & Technology sector declined 20.4%.

Camtek (CAMT - Free Report) , CDW (CDW - Free Report) and Fabrinet (FN - Free Report) are some better-ranked stocks that investors can consider in the broader sector. All the three stocks has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CAMT shares are down 33.1% year to date. The company is set to report first-quarter 2022 on May 12, 2022.

CDW shares are down 17.7% year to date. The company is set to report first-quarter 2022 results on May 4.

Fabrinet shares are down 15% year to date. FN is set to report third-quarter fiscal 2022 results on May 2.

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