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Apple (AAPL) Q1 Earnings Miss Estimates, Revenues Decline Y/Y

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Apple (AAPL - Free Report) reported first-quarter fiscal 2023 earnings of $1.88 per share, which missed the Zacks Consensus Estimate by 2.59% but beat our estimate of $1.87 per share.

The reported earnings figure decreased 10.5% year over year.

Net sales decreased 5.5% year over year to $117.15 billion, which missed the Zacks Consensus Estimate by 3.34% and our estimate of $118.32 billion. Unfavorable forex hurt revenues by more than 800 basis points (bps).

iPhone sales decreased 8.2% from the year-ago quarter to $65.78 billion and accounted for 56.1% of total sales. However, the figure missed the consensus mark of $68.53 billion.

Our estimate for fiscal first-quarter iPhone sales was pegged at $60.96 billion.

Apple Inc. Price, Consensus and EPS Surprise

 

Apple Inc. Price, Consensus and EPS Surprise

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

iPhone sales fell due to supply shortages for iPhone 14 Pro and iPhone 14 Pro Max in November and through December due to COVID-19 issues in China.

Services revenues grew 6.4% from the year-ago quarter to $20.77 billion and accounted for 17.7% of sales. The figure beat the Zacks Consensus Estimate by 1.06%.

Our estimate for fiscal first-quarter Services revenues was pegged at $20.21 billion.

Apple now has more than 935 million paid subscribers across its Services portfolio, up 35 million sequentially and 150 million year over year.

Geographical Details

America’s sales decreased 4.3% year over year to $49.28 billion and accounted for 42.1% of total sales. The figure missed the Zacks Consensus Estimate by 2.67% and our estimate of $51.15 billion.

Europe generated $27.68 billion in sales, down 7% on a year-over-year basis. The region accounted for 25.3% of total sales. Europe’s sales missed the consensus mark by 4.2% and our estimate of $28.54 billion.

Greater China sales decreased 7.3% from the year-ago quarter to $23.91 billion, accounting for 20.4% of total sales. The figure beat the consensus mark by 3.73% and our estimate of $22.02 billion.

Japan’s sales of $6.76 billion missed the Zacks Consensus Estimate by 14.48% and our estimate of $7.86 billion. Japan’s sales decreased 5% year over year, accounting for 5.8% of total sales.

Rest of the Asia Pacific generated sales of $9.54 billion, down 2.8% year over year. The region accounted for 7.1% of total sales. The figure beat the consensus mark by 6% and our estimate of $8.77 billion.

Top-Line Details

Product sales (82.3% of sales) decreased 7.7% year over year to $96.39 billion. Non-iPhone revenues (iPad, Mac and Wearables) decreased 6.7% on a combined basis.

iPad sales of $9.4 billion improved 29.6% year over year and accounted for 8% of total sales. The figure beat the consensus mark by 22.51% and our estimate of $8.98 billion.  

Mac sales of $7.74 billion decreased 28.7% from the year-ago quarter and accounted for 6.6% of total sales. The figure missed the consensus mark by 20.32% and our estimate of $12.17 billion.

Wearables, Home and Accessories sales decreased 8.3% year over year to $13.48 billion and accounted for 10.7% of total sales. The figure missed the Zacks Consensus Estimate by 12.57% and our estimate of $15.99 billion.

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

Operating Details

The gross margin of 43% contracted 80 bps on a year-over-year basis.

However, the gross margin decreased 40 bps sequentially due to unfavorable forex.

Products’ gross margin expanded 240 bps sequentially to 37%. Services’ gross margin was 70.8%, up 30 bps sequentially.

Operating expenses rose 17.1% year over year to $14.32 billion due to higher research and development, and selling, general and administrative expenses, which increased 33.6% and 2.4%, respectively.

Operating margin contracted 270 bps on a year-over-year basis to 30.7%.

Balance Sheet

As of Dec 31, 2022, cash and marketable securities were $165.45 billion compared with $169.11 billion as of Sep 24, 2022.

Term debt, as of Dec 31, 2022, was $109.37 billion, down from $110.09 billion as of Sep 24, 2022.

Apple returned more than $25 billion in the reported quarter through dividend payouts ($3.8 billion) and share repurchases ($19 billion).

Guidance

Apple did not provide revenue guidance for the second quarter of fiscal 2023.

It expects the March quarter’s year-over-year revenue growth to be similar to that of the December quarter due to unfavorable forex of roughly 5%.

Services revenue growth is expected to be negatively impacted by challenging macroeconomic conditions, as well as weakness in digital advertising and gaming. Nevertheless, revenues are expected to grow year over year.

For iPhone, Apple expects the March quarter’s year-over-year revenue growth to accelerate relative to the December quarter’s year-over-year revenue growth. For Mac and iPad, revenues are expected to decline in double digits on a year-over-year basis due to challenging comparison and macroeconomic headwinds.

The gross margin is expected between 43.5% and 44.5% in the fiscal second quarter. Operating expenses are expected between $13.7 billion and $13.9 billion.

Zacks Rank & Stocks to Consider

Currently, Apple has a Zacks Rank #3 (Hold).

Cambium Networks (CMBM - Free Report) , Bruker (BRKR - Free Report) and RingCentral (RNG - Free Report) are some better-ranked stocks that investors can consider in the broader sector. While Cambium sports a Zacks Rank #1 (Strong Buy), both Bruker and RingCentral carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cambium shares have declined 9.9% in the past year. CMBM is set to report its fourth-quarter 2022 results on Feb 16.

Bruker shares have gained 8.2% in the past year. BRKR is set to report its fourth-quarter 2022 results on Feb 9.

RingCentral shares have declined 70.4% in the past year. RNG is set to report its fourth-quarter 2022 results on Feb 15.

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