Apple boosts guidance in rare earnings preannouncement

Higher than expected iPhone sales have prompted Apple to bump up its quarterly guidance. But why?

Well this is highly unorthodox, which is not Apple’s style at all—or at least it wasn’t. I don’t even know who/what Apple is anymore. You’ve changed, man!

Apple issued a rare and very bizarre earnings preannouncement, in which it revealed that higher than expected iPhone 5S and 5C sales will push revenue into the “high end” of guidance. It’s not changing its guidance. Total revenue for the September quarter is still expected to come in at $34 billion to $37 billion. Apple now expects to come in at the higher end of that.

The entirety of the SEC filing (minus the forward-looking statements disclaimer) reads:

On September 23, 2013, Apple Inc. (the "Company") announced that it has sold over nine million new iPhone 5s and iPhone 5c models, just three days after the launch of the new iPhones on September 20. 

Apple expects total company revenue for the fourth fiscal quarter to be near the high end of the previously provided range of $34 billion to $37 billion, and expects gross margin to be near the high end of the previously provided range of 36% to 37%. 

The iPhone is Apple’s main revenue driver, so it’s more than feasible that higher than expected iPhone sales would bump up guidance. What’s bizarre is Apple’s decision to announce its buoyed expectations. This is the company that has consistently low-balled its own guidance for years. The effect: come time for earnings calls, Apple never fails to wow the crowds with its higher than expected results.

Analyst estimates had pegged Apple’s September quarter earnings at $36.10 billion and EPS at $7.66. Apple generated a quarterly net profit of $7.32 per share on revenue of $35.3 billion in the June quarter.

BTIG analyst Walter Piecyk is raising his estimates to EPS of $8 on revenue of $36.75 billion.

“We still believe that Apple has an opportunity to return to EPS growth next year, albeit with somewhat higher risk given their strategy to not address the global unsubsidized pre-paid market with a low priced phone,” wrote Piecyk in a blog post. “While the first weekend sales of 9 million were impressive, we caution investors from using three days of sales as validation of a strategy that does not yet include a low-priced phone.”

JP Morgan analyst Doug Anmuth echoed Piecyk’s concerns about the iPhone 5C: “We still have concerns that pricing on 5C may not be low enough to drive meaningful penetration of the midrange segment,” he wrote in a note, adding that he doesn’t believe cannibalism will be a problem. “Although the price point on the 5C base model is only $100 lower than the 5S base model with a wireless contract, we think the 5C’s lower-quality form factor and features could minimize cannibalism risk of 5S.”

Anmuth also stated the obvious: “We believe the preannouncement should help investors become more constructive on the stock.” Yes. It will.

While Apple bumping up its September guidance shouldn’t be ignored, it should probably be taken with a grain of salt. Apple shares fell 5.3% to $468 from $494 after the iPhone 5S and 5C reveal. The earnings preannouncement feels like a cheap attempt to rally the troops. And it’s working: shares have climbed 4.5% Monday to $488.57.

Image source: idigitaltimes.com