Apple has done it again: Despite all the troubles about China, the patron tech giant bounced back with increases in sales and profits, sending shares up 6% in after-hours trading. That’s why we own it. That’s why we do not trade with it. Apple’s fiscal first quarter revenue was $90.75 billion, down 4% from a 12 months ago but above the LSEG estimate of $90.01 billion. Earnings per share rose 1% to $1.53, a record quarter in March, and beat the LSEG consensus estimate of $1.50. Gross margin was 46.6%, up 230 basis points year-over-year and in keeping with expectations. (One hundred basis points (bps) equals one percentage point). Apple Why we own it: Apple’s dominant hardware and growing services division offers a robust competitive advantage and diverse bundling opportunities. Management’s so-called net money neutral strategy provides confidence that free money flow will proceed to fund dividends and buybacks. Additionally, the corporate’s commitment to customer experience has translated into industry-leading user loyalty scores, giving it pricing power. There’s a reason it’s one in all only two stocks within the portfolio that embrace the “own, don’t trade” principle. Competitors: Last Purchase: April 8, 2014 Start: December 2, 2013 Conclusion Thursday’s quarterly results left loads to be desired. Topping the list: The consumer tech giant hit one other record within the installed base of lively devices across all regions and product categories — which helped set one other record in high-margin and recurring revenue for its services business. We were also very happy that sales in Greater China were higher than expected, especially given the sluggish economy and Wall Street’s unwillingness to pass on the region’s sales shortfalls to firms. Growth was still negative in comparison with last 12 months, however the iPhone sequentially accelerated the region, taking the first and 2nd best-selling smartphone positions in urban China. Meanwhile, the corporate set recent sales records in Latin America, the Middle East, Canada, India, Spain, Turkey and Indonesia. In addition to this strong performance, Apple announced a $110 billion stock repurchase authorization, the biggest corporate buyback ever. Apple is as strong as ever and we see positive momentum for the longer term. CEO Tim Cook is wanting to showcase the corporate’s efforts in artificial intelligence, and we expect to learn more at WWDC in June. “We are making significant investments and look forward to sharing some very exciting things with our customers soon,” said Cook. “We believe in the transformative power and promise of AI and believe we have advantages that will set us apart in this new era, including Apple’s unique combination of seamless hardware, software and service integration, Apple’s breakthrough -Silicon with our industry-leading neural system engines and our unwavering focus on privacy, which is the foundation of everything we create. We can only agree. Think about how much information is in your phone. Apple is able to offer a generative, AI-based personal assistant that is truly personal – and with numerous privacy protections. Given all the positive underlying fundamentals and catalysts, Apple stock deserves a run higher. We are therefore increasing our price target from $205 to $220. Cash Flow and Capital Allocation Apple generated operating cash flow that was slightly below expectations. However, investments were also lower than expected. This resulted in stronger-than-expected free cash flow, which is more important than operating cash flow because it is cash that Apple can ultimately return to shareholders via buybacks and dividends. Apple exited the quarter with about $162 billion in cash, equivalents and marketable securities on its balance sheet. After deducting $105 billion in debt, that leaves net cash of about $58 billion. As a reminder, Apple has a policy of being net cash neutral over time, meaning that when cash is not being used for acquisitions or organic growth investments, it is returned to shareholders through buybacks and dividends. With that in mind, Apple announced an incredible $110 billion share buyback authorization and increased its quarterly dividend by 4%. Management also plans to increase the payout annually, as it has done for the past 12 years. In the quarter under review, Apple paid over $27 billion to shareholders, including $3.7 billion in dividends and dividends and another $23.5 billion through the repurchase of 130 million shares. Quarterly Results Apple’s services revenue posted another record, offsetting a slight decline in product sales and leading to higher gross and operating income. Products The installed base of active devices across all products and regions reached a new record. The decline in iPhone sales was a difficult comparison with the previous year, when Covid-related supply chain issues drove December 2022 sales down to $5 billion in the March quarter. Adjusted for this fact, iPhone sales were within limits. Citing research firm Kantar, CFO Luca Maestri said the iPhone was the best-selling smartphone in the US, urban China, Australia, Britain, France, Germany and Japan. Mac sales driven by M3 MacBook Air. Half of MacBook Air buyers in the quarter were Mac newbies. As we move past the launch of the M2 iPad Pro and the 10th generation iPad, the iPad continues to face tough competition. Half of iPad buyers in the quarter were new to iPad. The wearables, home and accessories segment recorded a lag compared to last year, which saw the launch of the 2nd generation AirPods Pro, Watch SE and 1st generation Watch Ultra. Nearly two-thirds of Apple Watch buyers in the quarter were new to the product, driving Apple Watch’s installed base to a new all-time high. Cook said more than half of the Fortune 100 companies have purchased Apple Vision Pro devices and are “exploring innovative ways to use them to do things that weren’t possible before.” Maestri added: “We see so many compelling use cases. From aircraft engine maintenance training at KLM Airlines, to real-time team collaboration on sourcing a portion, to immersive kitchen design at Lowe’s. We couldn’t be more excited about the company’s dedicated computing capability.” Services record sales all-time. Record performance in each developed and emerging markets. Sequential gross margin increase of 180 basis points as a result of higher product mix. Maestri said the record-breaking installed product base “provides a strong foundation for future growth of the services business as we continue to see increasing customer engagement with our ecosystem.” New highs in each transactional and paid accounts, with each paid accounts and A double-digit percentage increase was also recorded for paid subscriptions. According to Maestri, Apple now has greater than a billion paid subscriptions across all services on its platform, greater than double the number 4 years ago. June Quarter Forecast The forecast assumes that the macroeconomic outlook doesn’t worsen. Sales are expected to extend by low single-digit percentage points in comparison with the identical period last 12 months, despite a currency decline of two.5 percentage points. It would beat the Street’s estimate of 1.5% growth. Services are expected to grow at the same double-digit rate as in the primary half of the fiscal 12 months. Services revenue is anticipated to rise 12.7% in the primary half of 2024 in comparison with the identical period last 12 months, beating the Street estimate of 10.6%. iPad sales are expected to grow by double digits year-over-year, a lot better than the 5.9% expected on Wall Street. Operating costs are forecast at $14.3 billion to $14.5 billion, down from the $14.4 billion estimate. (Jim Cramer’s Charitable Trust has a protracted AAPL position. See a full list of stocks here.) As a subscriber to CNBC Investing Club with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable foundation’s portfolio. If Jim discussed a stock on CNBC television, he waits 72 hours after the trade alert is issued before executing the trade. THE INVESTING CLUB INFORMATION SET FORTH ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, ALONG WITH OUR DISCLAIMER. THERE ARE NO fiduciary duty or duty IN RECEIVING YOUR INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.
Tim Cook, CEO of Apple Inc., arrives for the opening ceremony of the brand new Apple Jing’an store on March 21, 2024 in Shanghai, China.
Vcg | Visual China Group | Getty Images
Apple has done it again: Despite all the troubles about China, the patron tech giant bounced back with increases in sales and profits, sending shares up 6% in after-hours trading.
That’s why we own it. That’s why we do not trade with it.
