What more can we say about Apple (AAPL)? The firm is one of the largest holdings in both the Best Ideas portfolio and Dividend Growth portfolio. Its innovation prowess is second to none, and it has captured the hearts of millions of consumers with its iconic brand. The firm’s fiscal fourth-quarter (calendar third quarter) results, released Monday, were a reflection of its continued dominance in consumer electronics.
All the key metrics moved in the right direction. Revenue jumped 12.3%, to $42.1 billion, while quarterly net profit leapt 13.3%, to $8.5 billion. Diluted earnings-per-share of $1.42 was better than expected and towered 20% over the $1.18 per share mark in the year-ago period. Gross margin of 38% was a full percentage point greater than the 37% achieved in last year’s quarter. International sales accounted for 60% of the company’s revenue, and the opportunity for further growth, particularly in China, remains. Cash flow from operations was an astounding $13.3 billion in the quarter.
This holiday season is going to be blockbuster for Apple. The iPhone 6 and iPhone 6 Plus are in the sweet spot of what the daily mobile user desires. The firm’s line-up of iPads and Macs is quite impressive as well, and the Apple retail stores are truly a sight to see, completely packed with buyers of all ages and demographics. Apple is the largest company by market capitalization for a reason, and its “halo effect” appears impenetrable. Neither Samsung (SSNLF) or Sony (SNE) or Blackberry (BBRY) come close to Apple’s brand equity, something unthinkable a decade or so ago. Consumers bought a whopping 39.3 million iPhones, 12.3 million iPads, 5.5 million Macs, and 2.64 million iPods in the third quarter…alone. Only the iPad performance could be considered marginally lower than consensus.
Looking ahead, Apple offered stronger-than-expected guidance for the fiscal 2015 first quarter (the holiday quarter). Revenue of $63.5-$66.5 billion and a gross margin of ~38% should certainly be achievable. Not only are we hearing than channel inventory is running slim, but also Apple is having a hard time filling the channel. CEO Tim Cook is saying: “We’re selling everything we make. (source)” Though the iPad may not have as fast of an upgrade cycle as the iPhone, we think iPad demand remains robust as well. For one, many iPad purchases continue to come from first-time buyers, and we think the market of first-time parents (with toddlers) has yet to be fully penetrated. It’s possible that, for every family that can afford it, an iPad could become a must-have to keep toddlers busy, engaged and learning.
We’re expecting significant upside to Apple’s guidance this holiday quarter.