4 Things to Expect from Apple’s Earnings

There are a thousand different things that investors will be looking for when Apple (NASDAQ:AAPL) releases its first-quarter fiscal 2013 results after the bell today. So, before the markets are drowned in a frenzy of trading activity one way or the other, here’s a look at four things from Apple’s earnings report that investors should be expecting.

A margin reductionapple-logo

Just to clear the air, a reduction in margins is not always a bad thing. Not to dismiss the obvious necessity of healthy margins, but the buffer between sales and earnings will always fluctuate in size. Last quarter, it was 40.0 percent, which compares to 40.3 percent in the year-ago period. This year, expectations are for more slimming.

Having refreshed its product line pretty much all at once at the end of 2012, an analyst at JPMorgan is looking for margins of about 39.3 for the quarter, and about 40.6 percent for fiscal 2013. This is a 0.6 point year-over-year gain for the quarter, and a 0.3 point annual gain for the year.

Backing up this claim is a warning from CEO Tim Cook that margins could slip early in the year before recovering.

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An answer to the demand questionlots of iphones

A major catalyst for Apple’s stock movement over the past few weeks has been a series of reports indicating that demand for iPhones dried up late in the quarter. These reports are based largely on channel checks performed by analysts who concluded that Apple was seeking fewer components from suppliers. Fewer devices being made suggests that few devices are being sold, but many investors don’t believe the checks are producing accurate insights.

Tons of doubt has been piled on the checks, but there’s no hiding the pessimism that has built up around the stock over the past few weeks. Shares are off 8 percent since the beginning of 2013, and dipped briefly below $500 for the first time since February. Some interpreted that as Mr. Market believing the reports, while others saw it as a buying opportunity.

A beatapple-logo

Taking analyst expectations for what they’re worth, which is sometimes very little, Apple has a historical earnings beat rate of 84 percent, and a revenue beat rate of 78 percent, according to data compiled by Bespoke Investment Group. Apple has averaged a positive move of 1.76 percent on its earnings days.

On average, analysts are looking for earnings of $13.44 per share this quarter, a number that has been revised up a lot in the past few weeks. Keep in mind that while analysts have historically undershot earnings, they overshot for the past two quarters.

So the odds are in Apple’s favor for a beat, which is always good for the stock price. For better or worse, performance relative to analyst expectations is catalytic. But who knows? Maybe analysts are on a roll, and they’ll defy probability to highball three in a row. The analysts have jacked their estimates up in recent weeks while at the same time many have cut their price targets, revealing tremendous uncertainty about the performance of the world’s largest electronics company.

For its part, in its fourth-quarter 2012 report, Apple forecast diluted earnings per share “of about $11.75.” Many observers are expecting Apple to continue issuing conservative estimates in order to curb over speculation.

No dividend increaseFalling Money New Feature 300x270

Where most companies have revenue streams, Apple has revenue rivers feeding an ocean of cash reserves. Observers are estimating that the company will have $250 billion in net cash at the end of 2015, and investors want some of that money to flow their way.

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With its fourth-quarter 2012 earnings, Apple’s board declared a quarterly dividend of $2.65 per share in additional to a $10 billion, three-year share repurchase program. Analysts have called for Apple to increase its quarterly dividend to as high as 4 percent.

But other observers suggest that Apple is unlikely to increase its dividend this quarter. In a radio interview with Bloomberg, Gene Munster reminds investors that Apple said it would review its dividends on an annual basis, meaning it makes more sense to look for a bump in the next quarter.

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