Apple’s stock falls as its return to growth could prove short-lived

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Apple Inc. broke its four-quarter streak of revenue declines in the holiday period, but the company could be headed for another drop in the current quarter.

Management said on Thursday afternoon’s earnings call that Apple’s
AAPL,
+1.33%

March quarter a year ago benefited from “significant pent-up demand” after an easing of supply constraints — to the tune of $5 billion in iPhone revenue. Stripping out that impact, Apple expects similar revenue in this year’s March quarter to what was seen a year ago.

That suggests Wall Street forecasts are too optimistic, as the FactSet consensus was for $95.6 billion in March-quarter revenue, while Apple posted $94.9 billion in revenue a year earlier — and that number was inclusive of the supply-related benefits.

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Apple shares extended after-hours declines to about 3% during the conference call. The stock was initially down about 2% after Apple reported a large revenue shortfall in China for its December quarter.

The company’s downbeat outlook and China weakness overshadowed Apple’s first quarter of overall revenue growth in over a year. Apple generated $119.6 billion in fiscal first-quarter revenue, up from $117.2 billion a year before, and ahead of the FactSet consensus, which was for $118.0 billion.

The iPhone was the big upside driver, with sales from the segment increasing to $69.7 billion from $65.8 billion, whereas analysts were calling for $67.6 billion.

Apple generated $20.8 billion in sales from Greater China, down from $23.9 billion a year earlier. Analysts were looking for $23.5 billion.

Declines in China “are likely going to be a huge focus for investors,” Evercore ISI analyst Mark Mahaney wrote in a note to clients.

See also: Amazon posts big earnings growth, and its stock is surging

Management on the earnings call said that iPhone revenue in China fell by mid-single digits on a constant-currency basis, whereas the headline number for overall China revenue showed a 13% decline. That mean “it was the other things that drove the larger contraction year over year,” according to management.

Apple posted a sizable earnings beat for the December quarter, raking in net income of $33.9 billion, or $2.18 a share, up from $30.0 billion, or $1.88 a share, in the year-earlier period. Analysts had been modeling $2.10 in earnings per share.

The company posted a 45.9% gross margin, above the 45.5% consensus view, which Mahaney said likely reflected greater contributions from more expensive iPhones.

Management said that Apple “did very well with our high-end models.” The company expects a 46% to 47% gross margin for the company overall in the March quarter.

Apple’s Mac business generated $7.8 billion in December-quarter revenue, up slightly from $7.7 billion a year ago but a bit behind the FactSet consensus, which was for $7.9 billion. Revenue from iPads sank to $7.0 billion from $9.4 billion, whereas analysts were looking for $7.4 billion.

The company notched $11.9 billion in revenue from its wearables, home and accessories segment, down from $13.5 billion a year before but ahead of the FactSet consensus, which was for $11.3 billion.

Services revenue jumped to $23.1 billion from $20.8 billion, while analysts were modeling $23.3 billion.

Americas sales came in at $50.4 billion, up from $49.3 billion a year before. The FactSet consensus called for $49.6 billion.

The stock is up 24% over 12-month span, as the S&P 500
SPX
has gained 17%.



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