Apple (AAPL) Earnings Release Q4 2013: Results Exceed Wall Street Expectations

Apple Inc. (NASDAQ:AAPL) announced earnings for its fourth fiscal quarter (third calendar quarter) of 2013 on Monday, reporting $37.5 billion in revenue and $7.5 in profit, or $8.26 per diluted share. Apple also announced it had sold 33.8 million iPhones, a record for the September quarter (compared to 26.9 million in the same quarter a year ago), as well as $14.1 million iPads and 4.6 million Macs.

“We’re pleased to report a strong finish to an amazing year with record fourth quarter revenue, including sales of almost 34 million iPhones,” said Apple CEO Tim Cook. "We’re excited to go into the holidays with our new iPhone 5c and iPhone 5s, iOS 7, the new iPad mini with Retina Display and the incredibly thin and light iPad Air, new MacBook Pros, the radical new Mac Pro, OS X Mavericks and the next generation iWork and iLife apps for OS X and iOS.”

Though quarterly revenue increased thanks in part to Apple's two new iPhones, it was not enough to bolster Apple's profits, as they shrank from $8.2 billion in the year-ago quarter to $7.5 billion in Q4 2013. Sales of the iPhone went up from 26.9 million in Q4 2012 to 33.8 million in Q4 2013, but the iPad was flat year-over-year (14.1 million in sales, but a decline in revenue of 13 percent) and the Mac was down in sales from 4.9 million in Q4 2012 to 4.6 million in Q4 2013.

Apple CFO Peter Oppenheimer originally provided guidance for Q4 2013 in the company’s third quarter earnings report, expecting Q4 2013 revenue to range between $34 billion and 37 billion, but the company updated its outlook in late September after the release of two new iPhone models and iOS 7, saying it expected revenue and gross margin to fall at the high end of its guidance range. Analysts’ consensus figures similarly predicted $36.1 billion in revenue with earnings per share of $7.66, while Thomson Reuters predicted $36.8 billion in revenue on earnings of $11.40 per diluted share. Those predictions from Apple, investors and analysts were only slightly above what Apple had reported in its Q4 2012 earnings, which consisted of $36 billion in sales and $8.67 earnings per share, up from $6.62 billion ($7.05 a share) in Q4 2011.

“We generated $9.9 billion in cash flow from operations and returned an additional $7.8 billion in cash to shareholders through dividends and share repurchases during the September quarter, bringing cumulative payments under our capital return program to $36 billion,” Oppenheimer said in Monday's press release about Q4 2013.

Though Q4 2013 was not expected to be a tremendous quarter for Apple, the company was still expected to release better-than-expected results. By releasing the two new iPhones so late in the September quarter, Apple certainly bolstered its revenue figures for that particular product line, as well as its overall business in Q4. Strong iPhone sales, especially from Apple’s record-breaking launch weekend, also helped the dwindling unit sales of the iPad, which were down double digits percentage-wise in Q3 2013, and again in Q4 2013. Analysts still believed the increase in iPhone sales would help account for roughly half of the company’s total revenue in Q4 2013, while the iPad and Mac were expected to experience small dropoffs in unit sales, which would have been supplemented from the growing iTunes Store.

“We think a faster gross-margin recovery aided by better than expected iPhone unit growth and mix shift could represent upside to our thesis,” Steve Milunovich, managing director at Swiss bank UBS, wrote in an Oct. 18 note. “A distribution agreement with China Mobile and strong developed country interest the iPhone 5s/5c and iOS 7 may help to improve the company’s leverage with current form factors.”

Apple Q4 2013 Earnings Release: Looking Ahead To Q1 2014

In its Q4 2013 earnings report, Oppenheimer also released guidance for Q1 2014: Apple predicts revenue between $55 billion and $58 billion with its gross margin between 36.5 percent and 37.5 percent.

With the new iPhone 5c and scarce iPhone 5s leading the way for quarterly revenue, Apple should rake in monster profits when it announces its December quarter in mid-January; Apple continues to roll out those new iPhones out to new countries each week. The iPhone line does face a cannibalization issue for the first time, but since sales of the more expensive iPhone 5s are outweighing the cheaper iPhone 5c by a significant margin, Apple should enjoy fine profits from its iPhone line in Q1 2014.

As for the iPad, Apple last Tuesday introduced its new iPad lineup, which includes the iPad Air ($499), the iPad mini with Retina display ($399), the iPad 2 ($399), and the first-generation iPad mini ($299). Like the iPhone 5c and iPhone 5s, the cheaper iPad models will likely be less popular than the newer, more expensive models, which should again result in huge profits – that is, unless the cheaper tablets from Amazon or Google have anything to say about that.

“It seems as though Apple is trying to push average selling prices for iPads back up again after they've dropped steadily over the past year,” Jan Dawson, chief analyst at London-based market research firm Ovum, told IBTimes. “Both (the iPad Air and Retina iPad mini) should sell very well, especially over the holiday period, but Apple held off being as disruptive as they might have been by pricing them relatively high.”

Apple will also have a handful of new Macs powered by its new OS X Mavericks platform in Q1 2014, including an updated Retina MacBook Pro line and the redesigned Mac Pro, which hasn’t seen a meaningful update since 2010. The impact of these new computers may slightly improve sales for the following quarter, especially since it falls within the holiday season.

But if Apple needs help improving its share price, maybe it should follow the advice of activist investor Carl Icahn, who has been pushing for Apple to announce a $150 billion stock buyback program, which would let it take on billions of dollars in debt via bond sales and thus be able to purchase its own outstanding shares. It could then report higher earnings per share with fewer outstanding shares. Apple announced a $60 billion buyback program in April, and currently has $44 billion left in its buyback budget after splurging on 36 million shares in the June quarter worth $444 a piece on average.

On Monday, shares of AAPL settled in at about $529 apiece by the time the market closed; AAPL shares started the day at about $525.

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