AAPL Announced a Rare Earnings Revision for the Q1 of 2019

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Apple Inc., the USA based multinational technology company that designs, develops, and sells numerous consumer electronics products and computer software has confirmed its earnings date and time on Tuesday 29th January 2019. But before that CEO of the Company has released a letter on January 2, 2019, addressing the investors in respect of a revision of earnings for the Q1 of 2019. Let’s have a look at the revision of forecasting came from the desk of the CEO of AAPL Inc.

  • Revenue of approximately $84 billion
  • Gross margin of approximately 38 percent
  • Operating expenses of approximately $8.7 billion
  • Other income/(expense) of approximately $550 million
  • Tax rate approximately 16.5 percent before the discrete items

Now, let’s look back what Apple previously offered in November 2018.

  • Revenue between $89 billion and $93 billion
  • Gross margin between 38 and 38.5 percent
  • Operating expenses between $8.7 and $8.8 billion
  • Other income/(expense) of $300 million
  • Tax rate approximately 16.5 percent before the discrete items

This is a rare and significant announcement that CEO Tim Cook made before earning date AAPL. CEO added in that letter outlining several reasons to cut down the forecast for the first fiscal quarter of 2019. Knowing this very well that such announcement could impact the investors adversely and resulted in a significant crash in the stock, Tim halted the trading in consultation with the exchange where they are listed 10 minutes before this announcement. CEO Cook also assured that Apple is ‘undertaking and accelerating’ the initiatives to improve its business performances. Cook explained one of such efforts that the Company is processing of trading in an old phone, financial arrangement for purchasing a new phone, and getting support service in transferring the data between the devices. Cook also added that the Company is expecting $130 billion net cash at the end of the Q1 2019 and APPL’s ‘profitability and cash flow generation are strong’. Cook further added that the Company is ‘confident and excited’ to channelize the new product pipeline.

Understanding the Expectations

Sometimes a company can beat the expectation, but do you have ever seen that the stock stumbles because management’s expectation falls short? This happens because the investors give more importance to future earnings than the one which falls in the past. Weak guidance from the management not only lowers the expectation of the investors but loses the confidence also. Before the earnings date, although CEO tried enough to control the damage still the stock price shows a little declination in the market. Different analysts are expecting that revenue and EPS (Earning Per Share) for the March quarter of fiscal 2019 may come down from the earnings expectation that Apple achieved in the same quarter of 2018. If Apple can guide a meaningful larger net income in the coming quarters of fiscal 2019, it can increase the confidence in the investor’s mind to help the stock climb back up again or otherwise the stock may further drop from the present position.

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