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Apple (AAPL) 2nd Quarter Earnings: What to Expect

Can a strong Apple (AAPL) earnings report and confident guidance sustain the stock’s recent bounce from the March lows? Apple shares have risen some 30% since the market bottom and the shares are now off just 5% year to date, compared with a 12% decline for the S&P 500 index.

The company is set to report second quarter fiscal 2020 earnings results after the closing bell Thursday. Due to of production and sales disruptions from the Covid-19 pandemic, Apple pulled its guidance for the quarter on Feb. 17. Wall Street Journal on Monday reported that Apple was “pushing back the production ramp-up of its flagship iPhones coming later this year by about a month.”

That’s notable since Apple’s iPhone sales account for roughly 55% of the company’s 2019 revenue. As such, the iPhone maker has seen a slew of Street downgrades over the last week. Nomura analysts believe Apple’s iPhone 12 “is running four to six weeks behind plan.” The firm last week affirmed its Neutral rating on the stock and $240 price target, calling for a decline of 20% from Wednesday’s close. As it stands, analysts expects adjusted profit and revenue to be down year over year by mid-single-digit percentage points, or about 6% on both metrics.

Bulls, on the other hand, insist that the Street is still underestimating the long-term outlook on iPhone and Services revenue. Apple is more than just a hardware shop. The company last recently announced that its Services, including App Store, Apple Arcade, and iCloud, are now available in 20 more countries. Can the Services business, which has grown to become Apple’s second-largest business, offset the any potential declines in iPhone unit sales?

In the three months that ended March, Wall Street expect the Cupertino, Calif.-based tech giant to earn $2.31 per share on revenue of $55.34 billion. This compares to the year-ago quarter when earnings came to $2.46 per share on revenue of $58.02 billion. For the full year, ending September, earnings are expected to rise 2.8% year over year to $12.23 per share, while full-year revenue of $260.3 billion would be flat year over year.

The projected quarterly revenue of $55.34 billion would be about 13% below the high-end of Apple’s initial guidance that called for between $63 to $67 billion in second quarter revenue. The downward revision is due to an expected 17% decline in iPhone revenue. And this is where the company’s diversified portfolio should kick in, namely wearables and services, which are expected to rise during the quarter by 16% and 13%, respectively. 

Elsewhere, investors will want to hear an update about the company’s prospects in China — its second-largest market. In the first quarter China revenue grew 3% year over year to $13.58 billion. Concerns about supply chain disruptions in the region, as well as extended store closures, is expected to be a headwind during the quarter. Can the Services business, which accounts for roughly 20% of Apple’s overall revenue, offset the expected declines?

Investors on Thursday will also pay close attention to Apple’s guidance, assuming it issues one, along with any coronavirus-focused updates. Another area of focus will be the company’s buyback plan and possible update to its dividend.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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