Apple (AAPL 3.32%) beat Wall Street expectations for its third quarter of fiscal 2022 (the three months ended June 25). Revenue was $82.96 billion (vs. $82.97 billion estimated, don’t worry about a $10 million shortfall) and earnings per share were $1.20 (beating consensus of $1.16 among analysts).
Apple has been a bulwark this year. Stocks have rebounded in recent months and are only down 13% so far in 2022, which isn’t bad for a bear market. Other tech giants have said in recent weeks that consumer electronics (smartphones included) is heading for a big chill in the second half of this year. It also seems to be impacting Apple in some areas, but the flagship iPhone segment is bucking the trend and holding its own. Is Apple stock and its premium price a buy at this point?
Overcome multiple headwinds in spring
First, let’s recognize that Apple’s overall results have been impressive considering the issues it faces around the world. Supply chains are a mess (especially when it comes to chip shortages) and limit the supply of certain devices.
A strong US dollar also reduces the value of international revenues, Apple no longer does business in Russia, and ongoing COVID-19 lockdowns (such as in Asia) reduce household demand for discretionary products. Considering all that, the overall year-over-year revenue increase of 2% isn’t too much of a concern. Earnings per share fell 7.7% year-on-year as profit margins suffered slightly.
Apple acknowledged that things could improve, confirming comments from other tech companies about weakening consumer demand for certain types of products and continued supply chain weakness affecting the ability to deliver a product. finished where consumer demand is still strong. The sales of iPads, watches and Macs in the last quarter bear witness to this.
Apple product segment | Revenue for the 3rd quarter of the 2022 financial year | Increase (decrease) year over year |
|---|---|---|
iPhone | $40.7 billion | 2.8% |
Mac | $7.38 billion | (ten%) |
iPad | $7.22 billion | (2%) |
Wearables, home and accessories | $8.08 billion | (7.9%) |
Services | $19.6 billion | 12% |
Data source: Apple. YOY = year after year.
The iPhone holds its own, though. In fact, just a day before Apple’s report, the mobile chip giant Qualcomm (QCOM -1.74%) – which is a leading vendor of Android phones – said it expects full-year smartphone unit sales to now decline by a mid-single digit percentage per year. compared to 2021. As far as Apple CEO Tim Cook and company are concerned, there is no observable low consumer impact on the iPhone. The upgrade to 5G-enabled phones isn’t as strong as it was a year or two ago, but all indications are that global adoption of the 5G iPhone is still going strong.
In particular, the iPhone is doing well in emerging markets where there is very little Apple presence currently. And while some device sales were weak last quarter, Apple reported that its total user base worldwide has grown, contributing to the continued expansion of its higher-margin “services” business. .
A downturn may linger, but focus on the long term
Overall, the third quarter was good for Apple shareholders. The outlook for the final months of the company’s 2022 fiscal year wasn’t particularly exciting, but did contain some positive news. Cook and management see further headwinds due to the strength of the US dollar against foreign currencies. However, revenue is expected to accelerate further compared to the quarter just ended.
Gross margins could be reduced to a range of 41.5% to 42.5% (compared to the 43.3% just announced), but that’s not the end of the world either. Apple sees value in its own stock, so it continues to buy back stock ($65 billion in the three months to June alone). This continued activity should help mitigate declining profit margins and the resulting pressure on earnings per share.
After the report, Apple shares are trading at just under 24 times trailing 12-month free cash flow. It’s a high-priced stock, especially for a company that isn’t growing much these days. But Apple is a well-oiled machine that can continue to deliver strong financial results even in tough times. If you’re looking for fast-growing stocks, this isn’t it. But if you want consistent returns over time, Apple stocks are still a great company to build a portfolio.
Nicholas Rossolillo and his clients hold positions at Apple and Qualcomm. The Motley Fool holds positions and recommends Apple and Qualcomm. The Motley Fool recommends the following options: long calls $120 in March 2023 on Apple and short calls $130 in March 2023 on Apple. The Motley Fool has a disclosure policy.