Apple Q3 Earnings Preview: Testing the Consumer (NASDAQ: AAPL)

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If there’s one earnings report investors should focus on this season, it has to be Apple (NASDAQ: AAPL) In my opinion. The tech giant will report this Thursday afternoon, providing key global consumer insights mindset as well as supply chain issues. With the stock’s significant weight in several major indexes, a significant move thereafter could determine which direction US markets move in the coming weeks.

Investors didn’t like news from three months ago that Apple was facing supply chain constraints that could impact revenue of up to $8 billion for its third fiscal quarter ending in June. We knew China had been shut down for a while due to Covid, but we were hoping Apple’s factory situation was better than that. Unfortunately, the US dollar has also strengthened a bit since the company’s previous report, which will add a headwind to overall sales. In the chart below, you can see key fiscal third quarter results from the previous two years, with key analyst estimates for this year highlighted in yellow.

Apple financial statements for the third quarter of 2020 and the third quarter of 2021

Third quarter key financial data (Apple earnings, analyst estimates)

The numbers analysts are currently looking for show revenue growth of 1.8% year over year and earnings per share falling 11.3%. That means a bit of margin compression, some of which will come from new products like the revamped iPhone SE. The dollar headwind will also ripple through the income statement, and raw material price inflation will likely have impacted gross margins on the hardware side a bit. I think analysts are a bit bearish on the bottom line right now, especially given the company’s earnings history and buyout help, but we’ll see on Thursday.

Looking forward to the current period, which is the fourth quarter of September, investors will be looking to see if the consumer is under pressure around the world. This year’s iPhone launch will be interesting, as the Mini version of the phone is expected to be replaced by a larger-screen non-Pro version. That would mean two 6.1-inch screen models and two 6.7-inch models, as shown in the graphic below. The key issue will therefore be pricing, especially with commodity prices and the dollar up slightly from last year. If Apple’s management makes the new line of smartphones too expensive, consumers can wait to upgrade or trade in to the cheaper SE. There have also been rumors that non-Pro models will get the same chipset as last year’s models, meaning they won’t be upgraded that much.

Currently, analysts expect revenue growth of more than 8% year over year in the fourth quarter of the fiscal year, as well as growth of nearly 5% in the first quarter of December. Much of these growth hopes are due to easing supply chain constraints, so we will have a better idea of ​​total demand in these quarters. There’s one important point I have to make, and that’s that the timing seems to be in Apple’s favor this year. It looks like the December period will be 14 weeks instead of the normal 13, with the last Saturday of that month being New Year’s Eve this year. Apple’s first fiscal quarter ended on Christmas Day last year, so there should be additional sales days during this year’s period and that will impact growth metrics this calendar year and end of 2023.

Perhaps the only good thing about Apple’s recent share price decline is that it can potentially help the company’s stock buyback plan. If we assume that management continued its pace of about $20 billion per quarter, Apple would have been able to repurchase more shares at these lower prices. This will help increase earnings per share over time, while the buyback of more than half a trillion dollars so far has significantly reduced the number of shares outstanding from its adjusted highs. the distribution. While some investors over the years have called for a much larger dividend, Apple has continued to favor buyouts when it comes to return on capital.

Recently, Apple shares have rebounded around $25 from their recent low as markets have become a little less jittery. Still, stocks are nearly $30 off their all-time high, as seen in the chart below. The stock is trying to get back above its 200-day moving average (orange line), but a bad report this week would likely send it back towards 50 days (purple line). If stocks can stay where they are or even rise post-earnings, a 50-day rise could provide support over the next two months, and perhaps even bring the key short-term technical trendline back to its counterpart at longer term.

AAPL Stock Last 6 Month Chart

Apple Last 6 months (Yahoo finance)

With Apple expected to report later this week, investors will have a good idea of ​​how the global consumer is doing. The tech giant’s fiscal third quarter is expected to be pressured by supply chain constraints and a stronger U.S. dollar. Looking ahead, analysts expect growth to accelerate, but that could depend on the price of this year’s iPhone lineup. While the stock is off its highs, it hasn’t been crushed like many other tech names, and the stock is entering profits between two key moving averages.

About Franklin Cheatham

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