Apple dodges bullet with earnings report

CUPERTINO — Apple (AAPL) just dodged a bullet.

After months of mounting concerns over its ability to keep dazzling the world with its products, along with whisper campaigns that CEO Tim Cook is skippering a ship adrift, the company Tuesday announced better-than-expected quarterly results, though its profit fell for the first time in a decade.

Throwing a big bone to grumpy shareholders, Apple also announced that by the end of 2015 it would spend $100 billion of its vast cash reserves to shore up share prices and provide a larger cash dividend to shareholders.

But by the end of Cook’s conference call, one thing was clear: While both battered and blessed, Apple is now adjusting to being a grown-up.

“The implicit message here is that Apple is maturing and that its incredible growth trajectory can’t continue forever,” said John Jackson, an analyst with IDC. Cook “went out of his way to note that Apple has world-beating hardware, software and services. So the message to (Wall Street) is, ‘Stop valuing us on hardware alone. We’re an ecosystem now, and 500 million credit-card relationships with customers is not a bad thing to have.'”

Tuesday’s story was a tale of two Apples: One with a struggling share price, slowing growth and no announced new product on the horizon; the other with billions to give back to investors, along with rosy promises of more mind-blowing innovations to come.

Jackson offered this bit of caution to fanboys eager for their next product fix: “There might not be an Apple TV, or an Apple watch, or mobile payments. And if you don’t see the next game-changing gadget coming, maybe that’s because it’s simply not there.”

Despite once again posting record second-quarter revenue of $43.6 billion, earnings declined from $11.6 billion in the same quarter last year to $9.5 billion, or $10.09 per diluted share.

Apple said its results compare with revenue of $39.2 billion and net profit of $11.6 billion, or $12.30 per diluted share, in the year-ago quarter. The numbers exceeded Wall Street’s forecast. Analysts polled by Thomson Reuters expected Apple to report quarterly profit of $9.98 a share on revenue of $42.3 billion. That would have reflected an 18 percent decline from a year ago.

“We know they didn’t meet everyone’s expectation,” Cook said. “We acknowledge our growth rate has slowed, but we remain very optimistic about our future.”

But emphasizing the positive, Cook in a statement said, “we are pleased to report record March-quarter revenue thanks to continued strong performance of iPhone and iPad. Our teams are hard at work on some amazing new hardware, software and services, and we are very excited about the products in our pipeline.”

Investors are sure to be as conflicted as ever as the dust from the announcement settles in coming days. In a note to investors sent out immediately after the earnings were announced, analyst Amit Daryanani with RBC Capital Markets said investors would interpret the day’s news in one of two ways: They’d either cheer Apple for kicking back a fatter dividend or they’d fret over Apple’s warnings about weakening profits in the future.

Perhaps the sweetest news for shareholders was Apple’s decision to boost its current dividend by 15 percent while pumping up its stock buyback program, both moves that should delight investors who’ve been hounding Apple to share its cash. Initially, that helped push up Apple’s stock in after-hours trading, but it later fell back 0.5 percent from Tuesday’s close.

“Our cash generation remains very strong, with $12.5 billion in cash flow from operations during the quarter and an ending cash balance of $145 billion,” said Peter Oppenheimer, Apple’s chief financial officer.

In a statement, Apple said it “increased its share repurchase authorization to $60 billion from the $10 billion level announced last year. This is the largest single share repurchase authorization in history and is expected to be executed by the end of calendar 2015.”

Additionally, Apple’s board approved a hefty quarterly dividend bump to $3.05 per common share, payable May 16 to shareholders of record as of the close of business on May 13.

It could take weeks to see if the cash giveback will stop the slide of Apple stock, and re-instill faith among investors that Apple, as one analyst put it, has not lost its mojo. According to Bloomberg, 14 analysts had cut their estimates for Apple in the past four weeks, as shares in the world’s most valuable technology company continued their slide from a September record high. In recent months, the bears have moved in aggressively, pushing Apple’s stock down last week to a new 52-week low of $385.10, far below a high of $705.07 in September. Apple stock closed up nearly 2 percent at $406.13.

One closely followed analyst, Tony Sacconaghi with Bernstein Research, said in a pre-announcement note that he was lowering his estimates of iPhone sales even further, expecting Apple to sell 34.2 million of the smartphones, down from his previous estimate of 35.2 million.

Apple blew both those estimates out of the water, selling 37.4 million iPhones in the quarter, compared with 35.1 million in the year-ago quarter. It also sold 19.5 million iPads during the quarter, compared with 11.8 million in the year-ago quarter.

“We feel we have the best products by far and we feel really confident about our product pipeline,” Cook said.

Asked by an analyst if the world must wait until fall to be amazed by the next new Apple product, Cook was his typical cryptic self. “I don’t want to be more specific. We’re just saying we’ve got some real great stuff coming in the fall and across all of 2014.”

Contact Patrick May at 408-920-5689; follow him at Twitter.com/patmaymerc.