Apple's Earnings This Week: 7 Key Metrics To Watch For

Apple is scheduled to report its September quarter results after the market closes on Tuesday, October 27, with the numbers being revealed around 4:30 pm ET. Revenue and EPS will be the first two numbers compared to expectations with iPhone units being a close third. I’ve outlined below four other September quarter metrics that investors will be focused on. (Note that I own Apple shares).

Revenue should come in a bit above the high-end of guidance

Apple guided revenue to be between $49 to $51 billion, which at the mid-point would be growth of 19% year over year. The average sell-side analysts estimate is $51,1 billion (21% growth) and I am forecasting $51.5 billion (22% growth). Keep in mind that the strong dollar impacted June quarter’s revenue growth by about 8 percentage points (and should have a similar impact in the September quarter) and with the iPhone 6s only having two selling days vs. nine last year the upside is less than a year ago when Apple beat revenue guidance by $3.6 billion. Each $1 billion in revenue changes EPS by about $0.035 and if it is iPhone's driving the revenue delta the EPS impact is larger due to its higher margins.

Gross Margin seems to be holding fairly steady

Apple guided gross margin to be between 38.5% and 39.5%, the same range it had given in the previous two quarters. In the March quarter it beat guidance by 1.3 percentage points and in June it beat by 0.2 percentage points.  A year ago gross margin hit the upper end of Apple’s guidance of 38.0%. As always warranty accruals will play into the result with the iPhone 6s and 6s Plus along with the Watch being out for its second quarter. I am projecting gross margin to come in at 39.6% with each 1 percentage point of gross margin delta impacting EPS by $0.06.

EPS should be strong even without a lower share count

When you use Apple’s guidance components you can determine EPS guidance of $1.73 to $1.87. The Streets is at $1.88, Steve Milunovich at UBS is at $2.02 and I am expecting $1.92. At $1.87, the upper end of guidance, EPS growth would be 32% year over year. The lower share count helps EPS by $0.08 and 6 percentage points. The WhisperNumber.com estimate has risen to $1.96 with 12 people submitted projections.

As always iPhone units will be critical

Based upon Apple’s revenue guidance it looks like the company was expecting to sell about 47 million iPhones in the quarter. This of course should be lower than it reports since management would have given itself a bit of a cushion knowing that the iPhone 6s would be launching in September and it is always unknown how many of a new product will sell. There are multiple factors impacting how many iPhones were sold including only having two selling days vs. nine the past few years, what appears to be a slower uptake of the new model 6s’ in some survey data but Gazelle reporting almost a doubling of trade-in requests. It looks like from Fortune’s survey of Apple analysts that the Street is expecting the company to have sold a bit more than 48 million iPhones, up 22% year over year, and I am estimating 49 million, up 25%. Steve Milunovich at UBS is using 50 million in his formal estimate but his survey works shows that upwards of 55 million iPhones may have been sold. Katy Huberty at Morgan Stanley is also at 50 million based upon her survey data.

iPhone ASPs are critical to the bottom line

The iPhone’s ASP (Average Selling Price) has increased by $99 from the June 2014 quarter’s $561 to $660 in the June 2015 quarter driven by the higher priced iPhone 6 and 6 Plus along with more users opting for 64GB memory models. While this metric isn’t called out directly in Apple’s earnings release it is critical since it has such a large impact on the top and bottom lines. Each $10 in ASP changes revenue by about $500 million, which is about $0.02 in EPS. In a recent survey by CIRP (Consumer Intelligence Research Partners) its results point to about a $10 increase in the iPhone’s ASP in the September quarter.

Other products revenue since it includes the Watch

This is a bit of a wildcard since a combination of new Watch orders, catch up shipments from June quarter demand and channel fill will impact Other products revenue. In the June quarter this line item generated $2.64 billion in revenue and I am estimating $3.06 billion for the September quarter. The $3.06 billion is a combination of 3.5 million Watches with an ASP of $475 and $1.4 billion in non-Watch revenue.

Can China keep up its torrid growth rate

Apple’s June quarter China revenue of $13.2 billion (27% of total revenue) increased 112% year over year and I am estimating that it could be $14.5 billion in the September quarter (28% of total revenue) increasing 131% year over year since the iPhone 6s was available at the initial launch (but only two days fell into the quarter). A large portion of my estimate is based on China Mobile having its strongest quarter ever of new 4G users.