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Apple’s earnings report was a triple whammy of great news for shareholders.
Investors were clearly impressed by Apple’s results for the first three months of 2014. Shares jumped almost 8% in after-hours trading.
Not only did Apple far exceed analyst expectations, the company also boosted its dividend and share buyback program. Almost overnight, Apple seems to have reversed its reputation for being stingy when it comes to returning capital to shareholders.
After several years of hoarding cash and resisting pressures to pass it along to investors, Apple finally paid a dividend in August 2012. Along with the dividend came a $60 billion share repurchase program.
These measures were a good start. But Apple’s cash pile continued to grow faster than Apple was returning the money to shareholders.
With yesterday’s Apple earnings report it’s clear that company executives are no longer ignoring their responsibility to return this capital to investors.
Apple Earnings Report By The Numbers
Apple reported diluted earnings per share (EPS) of $11.62 compared to analyst estimates of $10.18. The company also destroyed analyst revenue expectations. Apple reported $45.6 billion in revenue compared to analyst estimates of $43.53 billion.
The success is largely attributable to iPhones sales.
Apple sold 43.7 million iPhones, far exceeding estimates that it would only sell 38.2 million. Considering that iPhone accounts for roughly 50% of Apple’s revenue, this is a very good sign for the tech giant.
Gross product margins also exceeded expectations. While analysts were looking for around 38%, Apple reported gross product margin of 39.3%. This makes three consecutive quarters of rising product margins. The decline of Apple’s product margin from the peak in 2012 came shortly before the stock’s fall from grace and I doubt it was a coincidence. On the flip side, strengthening margins are great news and could be an early indicator that the stock will take off in the coming months.
All four of these key metrics showed tremendous strength and that is a good indicator that Apple’s core businesses are alive and well.
Returning Capital to Shareholders
Though Apple has already spent $46 billion repurchasing its own stock and has paid out $18.4 billion in dividends, it still sits on over $150 billion in cash. It’s time for Apple to return that cash to shareholders.
Yesterday, Apple increased its dividend by 8%. The company also boosted its stock repurchase program by 50%.
Apple’s $90 billion share buyback program is the largest ever. In fact if Apple’s share repurchase program was a separate company it would be among the largest 100 companies in the world.
The Triple Whammy
The triple whammy is finished off by a 7:1 stock split.
Apple announced the split yesterday along with its quarterly earnings release. As of yesterday’s close around $525, that would price each share around $75. Not only is that much more psychologically manageable for individual investors, it may also pave the way for Apple to be included in the Dow Jones Industrial Average.
Though the split doesn’t change the actual value of the company, stock splits have been known to renew interest in a company when individual shares grow too expensive for retail investors.
By attracting the individual investor back to Apple stock, Apple is likely fueling the next leg of the stock’s appreciation.
Apple Earnings Report: The Bottom Line
Apple destroyed analyst expectations for key metrics like revenue, earnings per share, iPhones sold and gross product margin. But the positive news doesn’t end there. Apple’s expansion of and new commitment to shareholder-friendly practices will attract a wider range of investors.
Apple boosted its buyback program and dividend significantly. And by indicating that it plans to raise its dividend each year, dividend growth investors will be attracted to the stock like never before.
Combined with the upcoming 7:1 stock split, this is easily Apple’s most exciting earnings report in years.
Honestly, it’s been rough owning Apple over the past year or so. With weak investor sentiment and no new products the stock has been largely anemic.
Today is one of those days that makes patience and sticking to an investment thesis worthwhile.
DISCLOSURE: I personally own shares of Apple.
The One Stock to Own in 2014 — The Year Mobile Takes Over
On Dec. 31, something incredible happened. For the first time in history, the majority of Internet traffic originated from NOT from PCs or desktops — but from mobile devices including smartphones and tablets. We’re never going back. Mobile is taking over. And even though the biggest player in mobile, Apple, is selling over 200 million iPhones this year alone… here at Wyatt Research, we’re recommending the one company no one is taking about. The one reaping massive profits each time a new Apple or Samsung smartphone is activated. In fact, as mobile data usage explodes in the year ahead, its stock is set to soar! Shares are already on the move. So, before this stock moves any higher, read our latest report for all the details: Click here for the full story.