“An extremely well-timed currency hedging regimen saved Apple Inc. about 70 cents a share — or $4.1 billion — in earnings during fiscal year 2015, analysts at Stifel said in a note released last week,” Joseph Adinolfi reports for MarketWatch. “Apple expanded its hedging efforts in the second half of 2014, the analysts said, just as the dollar rally was heating up.”
“A comprehensive currency-hedging program is especially important for companies like Apple, which generates about 65% of its revenue outside the U.S. — and about 24% of revenues in China alone,” Adinolfi reports. “Several different financial instruments exist to help companies hedge their currency risk. Companies can lock in a set exchange rate by entering into a forward contract with a currency dealer or entering into a swap agreement with another company. They can also buy currency futures, which are bought and traded on futures exchanges, including the Chicago Mercantile Exchange. Apple’s precise hedging strategy couldn’t be determined.”
Adinolfi reports, “Stifel maintain’s Apple’s shares at a “buy,” with a price target of $150.”
Read more in the full article here.
MacDailyNews Take: Apple CFO Luca Maestri, October 27, 2015:
The guidance that we’re providing for the first quarter that 39% to 40% it actually an incredible level of guidance given the foreign exchange headwinds that we’re dealing with. How do we deal with that? We continue to hedge, so our program continues on an ongoing basis and we will continue to provide some level of protection to foreign exchange movement. In some cases we have realign prices particularly when we launch new products. We tend to do that in a number of countries where the foreign exchange moves have been particularly extreme, and so we tend to recover that through pricing. And then finally, of course we are putting in place a number of cost initiatives that would allow us to deal with the foreign exchange situation. So, overall we feel very strong guidance for the first quarter. And beyond the first quarter as you know we’re not guiding and so we’ll see over the course of the year.
I guess that $4 billion saved will go towards paying back Apple’s massive debt created by the share repurchases. That $4 billion amounts to a drop in a bucket for Apple. They call that strategy saving pennies and throwing away dollars.
You guess incorrectly.
Apple’s repurchasing is more sophisticated than you guess. One key aspect is that the interest on the loans is cheaper than the dividends that would otherwise be paid on the shares that have now been repurchased.
And yesterday’s news reverses this (and then some) because of Morgan Stanley’s “prediction”. Wall Street is a pox on productivity.
http://www.usatoday.com/story/money/markets/2015/12/14/apple-stock-fails-again/77290488/